Antitrust Bites – Newsletter

AEC test in assessing an abuse of a dominant position: Recent developments

In its judgment of 24 October 2024, the Court of Justice ruled again on the legality of a Commission decision from 2009, which found an infringement of Article 102 TFEU consisting in a company in a dominant position granting loyalty rebates to its customers and to a distributor.

With this judgement, the Court of Justice confirmed the judgement of the General Court, which annulled the Commission's decision in 2022. The General Court found that the decision was vitiated since it didn't adequately demonstrate that the conduct of the dominant undertaking was capable of foreclosing competitors, including due to several errors made during the “as efficient competitor” (AEC) test.

With this judgement, the Court of Justice has first of all highlighted the principle according to which, as regards a practice consisting in the grant of loyalty rebates, where the undertaking concerned submits, during the administrative procedure, on the basis of supporting evidence, that its conduct, consisting of the application of loyalty rebates, was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects, the Commission is not only required to analyse, first, the extent of the undertaking’s dominant position on the relevant market and, second, the share of the market covered by the contested rebates, as well as the conditions and arrangements for granting those rebates, their duration and their amount; it is also 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. To analyse this latter aspect – as clarified by the Court – the AEC test is generally applied.

The Court of Justice then rejected the Commission's claims concerning the errors found in the application of the AEC test with reference to some customers of the dominant undertaking, confirming the General Court's findings on this point.

To that regard, the Court held that:

• First, the General Court correctly questioned the merits of the AEC test relating to one of the dominant undertaking's customers, the Commission having carried out its own assessment by considering a contestable share relating to that customer equal to 7.1% of its requirements, on the basis of a number of spreadsheets, even though the contestable share was likely to be higher on the basis of other estimates, referred to by the Commission itself in its decision, and, on the basis of the evidence produced by the dominant undertaking, as high as 25%.
• As the General Court correctly found, the Commission misapplied the AEC test with respect to a customer to whom the dominant undertaking had granted rebates partly in the form of non-cash benefits (i.e., the extension of a standard guarantee and the provision of a hub by the dominant undertaking in China). To adopt the AEC test, the Commission had assessed the benefit to the recipient of these non-cash rebates, and not the cost to the dominant undertaking granting the rebates. This approach, according to the Commission, should be adopted regardless of the type of rebate, and thus regardless of whether the benefit is granted in the form of cash or not. The Court of Justice took an opposite view, holding that this approach is contrary to the foundation of the AEC test. According to the Court, indeed, when rebates are granted in cash, their value is objective and identical for both the dominant undertaking and their beneficiary, but when a rebate is non-cash (even partially), it must be assessed, taking into account a hypothetical competitor with a cost structure similar to that of the dominant undertaking, and making adjustments where necessary to take account of the fact that the equally efficient competitor does not hold a dominant position.

Finally, the Court analysed the Commission's complaints concerning the General Court's assessment of the consequences to be drawn from the errors found in the AEC test, clarifying the scope of the judicial review that the EU General Court may exercise with respect to the Commission's assessment. In particular, the Court made it clear that it was not for the General Court - before pronouncing the partial annulment of the Commission's decision due to errors in the AEC test - to examine whether the contested discounts had the capacity to exclude a competitor as efficient as the dominant undertaking, relying for the purposes of that examination on elements other than those on which the Commission had relied in order to demonstrate such ability. In particular, it was not for the General Court to examine whether such capability could be demonstrated by reasoning without the errors which it found in the Commission's AEC test, in so far as that reasoning is not formulated in the Commission's decision in a way which makes it possible to infer that such reasoning can support the operative part of the decision (and thus lead to the same conclusions) irrespective of the points in the reasoning which are vitiated.

 

ICA's moral suasion for the use of green claims in the sector of electric vehicles for urban mobility

On 9 October 2024, the ICA informed that it has successfully concluded a moral suasion intervention regarding two companies. The intervention led to the two companies having to modify environmental assertions – known as green claims – on their respective websites regarding electric vehicles for urban mobility. The claims were considered potentially incorrect under consumer protection regulations.

The green claims consisted of expressions such as “100 % sustainable”, “100 % Green”, “Zero emissions”, “Zero impact on the environment”, and “ECO”. These claims – as noted by the ICA – were phrased in absolute and generic terms and didn't indicate to which aspect or phase of the life cycle of electric vehicles they referred (for example, to their production, distribution, or other).

Already in 2015, the authority successfully used moral suasion to get large-scale retail operators to remove profiles of unfairness related to the environmental biodegradability claims on plastic carrier bags – so-called shoppers – that didn't have this characteristic as they were based on additive plastic.

Recently, the ICA has also initiated an investigative proceeding against a company in the fast-fashion or super-fast-fashion sector, which, according to the investigative hypothesis, would adopt communication strategies with misleading/omissive traits on the subject of sustainability (both with reference to the characteristics of certain products and to its own commitment related to environmental issues).

The ICA's recent actions confirm its commitment to combating greenwashing practices to protect consumers who, as the authority has repeatedly noted in its previous decisions, are increasingly sensitive to environmental issues.

 

EU Court of Justice clarifies that price reductions must be determined on the basis of the “prior price”

In its judgement of 26 September 2024 (Case C-330/23), the Court of Justice of the EU ruled on a preliminary ruling by a German court regarding the interpretation of the rules on announcements of price reductions in Article 6a of Directive 98/6/EC. This provision establishes that every announcement of a price reduction must show the “prior price”. This is the lowest price applied by the trader during a period of time not shorter than 30 days before the price reduction was applied.

The Court was asked to clarify whether the provision requires that a price reduction announced in the form of a percentage or as a promotional statement intended to highlight the advantageous nature of the announced price must be determined on the basis of the “prior price”. Or, to comply with the rule, whether it's sufficient to mention the “prior price”, without that price constituting the actual basis for calculating the reduction.

The Court clarified that to improve consumer information and to facilitate comparison of prices, i.e. the objectives pursued by the directive, Article 6a must be interpreted as meaning that a price reduction must be determined on the basis of the “prior price”. It follows – the Court states – that the selling price of a product presented in an announcement as being a reduced price cannot, in fact, be the same as the “prior price” or even higher than that.

This conclusion is equally valid for percentage price reductions and promotional statements intended to highlight the advantageous nature of the announced price (in this case: price highlight).

 

The consequences of the lack of participation by third parties in ICA merger control proceedings

In Judgment No. 8104/2024 of October 9, 2024, the Council of State, upholding the decision through which the ICA, at the end of the preliminary phase (phase 1) of the merger control proceedings, authorized a concentration between two companies, highlighted the potential consequences stemming from the failure of third parties potentially affected by the concentration to submit observations during the proceedings.

The ruling addresses the appeal filed by a competitor of the merging parties against the ICA's decision not to initiate a proceeding in the case, deeming the decision illegitimate and erroneous, including because of a lack of thorough investigation and a misrepresentation of the facts with respect to all the usual indicators and parameters of application of antitrust regulations to concentrations.

Before addressing the merits of the appeal (which was completely rejected), the Council of State pointed out that the appellant hadn't submitted its observations to the ICA regarding the concentration following the publication of the relevant notice on the ICA’s website. So the appellant hadn't participated in the preliminary phase of the merger control proceeding, in which any third party with an interest can submit observations to the authority.

The Council of State noted that the appellant's failure to participate in the procedure in the preliminary phase prevented the ICA from completely and specifically challenge in the proceeding the observations raised by the appellant (for the first time) before the administrative court. In the Council of State’s view, this could determine the risk that the court might replace the administration in evaluating the facts and the observations presented in court by the appellant and never examined by the authority before. This could lead to an overstepping of the boundaries of judicial review, which, as known, doesn't allow courts to replace the administration’s evaluations with judicial ones.

 

“Competition in Generative AI and Virtual Worlds” Competition Policy Brief published

The DG Competition of the European Commission has published a Competition Policy Brief concerning generative AI and Virtual Worlds – namely, environments based on 3D technologies and extended reality which make it possible to blend physical and digital worlds in real-time. The policy brief analyses market dynamics and potential competition concerns in these sectors.

Regarding tendencies in the AI sector, the policy brief first notes an increase in vertical integration among major players in the digital market and partnerships between these companies and smaller AI model developers. It also observes the rise of smaller and more efficient AI models, alongside the growing development of open-source AI models.

The policy brief identifies, first of all, the risk that large operators with access to key resources for developing generative AI models (such as data, cloud and computing capacity, and technical expertise) may restrict or limit access for competitors. Additionally, there's a risk that major operators of foundation models in AI may use their market power to distort competition in the downstream market for AI-based applications. The policy brief further highlights the risk of potential horizontal agreements that could facilitate the exchange of sensitive commercial information or restrict competition among rivals, as well as the risk that vertically integrated operators might adopt margin squeeze policies. Lastly, the policy brief emphasises the risk of potential killer acquisitions aimed at impeding the growth of new entrants in the market and protecting the position of existing players.

To address these risks, the policy brief indicates that DG Competition intends to adopt a combined approach that includes applying antitrust rules, merger control regulations, and provisions of the Digital Markets Act.