Traders are free to compete on price, since price competition favours efficiency and ultimately benefits consumers. Indeed, price competition is essential to the efficiency of a free competitive market.
However, traders are not at liberty to engage in any sort of price competition. In fact, there are various forms of abusive pricing that EU law condemns. It expressly prohibits dominant traders from applying dissimilar conditions to equivalent transactions when dealing with other trading parties, such as to place the latter at a competitive disadvantage.
Offering incentives to buyers through a rebate or discount system would not generally be censured, as long as the discount scheme is based on objective criteria, which apply the same discount rates to all customers buying the same volume levels.
Discounts that are only applied for a short term, like end-of-season sales, are allowed. Likewise, discounts for large orders or bulk buying are permitted.
Yet, rebates intended to encourage or secure loyalty when implemented by dominant traders are considered abusive pricing practices, given that such practices have the effect of tying the particular buyer to the dominant trader.
The effect is to foreclose the market from the competitors of the dominant trader.
Where a dominant trader offers rebates conditional upon the buyer purchasing all of its requirements from that trader, this may constitute an exclusionary device and thus considered anti-competitive.
This was the backdrop to a highly-anticipated judgement delivered by the Court of Justice of the European Union (CJEU) that decided an appeal lodged by Intel, a US manufacturer of computer processing units, against the General Court’s decision upholding the EU Commission’s fine against Intel.
The EU Commission had fined Intel a then record €1.06 billion after conducting an investigation into Intel’s market practices.
Commission is required to consider the economic effects of all rebates before concluding on their illegality
The EU Commission concluded that Intel had abused its dominant position by implementing a range of rebates geared to garner exclusivity in the market and foreclose competitors from entering.
In practice, Intel was granting exclusivity rebates to top laptop manufacturers on condition they purchase their CPUs from Intel.
Intel was also making direct payments to retailers on condition that they stock only computers with Intel systems.
The Commission held that this induced loyalty in favour of Intel, and significantly reduced the ability of Intel’s competitors to compete. It took the view, therefore, that the practices were per se in violation of EU competition law, and it was not necessary for the Commission to assess whether these practices effectively led to anticompetitive effects.
The General Court dismissed Intel’s appeal. Dissatisfied, Intel challenged the decision of the General Court and brought the matter before the CJEU, the highest EU court. Intel’s main argument against the Commission’s decision was that the latter had failed to look at all the relevant circumstances to establish whether the rebates were capable of restricting competition.
In its recent landmark judgement, the CJEU upheld Intel’s appeal and revoked the decision of the General Court.
While the CJEU concluded that Intel’s market practices were illegal by nature, antitrust authorities must consider the anticompetitive effect of such practices.
Thus the CJEU moved away from a formalistic approach to a factual approach, in favour of the need for an assessment of economic effects of rebates on a case-by-case basis.
The CJEU made it clear that the Commission is required to consider the economic effects of all rebates before concluding on their illegality.
In examining these economic effects, the Commission must assess the capability or otherwise of the rebate producing a foreclosure effect. If the Commission concludes that the rebate has such foreclosure effect, it must then examine whether those effects are outweighed by efficiencies that may benefit consumers. This judgement does not have the effect of granting a carte blanche to dominant traders to implement exclusivity rebates at will.
While the presumption of illegality has not been eliminated, the Court has affirmed the possibility of rebutting it. The CJEU clarified that an economic analysis into the anticompetitive effect of a market practice must be carried out.
To shift the scales in favour of the trader applying exclusivity rebates, evidence must be submitted that such rebates are not capable of restricting competition or of producing foreclosure effects.
The matter is now before the General Court to review its decision and emit another, taking into consideration Intel’s arguments against the Commission’s economic analysis, including if exclusivity incentives had actually harmed competition.
Dr Josette Grech is adviser on EU law at Guido de Marco & Associates.
jgrech@demarcoassociates.com