Chillin'Competition

The big news today is the release of AG Wahl’s Opinion in Intel. The Advocate General proposes to set aside the first instance judgment in the case and to refer the case back to the General Court. In any event, the opinion was awaited not so much for the issues specific to the case, but for its position in relation to the legal treatment of exclusive dealing and loyalty rebates. In this regard, the Opinion suggests that an analysis of the likely effects of these practices is necessary to apply Article 102 TFEU. This first reaction focuses on this question.

Beyond the specifics of the case, this opinion would, if followed, be a victory for all involved: first and foremost, for legal consistency; secondly, for the Commission, which sees the remarkable efforts undertaken in the past decade validated; and finally for dominant firms, which would be subject to a more predictable framework. Indeed, AG Wahl places much emphasis on the issue of legal certainty.

Towards legal consistency

The virtue of the opinion, in my view, is that it focuses on the issues that matter, and this, from a legal perspective. AG Wahl cuts to the chase and shows why the legal treatment of exclusive dealing and loyalty rebates has simply become very difficult to sustain. For reasons of legal certainty and consistency, the view that exclusive dealing and loyalty rebates are abusive by their very nature is a source of frictions that had to be addressed sooner or later.

AG Wahl’s analysis of Hoffmann-La Roche

In Hoffmann-La Roche the Court of Justice held, in paras 89-90, that exclusive dealing and loyalty rebates are by object infringements. The prohibition in that case was deemed to apply, inter alia, to ‘discounts conditional on the customer’s obtaining all or most of its requirements – whether the quantity of its purchases be large or small – from the undertaking in a dominant position’.

AG Wahl reads Hoffmann-La Roche beyond paras 89-90 and comes to the conclusion that there is some tension between what the Court said and actually did. On the one hand, it held that loyalty rebates are restrictive by object. On the other, it examined carefully the rebate scheme applied by Roche. It is therefore difficult to say that the Court did not engage in an analysis of ‘all the circumstances’ (see paras 65-72 of the Opinion). Subsequent case law, including Michelin I and British Airways, also carefully assessed ‘all the circumstances’.

In his analysis, AG Wahl conveys a very important point: the existing categorisation of rebate schemes (‘loyalty’, ‘loyalty-inducing’, ‘exclusivity’) is somewhat artificial (see for instance para 100: ‘the difference between the rebates at issue in Tomra and Hoffmann-La Roche is one of degree rather than kind’).

For better or worse, business realities do not fit into neatly defined pigeon holes. As a result, there is a mismatch between the theory of the case law and the actual practice of the EU courts and the Commission.

Would it not be better to adjust the law so that it reflects business realities and the actual analysis performed in individual cases, asks AG Wahl?

Loyalty rebates and legal consistency

In line with consensus positions, the Opinion concludes that rebate schemes, irrespective of their form, appear to be comparable in their nature, purpose and potential effects (see para 93: ‘there is no objective reason why [loyalty rebates] should receive a stricter treatment than those falling under category 3’).

As a corollary, the qualification of loyalty rebates as a category akin to a restriction of competition by object (para 82) seems difficult to sustain. An assessment of ‘all the circumstances’ appears to be necessary in all cases involving rebate schemes.

In order to determine whether a practice is restrictive by object, it is necessary to consider whether there is ‘any other plausible explanation for that conduct’ (para 82). This assessment involves an evaluation of the particular context of the rebate (ibid). In fact, the analysis of the economic and legal context of a practice knows no exceptions in the case law, and applies both to potential restrictions by object and by effect.

As explained by AG Wahl, the prohibition of a rebate scheme on the basis of its form alone – and thus without evaluating the economic and legal context – seems to be at odds with the case law (paras 86-88). If the qualification of a practice as restrictive by object does not consider the relevant context it would rule out, from the outset, other plausible explanations for the conduct.

Ruling out other ‘plausible explanations’ for loyalty rebates is problematic because, as the GC conceded in its analysis in Intel, such schemes are capable of having beneficial effects on competition (para 91 of the Opinion). On the other hand, functionally equivalent rebate practices are capable of having the same anticompetitive effects, even though they are not formally conditional upon exclusivity (para 92).

As in Cartes Bancaires, AG Wahl draws insights from economic analysis. He explains that contemporary economic literature shows that the anticompetitive effects of loyalty rebates and exclusivity are context-dependent (para 94). As a result, such effects cannot be assumed to be an inevitable consequence of the implementation of the practice, and require a case-by-case assessment.

Towards legal certainty

A unified framework for the assessment of anticompetitive effects

The analysis of AG Wahl goes beyond loyalty rebates. He examines the case law on ‘margin squeeze’ and selective price cuts (Post Danmark I) and concludes that there is no persuasive reason why the analysis of effects should be different depending on the practice at stake.

I see para 103 as the one raising the critical issue, perhaps of the whole opinion: ‘It goes without saying that it is of the utmost importance that legal tests applied to one category of conduct are coherent with those applied to comparable practices. Sound and coherent legal categorisation benefits not only undertakings in terms of increased legal certainty, but also assists competition authorities in the enforcement of competition law. Arbitrary categorisation does not’.

AG Wahl proposes something that is only sensible. The analytical framework that applies to potentially abusive practices should be a unified one. The assessment of ‘all the circumstances’ in rebate cases should not be conceptually different from the assessment of exclusionary effects in ‘margin squeeze’ and, say, selective price cut cases. By the same token, the test that applies to standardised rebates (Post Danmark II) should be the same that applies to other rebate schemes (para 105).

I would simply add to the opinion that it would also make sense to apply the same framework to restrictive agreements within the meaning of Article 101 TFEU and to potentially abusive practices within the meaning of Article 102 TFEU. This point is implicit in these passages. The criteria that AG Wahl identifies are similar, if not the same, as the factors set out in cases like Delimitis.

How to assess the exclusionary effects of potentially abusive practices?

The Opinion provides a complete framework for the analysis of exclusionary effects under Article 102 TFEU. It is consistent with widely accepted views about how such effects must be evaluated.

• Threshold of effects (paras 112-121): The opinion is consistent with the most recent case law (Post Danmark II) in that it holds that, when assessing the effects of potentially abusive practices, it is necessary to show that such effects are likely (and thus not merely possible, or plausible). However, he seems to disagree with AG Kokott about the meaning of likelihood. For AG Kokott, likelihood means a probability of more than 50% (‘more likely than not’). For AG Wahl, the probability should be higher.
• Coverage of the practice (paras 137-146): This is one of the factors explicitly mentioned by the Court in Post Danmark II.
• Duration (paras 147-157): it is only natural to take into consideration the duration of an agreement when examining whether it is likely to lead to foreclosure. Unsurprisingly, this is a factor to which the Court referred explicitly in Delimitis.
• Market performance of the competitor and declining prices (paras 158-160): According to AG Wahl, the evolution of the position of the competitor – and of prices – is not conclusive, but is a factor to consider among others. I am ready to guess that most commentators will agree.
• The AEC test (paras 161-172): the Opinion is consistent with Post Danmark II. Absent the particular circumstances of that case, the AEC test is one factor, among others, to evaluate the impact of a practice on competition. It is not a surprise that the Commission, together with other authorities, has decided to rely upon it to define its enforcement priorities. In this sense, the Opinion validates the use of contemporary tools .

The rest of the judgment examines the application of these principles to the case at hand – in addition to procedural issues that are by definition specific to the case. Veteran readers know that I do not have a particular interest in the outcome of individual cases. Plus, there is little that I would add to Alfonso’s excellent analysis below!