Steady as Art 102 Goes …

The Court handed down its judgment in Case C-23/14 Post Danmark today. The judgment itself is not particularly surprising, in that it largely follows previous judgments of the Court in earlier Art 102 cases. The main feature of note is what the Court didn’t do: it again declined an opportunity to either follow or discredit the so-called ‘more economic approach’ to the abuse of a dominant position.

The case involves a rebate scheme operated in relation to bulk mail by Post Danmark, the Danish State monopoly provider of certain mail services in Denmark. The case followed a complaint by the Norwegian State mail company who had attempted to enter the Danish market but withdrew after making heavy losses. The commercial bulk mail sector is only partially, 70%, covered by the protected monopoly and competition could occur on the 30% of the overall market which related to mail items above 50g in weight. Post Danmark operated a conditional rebate scheme on the volume of all bulk mail sent by each customer over a reference period of one year. The rebates were standardised, with all customers offered the same rebates, from 6% to 16%. In practice the customer concluded a contract at the beginning of the reference period on the basis of estimated quantities of mail, and retrospective adjustments were made at the end of the reference period to ensure the correct rebate was applied to all the mail within the reference period.

In its analysis of the rebate scheme in question the CJEU reiterated the position it took in classic cases like Michelin, BA, and Tomra. The scheme was not simply a quantity rebate as it was not granted in relation to the quantity of each order, as it was aggregated over the reference period, but nor was it a naked loyalty rebate as it was not made in reference to the proportion of supplies from any customer [28]. In that case the CJEU state, at [29], that:

in order to determine whether the undertaking in a dominant position has abused that position by applying a rebate scheme such as that at issue in the main proceedings, the Court has repeatedly held that it is necessary to consider all the circumstances, particularly the criteria and rules governing the grant of the rebate, and to investigate whether, in providing an advantage not based on any economic service justifying it, the rebate tends to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties or to strengthen the dominant position by distorting competition.

The CJEU was clearly nervous about the impact of retroactive rebates applied at the end of a lengthy reverence period as relatively modest variations towards the end of the period have a disproportionate ‘suction effect’ and can result in significant losses across the whole period. The CJEU argued:

[35] … such a rebate scheme is capable of making it easier for the dominant undertaking to tie its own customers to itself and attract the customers of its competitors, and thus to secure the suction to itself of the part of demand subject to competition on the relevant market. That suction effect is further enhanced by the fact that, in the case in the main proceedings, the rebates applied without distinction both to the contestable part of demand and to the non-contestable part of demand.

This reflects the fact that 70% of bulk mail sent in Denmark was subject to the Post Danmark’s monopoly, and the calculation of volumes for discount purposes covered both that ‘non-contestable’ market as well as the other 30%, the ‘contestable market’, in which competition was possible. If a mailer used another supplier in the contestable sector, they would lose discount on the 70% of the mail that they were obliged to send through Post Danmark. In these circumstances Post Danmark was an ‘unavoidable trading partner’ and it was very difficult for competitors to outbid it [40].

The CJEU also made reference to the fact the standardised rebate scheme was not discriminatory, or targeted at particular customers. However, the fact that it was not discriminatory did not stop it being abusive [37]-[38]. That being said a discriminatory or targeted rebate system is much more likely to be seen as abusive.

The referring court also asked the CJEU to clarify the importance of the ‘as efficient competitor test’ as used in the Commission Guidance on Enforcement Priorities. The CJEU noted that the document sets out the Commission approach and is not binding on NCAs or the courts, and while the CJEU has used the test in some areas, e.g,. predatory pricing and margin squeeze, it is not necessary to support the finding that a retroactive rebate scheme is abusive. While it was not necessary to make such a finding, it did not exclude recourse to the test ‘on principle’ [58]. The Court also noted that a market where 70% of mail was subject to a statutory monopoly, made the ‘emergence of an as efficient competitor practically impossible’ [59]. The test should simply be regarded as ‘one tool amongst others’ in relation to Art 102 TFEU [60].

The final issue raised in the reference was the need for appreciability under Art 102 TFEU. The CJEU stressed the conduct much have an ‘actual or likely exclusionary effect, to the detriment of competition and, thereby, of consumers’ interests’ [69]. On that basis they stated that ‘fixing an appreciability (de minimis) threshold for the purposes of determining whether there is an abuse of a dominant position is not justified’ [73]. It is only necessary that a probable effect is shown.

Conclusions

As my good friend and competition co-conspirator, Prof Barry Rodger, put it, ‘What’s the Danish for “plus ça change?”’

There’s no dramatic shift here. The ‘more economic’ approach to Art 102 is neither adopted or rejected, the CJEU is still holding a hard line on retroactive rebates with long reference periods and undertakings with high market shares and/or protected positions. The final point on appreciability is probably the part of the judgment which brings a little more clarity, even if it is not radical in any meaningful way.

Update:

There’s now an excellent analysis of the Case by Pablo over at Chillin’ Competition:
http://chillingcompetition.com/2015/10/06/case-c%E2%80%912314-post-danmark-as-v-konkurrenceradet-first-thoughts-on-the-judgment/