Internal documents might affect how rebates are viewed, lawyers warn

Pallavi Guniganti

17 July 2018

Even after the European Court of Justice’s ruling in Intel indicated that loyalty rebates may not cause anticompetitive foreclosure, companies should still be aware of how their internal documents explaining the rationale for such discounts will be seen by enforcers and courts.

Daniel Beard QC, who represented Intel in the case, said last week that the message of the court’s judgment is “less with the labels, more with the effects”. Even for dominant companies – if they are more effective, efficient and simply better than their rivals – not all foreclosure is problematic, he said.

The European Court of Justice last September sent the European Commission’s decision against Intel back to the General Court, ruling that the lower court must consider whether the EU competition enforcer correctly applied the as-efficient-competitor test to the chipmaker’s loyalty rebates.

Speaking at GCR Live Brussels last week, Beard highlighted paragraph 139 of the judgment, which says the commission is required to analyse, among other aspects of a rebate scheme, “the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market.”

The evidence determining whether a company’s conduct is part of an anticompetitive strategy may be drawn from the company’s own documents, Beard said. He harkened back to the Microsoft case, in which antitrust enforcers brandished emails from company executives who said they would choke off a rival internet browser’s air supply.

But internal documents can be used as a shield by companies as well as a sword by enforcers, Beard said.

If a company self-assesses its rebate structure and concludes “on the basis of your cost knowledge, that actually, as-efficient competitors wouldn’t be driven out by these structures – then you can sit there and go, ‘These are rebates we have conscientiously looked at. They are lowering prices to consumers and customers. That’s a good thing,’” he said.

Having that analysis paints a big picture that makes it harder for an enforcer to make adverse findings against the company, Beard said, which makes it much easier to present the case to a court on appeal.

Internal documents play more of a role in appeals before the European courts, he added, because unlike national courts such as the UK Competition Appeal Tribunal, the General Court proceeding does not allow for witnesses to be cross examined. It’s very different if one can take the sting out of an email by having the junior salesman who wrote it testify that he was drunk at the time, Beard said.

Jürgen Schindler, a partner at Allen & Overy in Brussels, noted that the Court of Justice itself said in Intel that one of the elements for an enforcer to consider when concluding that conduct was anticompetitive is whether the company has a strategy to foreclose as-efficient competitors.

“How do you want to prove the strategy? The best way to do that is to find internal documents,” he said.

He also cited the example of Microsoft, including company emails about whether to kill a rival now or slowly. “This will have an impact on the case,” Schindler said, painting a negative picture of the company’s strategy as being focused on harming competitors rather than helping consumers.

“I personally believe internal documents shouldn’t be taken at face value,” he said. But realistically, with competition enforcers collecting millions of documents in their investigations, companies cannot ignore the role internal documents will play, Schindler said.

He and Beard spoke alongside economist Pinar Bagci of The Brattle Group and Helen Gornall, director for competition law at Akzo Nobel. Conference co-chair Bojana Ignjatovic from RBB Economics moderated the panel.

GCR Live’s 10th annual Brussels conference on “the bigger picture” ended last week.

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