The judgment of 6 October 2015 in case C-23/14 marks the second time that the European Court of Justice (“ECJ”) had to consider the business practices of the former state-owned operator of the Danish postal service, Post Danmark. While the first judgment mainly concerned the predatory pricing policy of the former monopolist, the ECJ discusses in the present judgment the lawfulness of a rebate scheme under EU competition law.
Rebate schemes are common and widely spread in commercial life. However, their application often gives rise to several competition concerns. Rebate schemes included in supply agreements may infringe competition law (Sec. 1 German Act against Restraints of Competition (“ARC”), Art. 101 TFEU) if they make customers to purchase virtually all of their requirements from only one supplier. The analysis of such rebates will particularly depend on the parties’ market shares as well as the duration of the agreement.
In addition, a rebate scheme operated by a dominant company may infringe competition law if it amounts to an abuse of a dominant position (Sec. 19 ARC, Art. 102 TFEU). This may be the case if the rebate scheme has the object or effect to discriminate customers or to foreclose competitors.
The present case concerned the factors relevant for the analysis whether a rebate scheme of a dominant company can produce a foreclosure effect and is therefore abusive. The ECJ, due to a reference for a preliminary ruling from a Danish court, considered a rebate scheme operated by Post Danmark in 2007 and 2008. This rebate scheme consisted of standardised quantity rebates in respect of bulk advertising mail with a rebate scale including several rates of up to 16% which were uniformly applied to all customers. The rebates were determined retroactively at the end of the year for the aggregated purchases over the annual reference period.
Categories of rebate schemes
In the judgment, the ECJ makes generals statements concerning the lawfulness of rebate schemes which provide important guidance for future cases:
1. Pure quantity rebates (in the strict sense of the term), which are linked solely to the volume of purchases, are, in principle, permissible.
2. Loyalty rebates (i.e., rebates which are conditional on customers purchasing all or most of their requirements from the dominant company) are as such abusive.
3. All other rebates that do not fall into either of the above categories have to be assessed on a case by case basis, taking into consideration all circumstances of the individual case. This particularly applies to quantity rebates (in the broad sense of the term) which are not granted in respect of each individual order and therefore correspond to the cost savings achieved by the seller, but instead are determined based on the orders within a reference period. The relevant factors for establishing whether such rebate schemes are abusive include particularly the criteria and modalities governing the grant of the rebate (e.g. taking into account whether it applies only to purchases exceeding a certain threshold or retroactively for all purchases within the reference period as well as the length of such reference period), the extent of the dominant position of the relevant company and the conditions of competition prevailing on the relevant market.
The judgment brings important clarifications with regard to the lawfulness of rebate schemes under EU competition law. Companies with high market shares which intend to introduce a rebate scheme face, however, serious practical difficulties. This is due to the fact that the ECJ defines the categories of “pure” quantity rebates which are, in principle, permissible as well as loyalty rebates which are, as such, abusive, very narrowly. Thus, most rebate schemes are likely to fall into the third category. However, it appears doubtful whether an ex ante appraisal of all relevant circumstances of the case as required by the court for this category will lead to clear-cut results in practice. Therefore, companies should review their rebate schemes carefully which may include seeking advice from external competition law counsel.
Courtesy of Noerr – Noerr is a member of the EACCNY