Comments on Case C‑413/14 P, Intel: presumptions, effects-based analysis and open questions
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!
Chillin'Competition 
What are your views on para 142-3 (copied below) – isn’t it a bit of cop out to argue “the Commission made its bed, so now the General Court has to lie in it”. The judgement thus dodges the question of principle, as to whether the design of the conduct per se if sufficient to provide proof of capacity. I think that’s rather poor given it was a main pillar of the Commission’s case.
“142 In this case, while the Commission emphasised, in the decision at issue, that the rebates at issue were by their very nature capable of restricting competition such that an analysis of all the circumstances of the case and, in particular, an AEC test were not necessary in order to find an abuse of a dominant position (see, inter alia, paragraphs 925 and 1760 of that decision), it nevertheless carried out an in-depth examination of those circumstances, setting out, in paragraphs 1002 to 1576 of that decision, a very detailed analysis of the AEC test, which led it to conclude, in paragraphs 1574 and 1575 of that decision, that an as efficient competitor would have had to offer prices which would not have been viable and that, accordingly, the rebate scheme at issue was capable of having foreclosure effects on such a competitor.
143 It follows that, in the decision at issue, the AEC test played an important role in the Commission’s assessment of whether the rebate scheme at issue was capable of having foreclosure effects on as efficient competitors.”
David Foster
6 September 2017 at 11:58 am
That’s what I was thinking too. It almost seems to be telling the Commission not to make its object decisions look like effects decisions, while reserving judgement on the merits of the analysis.
martinned
6 September 2017 at 1:17 pm
Hi! Thanks to both. A question for the two of you; what do you make of para 138? Does it not mean that the Commission does not have the discretion to examine effects? Is the relevant question not whether the undertaking has claimed that the practice is not capable of having effects, as opposed to whether the Commission has chosen to examine the effects? I look forward to your thoughts.
Pablo Ibanez Colomo
6 September 2017 at 1:25 pm
I think I agree with your original post on that one. I think par. 138 contemplates a system of rebuttable presumptions/shifting burdens of proof even during the administrative procedure, whereby the Commission might start with a relatively off-the-shelf presumption that certain behaviour is capable of restricting competition (communicated in the SO or before somehow?), followed by the dominant company rebutting that presumption (at some standard of proof) and the Commission shifting to a more effects-based analysis (if necessary in an SSO first). I suppose something similar goes for the possibility of objective justification (par. 140).
But in this case the ECJ did not say that Intel actually succeeded in rebutting any presumptions during the administrative procedure. Instead, the court observes that the Commission carried out an extensive analysis of the circumstances of the specific case, and relied on that analysis. Since this analysis was not obiter, Intel should have been allowed to challenge it in the General Court.
Another question: Who exactly must further clarify the case law on all of this? (Par. 138.) Is that an instruction for the General Court, an instruction to a future ECJ chamber, or simply a rhetorical device pointing to the explanation in par. 139?
martinned
6 September 2017 at 4:40 pm
Good point. I read paras 142-143 in the same way. The Court is suggesting that the Commission got it right, but that the GC erred in law by excluding the capability assessment (and in particular the AEC test) from the substantive analysis.
Who will clarify? There are so many issues to clarify! I can think of many scenarios: some will reach the ECJ through direct actions, some will reach it via preliminary references
Pablo Ibanez Colomo
6 September 2017 at 5:03 pm
So 138 says the Commission must do a capacity assessment if the dominant firm claims its conduct was incapable of having an effect. But really that seems to me to be of no help on future cases. It’s clear from 142/3 that in this specific case the capacity test = any evidence the Commission wrote up in the Decision. But what about the next case? What evidence is sufficient for a capacity test then? Leaves the Commission without amazingly clear guidance. Of course economists will push for an effects based test. And sure, evidence of actual effect is a fortiori evidence of capability of effect. But logically their must something short of actual effect that equals “capable of effect”.
David Foster
6 September 2017 at 5:50 pm
@David: as I explain in the post, we do not know yet. Give me a few days and I will try to make sense of some of these issues!
Pablo Ibanez Colomo
6 September 2017 at 6:01 pm
🙂
David Foster
6 September 2017 at 6:04 pm
It looks to me as if the ability to foreclose the as efficient competitor is to be treated as part of the substantive test (once the defendant raises an issue about effect, where it appears to be for the defendant to challenge the presumption with evidence in order to get to effects).
See para 141 which is talking about Objective Justification but which suggests that the test for abuse is one which includes an assesment of its impact on as efficient competitors : “That balancing of the favourable and unfavourable effects of the practice in question on competition can be carried out in the Commision’s decisoin only after an analysis of the intrinsic capacity of that practice to foreclose competitors which are at least as effeicient as the dominant undertaking”
Pat treacy
6 September 2017 at 2:12 pm
With all the respect, let me just say that I personally (I stress the “personally”) believe that the judgment is much simpler than your analysis suggests, though I respect your views a lot.
For me, the key paragraph is 136, where the Court clearly considers this as a “pricing practice”. And for the avoidance of any doubt, it adds the reference to “competition by means of price”. Then, the Court says that the test is PD I and the AEC test applies. Already, we have here a very important principle that brushes aside Intel (GC) and PD II (which is not cited).
Then, paragraph 137 states the (we would say, formalistic) case law and paragraph 138 includes the text that encapsulates the reversal: “However, that case law must be further clarified…”. In reality this is reminiscent of the Keck & Mithouard “volte face” (para. 14). Of course, this applies IF the dominant company submits “supporting evidence”. But this is a no-brainer. It goes without saying that a dominant company and its advisors WILL provide such evidence. So I would not make any inferences from these two paragraphs about presumptions, “object” cases, etc. Object cases in rebates are dead after this judgment.
And by the way, the Court nowhere speaks about categories of rebates. That’s all gone. If for simplicity we must refer to categories, then there are two: a) volume-based incremental generalized rebates which are essentially per se lawful and b) all other rebates for which the Court instructs us now that we need to apply an AEC test, like we do for pricing abuses.
The substance ends in paragraph 140. Meanwhile, in 139 and 140 the Court stresses again the necessity of the AEC test. The rest (para 141 et seq) is just referring to the review exercised by the ECJ to the GC’s handling of the Commission decision.
Finally, I stress that this is a GRAND CHAMBER judgment that is here to stay in the future. The shortness of the judgment precisely means that we are in front of a judgment of principle.
Makis Komninos
6 September 2017 at 5:04 pm
Evxaristo poly, Makis! I look forward to discussing all of this on Friday. As you see from my post, my reading is more nuanced, but on the important issues, I think we see eye to eye
Pablo Ibanez Colomo
6 September 2017 at 5:27 pm
A very lively discussion and a great read, I might say worthy of the glossators and commentators in the golden ages of Roman law:) Two short comments:
– “by object/presumption” (Pablo): In my eyes, the judgment does not shorten the divide between Arts 101 and 102 but rather widens it and shows how things work differently in the two worlds. If in Art 102 you work by “simply presuming anti-competitive harm”, which can then be as simply rebutted, then it is a very soft world of law and economics going to be mixed against each other. However, if you have more precise and strict legal categories such as the by object / by effect infringement in Article 101, then you will have a much tougher job refuting the existence of a by object infringement. And it is settled case-law that you do not need any discussion of effects in a by object case (see the General Court’s now defunct Intel decision): so yes, for a price fixing cartel you do not need to discuss the issue whether effects materialised or not. Now you can try to equate “capability” (article 102) and “legal / economic context” (article 101) – and indeed there could be a lot of similarities in terms of the economic background – but on the cold level of the law even the words do not appear to match…:) Look at the test of “capability” in para 119: market shares, condition, duration, amount of rebates: if you have to check all these nitty-gritty issues in each and every case, no price-fixing cartel would ever get caught…:(
– “a judgment of principle” (Makis): if so many smart people are having a tough time making a real sense of the judgment, then I would suggest that in fact we see a result of a compromise of great many debates among the court’s judges (as opposed to a well-formulated and structured principle). What a different understanding we would have if the judges could have their own say like in the SCOTUS!
Asimo
6 September 2017 at 10:13 pm
Few quick thoughts:
– ‘Capability’ applies in ‘by object’ restrictions both in Article 101 and 102 TFEU. I am sure you remember T-Mobile, para 31, where the Court endorsed the standard of capability. That is the ‘cold level of the law’, to use your expression. And the words do match! That, in fact, is the whole point.
– I am also sure you do not deny the principle of Murphy, which gives the parties to a prima facie ‘by object’ infringement the chance to show that the agreement is not capable of having restricting effects. The Court now makes clear that the same applies in Article 102 TFEU.
– Nobody is suggesting that evidence of effects is necessary in the case of a price-fixing cartel: I even write that it would make no sense.
Thanks for your loyalty 😉 to the blog. And stay tuned!
Pablo Ibanez Colomo
7 September 2017 at 7:53 am
Thanks! I still beg to differ: my point is that if capability (as meant by the court in Intel for Art 102!) would be applied for Art 101 as well, it would open a “can of worms” for antitrust authorities by making it impossible for them to prosecute hardcore / per se infringements. This would be a retrn to the short lived world of the Allianz case in Art 101,where it appeared that you need to run at least a half-blown economic analysis of the case to prove you found a by object infringement.
To clarify: we fully agree that based on T-Mobile, Murphy,Allianz,Irish Beef,etc there is the possibility of a party to show the absence of object based on legal/economic context,however:
– this can only entail a limited and exceptional possibility(Cartes Bancaires),this aspect is nowhere mentioned in Intel,and
– there is a clear and established differentiation between object and effect in Art 101,which the court could have expressly cited and relied on in Intel: it did not do so (even though it was happy to make express analogies like with Post Danmark),
– capability in T-Mobile had a differnet thrust,in fact,precisely to show the teeth of cartel law to even apply for a one time info exchange and to say that no effects need to to be established as conduct “must simply (!) be capable” to produce effect (argumentatio ad absurdum for Art 102: can refuting an AEC test ever be simple?:)))
I would tend to agree with Mr Mundt’s statement at the conference where we now both sit;) – Intel is more a message to the General Court rather than to the Commission or the wider world…
Asimo
8 September 2017 at 11:11 am
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