The European Court of Justice's ("ECJ") recent Intel decision calls for a reflection on the impact that the court's assessment of evidence may have on Turkish competition law enforcement. In effect, by its judgment of 6 September 2017, the ECJ has set aside the judgment of the General Court which had confirmed the fine of €1.06 billion imposed on Intel by the European Commission ("Commission") and has referred the case back to the General Court.
Below will be addressed sequentially (i) the defense the ECJ dealt with to annul the General Court's decision, (ii) the approach to rebates in Turkey and (iii) the reference to the "as efficient competitor" test ("AEC test") in the dissenting opinion of two Board Members in the recent Luxottica1 decision.
1. The Salient Issues of ECJ's Decision
Three out of six grounds of appeal have been addressed by the ECJ. The first two grounds having been rejected, the analysis will only be limited to the third one, according to which the General Court erred in law by failing to examine the rebates at issue in the light of all the relevant circumstances.
Among others, Intel denounced General Court's analysis concerning the capacity of the rebates and payments at issue to restrict competition and particularly its evaluation of the relevance of the AEC test applied by the Commission. Indeed, according to Intel, the test carried out by the Commission contained errors and, had it been correctly executed, the Commission would have concluded that the behaviors at issue did not have the capacity to restrict competition.
According to the ECJ, the General Court should have reviewed Intel's arguments pointing out some errors in the Commission's findings in the framework of the AEC test conducted to consider the capability of the behaviors at issue to foreclose the EU market. The General Court has nevertheless held that was not necessary to examine whether the Commission had applied the AEC test flawlessly and whether the alternative calculations proposed by Intel had been correctly performed. Indeed, according to the General Court, loyalty rebates granted by an undertaking holding a dominant position are naked restrictions that have, by their very nature, a capacity to restrict competition, so that an AEC test does not prove to be necessary.
Then, by not attaching importance to the AEC test carried out by the Commission, the General Court did not address Intel's objections towards that test and have consequently failed to take into account Intel's arguments alleging errors committed by the Commission in the framework of that test.
2. Rebates under Turkish Competition Law
There have been some recent decisions rendered by the Turkish Competition Authority ("TCA") in which rebate schemes of dominant undertakings were examined; Mey İçki2 and Luxottica decisions are of importance in this respect. Moreover, what the Guidelines on the Assessment of Exclusionary Abusive Conduct by Dominant Undertakings ("Guidelines") provides for regarding rebates requires further attention.
The Guidelines stipulate that the TCA shall focus on whether, in response to the rebate, equally efficient competitors would be able to effectively compete with the dominant undertaking for the contestable portion of the customer's demand3. In this framework, a price-cost analysis shall be conducted and the TCA shall examine whether the rebate system has negative effects on the entry or expansion of equally efficient competitors in case the effective price is established to be between the Average Avoidable Cost and the Long-Run Average Incremental Cost ("LRAIC")4.
Although the Guidelines expressly stipulates that the TCA shall assess the anti-competitive effects of rebate schemes by using an AEC test, in practice the TCA focuses on the loyalty enhancing effects, claiming that rebate schemes would have the potential to foreclose markets in case they lead to de facto exclusivity by creating loyalty enhancing effects. In other words, the case law of the TCA indicates that the rebate schemes that lead de jure or de facto exclusivity are anti-competitive regardless of whether they have the potential to exclude equally efficient competitors or not.
In the Mey İçki ("Mey") case, the dominant undertaking (in the raki – the traditional Turkish alcoholic beverage – market) granted various rebates to points of sales, including rebates offered without any written evidence, in consideration of an increased availability and/or visibility to Mey's products.
The TCA established that Mey granted rebates and other financial advantages to points of sales that would put its competitors' products out of points of sales' shelves or reduce their visibility therein. The TCA concluded that the rebate scheme of Mey has led to de facto exclusivity and had the "potential" to exclude the competitors in the raki market.
In the Luxottica case, where the TCA examined the rebate scheme Luxottica adopted for different categories of sunglasses, the TCA made it clear that it did not have a duty to prove that Luxottica's rebate scheme actually excluded any competitors (presumably by using an AEC test) and that it was sufficient to show that the rebate scheme has loyalty enhancing effects leading to de facto exclusivity. The following sentence is a direct quote from the decision showing the approach of the TCA with respect to the need for an effect-based analysis: "It is not claimed, and no findings has been presented within the scope of the investigation, to show that the rebate scheme of Luxottica actually excluded the competitors". It should also be noted that the Luxottica decision contains a direct reference to the Intel decision of the Commission, arguing that the Commission also adopts a per-se approach against rebate schemes that lead to exclusivity (de facto or de jure) regardless of the fact that the Guidance on Commission's enforcement priorities in applying Article 102 of the EC Treaty to abusive exclusionary conduct by dominant undertakings calls for an effect-based analysis.
Considering these, the TCA held that the undertaking's behaviors had the "potential" to foreclose the market to the competitors and that this was sufficient to prove a violation after showing that Luxottica's rebate scheme did have loyalty enhancing effects and that it could lead to de facto exclusivity,
3. The Dissenting Opinion in the Luxottica Decision
The dissenting opinion of the two Board members in the Luxottica decision is critical because it points out that it is not sufficient for the TCA to show that a rebate scheme has loyalty enhancing effects and that it could lead to de facto exclusivity to prove the existence of a violation. The dissenting opinion requires the TCA to take into consideration the actual effects of such conduct by using the AEC test adopted in the Guidelines. The dissenting opinion also explains how this test should be conducted in case of rebate schemes.
In the dissenting opinion it is explained that the rebate schemes that have loyalty enhancing effects may be problematic because they might allow the dominant undertaking to carry its advantage in the non-contestable portion of the market (it is assumed that a certain portion of the market is non-contestable because the must stock characteristics of dominant undertaking's product) to the contestable portion of the market, preventing its competitors from reaching the minimum efficient scale and increasing their cost disadvantages, consequently excluding them from the market. Yet, it is suggested that the TCA must assess whether the rebate scheme in question actually excludes "as efficient competitors" and it is stressed that the effects on the current competitors (who might not be as efficient) should not be taken into consideration.
As far as the proper application of the AEC test is concerned, the Intel case underlined the requirement for the Commission or for the General Court to consider all the relevant circumstances when applying the AEC test, despite the likely anti-competitive effects of loyalty rebates. This was thus an opportunity to remember that rebates are not per se anti-competitive behaviors in the EU and that the effects of the behavior at issue on the market shall be tested by administrative authorities and courts.
It is further seen that there is a parallel between the Intel decision of the ECJ and the dissenting opinion in the Luxottica decision as they both point out that competition authorities have a duty to analyze the effects of loyalty-enhancing rebate schemes on as efficient competitors to prove the existence of a violation. Although this is only a dissenting opinion, it might indicate that a more economic oriented approach might also be adopted in Turkey in the future.
We believe that the Intel decision (and the dissenting opinion in the Luxottica decision) is significant because it might affect the stand that the TCA (and consequently Turkish courts) will take as to the application of the AEC test. Given the solemn proclamation of Intel's right to have its objections taken into consideration, future decisions of the TCA (and the courts) will show if the right of undertakings subject to investigation, to have all their objections being considered by the TCA while assessing the effects on the market, will be respected.
1 TCA's Decision dated 23.02.2017 and numbered 17-08/99-42.
2 TCA's decision dated 16.02.2017 and numbered 17-07/84-34.
3 Guidelines, para. 76.
4 Guidelines, para. 77.
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