Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

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

with 4 comments

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

4 Responses

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  1. Thank you for the very interesting thought. I completely agree that consistency should be the favoured path, especially when considering that in the current environment it is not entirely clear what would constitute continuity. In the light of Post Danmark II, I suspect that the Court might attempt to restrict the object box, in line with its approach under 101.

    Mart

    8 July 2016 at 5:26 pm

  2. Hi Pablo,

    I have been following your posts and articles with great interest. I am currently writing my thesis on Article 102 TFEU case law. I’ve come across you mentioning “legal inconsistencies” a lot. Could you explain where exactly you see those? In Article 102 TFEU case law or also taking into account the greater picture and considering Art. 101 TFEU as well?

    It seems to me, that, compared to a lot of other authors, you do not see the current “problem” and discussions evolving from two opposing opinions on how to deal with Art. 102 TFEU (form-based/effects-based approach) but rather as a question of legal consistency and even far less as a question of an applied “more economic approach” ? Am I correct assuming that?

    Looking forward to reading your thoughts on this.

    Sophie

    17 July 2016 at 8:28 pm

    • Hi Sophie,

      Thank you very much for your comment!

      You may want to take a look at this article, which has just come out in the Common Market Law Review: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2755656 . I analyse the legal inconsistencies that exist in the case law (both in the context of Article 102 TFEU and across provisions).

      My view is that legal inconsistencies are inevitable — perhaps necessary — in a field like EU competition law. However, I believe it is important to identify and address the inconsistencies to preserve the integrity of the system and ensure legal certainty. As you rightly say, it is not about economics (or a ‘more economic approach’), it is mostly about law.

      Think about these inconsistencies:

      – Tying under Article 102 TFEU and Microsoft/Skype: If the logic of Article 102 TFEU (on tying) had been applied to Microsoft/Skype, the merger would have been prohibited. The Commission rightly concluded that the merger was ‘capable’ of foreclosing competition. However, this is not enough in merger control, and Microsoft/Skype was cleared without conditions.

      – Standardised vs loyalty rebates in Article 102 TFEU: As I explained in the blog post, standardised and loyalty rebates are not treated in the same way in the case law. Effects are required for the former but not for the latter. The latter are indeed prohibited ‘by object’. There appears to be no valid reason to treat the two differently. This is something that the Commission acknowledged in the Guidance.

      – Exclusive dealing under Articles 101 and 102 TFEU: An example to which I refer frequently. Why is exclusive dealing abusive by object under Article 102 TFEU but not restrictive by object under Article 101 TFEU? Again, it is difficult to think of a compelling reason. If evidence of effects was required in Post Danmark I and II, TeliaSonera and Deutsche Telekom. why not in the case of exclusive dealing?

      As you see, the ‘form-based’ vs ‘effects-based’ framework is misleading. Some commentators assume that all of Article 102 TFEU case law is ‘form-based’, which is not true. Judgments like Post Danmark II and II and TeliaSonera are clearly ‘effects-based’. Thus the question, against this background, is whether the application of a ‘by object’ approach to other practices makes sense as a matter of law (and economics) and leads to consistent outcomes

      Pablo Ibanez Colomo

      18 July 2016 at 3:33 pm

      • Hi Pablo,

        thank you very much for your reply and referring me to your article. I found it very enlightening. I agree with you that there are certain inconsistencies in the case law and I am trying to address those in my thesis. What strikes me the most (just like you say, it is an example you like to refer to as well), is the inconsistency across provisions when it comes to applying Art. 101 TFEU (Delimitis and related case law in particular). In my opinion, repeadly referring to the already lessened competition on the market due to the presence of a dominant firm and its special responsibilty cannot justify a contradicting approch of that kind in those matters. Nonetheless I find it difficult to identify an approach that addresses the inconsistencies and at the same time entails legal certainty and justiciablity.

        Refering to the example of tying, would you say that price-related practices and non-price related practices have to follow the same logic in their assesment?

        From your point of view, is there any justification for an “by object” approach or would you rather see an effects-based approach applied in all matters?

        Sophie

        19 July 2016 at 3:35 pm


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