1. Quantity Rebates After Post Danmark II Nicholas Khan Legal Adviser Legal Service of the European Commission 17 March 2015

2. Disclaimer The views expressed in this presentation are personal, do not necessarily reflect the views of the European Commission, and are not meant to be referred to or quoted in any way

3. Overview Legal Context Background to Post Danmark II Opinion and Judgment Some questions and conclusions

4. Legal context Article 102 TFEU Has an open ended prohibition of “abuse” Illustrated by examples - “in particular”... General Court accepted in Case T-167/08, Microsoft v Commission, §91, that Article 102 includes some “imprecise legal concepts” Echoed Court of Justice in Case 85/76 Hoffman-LaRoche v Commission, §130 - Article 102 is “inevitably couched in general terms”

5. Analysis of rebates under Article 102 TFEU Hoffman-LaRoche Decision Roche's conduct constitutes an abuse of a dominant position because by its nature it hampers the freedom of choice and equality of treatment of purchasers and restricts the competition between bulk vitamin manufacturers in the Common Market

6. Analysis of rebates under Article 102 TFEU Endorsed by the Court in Case 85/76 Hoffman-LaRoche v Commission §90 Roche’s rebates “not based on an economic transaction which justifies [exclusivity] but are designed to deprive the purchaser of or restrict his possible choices of sources of supply and to deny other producers access to the market” See also §134, rejecting Roche’s argument that no fine could be imposed for infringement of such an imprecise rule as Article 102 ‒ “not impossible to foresee” that fidelity rebates infringed Article 102 ‒ Article 102 (b), (d) and in particular (c) identified

7. Case T-203/01 Michelin II, §§59-60 General Court held that quantity rebates could also infringe Article 102 TFEU, for the same reasons as fidelity rebates Quantity rebates do not infringe Article 102 TFEU; “unless the criteria and rules for granting the rebate reveal that the system is not based on an economically justified countervailing advantage but tends, following the example of a loyalty and target rebate, to prevent customers from obtaining their supplies from competitors..."

8. Case T-203/01 Michelin II, §§59-60 "In determining whether a quantity rebate system is abusive, it will therefore be necessary to consider all the circumstances, particularly the criteria and rules governing the grant of the rebate, and 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, to apply dissimilar conditions to equivalent transactions with other trading parties or to strengthen the dominant position by distorting competition [citing Case 85/76 Hoffman-LaRoche v Commission]”

9. Case T-203/01 Michelin II Which are "the circumstances" to consider? §73 - Rate of increase in discount §81 – Reference period, one year was "relatively long" §88 – Rebates calculated on total turnover liable to be loyalty-inducing §95 – Together with significant variation between lowest and highest discounts, scheme shown to be loyalty-inducing

10. Case C-23/14 Post Danmark II Facts: PD had a statutory monopoly over mail up to 50g Its bulk mail business covered the entire country Bring City Mail could only offer its services for mail above 50g and in the Copenhagen area Danish NCA found that PD had abused its dominant position on bulk mail market, through its rebate scheme

11. Post Danmark's rebate scale Antal eller bruttoporto pr. ar. Stk. pr. arDKK pr. ar Nedslag/Rabat iforh. til A- og B-breve 30.000-74.999300.000-749.9996 %6 % 75.000-149.999750.000-1499.9997 %7 % 150.000-299.9991.500.000-2.999.9998 %8 % 300.000-499.9993.000.000-4.999.9999 %9 % 500.000-749.9995.000.000-7.499.99910 % 750.000-999.9997.500.000-9.999.99911 % 1.000.000-1.499.9991.000.000-14.999.99912 %12 % 1.500.000-1.999.99915.000.000-19.999.99914 % 2.000.000 og derover20.000.000 og derover16 %16 %

12. Post Danmark II – Questions referred When does a standardised volume rebate infringe Article 102 TFEU, notably when most customers qualify? Which circumstances must be taken into account? Is an AEC test relevant? What other analysis should be applied? How probable and significant must foreclosure effects be?

13. Advocate General Kokott's Opinion §4 - Dismissive of allowing "ephemeral trends" to prevail over "legal foundations" §29 – Not preoccupied by categories, "what matters is whether the dominant undertaking grants rebates which are capable of producing on the relevant market an exclusionary effect which is not economically justified" §55 – Existence of an abuse to be assessed by taking into account "in particular, the criteria and rules governing the grant of the rebate, the conditions of competition prevailing on the relevant market and the position of the dominant undertaking on that market" §65 – AEC test "not inconceivable" but questions utility and feasibility, going further at §74 to exclude it completely

14. Advocate General Kokott's Opinion §80 – An infringing rebate "must be capable not only in the abstract but also in practice" of meeting the Hoffman- LaRoche/British Airways test §89 – However no de minimis threshold of appreciability should be applied

15. Judgment of the Court The Court paraphrases the questions in the same way as the Advocate General §28 – Gives a narrow scope to the presumptively lawful 1 st category in Case T-260/09 Intel §29-30 – "All the relevant circumstances" are the same as those identified by AG Kokott §§32-35 – Adverse conclusions drawn from the retroactive nature of PD's rebate scheme §38 – Discrimination not a necessary element of a rebate abuse

16. Judgment of the Court §42 – PD's very strong market position, in combination with retroactive nature of rebate scheme, "produces an anti- competitive exclusionary effect" §46 - 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

17. Judgment of the Court §56 – Confirmation of Case C-549/10 P Tomra, that an AEC test not required §59-60 – Court endorses AG Kokott's rejection of the relevance of an AEC test §65 – Fulfilment of the Hoffmann-LaRoche test must be more than "purely hypothetical"

18. Judgment of the Court As to the threshold, the Court reiterates the language of earlier judgments It is sufficient if the rebate is "capable" (§68) "likely" (§69) or "probable (§74) to have anti-competitive effects Dicta on the threshold are made in the context of recalling the special responsibility of a dominant undertaking (§71) and rejecting a de minimis threshold (§74)

19. Some conclusions and questions Has anything changed? A shift in the focus of analysis towards the competitive process? Hoffmann-LaRoche already relied on effects both on customers and competitors "restrict [customers'] sources of supply and to deny other producers access to the market" Tomra, §79 – "the loyalty mechanism was inherent in the supplier's ability to drive out its competitors"

20. Some conclusions and questions Tomra, §80 – Upholds the General Court's judgment in Case T-155/06, §§260-264, which rely essentially on the loyalty inducing effect of retroactive rebates Has the threshold of capability/likelihood been raised? The language of the judgment follows that of earlier cases, accompanied by an emphatic rejection of a de minimis threshold

21. Some conclusions and questions How much room is left for an efficiency defence? §49 – [for undertaking] to show that [i] the efficiency gains likely to result from the conduct …counteract any likely negative effects on competition and consumer welfare in the affected markets, [ii] that those gains have been, or are likely to be, brought about as a result of that conduct, [iii] that such conduct is necessary for the achievement of those gains in efficiency and [iv] that it does not eliminate effective competition, by removing all or most existing sources of actual or potential competition