ECJ Intel Judgement reinstates the effects-based approach to Article 102

Following AG Wahl’s opinion in Intel in October 2016, economists dared to dream that an effects-based approach to 102 enforcement may be back on the agenda. Today’s ECJ Judgment goes beyond expectations and firmly disposes of the concern that effects analysis had been forever banished to the wilderness in abuse cases.

In referring the case back to the General Court, the ECJ resurrects the role of the effects-based approach to the assessment of retroactive rebates: provided the accused firm puts forward evidence to dispute the presence of foreclosure, authorities cannot restrict themselves to just an assessment of dominance and a presumption of anticompetitive effects. Rather they are “required to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market” (138-9). The result is to reintroduce a role for proper analysis of effects, while maintaining continuity with the existing case law.  This has welcome implications not just for assessment of rebates, but for a whole range of potentially-exclusionary conduct.

So how should such concerns be quantified and assessed, and what is the role of the “As Efficient Competitor Test” in such an assessment? Whereas the General Court (and indeed the Commission in its decision) argued that the AECT was something of an unnecessary sideshow that had been conducted only for completeness, the ECJ takes a very different view: as the Commission had gone to the effort of conducting the test, it rules, the GC had a duty to assess the EC’s methodology and Intel’s critiques of its approach.

Those least in favour of effects-based analyses may seek to draw comfort from an apparent ambiguity – language that might be interpreted as placing the decision of whether the AECT framework is relevant in the hands of the authority: “if, in a decision finding a rebate scheme abusive, the Commission carries out such an analysis, the General Court must examine all of the applicant’s arguments seeking to call into question the validity of the Commission’s findings concerning the foreclosure capability of the rebate concerned” (para 141). But such an interpretation (and the suggestion of a licence to competition authorities not to engage with analyses that complicate life) would not be justified if the judgment is considered properly and in the round. The ECJ confirms at multiple places that exclusion of as efficient rivals is the relevant conceptual question for assessing foreclosure risk (para 133 reiterates that in no case is it the purpose of Art 102 “to ensure that competitors less efficient than the undertaking with the dominant position should remain on the market”); and this can only be ascertained by case-by-case effects analysis. Authorities would thus seem to have a duty to engage with economic evidence on foreclosure risk put forward by the parties.

Of course while the judgment reaffirms the AECT as the appropriate conceptual economic framework for considering the effects of retroactive rebates, it is not the only tool in economists’ arsenal or the first and only way to conduct an effects analysis of rebate schemes. Indeed, before embarking on a full-blown AECT analysis there is scope for more preliminary work to assess whether a given rebate structure has the required features to induce foreclosure (e.g. in terms of depth of discount and market coverage) and whether it can be better explained by alternative pro-competitive explanations (which today’s judgment acknowledges need to be traded-off against identified exclusionary effects).* One also needs to consider in depth whether the critical requirement that there is a share of the dominant firm’s sales that is non-contestable is supported by the data. But overall, the Judgment re-establishes much more explicitly economic tests as a key piece of factual analysis in these cases, and hopefully dispels the notion that the legal assessment of rebates in Europe was condemned to being out of line with economic mainstream thinking.

* In a decision that has been described as “showing the way” for the assessment of rebates, the UK CMA recently closed an investigation into the loyalty-inducing potential of package discounts for sales of impulse ice cream – demonstrating it is possible to satisfactorily rule out foreclosing effects with simpler economic analyses (CRA advised Unilever on this matter).