Post Danmark II in context Pablo Ibanez Colomo London School of Economics

Summary Post Danmark II and prior case law Implications for Article 102 TFEU Open questions

Post Danmark II and prior case law The analysis in Post Danmark II departs from prior case law in two majors respects Shift in the focus of analysis: from customers’ behaviour to effects on the competitive process Exclusionary effects are not merely assumed (capability): their likelihood is to be established

Establishing the effects of rebates Customers’ behaviour Is the scheme ‘loyalty-inducing’? Competitive process Impact on rivals’ ability and incentive to compete? Consumer welfare Does the exclusion of rivals harm consumers?

The world of Michelin II A standardised rebate scheme was found to be abusive in Michelin II The fact that it was loyalty-inducing was sufficient to establish a prima facie breach Relevant questions in Michelin II (GC ruling) Retroactive (‘all-unit’) scheme Reference period of one year Significant variation in the discount rates

The world of Michelin II ‘95. It follows from all of the foregoing that a quantity rebate system in which there is a significant variation in the discount rates between the lower and higher steps, which has a reference period of one year and in which the discount is fixed on the basis of total turnover achieved during the reference period, has the characteristics of a loyalty-inducing discount system’. Case T-203/01, Michelin II

The world of Michelin II In the world of Michelin II, the exclusionary effects of the scheme need not be shown ‘Loyalty-inducing’ schemes are deemed to have an anticompetitive object (para 241) Such practices are assumed to be ‘capable’ of having exclusionary effects The absence of exclusionary effects is not a valid defence The firm can only escape the prohibition by advancing an objective justification

The world of Michelin II Customers’ behaviour Is the scheme ‘loyalty-inducing? Competitive process Impact on rivals’ ability and incentive to compete? Consumer welfare Does the exclusion of rivals harm consumers?

The world of Post Danmark II The Court proposes a two-step test in Post Danmark II (paras 29-30) Assess the nature and the operation of the scheme (paras 31-38) Examine the likely exclusionary effects of the scheme (paras 39-46) Showing that the scheme is ‘loyalty-inducing’ is not sufficient to establish an abuse The exclusionary effects are not merely assumed; likelihood must be established

The world of Post Danmark II The likely exclusionary effects of the scheme are established in light of: Extent of the dominant position (para 39) Is the dominant firm an unavoidable trading partner? (paras 35 and 40) Regulatory barriers to entry (para 40) Coverage of the practice (para 46) An objective justification may be advanced once exclusionary effects are established

The world of Post Danmark II ‘46. However, the fact that a rebate scheme, such as that at issue in the main proceedings, covers the majority of customers on the market may constitute a useful indication as to the extent of that practice and its impact on the market, which may bear out the likelihood of an anti-competitive exclusionary effect’. Case C-23/14, Post Danmark II

The world of Post Danmark II Customers’ behaviour Is the scheme ‘loyalty-inducing? Competitive process Impact on rivals’ ability and incentive to compete? Consumer welfare Does the exclusion of rivals harm consumers?

Summary Post Danmark II and prior case law Implications for Article 102 TFEU Open questions

Implications for Article 102 TFEU Post Danmark II confirms that the object/effect divide exists in Article 102 TFEU Some practices are deemed abusive by their very nature (‘by object’) Evidence of exclusionary effects is not required The practice is assumed to be ‘capable’ of having such effects Other practices are only abusive where they are likely to have exclusionary effects

Implications for Article 102 TFEU ‘By object’ abuses ‘By effect’ abuses Pricing below AVC Refusal to deal Exclusive dealing ‘Margin squeeze’ Loyalty rebates Standardised rebates Tying Selective price cuts

Implications for Article 102 TFEU Post Danmark II provides insights about the assessment of ‘by effect’ practices The approach seems very much in line with the logic of the Commission Guidance… Threshold of effects: likelihood of foreclosure Criteria to assess the exclusionary effects of the practice …except for the perpetuation of the ‘by object’ category for some practices (para 27)

Summary Post Danmark II and prior case law Implications for Article 102 TFEU Open questions

Open questions Is there a reason not to extend Post Danmark II to target rebate schemes? Schemes based on individualised targets may be more conducive to foreclosure But: Would it be enough to claim that the scheme is ‘loyalty-inducing’, as in British Airways? After Post Danmark II, exclusionary effects are not to be assumed, they have to be established (2-step test)

Open questions Is it justified to prohibit exclusivity and loyalty rebates ‘by object’ after Post Danmark II? There are, in theory, two reasons why this would be justified Argument 1: it is safe to presume that exclusivity and loyalty rebates serve an exclusionary purpose Argument 2: Exclusivity and loyalty rebates can have exclusionary effects

Open questions Is it safe to presume that exclusivity and loyalty rebates serve an exclusionary purpose? These practices are plausibly pro-competitive (unlike cartels) This point is not disputed. See: Case law (e.g. Delimitis, BPB, Van den Bergh Foods, Intel) Commission Guidance on Article 102 TFEU (paras 34 and 37) Commission Guidelines on vertical restraints (paras 107 and 146) After Post Danmark II: is it enough to claim that these practices are potentially exclusionary?