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    Edwards Wildman Client Advisory - Danish Supreme Court confirms European Court of Justice's effects-based approach in assessment of selective price reductions under Article 102

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    The Supreme Court of Denmark (Højesteret) has followed the advice of the European Court of Justice (ECJ) in ruling that the Danish postal monopoly, Post Danmark, did not abuse a dominant position, contrary to Article 102 of the Treaty on the Functioning of the European Union (Article 102), by selectively offering prices that are below its average total costs but above the incremental cost of serving the customer concerned. In doing so, the Supreme Court overturned a decision of the Danish competition authority (Konkurrencerådet) that Post Danmark had abused its dominant position by offering price cuts to certain customers.

     

    Background

     

    Post Danmark and Forbruger-Kontakt are the two largest distributors in Denmark of unaddressed mail (i.e. items distributed to all addresses, such as brochures, telephone directories, guides, local and regional newspapers etc). Because of Post Danmark's monopoly in the delivery of certain addressed mail (which is a regulated, non-liberalised sector), it controls a nationwide network that it also uses for the delivery of unaddressed mail (a wholly liberalised and unregulated sector). At the time of the alleged infringement, Forbruger-Kontakt had created a competing distribution network for unaddressed mail.

     

    In 2004, Forbruger-Kontakt lost three major customers, SuperBest, Spar and Coop, to Post Danmark. Forbruger-Kontakt complained to the Konkurrencerådet, which held that Post Danmark had abused its dominant position by adopting a selected discounts strategy designed to ensure its customers' loyalty, and by charging the three companies different rates for the distribution of unaddressed mail to those applied to its existing customers without being able to justify those different rates by reference to differences in its costs. The authority's infringement decision was upheld by both the Danish competition appeals tribunal and a regional court.  Post Danmark lodged a further appeal with the Danish Supreme Court, which referred two questions to the ECJ for a preliminary ruling. The ECJ handed down its ruling in March 2012.

     

    It is well established in law that: (i) pricing by a dominant company at below its average variable costs must, in principle, be regarded as abusive inasmuch as it is deemed to pursue no economic purpose other than that of driving out its competitors; and (ii) pricing below average total costs, but above average variable costs, must be regarded as abusive if it is part of a plan for eliminating a competitor. The ECJ adopted an analytical approach appropriate to predation cases, and explicitly noted that charging customers different prices for services that cost the same to provide "cannot of itself suggest that there exists an exclusionary abuse". The ECJ went into some detail in its assessment of the factors to be taken into account to establish an abuse, including the company's intention and the effect of the pricing, including the actual or potential exclusion of an equally efficient competitor (see our previous client advisory here for a summary of the ECJ's ruling).

     

    The Supreme Court's Judgment

     

    The Supreme Court handed down its judgment on 15 February 2013, allowing Post Danmark's appeal and overturning the Konkurrencerådet's infringement decision. 

     

    Firstly, the Supreme Court repealed the Konkurrencerådet's decision in relation to the prices charged to Spar and SuperBest. The ECJ had stated that the prices offered to these supermarkets were assessed to be higher than Post Danmark's average total costs, and therefore those prices could not be considered to have anti-competitive effects. Following the ECJ's ruling, Konkurrencerådet decided to withdraw its claim that these prices were, in themselves, an indication of an abuse of a dominant position. 

     

    The Konkurrencerådet maintained, however, that Post Danmark's prices offered to Coop constituted an abuse of its dominant position on the market for the distribution of unaddressed mail. The prices offered to Coop did not enable Post Danmark to cover its average total costs, but did enable it to cover its average incremental costs. On this point, the ECJ ruled that such a pricing policy cannot be considered to amount to an exclusionary abuse simply because the price charged was lower than the average total costs attributed to the activity concerned, but higher than the average incremental costs.

     

    Although the Supreme Court agreed with Konkurrencerådet that Post Danmark did hold a dominant position in the relevant market, it disagreed that Post Danmark's pricing policy constituted an exclusionary abuse of that dominant position. The Supreme Court referred to the ECJ's ruling which noted that, where a dominant company sets its prices at a level that covers most of its costs, as a general rule an equally efficient customer could compete with those prices without suffering losses that are unsustainable in the long term, and therefore such pricing is not inherently abusive. The Supreme Court held that Konkurrencerådet had not shown that the Coop pricing would likely have eliminated Forbruger-Kontakt as a competitor, to the detriment of competition, had Konkurrencerådet not taken action. It further noted that, since customers could terminate their contracts with Post Danmark with one or three months' notice, Forbruger-Kontakt had the opportunity to compete with Post Danmark's prices, if it were as efficient as Post Danmark.

     

    Comment

     

    In ruling in favour of Post Danmark, the Supreme Court confirmed the ECJ's effects-based approach to assessing alleged infringements of Article 102. The judgment is not entirely surprising, however, given the comprehensive and precise nature of the ECJ's ruling on the questions referred to it. The approach of both the ECJ and the Supreme Court is to be welcomed, as it gives some comfort to dominant companies that selective discounting is unlikely to be viewed an abuse of dominance provided that the pricing is not predatory and is not intended (or likely) to have an exclusionary effect on competitors. It is likely that other national competition authorities and courts, when considering the legality of selective discounting under Article 102, will also have regard to the ECJ's approach. 

     


     

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