Luc Peeperkorn*

Principal Expert in Antitrust Policy

DG Competition, Unit A 1 Antitrust case support and policy

Danish Competition Law Society, Copenhagen December 2012

*The views expressed are those of the speaker and do not necessarily reflect those of DG Competition or the European Commission

Post Danmark: a big step towards a consistent application of a consumer oriented effects-based approach to

exclusionary pricing practices

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The ECJ Post Danmark judgment

• Ruling of ECJ of 27 March 2012, Case C-209/10 Post Danmark A/S v Konkurrencerådet

• Preliminary ruling on questions referred by the Danish Højesteret

• Will give you my views why this judgment is very important

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Why is this judgment so important?

• Firstly, ECJ was sitting as a Grand Chamber, i.e. 15 instead of the usual 3-5 judges

• Secondly, it affirms the application of a consumer oriented effects-based approach to exclusionary pricing conduct and thereby confirms many aspects of the approach set out in the Commission’s Article 102 Guidance Paper (Guidance on the Commission’s enforcement priorities in applying Article 82 of the Treaty to abusive exclusionary conduct by dominant undertakings – adopted by the Commission in 2009)

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Why is this judgment so important?

• Thirdly, it renders certain of the enforcement priorities law and thereby provides for a more consistent application of Art. 102 throughout the EU

• Fourthly, the effects-based approach leads to a more consistent application of Articles 101 and 102, important because of the concurrent application

• Lastly, it is good for international convergence, which takes place along effects-based standards for most practices (see ICN work)

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Some facts of the case

• Post Danmark dominant on the liberalised market for distribution of unaddressed mail and a legal monopoly for addressed mail

• Forbruger-Kontakt main competitor on liberalised market• 2003/4 PD wins 3 major supermarkets as customers from

FK by offering targeted extra low prices• The price offered to COOP is below ATC but above AIC,

the prices offered to SuperBest and Spar remain above ATC

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Some facts of the case

• September 2004: Konkurrencerådet holds that PD abused its dominant position: its targeted price reductions are not justified by cost differences and (may) lead to (1) primary line discrimination, i.e. foreclosure of rivals of PD, and (2) secondary line discrimination to the detriment of PD’s other customers

• November 2004: Konkurrencerådet holds that PD had not intentionally sought to eliminate competition and that there was therefore no predatory pricing abuse

• July 2005: both decisions upheld by the competition appeals tribunal (Konkurrenceankenævnet)

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Some facts of the case

• No appeal as to the finding of no predation or to the finding of secondary line discrimination

• However, PD appealed before the eastern regional court (Østre Landsret) the finding of primary line discrimination

• December 2007: finding upheld• PD appealed before the Højesteret, claiming that its prices

could only be abusive if found to be predatory, while the Konkurrencerådet maintained that prices below ATC but above AIC could be abusive also without the intention to foreclose

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The referred questions

• April 2010: the Højesteret referred the following questions to the ECJ:• Do selective price reductions, on the part of a dominant

postal undertaking that has a universal service obligation, to a level lower than the postal undertaking’s average total cost, but higher than its average incremental costs, constitute an exclusionary abuse, if it is established that the price was not set at that level for the purpose of driving out a competitor?

• If such pricing may be abusive, what are the circumstances that the national court must take into account?

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What the ECJ could have done and what it did

• The ECJ could have simply referred to the test contained in its AKZO judgment: pricing above AVC but below ATC can be found abusive only if a strategy/intention to foreclose can be established

• But instead it came with a concise but elaborate judgment expressing general points on the aim of Article 102, on the role of an efficiency defence, on how in general to assess pricing conduct and the pivotal role of the as efficient competitor test in that assessment

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The aim of Article 102 and the notion of exclusionary abuse

• § 20: Article 102 covers not only those practices that directly cause harm to consumers but also practices that cause consumers harm through their impact on competition…. It is in the latter sense that the expression ‘exclusionary abuse’ appearing in the questions referred is to be understood.

• § 24: Article 102 applies, in particular, to the conduct of a dominant undertaking that, through recourse to methods different from those governing normal competition on the basis of the performance of commercial operators, has the effect, to the detriment of consumers, of hindering the maintenance of the degree of competition existing in the market or the growth of that competition.

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The aim of Article 102 and the notion of exclusionary abuse

• These two quotes are more than just repeating what already had been said in Continental Can and Hoffmann La Roche

• The Hoffmann La Roche quote is amended by adding the underlined to the detriment of consumers

• Together it confirms the choice in the Guidance Paper for a consumer welfare oriented effects-based approach

• This is important in the debate of a more form-based versus a more effects-based approach and of protecting the competitive process in itself versus protecting consumers

• More than just semantics: differentiates between protecting competitors and protecting competition

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Clarification of ‘competition on the merits’

• §22: Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation

• Language similar to Guidance Paper (§5-6)• Competition on the merits = competition that does not

harm consumers• Special responsibility = responsibility not to harm

consumers

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Effective introduction of Article 102(3)

• Already clear in BA/Microsoft/TeliaSonera judgments that also under Art 102 efficiency arguments can be used

• In PD §40-42, ECJ completely follows the Guidance Paper in its distinction between an objective justification and efficiency defence and to structure the latter as Art 101(3)

• Objective justification only a narrow ‘escape’, based on arguments of general validity regarding health, safety etc

• Efficiency defence, based on same conditions as Art 101(3), may provide a justification based on positive effects resulting from that particular firm’s conduct

• Important also for consistent application of Art 101 and 102

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As efficient competitor test as basis for assessing pricing conduct

• Throughout the judgment the Court clarifies that, as a general rule, Art 102 prohibits pricing conduct only if the conduct is able to have an exclusionary effect on competitors as efficient as the dominant firm, and that this provision does not aim to shield inefficient competitors from competitive pressure (see in particular paragraphs 21, 22, 28, 36, 38 of the judgment)

• § 38: Indeed, to the extent that a dominant undertaking sets its prices at a level covering the bulk of the costs attributable to the supply of the goods or services in question, it will, as a general rule, be possible for a competitor as efficient as that undertaking to compete with those prices without suffering losses that are unsustainable in the long term

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As efficient competitor test as basis for assessing pricing conduct

• ECJ understands very well that only low pricing can exclude and that it is only likely to harm consumers if the price is below cost

• ECJ did not mention Compagnie Maritime Belge and Irish Sugar, two cases where exceptionally abuse was found while P > C

• In line with Guidance Paper: if reliable data are available, Commission will apply the as efficient competitor test as part of the assessment. In general harm to consumers only possible if P < LRAIC (or ATC where significant common costs). Only exceptionally harm possible if P > C

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Some clarification on use of cost benchmarks

• Caution: ECJ had to work with cost estimates and definitions as provided by Højesteret: not clear what exactly was included in AIC: all short and long term incremental costs? Apparently also part of common costs

• No strong conclusions but clear that ECJ is willing to consider other cost benchmarks than AVC and ATC

• Guidance Paper stresses LRAIC and AAC• In this case important common costs (shared infrastructure),

which makes that ATC benchmark may be more relevant than LRAIC, as also described in Guidance Paper § 26 footnote 18

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P<ATC not sufficient to find abuse: need to show anticompetitive foreclosure

• The referred question was: when is pricing below ATC but above AIC abusive? Answer by ECJ: in order to assess the existence of anti-competitive effects in circumstances such as those of that case, it is necessary to consider whether that pricing policy […] produces an actual or likely exclusionary effect, to the detriment of competition and, thereby, of consumers’ interests

• Almost literally the description of anticompetitive foreclosure in § 19 of Guidance Paper

• Shows again acceptance of effects-based approach

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P<ATC not sufficient to find abuse: need to show anticompetitive foreclosure

• Seems ECJ amended the AKZO test• Akzo test:

• P < AVC: can presume strategy to foreclose as no economic rationale to incur avoidable loss

• AVC > P < ATC: need to show strategy to foreclose (based on intent documents/duration/selectivity etc)

• PD: if AIC > P < ATC: need to show likely anti-competitive foreclosure effect

• Logically also sufficient if P < AIC• No major change: strategy to foreclose and anticompetitive

foreclosure partly based on same factors

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Effectively reduces application of Art 102(c)

• ECJ could have referred to older rebate case law in which rather mechanically it was concluded that (secondary line) price discrimination leads to an abuse under Art 102(c)

• In this case: COOP received better price than SuperBest and Spar and these three received better prices than other supermarkets

• § 30: this cannot of itself suggest that there exists an exclusionary abuse

• General answer of the ECJ: need to show anticompetitive foreclosure

• Effectively reduces application of Art 102(c)

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Conclusion

• PD ruling strongly reminds us that aim of EU competition law is to protect competition for the benefit of consumers

• PD ruling shows a strong support for an effects-based approach for the assessment of exclusionary pricing conduct

• General acceptance of the as efficient competitor test for pricing conduct (predation, margin squeeze, selective price cuts) as part of the analysis to show anticompetitive foreclosure

• Supports a more consistent application of EU competition law• Question: will the General Court follow in the Intel case?

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Thank you

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