Rebate Schemes And Discount Practices By Dominant Companies Under EU Competition Law: 'Tomra' Appeal Decision

Key Points

The ECJ's Tomra decision confirms that the use of individualised and retroactive rebates by a dominant firm is a per se abuse, and it is not necessary to prove anti-competitive effects or intent. The Tomra decision is at odds with the European Commission's 2009 Guidelines on the abuse of a dominant position, which advocate an effects-based approach to determine whether the proposed rebate had the actual effect of foreclosing competitors. Until the legal position is clarified by an EU court decision reviewing a Commission action applying the 2009 Guidelines, dominant companies should avoid using individualised and retroactive rebates, and should also undertake a review of any rebate scheme that was adopted in reliance on the effects-based approach described in the 2009 Guidelines. SUMMARY

The European Court of Justice (ECJ) recently handed down a significant decision holding that the Tomra Group (Tomra) had abused its dominant position through the use of exclusionary strategies in the European Economic Area (EEA). The judgment follows the General Court and ECJ's traditional formalistic, or "per se," approach, which generally treats rebate schemes implemented by dominant entities as anti-competitive. The ECJ's decision is in tension with the effects-based approach to abuses of dominance championed by the European Commission's 2009 Guidelines.

WHAT CONSTITUTES DOMINANCE IN THE EU?

Dominance has been defined in the EU as a position of economic strength that enables a firm to prevent effective competition in a relevant market through unilateral behavior (i.e., behavior that is to an appreciable extent independent of the firm's competitors, of its customers, and ultimately of consumers.)1

Market shares provide a useful first indication for the European Commission of the market structure and of the relative importance of the various competitors active in the market. The Commission's experience suggests that a firm is not likely to have dominance if the firm's market share is below 40% in the relevant market. However, there may be specific cases below that threshold where competitors are not in a position effectively to constrain the conduct of a dominant firm (e.g., because of serious capacity limitations).

REBATES

The EU Per Se Position

The traditional approach represented by the ECJ's Tomra decision is to condemn rebate schemes employed by a dominant company as an abuse of dominance under Article 102 of the Treaty for the Functioning of the European Union (TFEU). Under this per se approach, a rebate program implemented by a dominant firm will be condemned if the rebates are given in exchange for customer loyalty and not on the basis of genuine cost savings and efficiencies, particularly where the rebates are tailored to individual customers or constitute 'all purchase' rebates. It is not necessary to prove an anti-competitive effect under this approach; a rebate scheme with these characteristics is by its object deemed to be an abuse, because the following is presumed:

Where a dominant entity uses information about its main customers to set rebate targets in such a way as to compel customers to make most of their purchases from the dominant entity, the firm thereby excludes other competitors from the relevant market (this situation is termed an "individualised" rebate); or By applying the discount not only to purchases over a certain threshold, but to a customer's entire order, the dominant firm thereby penalises customers who do not purchase all of their requirements from the dominant entity (such rebates are...