European Union: Post Danmark II: An ‘Evolution' Rather Than A ‘Revolution' In The Assessment of Rebates

The EU Court of Justice has handed down its much-awaited preliminary ruling in Post Danmark II.1 This ruling marks an 'evolution' rather than a 'revolution' in the assessment of rebates under Article 102 TFEU. While regrettably unclear in certain passages, some aspects of the Court of Justice's assessment are welcome in an area where the EU case law has been very formalistic and divorced from commercial reality.

Background

At the relevant time, Post Danmark, a state-controlled company, was the universal service provider of postal services in Denmark and enjoyed a statutory monopoly on the distribution of letters weighing up to 50 grams, including certain direct advertising mail.2

Post Danmark implemented a rebate scheme in respect of direct advertising mail. The rebate scale was standardized: 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. At the end of the year, Post Danmark adjusted the discounts 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 to all mailings presented during the year and not only to mailings exceeding the estimated threshold initially set.

In 2007, Bring Citymail Danmark AS ('Bring Citymail') entered the market. Three years later, having suffered heavy losses, it withdrew. Following a complaint lodged by Bring Citymail, the Danish competition authority found that Post Danmark had abused its dominant position by granting rebates in respect of direct advertising mail. Post Danmark appealed the decision. It is in this context that a Danish court requested a preliminary ruling from the Court of Justice.3

Rebate Scheme Capable of Having an Exclusionary Effect Contrary to Article 102 TFEU

The first question submitted to the Court of Justice concerned the criteria to be applied in order to determine whether a rebate scheme, such as that at issue in the main proceedings, is liable to have an exclusionary effect contrary to Article 102 TFEU.

Nature of the Rebate

Before addressing the question, the Court of Justice considered the nature of the rebate. Perhaps inadvertently, it introduced a potentially significant change in EU competition law by identifying three categories of rebates:

  • Quantity discounts linked solely to the volume of purchases which are not in principle liable to infringe Article 102 TFEU;
  • "Loyalty rebates," which by offering customers financial advantages tend "to prevent them from obtaining all or most of their requirements from competing manufacturers."4   The Court of Justice stated summarily that those rebates amount to an abuse of dominance; and
  • Other rebates such as those at issue which (i) cannot be regarded as a simple quantity rebates linked solely to the volume of purchases and (ii) are not coupled with an obligation (or promise) to obtain all or a given proportion of supplies from the dominant company.

Traditionally, the case law has sought to determine whether a rebate scheme could be considered to be "fidelity-building" or "loyalty-enhancing," with a safe-harbor for standardized purely volume-based incremental rebates. In Intel5, the General Court took a particularly formalistic and strict approach to so-called "exclusivity rebates." Although the language used in Post Danmark II to describe the third category of rebates is based on the traditional case law6, the Court of Justice arguably promotes a more effects-based assessment. This is a welcome development at a time when the effects-based approach promoted by the Commission's Guidance Paper7 is at the heart of a lively debate over the legal standard that should apply to rebates.

Assessment of the Effects of the Rebate

In order to determine whether a company has abused its dominant position by applying a rebate scheme such as that at issue in the main proceedings, and drawing heavily on the traditional case law8, the Court of Justice held it is necessary to:

  • Consider all the circumstances, particularly the criteria and rules governing the grant of the rebate, the extent of Post Danmark's dominant position and the particular conditions of competition prevailing on the relevant market; and
  • Investigate whether, in providing an advantage not based on an 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 or to strengthen the dominant position by distorting competition.

In that context, the Court of Justice instructed the referring court to examine whether, considering all the circumstances, Post Danmark's rebate scheme was likely to produce an exclusionary effect.9   Regrettably, the Court of Justice failed to provide the referring court with any clear guidance, other than stating the retroactive nature of the rebate scheme and the year ("relatively long") reference period are to be taken into account in assessing the likely effects of the rebate scheme.

Criteria and Rules Governing the Grant of the Rebate

Looking at the criteria and rules governing the grant of the rebate, the Court of Justice noted in particular that:

  • The contractual obligations of the customers of the dominant company and the pressure exerted upon them may be particularly strong where the rebate is retroactive.10
  • Any system under which discounts are granted according to the quantities sold during a relatively long reference period has the inherent effect, at the end of that period, of increasing the pressure on the buyer to reach the purchase figure needed to obtain the discount and to avoid suffering the expected loss for the entire period.11

Post Danmark's Dominant Position and the Conditions of Competition

The Court of Justice then considered Post Danmark's dominant position and looked into the conditions of competition.

The Court of Justice first observed that Post Danmark held a share of 95% on the relevant market, access to which was protected by high barriers and which market was characterized by the existence of significant economies of scale.12

Other market features were of importance: Post Danmark enjoyed structural advantages (conferred, inter alia, by its statutory monopoly) and unique geographical coverage encompassing all of Denmark.13  

The Court of Justice noted that "[b]y reason of its significantly higher market share, the undertaking in a dominant position generally constitutes an unavoidable business partner in the market." The Court of Justice's drafting on this point is unfortunate. The apparent link between the "significantly higher market share" and being an "unavoidable business partner" does not explicitly identify other factors of the case (i.e. those set out above and identified by the Court of Justice in the paragraph immediately preceding this statement) that one assumes the Court of Justice must have taken into account. Also, it must be borne in mind that Post Danmark's market share of the "bulk mail" market was 95% (at its lowest point) and Post Danmark benefitted from a legal monopoly in respect of 70% of that market.

The Rebate Scheme Applies to the Majority of Customers on the Market

The referring court also inquired about the relevance to be attached, in the assessment of rebates, to the fact that the rebate scheme implemented by Post Danmark applied to the majority of customers on the market.14   The Court of Justice held that while this fact did not, in itself, constitute evidence of abusive conduct by that company,15   it could be a "useful indication" as to the extent of that conduct and its impact on the market, which may ultimately support the likelihood of an anti-competitive exclusionary effect.16   Thus, the Court of Justice appears to underline the importance of establishing an anti-competitive effect.

Objective Justification

Finally, the Court of Justice reminded the referring court that should it find actual or likely anti-competitive foreclosure effects attributable to the rebate scheme operated by Post Danmark, it remains entitled to provide objective justification for its behavior. It may in particular demonstrate that the exclusionary effect arising from its conduct may be counterbalanced by advantages in terms of efficiency which also benefit the consumer.

Relevance to be Attached to the As-Efficient-Competitor Test in Assessing a Rebate Scheme

The referring court wished to clarify the relevance to be attached to the as-efficient-competitor test in assessing a rebate scheme under Article 102 TFEU.

In 2009, the Commission issued the Guidance Paper setting out the approach that the Commission will adopt in its prioritization and assessment of Article 102 cases.17   The Guidance Paper refers to the as-efficient-competitor test as a central aspect for assessing conduct that may lead to anti-competitive foreclosure. This test consists in examining whether the pricing practices of a dominant undertaking would be likely to drive an equally efficient competitor from the market. It has been applied by the EU Courts to selective price cuts, predatory pricing and margin squeeze.18

In Post Danmark II, the Court of Justice held that it was not possible to infer from Article 102 TFEU that "there is a legal obligation requiring a finding to the effect that a rebate scheme operated by a dominant undertaking is abusive to be based always on the as-efficient-competitor test."19 Nevertheless, according to the Court of Justice, the as-efficient-competitor test is to be considered as "one tool amongst others for the purposes of assessing whether there is an abuse of a dominant position in the context of a rebate scheme."20 This is, to the best of our knowledge, the first time that the Court of Justice has recognized the relevance of the "as efficient competitor" test in an Article 102 rebates case. Looking at the dispute at hand, the Court of Justice observed that applying the as-efficient-competitor test would be of no relevance given that, in its view, the structure of the market makes the emergence of an as-efficient competitor practically impossible.21

The Court of Justice's statement that the as-efficient-competitor test is to be considered as "one tool amongst others" seems to be a (much welcome) invitation by the Court of Justice to the Commission to apply its Guidance Paper to the assessment of rebates.22

Likelihood and Materiality of Anti-Competitive Effect

Furthermore, the referring court asked whether Article 102 TFEU must be interpreted as meaning that the anti-competitive foreclosure effect of a rebate scheme must be (i) probable and (ii) serious or appreciable.

As regards the likelihood of an anti-competitive effect, consistent with the Guidance Paper, the Court of Justice held that only dominant companies whose conduct produces an actual or likely anti-competitive effect on the market fall within the scope of Article 102 TFEU.23 This is a welcome development and represents an alignment of the case law with the Guidance Paper.

As regards the serious or appreciable nature of an anti-competitive effect (sometimes referred to as a de minimis threshold), the Court of Justice stated that having established a "probable" anti-competitive foreclosure effect, there is no independent requirement to prove that the effect is of a serious or appreciable nature. Indeed, while the Court of Justice refuses to commit itself ex ante to a number, e.g., percentage of market foreclosed (a point already made in its 2012 Tomra ruling),25 a "not insignificant" anti-competitive foreclosure effect is nevertheless inherent in the notion of abuse.26

Footnotes

1   Case C-23/14 Post Danmark A/S v Konkurrencerådet EU:C:2015:651. The case is commonly known as Post Danmark II as in 2012 the Court of Justice ruled in another dispute involving the same parties.

2   Direct advertising mail consists in the distribution, in the context of marketing campaigns, of advertising mail of uniform content bearing the address of the addressee.

3  In a preliminary ruling, the Court of Justice provides its interpretation of the applicable principles of EU law. It is then for the referring court to apply those to the case at hand.

4 Post Danmark II, para. 27. It should be noted that, elsewhere in the ruling, the Court of Justice refers to loyalty rebates as rebates that lead to customers buying all or a certain share from the dominant company.

5  Case T-286/09 Intel v Commission EU:T:2014:547. The judgment is currently under appeal before the Court of Justice.

6   Post Danmark II, paras 29 and 31.

7   Guidance on the Commission's enforcement priorities in applying Article [102 TFEU] to abusive exclusionary conduct by dominant undertakings ('Guidance Paper') [OJ] C 45, 24 February 2009, p. 7-20. The Court of Justice notes in Post Danmark II that this guidance paper is not binding on national competition authorities and courts.

8  Case C-95/04 P British Airways v Commission EU:C:2007:166; Case C-549/10 P Tomra Systems and Others v Commission ('Tomra Systems') EU:C:2012:221.

9  That is to say whether these rebates are capable, first, of making market entry very difficult or impossible for competitors of the undertaking in a dominant position and, secondly, of making it more difficult or impossible for the co-contractors of that undertaking to choose between various sources of supply or commercial partners.

10  Post Danmark II, para. 33.

11   Post Danmark II, para. 34.

12   Post Danmark II, para. 39.

13  Post Danmark II, para. 39.

14  Post Danmark II, para. 43.

15  Post Danmark II, para. 44.

16  Post Danmark II, para. 46.

17  For example, the press release that accompanied the adoption of the Guidance Paper stated that "[t]he guidance paper outlines the analytical framework that the Commission employs when assessing the most commonly encountered forms of exclusionary conduct, such as exclusive dealing, rebates, tying and bundling, predatory practices, refusal to supply and margin squeeze) [...] The Commission will fully apply the approach set out above to future cases" (IP/08/1877).

18  Post Danmark II, para. 55.

19 Post Danmark II, para. 57.

20  Post Danmark II, para. 61.

21 Post Danmark II, para. 59.

22 The Guidance Paper also states that in certain circumstances, it may be desirable to protect less efficient competitors (para. 24). However, it is extremely debatable whether it is would be appropriate—other than in exceptional circumstances (that, it could be argued, may be present in the facts underlying the Post Danmark II ruling)—to attach legal liability to conduct that forecloses only less efficient rivals.

23 Post Danmark II, paras 67 and 69.

24 Guidance Paper, para. 20.

25 Tomra Systems, para. 46.

26 Post Danmark II, para. 73.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.