On April 19, 2012, the European Court of Justice ("ECJ") delivered its Judgment in Tomra Systems & Ors v Commission,[1] rejecting all five of Tomra's grounds of appeal following the Judgment of the General Court in Tomra Systems & Ors v Commission.[2] The General Court had held that the European Commission ("Commission") was correct in finding that Tomra had abused its dominant position under Article 102 TFEU through its use of exclusivity provisions, quantity commitments and retroactive rebates.

In rejecting Tomra's appeal in its entirety, the ECJ held that the General Court had not committed any errors of law in its review of the Commission's findings on the existence of an anti-competitive intent to foreclose competition on the relevant market, nor had it committed any procedural irregularities in its review of the Commission's Decision. 

By upholding the General Court's Judgment, the ECJ appears to concur that it is not necessary to establish the negative economic effects of potentially abusive practices, such as whether the average effective price that an efficient competitor would need to offer in order to match a dominant firm is above or below cost, where other evidence indicates that the conduct is capable of excluding competition. This position stands in marked contrast to the "economic effects" methodology endorsed by the Commission in its 2009 Guidance Paper,[3] in which it describes its move towards a more economics-based, rather than purely form-based, approach in the assessment of exclusionary abusive conduct. 

Since publishing its 2009 Guidance Paper, the Commission has oft repeated that its review of a dominant firm's pricing will focus on whether the conduct harms the "competitive process" through the foreclosure of efficient rivals, and that it will also review the dominant firm's claims of efficiency (among other alleged legitimate business justifications for its conduct). By contrast, in refusing Tomra's appeal, the ECJ did not see fit to consider these factors. In doing so, its approach signals a clear deference to the Commission's traditional, pre-2009 form-based approach and reflects a discord between the analysis undertaken by the European Courts, on the one hand, and the Commission's more recent approach when assessing exclusionary conduct, on the other.

Moreover, the Judgment of the ECJ in Tomra stands in marked contrast with its very recent Judgment in Post Danmark in relation to a predatory pricing action. In Post Danmark,[4] a Grand Chamber of the ECJ required a Danish judge to apply the "as-efficient-competitor-test" -- a test similar to that which was rejected by the Court and the ECJ in Tomra -- and to take into account all relevant circumstances in assessing whether the relevant pricing practices were anti-competitive.

Background In March 2006, the Commission found that Tomra, a Norwegian producer of Reverse Vending Machines ("RVMs"), had abused its dominant position over the period 1998-2002 by implementing exclusionary strategies in various national RVM markets that involved the use of exclusivity agreements, individualised quantity commitments and individualised retroactive rebate schemes. According to the Commission's Decision, these strategies had anti-competitive objects and/or effects.

In February 2009, the Commission published a Guidance Paper on its enforcement priorities in applying Article 102 TFEU to abusive exclusionary conduct, which sets out the principles which will guide the Commission in deciding whether to intervene in cases of alleged abusive exclusionary conduct.

In September 2010, in delivering its first Judgment in an Article 102 TFEU case since the publication of the 2009 Guidance Paper, the General Court upheld the Commission's Decision, accepting its line of reasoning in two major respects: first, in relation to the general treatment of retroactive rebates and their design; and second, as regards the extent of the potentially foreclosing conduct and its relevance to the theory of harm used by the Commission to assess whether the impugned conduct is anti-competitive.

In November 2010, Tomra appealed the General Court's Judgment to the ECJ, arguing that the General Court had committed five errors of law relating to:

  1. its review of the Commission's findings on the anti-competitive intention to foreclose competition on the market;
  2. its failure to provide adequate reasoning with regard to the portion of total demand which the agreements had to cover in order to constitute an abuse;
  3. its assessment of retroactive rebates, including procedural irregularities in that exercise;
  4. its failure to provide adequate reasoning in its analysis of whether the agreements in which the appellant is named as "preferred, main or primary supplier" could be characterised as "exclusive"; and
  5. its assessment of the level of fine imposed on the appellant, in light of the principle of equal treatment.

On April 19, 2012, the ECJ rejected all five of these grounds for appeal and upheld the General Court's Judgment.

Contested Commission Decision

In deciding that Tomra was in breach of Article 102 TFEU, the Commission took an essentially form-based approach to exclusionary abuses. It had decided that the offering by Tomra to its customers of contracts in forms that were potentially exclusionary was sufficient for it to be able to conclude that the contracts were likely have a foreclosing effect on the relevant affected market(s).  Although the Commission found that the rebates in question were not expressly granted on condition that the customer buy a given percentage of its required RVMs from Tomra, it was nevertheless true that the individual volume targets (required to receive the rebates) were based on each customer's actual level of demand over the relevant period.  As a result, the Commission concluded that, since the relevant provisions were applied by a dominant firm to a large portion of the addressable customer base, those provisions were designed to, were clearly capable of, and were likely to restrict market access for competitors. However, the Commission did not undertake an in-depth analysis of the relevant provisions, nor of the ability of Tomra's competitors to match the allegedly exclusionary terms and to ultimately compete with Tomra as efficient competitors.

In its defence, Tomra had argued that the Commission should have explored whether an efficient competitor was in a position to compete against the rebates offered by Tomra, similar to the methodology adopted by the Commission in its 2009 Guidance Paper.

2009 Guidance Paper

The Commission's Decision in Tomra pre-dates 2009 Guidance Paper. Since publishing the Guidance Paper, the Commission has made it clear that, in order to assess whether conditional rebates offered by a dominant firm are capable of foreclosing competitors, it will examine whether an "as equally effective competitor" is able to offer a sufficiently low price to compensate customers for the loss of the rebate.  In the majority of cases, an equally efficient rival firm can compete by using its own discounts.  Nevertheless, in some instances, a dominant firm may be an unavoidable supplier for some portion of the customers' demand; in these instances, the question to be considered by the Commission is whether the dominant firm is taking advantage of its position to foreclose rivals from competing in relation to the "contestable" portion of demand.

General Court's Judgment

While Tomra did not contest the Commission's findings of dominance, it did argue that the Commission's Decision was based on unreliable and incorrect evidence in relation to a purported strategy by Tomra to foreclose the relevant affected markets. The General Court rejected that line of defence and noted that, in accordance with longstanding jurisprudence, the concept of an abuse is an objective concept. As such, it was sufficient for the Commission to base its Decision purely on whether Tomra had an anti-competitive intent in its business dealings as evidenced by its internal communications. Tomra also argued that the Commission had made a manifest error of law in finding that the relevant agreements were unlawful, having failed to explain the criteria which it used to assess whether or not these agreements were, in fact, capable of restricting competition.  As part of its challenge before the General Court, Tomra sought to focus on whether its competitors were able to compete for customers who were not covered by the relevant discounts.

However, and in accordance with established case-law under Article 102 TFEU, the General Court held that a dominant firm that ties customers, even where such tying is at the request of the customer, by an obligation or promise on the part of the customer to obtain all or most of its requirements exclusively from them, abuses its dominant position regardless of whether the obligation in question is stipulated without further qualification or whether it is undertaken in consideration of a rebate being granted. Nevertheless, the General Court indicated that additional facts might be needed to conclude that an infringement had occurred, but these included issues such as whether a sufficiently large portion of the customer base was affected and whether there might exist a legitimate justification for the impugned conduct.  In any event, the General Court held that the Commission had sufficiently assessed the relevant issues and that, although it was not required to do so, had gone further by finding that the conduct  had an actual anti-competitive effect in allowing Tomra to maintain its market dominance.

Appeal to the ECJ

First plea: Error of law in the review undertaken by the General Court of the Commission's finding of an anti-competitive intent to foreclose competition on the market.

Tomra argued that, when assessing whether the Commission had proved the existence of anti-competitive intent, the General Court had erred in law by refusing to take into account internal documents allegedly supporting the view that Tomra intended to compete on the merits.  According to Tomra, such a failure is contrary to the General Court's obligation to undertake a comprehensive judicial review of the conditions for the application of Article 102 TFEU.

In rejecting this plea, the ECJ recalled that the concept of abuse of dominant position is an objective concept relating to the conduct of the dominant undertaking and that, in assessing such conduct, the Commission is obliged to consider all of the relevant facts surrounding that conduct. The ECJ held that the General Court had correctly applied the "objectivity" rule and that it was clear from the General Court's Judgment that it believed that the Commission had not relied exclusively on the intention or policy of Tomra in order to substantiate its findings that an infringement of competition law had occurred.

Second plea: Error of law and failure to provide adequate reasoning with regard to the portion of total demand which the agreements had to cover in order to constitute abuse.

The second ground of appeal concerned, in essence, the question  whether the General Court was well founded in its assessment of the relevant portion of the overall market in which competition had been restricted by the agreements in question before it could proceed to assess how those agreements were capable of foreclosing competition on the relevant market.

In rejecting Tomra's second plea, the ECJ held that the General Court had correctly determined that an adequate portion of the total demand had, both during the relevant timeframe and on the relevant markets, been foreclosed to competition.  Accordingly, the conclusions of the General Court in this regard did not contain an error of law.

Third plea: Procedural irregularity and error of law in the assessment of retroactive rebates. 

Tomra argued that the General Court had erred in not recognising the Commission's failure to establish that the retroactive rebates led to prices which were lower than its costs.  By doing so, the Commission was alleged to have failed to examine the relevant costs of Tomra in order to establish the level below which the prices charged by it produced exclusionary effects. According to Tomra, a comparison of prices and costs was essential in order for the Commission to be able to assess whether retroactive rebates were capable of restricting competition.

In rejecting this plea, the ECJ held that the Commission had established the existence of abusive conduct by relying on a range of other considerations, as set out in the General Court's Judgment.  The ECJ 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 . . . the rebates tend to remove or restrict the buyer's freedom to choose his sources of supply, to bar competitors from access to the market, or to strengthen the dominant position by distorting competition."  Because the Commission had done so in this case, the ECJ held that the General Court had not erred in finding that the Commission's analysis was sufficient to establish the existence of that abuse; neither the Commission nor the General Court were obliged to examine the question of whether or not the prices charged by Tomra were lower than its long-run average incremental costs.

Moreover, the ECJ held that Tomra's plea that the 2009 Guidance Paper provides for a comparative analysis of prices and costs did not undermine that conclusion. The ECJ noted that Guidance Paper had no relevance to the legal assessment of a Commission Decision adopted before the Guidance Paper was published.

Fourth plea: Error of law and failure to provide adequate reasoning in the analysis of whether the agreements in which Tomra are named as "preferred, main or primary supplier" could be characterised as "exclusive".

Tomra argued that the General Court had failed to examine whether the agreements which did not contain any formal exclusivity obligation(s) contained other mechanisms, such as quantity commitments or rebates, which served as alternative incentives to Tomra's customers to purchase from the Tomra group.

In rejecting this plea, the ECJ deemed it inadmissible insofar as Tomra had put forward a plea in law which it had not raised before the General Court. In any event, the ECJ noted that the Commission, in the contested Decision, had assessed the particular features of the contractual relationships between Tomra and its customers, taking into account a wide range of factual circumstances surrounding those relationships. Moreover, the ECJ found that the General Court had examined comprehensively the arguments advanced by Tomra in relation to the particular terms of the commercial relationships at issue, and had come to the view that those terms had no relevance to the Commission's characterisation of those relationships.

Fifth plea: Error of law in the assessment of the level of the fine in light of the principle of "equal treatment".

Finally, Tomra argued that the General Court had committed an error of law by imposing a fine which was considerably higher than that imposed on other firms placed in a comparable situation.

In rejecting this plea, the ECJ recalled that the General Court has repeatedly held that the Commission's practice in previous Decisions does not itself serve as a legal framework for the fines imposed in competition matters and that Decisions in other cases can provide only an indication for the purpose of determining whether discrimination has occurred. Further, the ECJ held that the General Court was entitled to reject Tomra's argument based on the comparison of the fine imposed on the Tomra group and the penalties imposed by the Commission in other competition law decisions. 

Conclusions

The ECJ Judgment causes a number of concerns:

  1. The ECJ's finding that it is not necessary to establish whether the average effective price that an efficient rival would need to offer in order to match a dominant firm is above or below cost stands in sharp contrast to the Commission's methodology set out in the 2009 Guidance Paper.

The ECJ should explain why an abuse of dominance can somehow be judged differently before and after a certain date. One can easily argue that the principles set forth in the Commission's 2009 guidance were common knowledge for a number of years during the Commission's consultation with stakeholders. A pre- and post-2009 dividing line seems especially arbitrary when one is consistently affirming that the concept of an abuse is an "objective" one which overrides any conclusions reached as to the intent of the dominant firm(s) in question.

Moreover, if the Commission purports to apply the as-efficient-competitor test in order to prove foreclosure, but fails to satisfy that test, one must call into question how one can claim that the abuse in question has been objectively proved. Such an analysis should not differ because of the publication date of guidance notes if the Commission has actually applied such an economic standard in its administrative practice in the case at hand.

  1. In rejecting Tomra's appeal, the ECJ has effectively upheld the General Court's position that retroactive rebates implicitly result in the price offered by a dominant firm on some incremental units being very low, and this makes it difficult for rival firms to compete, especially if they are restricted to selling fewer units.  Although the ECJ recognised that the volume thresholds in a rebate scheme may fall below the level of demand required by some customers, in upholding the General Court's Judgment, the ECJ did not consider this to be a relevant consideration in establishing foreclosure effects on the relevant market.

The ECJ's conclusions in this regard are difficult to reconcile with the economic-based test adopted by both the ECJ and the General Court very recently with respect to predatory pricing and margin squeeze offences.[5] The balance that should be inherent in enforcement strategy is jeopardised if the foreclosing effects of rebates policies are assessed in a manner which is far less economically robust than the standards applied to other pricing offences.

  1. The need to assimilate the concept of an "objective" abuse with one that is based on an assessment of the relevant "economic effects" is rendered all the more important when one considers that the ECJ has supported the General Court in not calling into question the Commission's failure to appraise the evidence cited by Tomra that it was prepared to compete on the merits. In the face of conflicting evidence about motives, one would assume that the need to engage upon a scientific examination of economic effects is even more compelling than in those situations where an anti-competitive intention is unambiguous.
  1. The deferential view of the ECJ and the General Court as regards what should be expected of the Commission in terms of any calculation about the overall level of market demand adversely affected by an anti-competitive rebates policy also does not sit comfortably with the relatively scientific practice developed by the Commission in its assessment of the likely foreclosure effects generated by long term supply contracts in the energy sector. In its administrative practice in energy sector cases, the Commission has expressed a degree of comfort where as much as 30% of a market can be foreclosed by long term supply arrangements.
  1. It remains to be seen whether the Commission will adopt a more robust view of the "effects analysis" under Article 102 TFEU that is consistent with the ECJ's Post Danmark Judgment, which not only values proof of anti-competitive effects but considers them to be dispositive in an abuse of dominance assessment. Some comfort along such lines can actually be found in the Tomra Case itself, where the ECJ emphasized that the Commission had concluded "that the exclusivity agreements entered into by [Tomra] were capable of having, and in fact had, a market foreclosing effect."[6] The ECJ then turned to an examination of actual market foreclosing effects, which included: (1) during the relevant period, Tomra's market share in Europe went from 70% to more than 95%;[7] (2) Tomra's market share in the five affected national markets was "relatively stable"; (3) during the same period, Tomra's competitors position remained "rather weak and unstable"; (4) one successful competitor was discouraged and exited the market; (5) other competitors were acquired by Tomra where they demonstrated promise; (6) the "tied market" grew; (7) customers gravitated toward non-Tomra products when their "exclusive agreements" came to an end; and (8) there was no benefit of any of the impugned conduct for consumers, in that the Decision states that the price of [Tomra's] RVMs did not fall after the sales volume had increased and that, on the contrary, prices stagnated or even rose during the period under investigation".[8]

Having embarked upon such an elaborate assessment of anti-competitive effects in the circumstances, one cannot escape the conclusion that the ECJ was satisfying itself, consistent with its approach in Post Danmark, that an "effects analysis" had been satisfied on the facts, regardless of whether or not one focuses on the Guidance Paper as the legal basis for conducting such an analysis.