On 15 February 2013, the Danish Supreme Court ("DSC") annulled the Danish Competition Council's decision of 29 September 2004 finding that the Danish postal incumbent Post Danmark had abused its dominant position on the market for the distribution of unaddressed mail through selective price cutting and discrimination.
Basing itself on a preliminary ruling by the Court of Justice of the European Union ("ECJ") of 27 March 2012 (see VBB on Competition Law, Volume 2012, No. 3, available at www.vbb.com), the DSC concluded that prices charged by Post Danmark to certain customers could not be considered as abusive per se merely because they were lower than the average total costs, but higher than the average incremental costs, of providing the services concerned. For such a practice to be considered abusive, the DSC held that it must also be shown that the pricing policy produces an actual or probable exclusionary effect. The Danish Competition Council had failed to do this in the case at hand.
The DSC's judgment follows a complaint made by Post Danmark's competitor Forbruger-Kontakt ("FK") alleging that Post Danmark had abused its dominant position by offering discriminatory prices to its own customers and the customers of FK, and by offering individual and targeted rebates to FK's customers that did not reflect the underlying costs of Post Danmark. According to FK, Post Danmark's pricing strategy sought to eliminate FK from the relevant market, thereby infringing Section 11 of the Danish Competition Act and Article 102 TFEU.
In 2004, the Danish Competition Council found that Post Danmark had indeed abused its dominant position on the market for the distribution of unaddressed mail. In particular, the Competition Council pointed out that Post Danmark could not justify the significant differences between rates and rebate conditions offered to FK's customers and those granted to its own customers.
On appeal, the DSC decided to seek guidance from the ECJ as to whether selective price cuts by a dominant undertaking which led to prices lower than the undertaking's average total costs, but higher than its average incremental costs, constitutes an abuse if the purpose of such pricing policy is not to drive out a competitor. The ECJ handed down its preliminary ruling on 27 March 2012 holding that a pricing policy such as the one at issue cannot in itself be considered to amount to an abuse. Instead, if a dominant undertaking's prices are set at a level to cover "the great bulk of the costs" attributable to the supply of the goods or services in question, it will generally be possible for an as-efficient competitor to compete with those prices without suffering losses that are unsustainable in the long term. The ECJ further noted that in the present case, FK had managed to maintain its distribution network, and had also succeeded to win back two of the customers that had been targeted by Post Danmark's rebates and price cuts. The ECJ concluded that for a pricing policy, such as the one of Post Danmark, to be considered as abusive it is necessary to consider whether it produces actual or likely exclusionary effects to the detriment of competition, and whether or not there is an objective justification to such effects.
Referring largely to the findings of the ECJ, the DSC noted that the Danish Competition Council had not based its 2004 decision on an evaluation of Post Danmark's costs attributed to the distribution of unaddressed mail, but rather on an examination of whether or not Post Danmark's prices to one of FK's customers aimed at eliminating FK from the market. According to the DSC, such an examination does not correspond to the requirements set out in the ECJ's preliminary ruling, resulting in a legal deficiency in the Competition Council's decision.
The DSC further noted that Post Danmark's prices to FK's customer was higher than its average incremental costs and that, in order for such pricing policy to constitute an abuse, it had to be shown that the pricing policy was likely to result in the elimination of FK from the market. According to the DSC, the Competition Council had failed to show any such likely effect. In its assessment, the DSC took particular account of the fact that: (i) Post Danmark's average prices to all of its customers were above its average total costs; (ii) Post Danmark's customers could terminate their agreements with Post Danmark on the distribution of unaddressed mail by giving three months' notice and without risking any penalties; and (iii) FK was able to maintain its distribution network in spite of Post Danmark's targeted and individual prices and rebates to FK's customers. The DSC concluded that, provided that FK was as-efficient as Post Danmark, it did indeed have the possibility to compete with Post Danmark's prices.
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