Source: http://antitrustdigest.net/mark-friend-loyalty-rebates-and-abuse-of-dominance-2018-the-cambridge-law-journal-771-25/
Timestamp: 2019-04-21 12:52:58+00:00

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This paper – which can be found here – argues that the Intel decision should be given a cautious welcome for signalling a move to a more economics-based approach in the assessment of loyalty rebates. On the other hand, the author thinks that the decision also represents a missed opportunity to provide a comprehensive analytical framework for one of the more unsatisfactory areas of EU competition law.
Since Michelin II, it has been clear that quantity rebates or discounts – linked solely to volumes purchased from the dominant undertaking – are generally considered not to give rise to foreclosure effects and are presumptively lawful.
On the other hand, loyalty rebates have consistently been condemned ever since Hoffmann-La Roche. This case held that a dominant company will be guilty of an abuse whenever that company offers “discounts conditional on the customer’s obtaining all or most of its requirements” from it. Such discounts are abusive irrespective of the quantity of the purchases involved or of the discount being offered at the request of the customer.
Effectively, Hoffmann-La Roche treated loyalty rebates as akin to a restriction of competition by object, in which anti-competitive effects are presumed without any need to prove harm to competition. While it remained open to a dominant undertaking to prove that its conduct was objectively justified or counterbalanced by efficiencies that benefitted consumers, this defence had yet to succeed in a loyalty rebates case.
The General Court adopted a novel threefold categorisation of rebates in its Intel decision. This category maintained the presumptive lawfulness of quantity rebates and the presumptive unlawfulness of exclusivity (as opposed to loyalty) rebates. A third category of “other” loyalty rebates required consideration of all the circumstances to determine potential foreclosure effects. As Intel’s rebates fell within the second category, there was, according to the General Court, no need to examine Intel’s arguments relating to the market analysis carried out by the Commission.
The author thinks that the question before the CJEU in Intel was whether the European Commission was right to condemn the loyalty rebates offered by Intel as akin to a restriction of competition by object, that is, without needing to carry out a detailed market analysis to establish the likelihood of foreclosure effects. This turned on the General Court’s refusal to consider Intel’s arguments concerning the as effective competitor (AEC) test.
If it considered that this refusal is mistaken – as it did – the CJEU would then have to choose whether to overrule Hoffmann-La Roche or seek to distinguish it on the facts. Instead, in a remarkable sleight of hand the Court ducked the issue, noting instead that Hoffmann-La Roche needed to be “further clarified” where the dominant firm submitted during the Commission’s investigation (with “supporting evidence”) that “its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects”.
Where does this leave Hoffmann-La Roche? The author considers that it has not been explicitly overruled, but its practical significance appears to have been considerably diminished. It is scarcely conceivable that a dominant undertaking under investigation by the Commission would not contest the Commission’s characterisation of allegedly abusive rebates by seeking to disprove the likelihood of foreclosure effects. In those circumstances, and provided the dominant company submits the necessary “supporting evidence”, the Commission will be required to carry out a market analysis, including pursuing an AEC test.
The battleground in future rebates cases is likely to centre on whether the dominant undertaking has done enough to shift the burden of proof onto the Commission to demonstrate capability to foreclose. The Court has created a role for economic analysis, but has done so by the back door.
Comment: Assuming this is indeed what the CJEU did – instead of making a purely procedural point that the General Court must review all evidence on which the Commission relied – I personally think it is unfair to characterise the CJEU’s ruling as a ‘sleight of hand’ or as ‘introducing economic analysis’ by the back door.
First, the CJEU very rarely overrules previous decisions – and, while I’m not a fan of this, it is something that must be understood, and should be criticised, by taking into account the type of legal reasoning that the CJEU has deployed throughout the years.
Secondly, in this case it could be said that the Court is distinguishing Hoffman La Roche on the facts, and not changing the law at all. After all, it was the law that it ‘remained open to a dominant undertaking to prove that its conduct was objectively justified or counterbalanced by efficiencies that benefitted consumers’. If evidence of such efficiencies is provided, then it follows that it should be addressed. The CJEU was faced here with a situation where this happened, and refined the quasi per se rule of illegality concerning loyalty rebates in line with its own case law – even if the practical effects of this refinement may be the imposition of a requirement on the Commission to demonstrate that a discounting practice has anticompetitive effects in most, if not all future exclusive rebate cases.
Third, even if the effect of this is to incentivise investigated companies to adduce evidence of efficiencies, I don’t see why this introduces economic analysis by the back door. Instead, and I argued above, what this does is to introduce a system of review based on the shifting of the burden of proof – not unlike the burden shifting framework deployed in the context of the rule-of-reason in the US.

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