Chillin'Competition

Apologies for the long post, but I have several remarks to add to my former post under Tomra v. Commission:

• Priority-setting – As most of you know, this judgment confirmed a Commission Decision of 2006, in which Tomra, a producer of reverse vending machines used for recycling, had been found guilty of abusive conduct under Article 102 TFEU. The abusive practices consisted in a system of exclusivity agreements, quantity commitments and last but not least individualised retroactive rebate schemes. The Commission slapped a €24 millions on Tomra. Albeit small in nominal value as compared to other cases, this represents the largest fine ever in turnover proportion, in an Article 102 TFEU case. This is clearly significant, given that Tomra is only the 57th largest company in Norway. At our lunch talk two weeks ago, Alan Ryan compared Tomra to “an SME”. From an enforcement-priority perspective, the question arises as to why the Commission decided to go after a case that looks very local in nature, and that involves a relatively narrow market. A plausible answer is that having been faced with outraged scholarly comments after Michelin I, II and British Airways, the Commission sought to develop a new approach to abusive rebates through a “test case”. On substantive grounds, this new approach had been articulated in papers written by F. Maier Rigaud and others. It was furthered in the 2005 Discussion paper and paved the way to the Guidance Communication on Enforcement priorities. Back in the day, Commission officials even talked of a “textbook” rebates case. It was followed by the hard-hitting decision in Intel. For more on this, see here.
• The Role of Intent – The GC’s ruling confirms that intent-related evidence is admissible evidence in abuse of dominance cases (§§33-40). In my opinion, the GC is right on this one. There is indeed a place for intent-related evidence in the effects-based era. Internal documents and other empirically observable facts (aggressive acquisition/litigation strategies) are instrumental when it comes to articulating a theory of harm (a scenario of anticompetitive conduct). That said, intent-related evidence must not, and should not suffice to reach a finding of abuse (as Posner made clear in the US Olympia case). This is probably what the judges sought to recall in holding that “they are just merely relevant facts that put the applicants’ practices in context, but have no impact on the finding of an infringement” (§40) (but this is latter contradicted at §215).
• Forms-based Arguments – A large proportion of the judgment is devoted to the examination of arguments (§§88-197) whereby the parties challenged the Commission’s qualitification of the impugned practices as “retroactive” rebates schemes or even as “agreements“. Given the remarkable stability of the case-law on this (i.e. the formal qualification of the practice is irrelevant, de facto exclusivity is a cause of concern), I found the discussion old-fashioned and I am not sure this was the strongest litigation argument developped by the applicants.
• Likely Anticompetitive Effects – The applicants argued that the Commission had unlawfully focused on the “content” of the agreements, and not on their economic “context” to prove likely anticompetitive effects (§200). The Court disagrees with the argument on factual grounds (§217). It observes additionally that the Commission had also sought to bring evidence of actual anticompetitive effects, even if this was not requested under the case-law (§219). Finally, it seems to blame the parties for failure to articulate an efficiency defense (§224). I have searched for some wording on counterfactual analysis… Nothing. In contrast, the Court alludes in passing to the “suction effect” which was THE key concept of the “more economic approach” in the area of rebates (§218).
• The Test for Anticompetitive Rebates – This is probably one of the least satisfactory aspects of the judgment. One of the main merits of the Discussion Paper and of the Guidance Communication was to devise a clear, logical test for rebates (the so-called “implied predation test”). Against this background, the applicant argued that the Commission had not implemented a rigorous quantitative price-costs analysis (§§247-249) and, in particular, had not shown that Tomra’s prices were capable of being negative. The GC ruling wholly dismisses such arguments (with the limited exception of §267). Not unlike in a box-ticking exercise, the GC seems to consider that it is possible to assess a rebate scheme’s exclusionary potential on the basis of a range of qualitative considerations, such as whether the rebate (i) is retroactive ; (ii) individualised; and (iii) applied to large customers. This approach shares very many analogies with the nefarious “checklist” methodology followed in merger control until 2004.
• Actual Anticompetitive Effects – The most worrying part of the ruling can be found under §§286-290. In its decision, the Commission scrutinized the actual effects of Tomra’s practices on the market. The Commission found amongst other things that the higher the tied market share, the more stable Tomra’s market share, and the weaker its competitors. In addition, the Commission found that Tomra’s prices did not fall, despite the rebates. Finally, the Commission considered that the bankruptcy of Prokent, one of Tomra’s rivals, supported its finding of anticompetitive effects. The applicants challenged those findings, arguing on the facts that most of the Commission’s analysis was false, and empirically contradicted by other pieces of market-based evidence. Moreover, Prokent left the market when the alleged anticompetitive practices ceased. The answer of the GC on this is remarkably straightforward: I cannot care less. The Commission was arguably under no legal obligation to scrutinize actual effects. The fact that the Commission went further than requested cannot be held against its decision, even if it is wrong and that a proper “actual effects” analysis would contradict its findings of likely anticompetitive effects. In the Court’s view, the examination of actual effects is complementary and optional (§288). This is because, irrespective of actual effects, there can be an abuse as long as the impugned conduct is “capable” of restricting competition. In practice, this case-law deprives dominant firms from the ability to challenge the “actual effects” analysis of the Commission to escape a finding of abuse. The only circumstance where such a defense would work involves decisions where the Commission would take an Article 102 TFEU decision solely on the basis of an “actual effects” analysis, and would not test the “likely effects” of the impugned practice. Given the low evidentiary threshold to bring proof of likely effects, such decisions are unlikely to be frequent (see our comment above).