On 6th October 2015, the European Court of Justice (ECJ) handed down its ruling on whether Post Danmark’s retroactive rebate scheme breached antitrust legislation, providing guidance as to the factors to be considered in a case of this nature. The ECJ emphasised the importance of reviewing the specific facts of the case and the conditions of competition on the relevant market.
In 2007, Post Danmark was state-controlled and was responsible for the one-day delivery universal postal service, including bulk mail. Post Danmark therefore had a statutory monopoly on the distribution of letters including direct advertising mail, a segment of the bulk mail market. Post Danmark implemented a rebate scheme in relation to direct advertising mail in 2003 which applied to mailings from customers in batches of at least 3,000 copies at a time.
As the scheme was “standardised” the rebates available applied equally to all customers. However, the rebates were also "retroactive". Estimates of the volumes that customers would mail were provided to Post Danmark at the start of the year, with the rebate for the whole year being retroactively calculated on the basis of the actual mailings. In some cases, i.e. where mailings were lower than predicted, this end of year adjustment involved customers being required to reimburse Post Danmark.
This is not the first time Post Danmark’s rebate scheme has been scrutinised by the ECJ, with the court ruling on four individual rebates granted to Post Danmark’s large magazine-mail customers in 2012. On this occasion the rebates were deemed not to automatically breach antitrust law, although the Danish competition authority was advised to go on to consider whether a rival would have been excluded from the market.
Reference to the ECJ
The Post Danmark case was referred to the ECJ by Denmark’s Maritime and Commercial Court (MCC) in order to consider questions relating to the assessment of Post Danmark’s rebate scheme under Article 102 of the Treaty on the Functioning of the European Union. Post Danmark’s main competitor on the bulk mail market, Bring Citymail Danmark A/S (Citymail), initiated the proceedings, after it recorded a loss of around €67 million and was forced to retreat from the Danish market altogether in 2010.
On 24th June 2009, Denmark’s Competition Council had found that Post Danmark had abused a dominant position in the market for the distribution of bulk mail through its rebate scheme, as it was deemed to have the effect of tying customers and “foreclosing” the market. After this decision was upheld by the Competition Appeals Tribunal, Post Danmark appealed to the MCC.
In reviewing the questions posed by the MCC, the ECJ considered the application of the “as-efficient-competitor” test, whereby the relevant scheme is compared to one maintained by an equally efficient competitor to identify whether a rival with the same costs could have offered the same rebates, but concluded that it was not necessary to apply this test in coming to a conclusion on the abuse of dominance. It clarified that this test should be seen as just one tool for assessing abuse of a dominant position in relation to a rebate scheme, rather than a “necessary condition” for a finding that a rebate scheme is abusive.
The ECJ also stressed the importance of examining all the circumstances of the case, as individual factors alone cannot constitute evidence of whether conduct is abusive. Although Post Danmark’s rebates were applied to all contestable customers without distinction and were not therefore discriminatory, the rebates did apply to the majority of the customers on the market, which was seen as a “useful indication” of the likelihood of an anti-competitive exclusionary effect. Post Danmark held a market share of 95%; moreover, 70% of the market was uncontestable due to the Danish postal incumbent’s statutory monopoly. The ECJ ruled that applying the as-efficient-competitor test in this case would not provide an accurate assessment, as the structure of the market made the emergence of an as-efficient competitor practically impossible.
The final issue referred by the MCC was whether an anti-competitive effect needed to be concrete or could be purely hypothetical, and whether there was any justification for placing an appreciability threshold on the effect. The ECJ’s conclusion was that, in relation to a rebate scheme operated by a dominant undertaking, the anti-competitive effect must be probable but did not need to be of a serious or appreciable nature.
The case will now be returned to the MCC for further consideration.
The ECJ’s ruling in the Post Danmark case provides a useful insight into the criteria applied when assessing the anti-competitive effect of rebate schemes. By confirming that it was not necessary to apply the as-efficient-competitor test and confirming that any probable anti-competitive effects do not need to be of a serious or appreciable nature, the ECJ seems to have paved the way for further decisions on the application of Article 102 to be made without extensive assessment of actual economic effect, and to have preserved the ability of competition authorities and courts to make findings of infringement on the basis of other factors. This does conflict somewhat with the guidelines published by the European Commission in 2008[i] in which the Commission seemed to endorse an approach focussing on economic effect.
Another case to keep an eye on is Intel’s appeal against an EU penalty imposed for rebates granted on Central Processing Units (CPUs) which is also still under review by the Court of Justice in Luxembourg. In May 2009, Intel was fined €1.06 billion for abusing its dominant position in part by awarding major computer manufacturers, including Dell, HP and Lenovo, rebates on the condition that they purchased all or almost all of their CPUs, at least in certain defined segments, from Intel. In contrast to the Post Danmark case, manufacturers would lose their rebate if they bought CPUs from Intel’s key competitor, Advanced Micro Devices, even where the majority of CPUs had been bought from Intel. In this case the European Commission deemed that an equally efficient competitor would have had to offer a price lower than its production costs in order to compensate a manufacturer for the loss of Intel rebates and therefore the rebate was capable of foreclosing the as-efficient competitor.