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Archive for September 6th, 2017

More questions (and some answers) on, and beyond, Intel (C-413/14 P)

with 2 comments

m4nrehat

The best, and quickest, Intel comment by the most preeminent academic of his generation –who also happens to be my co-blogger- already contains the keys to understand and make sense out of the very essence of today’s CJEU (Grand Chamber) Judgment in Intel (see the preceding post). In what follows I add my two cents on another set of issues raised by the Judgment. Read the rest of this entry »

Written by Alfonso Lamadrid

6 September 2017 at 5:43 pm

Posted in Uncategorized

Comments on Case C‑413/14 P, Intel: presumptions, effects-based analysis and open questions

with 15 comments

Intel Reports Quarterly Earnings

There was a lot of hype about the appeal judgment in Intel. It proved to be justified. The Court of Justice has set aside the ruling of the GC, and it has done so on the issues that have proved to be more controversial in the past few years: the question of whether, and to what extent, it is necessary to evaluate the effects of a system of loyalty rebates on competition.

Other grounds of appeal, including the territoriality question and the rights of defence, were rejected by the Court.

I will focus on the meaty stuff – Alfonso will jump in later and add his thoughts.

Does the judgment change the law?

Not really. The principle whereby exclusive dealing and loyalty rebates are prima facie abusive (or ‘by object’) stands (see para 137). What is new(ish) then? Well, the Court now clarifies that it is possible for a dominant firm to rebut the presumption that the rebate scheme is ‘capable’ of restricting competition. See para. 138: ‘that case-law [Hoffmann-La Roche and others] must be further clarified in the case where the undertaking concerned submits, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects’.

The Court makes explicit that anticompetitive harm is simply presumed in exclusive dealing and loyalty rebate cases. Accordingly, where supporting evidence is produced, the Commission must take seriously any arguments showing that the practice is not capable of having effects on competition.

Revolution? No. More of a desirable clarification, which makes a lot of sense.

Think of restrictions by object under Article 101(1) TFEU. In that context, the parties can also show that an agreement is not capable of having restrictive effects on competition, and therefore escape the prohibition (see for instance Murphy, paras 140 and 143). Does it mean that the Commission needs to show that the agreement has effects? No, it means that the parties can show that the practice cannot have effects. We now know that the same principle applies in Article 102 TFEU.

The Court’s clarification is welcome. A good legal system applies the same basic principles across the board. In EU competition law, it is now clear beyond doubt that ‘by object’ practices (read: those practices that are prima facie prohibited without the need to show effects) are treated in the same way under Articles 101 and 102 TFEU.

Efficiency counts in Article 102 TFEU, also in rebate cases: a welcome end to a controversy

We already knew from the Post Danmark saga – well, even from AKZO – that Article 102 TFEU is not inimical to efficiency considerations. On the contrary. The Court had already declared that the exclusion of less efficient rivals is a natural consequence of the competitive process, and therefore not attributable to the behaviour of the dominant firm.

The Intel judgment reiterates these principles and, by doing so, it gives them an aura of generality that is welcome for our understanding of Article 102 TFEU. In para 133, the Court holds that ‘it must be borne in mind that it is in no way the purpose of Article 102 TFEU to prevent an undertaking from acquiring, on its own merits, the dominant position on a market. Nor does that provision seek to ensure that competitors less efficient than the undertaking with the dominant position should remain on the market’.

It goes on in para 134, where the Court holds that ‘not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation’.

However, the most important bit comes in para 139. Post Danmark I and AKZO were about aggressive pricing. Do efficiency considerations count in rebate cases, where the concern is about distribution and access to outlets? They do. The judgment is crystal clear in this regard: when assessing the capability of harm, the Commission is ‘also acquired [sic, I assume it means required] to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market’.

This declaration was very important: I read it with relief. Saying that efficiency considerations are relevant only in one area of Article 102 TFEU but not in other areas seemed indefensible.

One important implication of the judgment: it is clear from AKZO and Post Danmark I that a practice is not capable of having exclusionary effects if it does not require equally efficient rivals to sell below cost. It follows, I would say, that a rebate scheme that does not force equally efficient rivals to sell below cost is prima facie compatible with Article 102 TFEU.

Open question: what is capability? How is the threshold of capability met?

The crucial part of the judgment (paras 129-147) is carefully crafted. Every word counts and is in the right place.

One aspect that I note is that the Court only uses the word ‘capability’. The open question then is: what is capability? Is it the same as likelihood? Is the meaning a different one? If the Commission needs to assess the capability of harm, does it mean that the tripartite division between loyalty, quantity and ‘third category’ rebates will disappear in practice?

We do not seem to have clear answers in the judgment. This said, it is not necessarily bad that the Court leaves the issue open.

On this point (capability vs likelihood), I happen to agree with the Commission submission in the case: capability and likelihood are not synonymous. They mean different things, and it would make little sense to give the same meaning to the two. The line between ‘by object’ and ‘by effect’ infringements (or between loyalty and ‘third category’ rebates) would otherwise become completely blurred. And this is not what the Court is declaring. Para 137 suggests that the tripartite division stands as a matter of principle.

The threshold of capability applies to ‘by object’ infringements, where harm is presumed (this is true of both Articles 101 and 102 TFEU). The threshold of likelihood, which is higher, applies to ‘by effect’ cases, where harm needs to be established on a case-by-case basis. To distinguish between the two: think of T-Mobile (by object, capability), and Delimitis (by effect, likelihood).

My views on the question: the assessment of capability is not and cannot be as detailed as the analysis found in ‘by effect’ cases. But capability plays a role! Just think of Post Danmark I. I discussed the difference between the two thresholds in Oxford back in June. Check my PPT here.

I am sure there will be a lot of commentary on this question in the coming months. All I can say for the time being is that, if I understand it correctly, what the Court has done makes a lot of sense. And that I will try to tease out its meaning and implications. Stay tuned, and let me know your thoughts!

 

Written by Pablo Ibanez Colomo

6 September 2017 at 10:52 am

Posted in Uncategorized