European Union: Competition News November 2015

Last Updated: 24 November 2015
Article by Emmanuelle van den Broucke and Sara Pomar

The ECJ provides a reading grid for rebates granted by a dominant company

In a decision dated October 6, 2015 the European Court of Justice, in the context of a preliminary ruling, dealt with the delicate appreciation of the lawfulness of rebates granted by a dominant company.

In this case, the ultra-dominant postal operator Post Danmark, holding 95 percent of the mail delivery market, had set up a system of progressive rebates from 6 to 16 percent on conditional quantities estimated by clients at the beginning of the year. These rebates were also retroactive, meaning that they applied to all purchases as soon as the rebate threshold was exceeded and not just to the purchases exceeding the threshold.

The Court first recalled that a pure quantity rebate is not in principle abusive. In this case however, it is not simply a quantity rebate since it covers all orders over one year and it is retroactive. Therefore, this rebate system has to be appreciated in the light of all market circumstances and it must be examined whether it tends to limit the purchaser's choices between competing sources of supply. The simple fact that the rebates are not applied in a discriminatory manner does not prevent them from having a foreclosure effect.

In this case, the elements in the file, which will have to be verified by the national judge, show that for 25 of Post Danmark's most important clients, nearly two thirds of the shipments could not be transferred to the competitor Bring Citymail without these clients losing an advantage on the rebate scale, which limits the clients' freedom to choose their sources of supply. Given Post Danmark's extremely significant market share, it is particularly difficult for a competitor to outbid rebates based on an aggregate volume.

Regarding the question of whether the anticompetitive effect of a rebate system has to be on the one hand likely and on the other hand serious or significant, the Court answered that the demonstration of a potential anticompetitive effect likely to squeeze out competitors is sufficient, without having to justify any minimum significance threshold.

Accordingly, dominant companies must think twice before setting up retroactive systems of rebates based on an annual purchase volume.

Sufficient evidence to authorize visits and seizures based on recommended prices largely applied by distributors

On October 14, 2015, the French Supreme Court validated an order from the liberty and custody judge authorizing the regional administration in charge of competition affairs (the "Direccte") to conduct visit and seizure operations ("VSO") in various retail chains.

After observing the widespread application of recommended prices on Kärcher branded products, the Direccte had asked the liberty and custody judge ("LCJ") to authorize VSO on the premises of certain distributors, to seek evidence of anticompetitive practices.

All of the evidence which the Direccte had invoked at the time to assume the existence of anticompetitive practices and thus obtain the authorization to conduct VSO was ruled sufficient by both the LCJ and the Bordeaux Court of Appeal, which has now been confirmed by the French Supreme Court. This evidence consisted in (i) the existence of a sales price recommended by the supplier and of which the distributor was aware, (ii) the significant application by distributors of the recommended price, demonstrated by an average follow-up rate of 97.94 percent and (iii) the existence of recommended price monitoring by Kärcher since the consumer had to return his sales receipt to benefit from promotions.

Although recommended prices are not unlawful as such, the fact that they are widely followed can raise suspicions as to whether they are in actual fact imposed. The supplier and its distributors must be prepared for visits in their premises by the competition authorities' services, visits which are therefore not limited to cartel practices.

The purchase of a company having benefited from State aid does not prevent the Commission from recovering the illegal aid

In its Electrabel decision of 1 October 2015, the European Court of Justice confirmed that the purchase of a company having benefited from State aid does not clear the aid of its unlawfulness, which must be reimbursed.

In this case, Dunamenti Eromu, which operates a power plant in Hungary, had benefited in 1995 from a power purchase agreement by the state-owned electricity operator under conditions constituting State aid. Shortly thereafter, the company was privatized and it is now held for 75% by Electrabel. The European Commission then ordered the recovery of the illegal State aids obtained notably by Dunamenti Eromu.

The Court confirmed this reimbursement obligation recalling that the recovery of an unlawful aid consists of eliminating the advantage from which the company may have benefited compared to its competitors, thus eliminating the competition distortion. This obligation does not fall on the purchaser when it acquires the company under normal market conditions if the aid was valued at market price and included in the purchase price. When the company having benefited from the aid keeps its legal personality, it is the company having kept the competitive advantage which is required to reimburse the aid.

In this case, as Dunamenti Eromu kept its legal personality, it must reimburse the aid and its privatization cannot be construed as having resulted in such reimbursement.

Partial success for an action for damages against Orange for anticompetitive practices

In the early 2000s, France Télécom (now Orange) had complete control over the telecommunications infrastructure and also operated as an Internet service provider.

It is in the context of the opening of the broadband market to competition that Subiteo was created in May 2000 in order to provide high-speed Internet access. However, to enter this market, companies had to subscribe to wholesale offers proposed by France Télécom, which Subiteo was unable to do and therefore withdrew from the market in 2001.

Considering that France Télécom had committed anticompetitive practices against it, notably by deliberately delaying the deployment of its offers, Subiteo initiated an action in tort against it in court.

After lengthy proceedings, the Paris Court of Appeal ruled on this case on October 2, 2015 in favor of Subiteo as the delay imposed by France Télécom in opening the ADSL market to competition was not sustainable for the candidate, who was bearing considerable expenses without any hope of a return on investment in the near future.

The Court of Appeal noted that the prejudice suffered by Subiteo can be analyzed as (i) investments incurred in vain in the context of the project, valued by the judge on the basis of income statements and (ii) a loss of opportunity to successfully complete the project, but without however accepting Subiteo's claim on the loss of contracts which it could have won if it had successfully completed the project insofar as there is always an element of uncertainty. The Court concluded, after 14 years of judicial proceedings, that Subiteo's prejudice amounts to €7 million, which is small consolation compared to the €117 million claimed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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