On 6 October 2015, the Court of Justice of the European Union (“the Court” or “ECJ”) gave out its judgment in Case C-23/14 Post Danmark II on rebates. The judgment constitutes a recapitulation and systematisation of the Court’s previous case-law on this subject and it provides guidance to public enforcers as well as to dominant undertakings when designing their rebate schemes.
The case was a preliminary reference from the Danish Commercial Court. As regards the facts of the case, Post Danmark is the dominant postal undertaking in Denmark and was the former state owned monopolist. In 2007 and 2008 it was co-owned by the Danish state, a private investor and a number of employees. During those years, Post Danmark applied retroactive rebates with a standardised volume threshold in the direct mail segment of the mass mailing market.
The sole competitor at the time, Bring Citymail, owned by the Norwegian State.
The Danish Competition Authority decided in 2009 that Post Danmark had abused its dominant position on the market for mass mailings by applying loyalty-creating and market-distorting rebates for direct mail without demonstrating efficiency gains to the benefit of consumers.
Post Danmark challenged that finding before the national courts, and the Danish Supreme Court made a first reference to the ECJ in Case C-209/10. The Authority had also made submissions in that case concerning a different type of abuse, i.e. low pricing.
In this case, Post Danmark II, another Danish court referred additional questions to the ECJ seeking guidance as to the precise test to be applied in order to assess the foreclosure effects of the rebate scheme in question.
Characteristics of the rebate scheme in question
– The rebate scheme applied by Post Danmark had a “standardised’’ rebate scale (all customers were entitled to receive the same rebate on the basis of their aggregate purchases over an annual reference period);
– The rebates were “conditional” (Post Danmark and its customers concluded agreements, at the beginning of the year, in which estimated quantities of mailings for that year were set out and, at the end of the year, Post Danmark made an adjustment where the quantities presented were not the same as those that had been estimated initially);
– The rebates were “retroactive” (where the threshold of mailings initially set was exceeded, the rebate rate applied at the end of the year applied to all mailings presented during the period concerned and not only to mailings exceeding the threshold initially estimated);
– The rebates were neither “quantitate” (they were not linked solely to the volume of purchases) nor “loyalty” rebates (not coupled with an obligation for, or promise by, purchasers to obtain all or a given proportion of their supplies from Post Danmark).
Findings of the Court
The ECJ made extensive reference to its previous case-law and its findings could be summarised as follows:
- A loyalty rebate, which by offering customers financial advantages tends to prevent them from obtaining all or most of their requirements from competing manufacturers, amounts to an abuse within the meaning of Article 102 TFEU (para. 27).
- When it comes to rebates, which are neither quantity nor loyalty rebates, it is necessary to consider all the circumstances of the case. One needs to assess 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 (para. 29). Moreover, the extent of the dominant position of the undertaking in question and the particular conditions of competition prevailing on the relevant market should also be taken into consideration (para. 30).
- A rebate scheme operated by an undertaking, such as the scheme applied by Post Danmark, which, without tying customers to that undertaking by a formal obligation, nevertheless tends to make it more difficult for those customers to obtain supplies from competing undertakings, produces an anti-competitive exclusionary effect (para. 42): The scheme in question was “retroactive” (para. 32) and the reference period of one year is relatively long (para. 34) which made it easier for the dominant undertaking to tie its own customers to itself, attract the customers of its competitors, and thus, as argued by the Authority, to secure the suction to itself of the part of demand subject to competition on the relevant market (para. 35). Moreover, Post Danmark held 95% of that market, enjoyed structural advantages (para. 39) and was an unavoidable trading partner (para. 40).
- The mere fact that a rebate scheme is not discriminatory (i.e. the threshold in the rebate scale was “standardised”) does not preclude its being regarded as capable of producing an exclusionary effect on the market, contrary to Article 102 TFEU (para. 38).
- It is for the dominant undertaking to demonstrate efficiency gains that counterbalance the exclusionary effect generated by a rebate scheme (para. 48, 49).
- It is not possible to infer from Article 102 TFEU or the case-law of the Court that there is a legal obligation on the competition authority to apply the as-efficient-competitor test in order to prove that a rebate scheme operated by a dominant undertaking is abusive (para. 57). In cases of markets protected by high barriers, also a less efficient competitor can exert competitive pressure to the dominant undertaking (para. 60). However, recourse to that test is not excluded in the case of rebates altogether (para. 58). The as-efficient-competitor test should be considered as one tool among others for the purposes of finding an abuse of dominance (para. 60).
- In applying Article 102 TFEU, there is no appreciability (de minimis) threshold for the purposes of determining whether there is an abuse of a dominant position. That anti-competitive practice is, by its very nature, liable to give rise to not insignificant restrictions of competition, or even of eliminating competition on the market on which the undertaking concerned operates (para. 73). That said, the Court concluded that in order to fall within the scope of Article 102 TFEU, the anti-competitive effect of a rebate scheme operated by a dominant undertaking must be probable (para. 74).