On 27 March 2012, the Court of Justice of the European Union ("ECJ") handed down its preliminary ruling in an Article 82 (now Article 102 TFEU) case involving Post Danmark.
The ruling concerned a complaint made by Forbruger-Kontakt, the major competitor of Post Danmark, that Post Danmark had abused its dominant position when targeting clients of Forbruger-Kontakt in the unaddressed mail market with prices below average total costs ("ATC") but above the incremental costs of the service concerned.
At the outset, the ECJ noted that protecting competitors who are less efficient than the dominant undertaking is not a goal of EU competition law. Instead, Article 102 TFEU prohibits a dominant undertaking from, among other things, adopting pricing practices that have an exclusionary effect on competitors considered to be as-efficient as itself and strengthening its dominant position by using methods other than those that are part of competition on the merits.
Noting further that not all competition by means of price may be regarded as legitimate, the ECJ stated that, "in order to determine whether a dominant undertaking has abused its dominant position by its pricing practices, it is necessary to consider all the circumstances and to examine whether those practices tend to remove or restrict the buyer's freedom as regards choice of sources of supply, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, or to strengthen the dominant position by distorting competition."
In this regard, when assessing the lawfulness of a low-price policy practised by a dominant undertaking, the ECJ reasoned that it has previously made use of criteria based on comparisons of the prices concerned and certain costs incurred by the dominant undertaking, as well as on the latter's strategy. With respect to the strategy of the dominant undertaking, however, the ECJ noted that it was apparent from the order for reference that it could not be established that Post Danmark had deliberately sought to drive out that competitor. Importantly, the ECJ also rejected the argument that the mere existence of price discrimination between different customers (or classes of customers) would, of itself, suggest an exclusionary abuse.
With respect to cost comparisons, the ECJ noted that the prices offered to certain customers were found by the Danish court to be higher than average total costs, and thus, in these circumstances, it could not be considered that such prices had anti-competitive effects.
Although the prices for other customers were not higher than average total costs, the Danish court had concluded that the prices exceeded the dominant company's average incremental costs. Although the ECJ did not call into dispute the practice of considering average incremental costs as opposed to average variable costs (as was done in previous cases like AKZO), it also did not go as far as AG Mengozzi who stated that average incremental costs may be a more appropriate benchmark (regarding the Opinion of AG Mengozzi, see VBB Competition Law, Volume 2011, No. 6, available at www.vbb.com).
In this regard, the ECJ noted that a pricing policy cannot be considered to amount to an exclusionary abuse simply because the price charged to a customer is lower than the dominant company's average total costs but higher than the average incremental costs. This was because it will, as a general rule, be possible for an as-efficient competitor to compete with those prices without suffering losses that are unsustainable in the long term.
Instead, it was for the court making the reference to assess the relevant circumstances of the case to determine the existence, if any, of anti-competitive effects. Notably, the ECJ expressly mentioned that "it appears from the documents before the Court that Forbruger-Kontakt managed to maintain its distribution network despite losing the volume of mail related to the three customers involved and managed, in 2007, to win back" certain customers who were the target of the price reductions, suggesting that it had doubts about the existence of such effects.
Finally, the ECJ noted that even if the referring court should make a finding of anti-competitive effects, it would still be open to the dominant undertaking to demonstrate that its conduct was objectively necessary or that it created efficiency gains which out-weighed its exclusionary effects.
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