On 19 April 2012, a judgment of the European Court of Justice (ECJ)
rejected an appeal by Tomra Systems ASA against a 2010 judgment of
the General Court. The earlier judgment had in turn dismissed an
appeal against a 2006 European Commission decision that Tomra's
customer loyalty and rebate arrangements had infringed the
competition rules. The ECJ's judgment is a strong indication of
the continuing strict legal principles which apply to loyalty and
pricing practices implemented by companies with a leading market
position.
A link to our LawNow on the 2010 General Court judgment can be
found here.
What were the abusive practices considered by the ECJ?
The ECJ's judgment reaffirms the established principles that a company enjoying a dominant position is likely to abuse that position where it applies a loyalty discount system and that the linked purchase commitment meant to cover most or all of the purchaser's expected requirements for the relevant products is itself likely to be abusive. A "loyalty" or "fidelity" discount occurs where a financial advantage is granted in return for a purchaser sourcing all or most of its requirements from the dominant supplier.
The appeal to the ECJ was brought by Tomra Systems ASA and various other companies within the Tomra group ("Tomra"), who were originally fined €24m by the European Commission (the "Commission"). The Commission found that Tomra had abused a dominant position on various national markets for reverse vending machines, infringing the abuse prohibition at Article 102 of the Treaty on the Functioning of the European Union (the former Article 82). Such machines collect used beverage containers and, having identified the type of container, automatically dispense a deposit to be reimbursed to the consumer.
The Commission found that Tomra's abuse consisted both in a
general policy of denying market access to competitors and in
specific practices evidenced by its dealings with retailers.
The General Court upheld the Commission's reasoning and
conclusions on all points.
The practices in question consisted of the following:
- Entering into agreements where the retailers agreed to buy exclusively from Tomra. "Exclusivity" here included quasi-exclusivity and de facto exclusivity.
- Entering into agreements specifying individualised quantity commitments corresponding to the entire or almost the entire demand of the retailer.
- Entering into retroactive rebate agreements to compensate such commitments. A "retroactive" rebate occurs where the purchaser's bonus is granted for all purchases, even below a triggering threshold, once the threshold is attained.
Appeals to the ECJ are on points of law (not fact). The judgment makes a number of findings of law and procedure, all of which generally uphold the Commission's and the General Court's findings.
What are the main points from the new judgment?
The ECJ's new judgment is likely to reinforce the apparent
discrepancy between, on the one hand, the strict legal principles
on abusive discounts found in historical judgments of the European
courts (e.g. Michelin v Commission [2003], which summarises
previous cases) and, on the other, the more effects-based economic
approach of the competition authorities' recent enforcement
practice, as set out in the Commission's 2009 Guidance on
the Commission's enforcement priorities in applying Article 82
to abusive exclusionary conduct by dominant undertakings (the
"Guidance Paper").
There are three key points where the ECJ restates established
points of law which, arguably, clash with the more flexible
approach in the Guidance Paper.
The most striking conclusion in the judgment is that, in order to
find the scheme abusive, there is no absolute requirement to assess
whether a rebate scheme results in any form of below-cost
selling. According to the ECJ, it is possible to find abuse
by assessing the loyalty-inducing effects of a retroactive scheme
without reference to price levels. This clashes with the
statistical approach in the Guidance Paper, according to which
there is unlikely to be an anti-competitive effect where the
effective price of the relevant range of products to which a rebate
can be linked is above the long-run average incremental cost of
supplying that range of products.
Second, the following quote from the ECJ echoes the General
Court's finding that even a rebate scheme which applies to only
part of a market could still be abusive: "...the customers on
the foreclosed part of the market should have the opportunity to
benefit from whatever degree of competition is possible on the
market and competitors should be able to compete on the merits for
the entire market and not just for a part of it". The
Guidance Paper has a different emphasis on this point, since it
states that the market coverage of an alleged abuse will be a
factor in assessing the foreclosure effect of that abuse.
Finally, the earlier court judgments mentioned above are generally
considered to apply a hard-line rule that rebates must not be
granted by dominant companies in return for customer loyalty, but
must reflect cost savings to the dominant supplier arising from the
increase in volumes purchased. The theory on this point is
that rebates are admissible where they are referable to gains in
efficiency and economies of scale made by the supplier. The ECJ in
Tomra does not state that the lack of a cost-saving
justification automatically implies abuse, but does find that, in
assessing abuse in such cases, it is necessary "to investigate
whether, in providing an advantage not based on any economic
service justifying it, the rebates tend 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".
Some commentators have seen the General Court's judgment in
Tomra as an ambiguous statement of the cost saving
principle and the ECJ's comment here certainly introduces an
efficiency argument as a factor in analysing abusive discounts,
however soft or unclear that factor may be. Despite the
continuing uncertainty on this point, such reference to the
efficiency principle may induce caution in companies with strong
products who are devising rebate schemes.
What is the importance of the judgment?
In its appeal, Tomra had highlighted the discrepancy between the
General Court's approach and the methodology advocated in the
Commission's Guidance Paper. The ECJ held that, since the
Commission decision in question (2006) predated the Guidance Paper
(2009), the Guidance Paper was irrelevant to the analysis of the
alleged abuse in this case. Furthermore, the Guidance Paper
represents guidelines on enforcement priorities and not binding
legislation, although this point was not made by the ECJ.
It may be that future enforcement of the abuse rules will follow
the more flexible criteria in the Guidance Paper, although this
point is hard to call. In any event, the ECJ has reaffirmed
established and strict benchmarks which, on a cautious basis, many
companies may continue to apply in order to guarantee compliance
with EU competition principles.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 20/04/2012.