On 6 October 2015, the Court of Justice of the EU ("CJEU") handed down its ruling in Post Danmark II, providing guidance on how to assess the legality of rebate schemes under EU competition rules. In response to a preliminary reference by a Danish court, the CJEU ruled that:
- In order to determine whether a rebate scheme implemented by a dominant undertaking is abusive, all the circumstances of the case should be examined, including the rules for granting the rebates, the extent of the dominant position, and the conditions of competition on the relevant market.
- The application of the as-efficient-competitor test does not constitute a necessary condition for a finding of abuse. The as-efficient-competitor test, i.e. whether the conduct complained of could foreclose the market to a competitor at least as efficient as the dominant undertaking, is merely one tool amongst others to assess whether there is an abuse.
- In order for there to be a finding of abuse, whilst the anti-competitive effect of a rebate scheme operated by a dominant undertaking must be probable, there is no need to show that it is of a serious or appreciable nature.
This is the second time in recent years that Post Danmark has been the subject of a preliminary ruling clarifying the application of Article 102 TFEU. In 2012, the CJEU handed down its preliminary ruling in Post Danmark I which clarified the application of Article 102 TFEU to discriminatory pricing.
In 2009, the Danish competition authority found that Post Danmark had abused its dominant position on the Danish bulk mail market by operating a rebate scheme for direct advertising mail.
The Danish authority considered Post Danmark to hold a unique position on the market, with a 95% market share at the relevant time. From 2007 onwards, Bring Citymail Danmark offered a bulk mail service in competition with Post Danmark in Copenhagen and the surrounding area. It was Post Danmark's only serious competitor, but in early 2010, heavy losses led it to withdraw from the market.
Post Danmark's rebate scheme began in 2003. The rebates, which amounted to a discount of between 6% and 16% on normal postage, were standardised and offered to all customers on the same publicly available terms. The reference period in all cases was one year. At the beginning of each reference year the price payable by each customer was provisionally determined by reference to the volume which that customer was expected to post during that year. At the end of the reference year, all prices were retroactively adjusted, according to the volume of mail actually sent for that customer during the year. Any customer could obtain a higher level of rebate by posting higher volumes, but there was no requirement that it should use Post Danmark for a given proportion of its mailings in order to qualify for a rebate.
The Danish competition authority took the view that the application of the rebate scheme was an abuse of dominance: because of the way in which rebates were granted, customers were tied to Post Danmark and the bulk mail market had thus been foreclosed to competitors such as Bring Citymail.
The Danish appellate court referred a number of questions to the CJEU, including:
- The criteria to be applied in determining whether a rebate scheme is abusive, including the relevance of the fact that the rebate scheme applies to the majority of customers on the market.
- The relevance of the as-efficient-competitor test in determining whether a rebate scheme is abusive.
- Whether a finding of abuse requires the anti-competitive effect to be probable and serious or appreciable.
2. The CJEU's judgment
The CJEU confirmed that pure volume rebates are not, in principle, abusive. But the rebate scheme operated by Post Danmark could not be regarded as a pure volume rebate, since the rebates were granted on the basis of the aggregate orders placed over a given period, and did not relate to volume-related cost savings made by the supplier. On the other hand, the rebate scheme could also not be classified as a loyalty rebate scheme of the kind considered in Michelin or Tomrabecause there was no obligation on purchasers to obtain all or a given proportion of their requirements from Post Danmark.
The CJEU held that in cases such as this, it is necessary to consider all the circumstances, particularly the criteria and rules governing the grant of the rebate. It was relevant in this case that the rebates were retroactive and operated in aggregate. The reference period of one year was considered "relatively long" and having the effect of increasing the pressure on the buyer to reach the purchase figure needed to obtain the discount. The CJEU held that 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.
The CJEU also held that it was necessary to consider the extent of the dominant position and the conditions of competition on the relevant market. Post Danmark's very high market share (> 95%) and unique geographical coverage, as well as the high barriers to market entry were all considered relevant factors.
In respect of the relevance of the fact that a rebate scheme applies to the majority of customers on the market, the CJEU held that this fact does not, in itself, constitute evidence of abusive conduct. But it may be a useful indication of the extent of the practice and its impact on the market, which may bear on the likelihood of an anti-competitive exclusionary effect.
In terms of the relevance of the as-efficient-competitor test, the CJEU noted that whilst in some cases the test is a useful tool to assess whether there is an abuse, in this case (where the dominant company has a very large market share and has a number of structural advantages by virtue of its previous statutory monopoly), the as-efficient-competitor test is of no relevance, as the structure of the market makes the emergence of an as-efficient-competitor practically impossible.
Finally, the CJEU held that whilst the anti-competitive effect of a rebate scheme operated by a dominant undertaking must be probable and not purely hypothetical, there was no need to show that the anti-competitive effect was of a serious or appreciable nature.
Post Danmark II is the second key ruling on rebates by the European courts within the space of 15 months. In June 2014, the General Court issued its judgment in Intel's appeal against the EU Commission decision imposing a €1.06 billion fine for having operated an anti-competitive rebate scheme (now on appeal to the CJEU).
In Intel, the General Court draws a distinction between:
- Quantity rebates which are linked solely to the volume of purchases and reflect the lower costs of supply as a result of efficiencies and economies of scale. Such pure quantity rebates are generally not considered to have foreclosure effects;
- Exclusivity rebates, which are by their very nature capable of restricting competition; and
- Other rebates, which have a fidelity-inducing effect (such as the retroactive quantity rebates applied in Post Danmark II), which need to be examined on a case by case basis, taking into account all the circumstances of the case.
The General Court in Intel also concludes that in assessing the third category of "other rebates", it is not essential to carry out an as-efficient-competitor analysis.
Post Danmark II does not rule out this type of effects based analysis in respect of this type of rebate. But the latest ruling does cast further doubt on the relevance and utility of the as-efficient-competitor test and the consistency of the European Commission's Article 102 Enforcement Priorities Guidance with the decisional practice of the CJEU. Indeed, in paragraph 60 the CJEU goes as far as saying that in certain circumstances a less efficient competitor is preferable to no competition and requires the protection of Article 102.
It is worth recalling that this is a case in which the Advocate-General prefaced her opinion by saying that "the Court should not allow itself to be influenced so much by current thinking ("Zeitgeist") or ephemeral trends". This ruling suggests the Court heeded her call and the judgment may yet prove controversial.