The first Post Danmark  case in 2012 [1] brought about a modest antitrust revolution on Article 102 applicable to discrimination.  Rarefied economic concepts were confirmed.  Price discrimination as a standalone abuse was all but confined to a historical footnote in antitrust textbooks, to be replaced by a predation type test.   Article 102 was ripe for overhaul and Post Danmark provided the vehicle.

THE ECONOMIC TEST AT STAKE…

Commentators expecting the same much-needed revamp of Article 102 rebates case law from the sequel, Post Danmark II, will be disappointed.  At stake was the Commission’s much vaunted Article 102 Enforcement Priorities Guidance approach to rebates.  This advocated a hard nosed economic approach.  If smaller rivals could match a dominant company’s rebate scheme by staying above that company’s cost – after adjusting it to take account of the small rival’s much lower volume of sales (known as the “contestable share”)- then antitrust should not intervene.  That was aggressive price competition, and should be encouraged by all companies, big and small.  This “as efficient competitor” or AEC test was the corner stone of the Priorities Guidance approach to rebates.

Field trials of the Commission’s guidelines ended in disappointment and acrimony as the Commission was accused of misapplying or disregarding its new economic theories in Tomra[2] and Intel[3]  Even though national authorities and courts seemed keen to apply the new theories.[4]

…AND THE COURT’S RESPONSE

So the scene was set for Post Danmark II  for the Court to consider the Priorities Guidance, and finally offer clarity.  The result is a damp squib:

The Court confirms that three types of rebate scheme exist  (i) exclusivity, or near exclusivity, rebates which are generally illegal; (ii) quantity related rebates reflective of cost savings (a near impossible category); and (iii) “third category” rebate schemes which have to be analysed in the round.  This categorisation is proposed by the lower Court in Intel, and now has the higher court’s blessing.

  • The Post Danmark II scheme fell into the third category and failed the “in the round test”.  As Post Danmark was a statutory monopolist as to 70% of the market, with an overall market share of 95% and a single rival (with 5% share), the application of a (modestly) aggressive retroactive rebate scheme, covering most major customers, meant that there were sufficient indicators of exclusion.
  • That being the case, there was no need to apply the Priorities Guidance.  Indeed to do so would be counterproductive.  Given the statutory monopoly, it was highly unlikely that a rival would ever be able to make the same infrastructure investments to enter at the scale, and corresponding cost economies, of Danish Post.  The cost structures of a small entrant and incumbent legal monopolist would never be comparable.
  • The Priorities Guidance remains a tool – but only one of many – with which to consider exclusion.  But an in-the-round assessment did not require its use, particularly on facts such as these.
  • The Court states there is no de minimis threshold for abuse.  But, nonetheless, competition authorities must demonstrate that a rebate scheme is at least likely to produce exclusionary effects.  This offers, perhaps, a chink for a backdoor de minimis test, since the Court states that “the number of customers concerned” by the rebate scheme will be a necessary part of assessing its likely effects.

Counselling Implications

So the Priorities Guidance survive.  But they remain just that, Guidance, not law.  While authorities will wish to use them to add economic rigour to their assessments,  there is no obligation on them to do so.  The Commission may be bound to use them as a first filter for its case load, while they are still in place, but will be able to depart from them where circumstances, such as these, make them inapposite.

Counselling on rebate schemes using the Guidance gives some regulatory comfort to companies that at least Guidance-compliant schemes are not EU enforcement priorities.  But there remains a risk that national courts or agencies may differ in approach.   Practitioners cannot just focus on the mathematical niceties of margins and contestable share under the Guidance. They also need to ask the bigger picture questions: barriers to entry, relative size of competitors, dynamics of competition in the sector.  In highly regulated sectors, particularly those with state monopolist incumbents, a rebate scheme should expect much greater scrutiny.

The Post Danmark II case is available here