Articles

Developments in March - April 2012

Developments in March - April 2012

Developments in March - April 2012

07.05.2012 BE law

Court of Justice confirms strict stance on rebate schemes implemented by a dominant undertaking.

Background of the Case

 

In March 2006, the Commission imposed a fine of EUR 24 million on Tomragroup for abusing its dominant position. The Commission found that Tomrahad infringed Article 102 TFEU by implementing an exclusionary strategy in the national reverse vending machine markets of Germany, the Netherlands, Austria, Sweden and Norway from 1998 to 2002. This strategy included agreements on (i) the exclusivity of Tomra Group as supplier (ii) individualized quantity targets, or (iii) retroactive rebate schemes.

Tomra group brought an action to annul the Commission Decision. On 9 September 20101, the General Court upheld the Commission decision. In particular, the General Court concluded that the foreclosure by a dominant undertaking of a substantial part of the market cannot be justified by showing that the contestable part of the market is still sufficient to accommodate a limited number of competitors. Also, the General Court followed the approach of settled case law on rebates that loyalty rebates are per se illegal instead of referring to a more economic approach promulgated by the Commission’s guidance paper on exclusionary abuses2.

Tomra Group lodged an appeal against this decision but the Court of Justice upheld the General Court Judgment on 19 April 20123.

Judgment of the Court  

Intent to engage in abusive behavior is not required

Tomra group submits that the General Court was wrong to endorse the Commission’s finding of an anti-competitive intent to foreclose competition. The Court also erred in law by refusing to consider evidence showing thatTomra group was intend on competing on the merits.

The Court of Justice recalls that the concept of abuse of a dominant position prohibited by Article 102 TFEU is an objective concept. Nonetheless, “it is legitimate for the Commission to refer to subjective factors, namely the motives underlying the business strategy in question”. The existence of an anti-competitive intent is only one of a number of facts which may be taken into account to assess whether there is an abuse of a dominant position.  However, the Commission is not obliged to establish the existence of such intent on the part of the dominant undertaking in order to render Article 102 TFEU applicable.

The Court of Justice upheld the Generals Court’s finding that the existence of an intention to compete on the merits, even if it were established, could not prove the absence of abuse.

Thresholds of foreclosure 

Tomra submits that the General Court erred in law and failed to provide sufficient reasoning when finding that the alleged exclusivity agreements covered a sufficient portion of total demand so as to be capable of restricting competition. 

The Court of Justice refers to the judgment in Teliasonera4 and states that “the dominant position referred to in Article 82 EC (now Article 102 TFEU) relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors and its customers”. Article 102 TFEU does not envisage any variation in form or degree in the concept of a dominant position. 

The Court of Justice upholds the General Court’s conclusion that the foreclosure by a dominant undertaking of a substantial part of the market cannot be justified by showing that the contestable part of the market is still sufficient to accommodate a limited number of competitors. 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. So, when a company grants loyalty rebates only to a part of a market this is abusive. The Court of Justice rejects the possibility to apply “a minimum viable scale” test since the determination of a precise threshold of market foreclosure beyond which the practices at issue had to be regarded as abusive is not required for the purposes of applying Article 102 TFEU. 

Examination of retroactive debates 

Tomra asserts that the General Court erred in law by not requiring the Commission to establish that the retroactive rebates used by Tomra led to below cost selling in order to qualify those rebates as exclusionary. 

The Court of Justice considers that a rebate system must be regarded as infringing Article 102 TFEU if it tends to prevent customers of the dominant undertaking from obtaining their supplies from competing producers. The invoicing of ‘negative prices’, in other words prices below cost, to customers is not a prerequisite of a finding that a retroactive rebate scheme operated by a dominant undertaking is abusive.

The Court of Justice sides with the General Court in ruling that the loyalty mechanism was inherent in the supplier’s ability to drive out its competitors by means of the suction to itself of the contestable part of demand. When such a trading instrument exists, it is therefore unnecessary to undertake an analysis of the actual effects of the rebates on competition given that, for the purposes of establishing an infringement of Article 102 TFEU, it is sufficient to demonstrate that the conduct at issue is capable of having an effect on competition.

The Court of Justice rules that the Commission establishes the existence of an abuse of a dominant position by relying on the evidential value of other considerations that prove the existence of strong incentives to obtain supplies exclusively or almost exclusively from Tomra group. Consequently, there was no obligation to examine the question whether the prices charged by the Tomra group were or were not lower than their long-run average incremental costs. 

Comment  

One might be puzzled as to the methodology used to analyse the alleged abuse in the future. Either a rebate system granted by a dominant undertaking is assessed under a more economic approach as promulgated by the Commission Guidance or is assessed under a formalistic approach as reaffirmed in the present case. 

The present decision concerns an appeal against a Commission decision which predated the Guidance Paper. The Court of Justice in Tomra only reviewed the reasoning of the Commission in that particular case and does not rule on how rebates should be reviewed in the future.  It is to be expected that the Commission will follow its own Guidance Paper. Therefore, it can also be expected that, when reviewing such a decision, the Court will also follow the more economic approach. Nevertheless, this case is a reminder that the “economic approach” will not save behaviour that for other reasons clearly is abusive.

State aid to ING Groep N.V. during the financial crisis: the General Court does not agree with the Commission’s finding of additional aid

On 2 March 2012, the General Court rendered a judgment that is very critical about the assessment by the European Commission's state aid unit of the repayment terms of the capital injected into ING Groep N.V. by the Netherlands in November 20085.

Background 

In an initial decision of 12 November 2008, the Commission considered that where a capital injection of 10 000 000 000 EUR was given through special securities issued by ING Groep N.V. and purchased by the Netherlands State, that purchase contained an element of aid within the meaning of Article 107(1) TFEU. The state's intervention showed that it was based on "considerations […] which no private investor would consider": i.e., maintaining the stability of the financial market in the Netherlands. The Commission however observed that the capital injection was compatible with the common market within the meaning of article 107(3)(b) TFEU, in so far as it sought to remedy a serious disturbance in the economy of a Member State as a result of the financial crisis. Consequently, the Commission raised no objections to the measure and approved it as an emergency measure for a period of six months. At the end of this six-month term the Commission would review the capital injection, in particular as regards the manner in which ING's long-term viability was to be ensured. If the Netherlands would submit within that six-month period a viable plan in that regard ("a restructuring plan"), the validity of the November 2008 decision would automatically be extended until the Commission adopted a decision on the plan.

After lengthy negotiations that took much more than six months, the Commission eventually, on 18 November 2009, approved the restructuring plan proposed by the Netherlands State. This November 2009 decision (the "contested decision") however considered that as a consequence of an amendment to the agreement for repayment of the special securities, INGGroep had received additional aid for an amount of approximately 2 billion EUR. The Commission opined that if the initial terms for repayment of the injected capital were compared to the amended terms the conclusion could be drawn that the amount of aid had increased. A proper understanding of this case requires quoting paragraphs 33 and 34 of the contested decision:

"(33) The issue price for an injection of EUR 10 billion of Core-Tier 1 capital was EUR 10 per security. On the initiative of ING, the securities can either be repurchased at EUR 15 per security (a 50 % redemption premium to the issue price), or, after three years, be converted into ordinary shares on a one for one basis. If ING triggers the conversion option, the Netherlands has the choice to opt for the alternative redemption of the securities at a rate of EUR 10 per security plus accrued interest. A coupon will only be paid for the Netherlands if a dividend is paid on the ordinary shares.

 (34) In the framework of the restructuring plan the Netherlands has submitted an amendment to the agreement for the repayment of the Tier 1 securities by ING.  According to the amended terms ING is liable to repurchase up to 50 % of the  Core-Tier 1 securities at the issue price (EUR 10), plus […] accrued interest […]  (around EUR 253 million), plus an early repayment penalty when the ING share price trades above EUR 10. […] The early redemption penalty could amount to a maximum of EUR 705 million assuming that the EUR 5 billion arerepaid 400 days after the date of issue. Furthermore the penalty/premium has a floor of EUR 340 million, ensuring a minimum internal rate of return for the Netherlands of 15%. In other words, considering that ING would normally have to pay a EUR 2.5 billion redemption premium this amendment would result in an additional advantage for ING between EUR 1.79 and 2.2 billion depending on the market price for ING shares."

 Judgment of the Court

This review will focus on the General Court's appraisal of the Commission correctly applying the principle that no state aid per the meaning of Article 107(1) TFEU exists if the State granting the sums to a private undertaking meets the private investor test. In the case of a capital injection this test requires to assess whether, in similar circumstances, a private investor of a dimension comparable to that of a public authority could have been prevailed upon to make capital contributions of the same size, having regard in particular to the information available and foreseeable developments at the date of those contributions. In the case at hand the Commission opined that the amendment to the repayment could not or should not be assessed pursuant to the private investor test because it regarded that amendment as "an additional measure in favor of the recipient of State aid which is being restructured". The General Court held that, in so doing, the Commission tried to evade its obligation to assess the economic rationality of the amendment to the repayment terms in the light of the private investor principle solely on the ground that the capital injection subject to repayment already itself constitutes State aid. Indeed, it is only after an assessment of the economic rationale that the Commission can be in a position to conclude whether an additional advantage within the meaning of Article 107(1) has been granted. In unequivocal terms the General Court makes clear that the Commission should have made that assessment both at the date of the making of the capital contribution (in autumn 2008) and at the date of the amendment to the repayment terms (in autumn 2009) .

Second, having decided that the amendment to the repayment terms must be assessed separately, the Court examined whether or not classification of the amendment as additional aid was subject to a comprehensive review by the Court. In that regard the Court recalled that if the identification of the aid called for a complex economic assessment by the Commission, in particular regarding the question whether, by accepting the amendment to the repayment terms, the State acted as a prudent investor of a comparable would be likely to have acted, the Court's review would be limited. The Court however, does not clearly answer the question whether its review in the case before it should be limited or comprehensive. Rather, the Court verifies in over forty paragraphs whether the contested decision was not affected by procedural flows, thereby, in reality, undertaking a substantive review. I.e., the Court assessed whether the Commission had met the requirement to examine carefully and impartially, everything relevant to the particular case and whether the rights of the company concerned to be heard and to have a sufficient statement of reasons for that decision were respected.

In sum, the Court found that the Commission did not carry out an examination in the contested decision to determine how a return of between 15 % and 22 % in favor of the Netherlands State following the amendment to the repayment terms did not correspond to that which could reasonably be expected by a private investor confronted by a similar situation, that is to say a holder of securities of the type issued at the time of the capital injection which can be repaid by the issuer. Consequently, the Commission misinterpreted the concept of aid by not assessing whether, by accepting the amendment to the repayment terms, the Netherlands State acted as a private investor would have done in a similar situation, inter alia because the Netherlands State could have been repaid early and because when the amendment occurred it obtained a greater certainty of being repaid in a satisfactory manner taking the existing market conditions into account.

The General Court then proceeds by determining the consequences for the operative part of the errors made by the Commission. It concludes that, in the absence of proof by the Commission in the contested decision that the amendment of the repayment terms constituted an advantage for ING which a private investor in the same situation as the Netherlands State would not have granted and because the Commission erred as to the amount of that advantage, the contested decision should be invalidated to the extent that it is based on the finding that the amendment to the capital injection repayment terms constitutes additional aid of approximately EUR 2 billion.

New de minimis Regulation for Services of General Economic Interest (SGEI)

On 25 April 2012, the Commission adopted a Regulation that exempts from the notification requirement of Article 108(3) TFEU, aid granted to any one undertaking providing services of general economic interest which do not exceed EUR 500 000 over any period of three fiscal years.6

The Commissions decided to increase the ceilling below which advantages granted to such undertakings may be deemed not to affect trade between Member States and/or not to distort competition by EUR 300 000  in comparison to the 2006 De minimis Regulation. Also, in view of the development of the road passenger transport sector and of the local nature of services of general economic interest in this field, the Commission decided to apply the ceiling of EUR 500 000 instead of EUR 100 000.

This Regulation completes the package for reform of the state aid rules on SGEI adopted in December 20117.

The Regulation No 360/2012 on the application of Articles 107 and 108 of the TFEU to de minimis aid granted to undertakings providing services of general economic interest applies as of 29 April 2012 and will continue to apply until 31 December 2018.

The Commission Publishes antitrust guidance for Articles 101 & 102 TFEU proceedings 

In March, the Commission published several documents containing practical information related to antitrust procedures:

  • The Informal Guidance Paper on how to claim confidentiality for information contained in the submissions/documents obtained by the Commission in the course of an investigation. The guidance paper outlines Do’s and Don’ts for undertakings when indicating business secrets and other confidential information in submissions and/or documents held on the Commission’s file. The Guidance paper provides examples of what may constitute business secrets and other confidential information and also, the types of information that the Commission will not consider to merit confidential treatment. Also, the Guidance indicates layout and presentation requirements when submitting confidentiality claims.

  • The Commission published on its website a public version of its Antitrust ManProc. The publication of this manual follows a complaint lodged before the European Ombudsman. In 2011, the European Ombudsman accepted that the Commission had been entitled to refuse access to certain parts of the internal manual on the grounds that disclosure would reveal its investigatory strategy and so undermine the purpose of investigations and its decision-making process. However, the European Ombudsman made the preliminary finding that the Commission had failed properly to handle the complainant's request for access to the Antitrust ManProc, and that such failure amounted to an instance of maladministration. In response to the Ombudsman's recommendation for a friendly solution, the Commission has been working on producing a publiclydisclosable version of DG Competition's internal procedural manual.
The public version of the manual is divided in 28 chapters. Each of them provides explanations on the application of the competition provisions contains in Regulation No 1/2003, Regulation No 773/2004 and other Commission’s notice and guidelines. They cover topics such as the application of the leniency notice, access to the file and confidentiality or the request for obtaining a guidance letter. Nevertheless, the Commission did not enclose a chapter on surprise inspections in the premises of the undertakings. The notice of the manual emphasises that this practical guidance has not been adopted by the Commission and it constitutes a working tool that evolves on a regular basis through new case experiences. Therefore, updates to the modules will be made public at regular intervals. Also, the notice makes clear that the manual is a purely internal guidance to staff, it does not contain binding instructions for staff and the procedures can be adapted to the circumstances of the case.

 Footnotes

  1. Case T-155/06 - Tomra Systems ASA and Others v European Commission [2010] ECR II-0000. 9 September 2010
  2. Communication from the Commission — Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings – [2009] OJ C 45/7  24 February 2009.
  3. Case C-549/10P - Tomra Systems ASA and Others v European Commission [ 2012] ECR-I -0000. 19 April 2012
  4. Case C-52/09 - Teliasonera Sverige AB [2011] ECR I-0000. 17 February 2011
  5. Joined Cases T-29/10 and T-33/10 - Kingdom of the Netherlands and ING Groep v Commission [2012] ECR II-0000. 2 March 2012
  6. Commission Regulation (EU) No 360/2012 of 25 April 2012 on the application of Articles 107 and 108 TFEU to de minimis aid granted to undertakings providing services of general economic interest. [2012] OJ L114/8 26.4.2012 

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