Chillin'Competition

When reading the General Court’s renvoi judgment in Intel, I immediately thought that the annulment of the Commission decision is, above all, a reliable sign that the European Union has an effective competition law system. If administrative action were never quashed, it would mean either that the authority is too risk-averse (and therefore that there is insufficient enforcement across the board) or that judicial review is overly deferential (and therefore that there are insufficient checks in the system).

In this particular instance, moreover, it is difficult to see how, in spite of the inevitable footballising takes (‘upset’, ‘big win’, ‘blow’), the outcome represents anything other than a victory for EU competition law and policy.

It is true that the original decision was annulled. It is also true, on the other hand, that the judgment shows (just like the Court’s ruling on appeal) that the law is in line with the Commission’s enforcement priorities as outlined in the Guidance Paper and with the economic consensus (which has long emphasised that anticompetitive effects are not an inevitable outcome of exclusive dealing and conditional rebates). The institutional setup has delivered a legal outcome that comes a step closer to the optimum.

Some may retort that the case has taken too long and may even go as far as to suggest that the length of the proceedings (the original decision was adopted when I was still working on my PhD) is a sign of dysfunction in the system. I struggle to agree with this take.

The pace of law is not, and should never be, the pace of policy. The law, as interpreted by the Court of Justice, evolves slowly and incrementally. Those in favour of moving fast and breaking things may find it frustrating. In my view, however, the cautious process that characterises the EU legal order is a manifestation of the ‘Union of law’ and as such an effective check against arbitrary whims (it is also superior, for many of us, to a system based on administrative discretion).

The renvoi judgment: the implementation of an ‘arrêt cadre‘

As I have mentioned a number of times before, the Court’s 2017 judgment in Intel is an arrêt cadre: it was confined to providing a set of principles to be fleshed out when engaging with the facts in a particular economic and legal context. Because the judgment was relatively brief, it opened the door to some speculation about its exact meaning. This week’s ruling clarifies a few crucial points:

First (para 124), the ‘by object’ status of exclusive dealing and loyalty rebates is based on a presumption that these practices are capable of restricting competition (that is, of foreclosing equally efficient rivals). This presumption can be rebutted by a dominant undertaking. As a result, the Commission had erred in law by arguing that it was not necessary to evaluate the rebates’ capability to foreclose competition (para 145).

Second (para 165), where the Commission’s case is based on the ‘supposition’ that the behaviour under consideration cannot be explained on grounds other than the restriction of competition, the decision will necessarily be annulled where the dominant undertaking provides evidence casting the facts in a different light. This point is particularly important in relation to ‘by object’ abuses (unsurprisingly, para 165 cites two Article 101 TFEU cases).

Third (paras 119 and 125), the evaluation of the foreclosure effects of the rebate scheme must be based on all five criteria identified by the Court of Justice in para 139 of its judgment, namely: (i) the extent of the dominant position; (ii) the coverage of the practice; (iii) the conditions and arrangements for the award of the rebates; (iv) the length and amount of the latter; (v) and the existence of an exclusionary strategy.

Fourth, the ‘as efficient competitor’ test is not an indispensable ingredient of the analysis (para 126). However, such test will be a relevant factor where the Commission has carried it out as part of its assessment of the foreclosure effects of the rebate scheme.

One is tempted to add that, in practice, the ‘as efficient competitor’ test will feature prominently. As the General Court explains in paras 152-159, this test may show that an equally efficient rival would be able to match the dominant firm’s prices and is therefore likely to be advanced by any dominant firm in a case involving conditional rebates.

The assessment of anticompetitive effects is a meaningful one

A fundamental lesson to draw from this renvoi judgment is that the assessment of anticompetitive effects in EU competition law is a meaningful one. It is not a formality. What is more, merely showing that rivals are placed at a disadvantage is clearly insufficient to establish actual or potential foreclosure to the requisite legal standard.

If you read the various sections devoted to each individual scheme, you will see the detail into which the assessment goes. The additional factors need to be robust enough to cast doubt on the prima facie findings resulting from the ‘as efficient competitor’ test. Similarly, the nature and operation of the rebates will be subject to a detailed analysis.

More generally, the judgment confirms the importance of the coverage of the practice to evaluate its impact. In this regard, it notes that the contested decision failed to determine this factor (para 499), which would place the said decision at odds with the Court’s judgment in Intel and, importantly, with the Commission’s own Guidance Paper.

Final thoughts

It would be very difficult to argue that the many lessons to draw from the renvoi judgment apply exclusively to rebate schemes. Some points are relevant across the board, and certainly beyond price-based conduct. This is obviously true of the factors in light of which actual or potential foreclosure is assessed. For instance, it would be difficult to credibly claim that the coverage and/or the nature of the practices would not play a role non-price-based cases.

The possibility for firms to provide evidence showing that a practice can be explained on grounds other than the restriction of competition is also obviously applicable across the board. This point would be of particular relevance in relation to the so-called ‘naked restraints’ in Intel. These restraints were assumed to have an anticompetitive object. However, they always seemed to me like exclusivity obligations by another name, and thus capable of being rationalised on pro-competitive grounds.

I very much look forward to your comments (as always, nothing to disclose). Have a wonderful weekend!