On 6 October 2015, the Court of Justice ruled under which circumstances Post Danmark's rebate scheme for bulk advertising qualified as an abuse of a dominant position. In response to preliminary reference questions of a Danish court, the Court of Justice found that Post Danmark's rebate scheme was abusive, in particular because of the scheme's retroactive nature.
In 2003, when it had a statutory monopoly on the market for bulk advertising mail, Post Danmark implemented a standardized, conditional and retroactive rebate scheme with a reference period of one year. After this statutory monopoly was partly lifted, Bring Citymail entered the market in 2007. Bring Citymail withdrew a few years later after having suffered heavy losses. In 2009, following a complaint by Bring Citymail, the Danish competition authority found that Post Danmark abused its dominant position in 2007 and 2008 with its rebate scheme. After the Danish Competition Appeals Tribunal confirmed the decision, the Maritime and Commercial Court referred the case to the Court of Justice to ask for further clarification of the criteria for assessing the abusive nature of a rebate scheme.
The Court of Justice considered that rebate schemes not leading to exclusivity or near exclusivity should be assessed on the basis of all the circumstances of the case. Retroactive rebates, even if non-discriminatory, may have a disproportionate effect on competitors, because relatively modest variations in sales can have disproportionate effects on customers.
Retroactive (or "roll-back") rebates, unlike incremental rebates, apply 'retroactively' to all purchases in a certain period. This can be illustrated as follows:
For EU Courts, a reference period of one year is relatively long and has the inherent effect of increasing pressure on the buyer to reach the purchase figure needed to obtain the discount. Such rebates are capable of making it easier for dominant companies to tie customers and secure the "suction" to itself of the part of demand subject to competition (the loyalty-building effect).
A dominant undertaking may in theory demonstrate that the anti-competitive effects are counterbalanced by efficiency advantages that also benefit the consumer. The Court of Justice clarified that the undertaking then has to show that: (i) the efficiency gains counteract any likely negative effects on competition, (ii) the conduct is necessary to achieve those gains, and (iii) the conduct does not eliminate effective competition.
The Court of Justice held that the "as-efficient-competitor test", which consists in examining whether the pricing practices of a dominant undertaking could drive an equally efficient competitor from the market, must be regarded as one tool, amongst others, that can be used to assess whether there is abuse. Other than indicated in the Commission's guidance, which merely sets out the Commission's approach and is not binding for national competition authorities and courts, the invoicing below cost prices is not a requirement for finding that a retroactive rebate scheme is abusive. In the case at hand, the Court of Justice found that the as-efficient-competitor test was of no relevance, considering Post Danmark's statutory monopoly on 70% of the relevant market and its structural advantages.
Finally, the Court held that practices must have an anti-competitive effect on the market to be abusive but that this effect only needs to be "probable" and does not have to be concrete. There is no de minimis threshold for the effects of an abuse of dominance, given that the practices are by their very nature liable to give rise to "not insignificant" restrictions of competition.
The case confirms previous case law about the abusive nature of retroactive rebate schemes for dominant companies. On the basis of the strict requirements set by the Court, it appears difficult for dominant companies to justify retroactive rebate schemes. The guidance on the assessment of rebate schemes and the rejection of a de minimis thresholds are welcome clarifications on the abuse of dominance rules.
This article was published in the Competition Law Newsletter of November 2015. Other articles in this newsletter:
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