On 21 May 2015, Advocate General Kokott issued her Opinion on the request for a preliminary ruling by Denmark’s Maritime and Commercial Court (Danish Sø- og Handelsret) before the EU Court of Justice, which raised issues about the proper assessment of certain rebate schemes under Article 82 EC (now Article 102 TFEU).
Recognition of broader importance of Opinion
At the outset of her Opinion, Advocate General Kokott noted that the issues raised “are particularly important at a time when there are mounting calls for European competition law to adopt a more economic approach”. The Advocate General seemed somewhat dismissive about such calls, however, as she cautioned the Court against being unduly influenced by “current thinking (‘Zeitgeist’) or ephemeral trends”.
The Advocate General also highlighted that the proceedings had relevance for other cases, specifically referencing the Intel case now pending before the EU Court of Justice.
Assessment of rebate schemes generally
With respect to the legal issues raised by the case, the Advocate General’s Opinion began by stating that the legal test to be applied to rebates under Article 82 EC was simply whether “the dominant undertaking grants rebates which are capable of producing on the relevant market an exclusionary effect which is not economically justified (that is to say, by the passing-on of a cost saving to customers)”. This, in turn, required examination of “all the relevant circumstances of the individual case”.
Notably, the Advocate General concluded that this test applied equally to all rebate schemes, making it “ultimately immaterial whether the scheme can be assigned to a traditional category of rebate (in particular, quantity rebates or loyalty rebates)”. This would seem to constitute a clear rejection of the approach applied by the General Court in Intel, where the Court identified three categories of rebates and concluded that for one of these categories, i.e., fidelity rebates within the meaning of Hoffmann-La Roche, there was no need to analyse the circumstances of the case to establish a potential foreclosure effect (see VBB on Competition Law, Volume 2014, No. 6, available at www.vbb.com).
As regards the issue of which circumstances are relevant to the assessment of rebates under Article 82, Advocate General Kokott noted that it would be impossible to provide a universally applicable exhaustive list. Nevertheless, the Advocate General noted that it was “possible, in the light of the facts of the main proceedings as described in the order for reference, to provide the referring court with some useful guidance that should make it easier for it to reach its decision”.
Particular relevance of the criteria and rules regarding the rebate scheme
Advocate General Kokott first noted that it is settled case-law that the criteria and rules regarding the rebate scheme are particularly relevant to its assessment under Article 82 EC. In this regard, the Advocate General noted that Post Danmark’s rebates were retroactive, and thus created a “suction effect” because even relatively modest variations on orders placed could have disproportionate effects.
The Advocate General also signified that the level of the rebate and the duration of the reference period were relevant facts and circumstances to be taken into account, noting that the suction effect of Post Danmark’s rebates became proportionately stronger because the rebates (ranging from 6 to 16%) were “comparatively high”, and the reference period (one year) was “relatively long”. The Advocate General further noted that the suction effect was increased still further by the fact that the rebates applied equally to both the contestable and non-contestable part of demand (Post Danmark had a statutory monopoly on the distribution of letters that were used to calculate the rebate level).
The Advocate General also made note of some criteria and rules which were not particularly relevant for this assessment. First, the fact that the rebates were standardised, and not individualised, was not relevant to whether the rebate scheme was actually capable of producing exclusionary effects (although this may be relevant to assessing whether it is discriminatory). Second, the absence of “below cost” pricing by the dominant firm was also irrelevant to this assessment.
Conditions of competition prevailing on the relevant market
Advocate General Kokott also noted that the conditions of competition were relevant to the assessment. This was because “the stronger the dominant undertaking is on the relevant market and the weaker the position is of its current or potential competitors”, any anti-competitive exclusionary effect will be all the more likely and significant.
By the same token, the Advocate General acknowledged that, as a number of parties to the proceedings “rightly” pointed out, the fact that the rebate scheme “covers a substantial number of customers and a large part of the contestable demand of the market” may mean that its actual or potential exclusionary effects are more serious. That said, however, the Advocate General also concluded that the number of customers concerned was “irrelevant to the legal assessment of those rebates under Article 82 EC”.
The Advocate General appears to be drawing a very fine distinction between facts and circumstances that: (i) make anti-competitive exclusionary effects more likely to occur (and thus which are relevant to the finding of an abuse); and (ii) those that simply make (existing) anti-competitive exclusionary effects more serious (which are not relevant to the finding of an abuse). Such a distinction appears unprincipled. For example, a rebate scheme applied by a particularly strong dominant undertaking to only some of its customers would seem much less likely to actually foreclose competitors than would a rebate scheme applied by a less strong but still dominant undertaking to all of its customers. Thus, the number of customers potentially foreclosed would seem to have at least equal relevance to the existence of likely exclusionary effects as would the position of the dominant undertaking.
In addition to the relative position of the dominant undertaking and its current or potential competitors, the Advocate General also identified other market factors as relevant, such as high economies of scale and high barriers to entry. However, it is questionable that such factors can add much to an assessment that is already preconditioned as to the existence of a dominant position.
Irrelevant facts and circumstances
The Advocate General’s Opinion also identified a number of factors that were treated as irrelevant to the assessment of the legality of rebate schemes, or at least those of which such relevance may change depending on whether they support (or not) the finding of an abuse:
- First, the Advocate General noted that the absence of an exclusionary intent was not relevant, as abuse of dominance is an objective concept. On the other hand, however, the Advocate General concluded that the existence of such intent can be relevant if it establishes an abuse.
- Second, the Advocate General concluded that the absence of a price/cost analysis (such as the as-efficient-competitor test) was not relevant. On the other hand, however, the Advocate General concluded that the existence of such an analysis may be relevant when attempting to establish an abuse (and acknowledged that that may be necessary in cases of pricing practices other than rebates), at least where it is not impossible for another undertaking to be as efficient as the dominant undertaking. The Advocate General did not consider, however, whether the Commission could ignore the results of any price/cost analysis that it actually carried out (an issue that is relevant to the Intel appeal).
- Finally, it is interesting to note that the Advocate General did not place any particular emphasis on the fact that customers benefited from lower prices under the rebate scheme throughout the year based on order expectations, and thus had to reimburse Post Danmark if the actual volume of purchases fell below their forecast. In British Gypsum, the Commission appeared to indicate that such a feature could be relevant to the assessment of rebates under Article 82 EC.
Conclusion
In conclusion, the Advocate General recommended that the Court answer all of the questions referred by the Danish Sø- og Handelsret as follows:
- A rebate scheme operated by a dominant undertaking constitutes abuse within the meaning of Article 82 EC where an overall assessment of all the circumstances of the individual case shows that the rebates are capable of producing an economically unjustified exclusionary effect – it being important to take into account in that regard, in particular, the criteria and rules governing: the grant of the rebate; the conditions of competition prevailing on the relevant market; and the position of the dominant undertaking on that market.
- Article 82 EC does not require the abusive nature of the rebate scheme operated by a dominant undertaking to be demonstrated by means of a price/cost analysis such as the as-efficient-competitor test, where its abusive nature is immediately shown by an overall assessment of the other circumstances of the individual case.
However, the authorities and courts dealing with competition cases are at liberty to avail themselves of a price/cost analysis in their overall assessment of all the circumstances of the individual case, unless, on account of the structure of the market, it would be impossible for another undertaking to be as efficient as the dominant undertaking.
Aside from the requirement that a rebate scheme operated by a dominant undertaking must have an actual or potential adverse effect on trade between Member States, the exclusionary effect that may be produced by such a scheme does not have to exceed any form of appreciability (de minimis) threshold in order to be classified as abuse within the meaning of Article 82 EC. It is sufficient for the presence of such an exclusionary effect to be more likely than its absence.
