Luc Peeperkorn*

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

• 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

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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
  Commissions Article 102 Guidance Paper (Guidance
  on the Commissions 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 PDs 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 (Konkurrenceankenævne
  t)

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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 undertakings 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
  firms 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 gt 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 lt
  LRAIC (or ATC where significant common costs).
  Only exceptionally harm possible if P gt 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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PltATC 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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PltATC not sufficient to find abuse need to show
anticompetitive foreclosure

• Seems ECJ amended the AKZO test
• Akzo test
• P lt AVC can presume strategy to foreclose as no
  economic rationale to incur avoidable loss
• AVC gt P lt ATC need to show strategy to foreclose
  (based on intent documents/duration/selectivity
  etc)
• PD if AIC gt P lt ATC need to show likely
  anti-competitive foreclosure effect
• Logically also sufficient if P lt 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