Thursday, April 12, 2012
Posted by D. Daniel Sokol
Hans Zenger (Charles River Associates) has written on Loyalty Rebates and the Competitive Process.
ABSTRACT: The degree of divergence between U.S. and European case law on the proper legal treatment of loyalty rebates is larger than in almost any other field of international antitrust law. Whereas U.S. jurisprudence has traditionally considered loyalty rebates to be a pro-competitive business practice, the Court of Justice of the European Union has repeatedly held that loyalty rebates are an illegal means of distorting competition. This article challenges the Community Courts’ conviction that loyalty rebates do not constitute competition on the merits and claims the opposite. The adoption of loyalty rebates is a direct consequence and a vital expression of the competitive process. The need for different forms of loyalty rebates naturally emerges from the diverse market conditions that prevail in different industries, which explains the widespread use of diverse loyalty rebates in business practice. It is the heterogeneity of commercial pressures that dominant firms are facing which determines the competitive structure and size of their rebates. By suppressing competition in rebates, orthodox legal doctrine in Europe has distorted the competitive process in a variety of global markets and thereby caused significant harm to competition and consumers. Since loyalty rebates are an efficient and healthy form of competition, plaintiffs and competition authorities that allege anti-competitive foreclosure as a result of loyalty rebates should generally carry the burden of proving the existence of a restriction of competition. The Court’s prevailing interpretation of Article 102 TFEU, by contrast, is bound to punish successful innovators and to protect less effective rivals from the inconveniences of the competitive process.