Agency Name: Bundeskartellamt

Date: November 20, 2008

Tying & Bundled Discounting

This part of the questionnaire seeks information on ICN members’ analysis and

treatment of tying and bundled discounting. The information provided will serve

as the basis for a report that is intended to give an overview of law and practice

regarding tying and bundled discounting in the respective jurisdictions.

Unless otherwise stated, the questions concern unilateral conduct by a dominant

firm or firm with significant market power.

For the purposes of this questionnaire, “tying” is defined as a dominant firm (or

firm with substantial market power) selling one product (the tying product) only

on the condition that the buyer also purchases a different (or tied) product, or

agrees that it will not purchase the tied product from another supplier. It also

includes the sale of products or services that could be viewed as separate but are

sold only together as a bundle.

For the purposes of this questionnaire, “bundled discounting” is defined as

discounts or rebates based on a buyer’s purchase of two or more different

products or services. Unlike tying, bundled discounting arrangements do not

prevent buyers from purchasing individual products separately, although the

aggregate price of the individual components is typically higher than the price of

the bundle.

This part of the questionnaire covers only tying and bundled discounting, and

not other practices such as exclusive dealing, single branding, and single-product

loyalty discounts and rebates. Your responses should therefore not address these

practices unless they have a clear and relevant connection to the analysis and

treatment of tying and bundling.

You should feel free not to answer questions concerning aspects of your law or

policy that are not well developed. Answers should be based on agency practice,

legal guidelines, relevant case law, etc., rather than speculation.

Experience

1. Please state the statutory provisions or legal basis for your agency to

address tying and bundled discounts. Are tying and bundled discounts a civil

and/or a criminal violation of your jurisdiction’s antitrust laws? Do these

provisions apply only to dominant firms or to other firms as well?

a) The Bundeskartellamt applies Article 82 EC and national provisions (§§ 19, 20 Act

against Restraints of Competition, henceforth ARC1) to unilateral conduct.

Article 82 EC states:

1 An English version of the ARC is available at

http://www.bundeskartellamt.de/wEnglisch/download/pdf/06_GWB_7__Novelle_e.pdf.

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“Any abuse by one or more undertakings of a dominant position within the

common market or in a substantial part of it shall be prohibited as incompatible

with the common market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair

trading conditions;

…

(c) applying dissimilar conditions to equivalent transactions with other

trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other

parties of supplementary obligations which, by their nature or according to

commercial usage, have no connection with the subject of such contracts.”

§ 19 (1) ARC provides for a general prohibition for dominant undertakings to abuse

their market power as a blanket clause and is similar to Article 82 EC (first sentence).

Similar to Article 82 EC (sentence 2), § 19 (4) ARC sets out four non-exhaustive

examples of forbidden abusive behaviour.

§ 19 ARC reads:

“(1) The abusive exploitation of a dominant position by one or several

undertakings shall be prohibited.

…

(4) An abuse exists in particular if a dominant undertaking, as a supplier or

purchaser of certain kinds of goods or commercial services,

1. impairs the ability to compete of other undertakings in a manner affecting

competition in the market and without any objective justification;”

Besides § 19 ARC, another provision, § 20 ARC, addresses unilateral conduct.

§ 20 provides:

“(1) Dominant undertakings, associations of competing undertakings within the

meaning of §§ 2, 3, and 28 (1) and undertakings which set retail prices pursuant to

§ 28 (2), or § 30 (1) sentence 1, shall not directly or indirectly hinder in an unfair

manner another undertaking in business activities which are usually open to

similar undertakings, nor directly or indirectly treat it differently from similar

undertakings without any objective justification.”

(2) Paragraph 1 shall also apply to undertakings and associations of undertakings

insofar as small or medium-sized enterprises as suppliers or purchasers of certain

kinds of goods or commercial services depend on them in such a way that sufficient

and reasonable possibilities of resorting to other undertakings do not exist. A supplier

of a certain kind of goods or commercial services shall be presumed to depend on a

purchaser within the meaning of sentence 1 if this purchaser regularly obtains from

this supplier, in addition to discounts customary in the trade or other remuneration,

special benefits which are not granted to similar purchasers.

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(3) Dominant undertakings and associations of undertakings within the meaning of

paragraph 1 shall not use their market position to invite or to cause other

undertakings in business activities to grant them advantages without any objective

justification….”

b) Tying and bundling, if anticompetitive, are civil violations of antitrust law. Tying

and bundling is investigated in administrative proceedings by the Bundeskartellamt.

The Bundeskartellamt may also conduct administrative fine proceedings (where the

Bundeskartellamt may impose an administrative fine) which are however very rare in

abuse of dominance cases.

c) § 20 (2) and (3) ARC apply to undertakings that do not have a dominant position

but have superior market power. The following focuses on abuse of dominance cases.

2. If your jurisdiction has specific criteria for analyzing tying or bundled

discounting, please describe them and state their source. (e.g., legislation, court

decisions, or agency policy statements).

Under both German and EC competition law the analysis of tying or bundled

discounting includes the following criteria (based on the above-mentioned provisions

as interpreted in the case law):

- Dominant Position

- Hindrance by way of tying/ foreclosure or discrimination

- No objective justification

3. How many in-depth investigations (i.e., beyond a preliminary review) of

tying arrangements and (separately) of bundled discounting arrangements has

your agency conducted during the past ten years? Please describe what

prompted the investigations (e.g., competitor complaints).

a) Tying: 1 case Bundled discounting: 3 cases

b) Investigations were prompted by competitor complaints.

4. State the number of tying arrangements and the number of bundled

discounting arrangements your agency found to be unlawful over the past ten

years (1999 to date); include cases resolved informally as well as those that led to

a formal decision. If your agency has found any tying and bundled discounting

arrangements to be unlawful, please describe the anticompetitive effect and the

circumstances that led to the finding.

For administrative systems (i.e., the agency issues its own decisions on

the legality of the conduct, which may be appealable in court), please

state the number of agency decisions finding a violation or settlements

that were challenged in court and, of those, the number upheld and

overturned.

In the cases investigated the Bundeskartellamt did not find violations of antitrust law.

In a case litigated by private parties, however, the Federal Court of Justice held that

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conduct that the Bundeskartellamt had found to be in line with antitrust law violated

abuse of dominance provisions (see the Oberhammer case, below).

For judicial systems (i.e., the agency challenges the legality of the

conduct in court and the court issues a decision), please state the

number of cases your agency has brought that resulted in a final court

decision that the program violates the competition law or a settlement

that includes relief. Also state the number of cases that resulted in a

final court decision that the conduct did not violate the competition

law.

N/a.

Please state whether any of these cases were brought under a criminal

antitrust law.

Antitrust proceedings in Germany are civil in nature.

Please provide a short English summary of the leading tying and

bundled-discounting cases in your jurisdiction, and, if available, a link

to the English translation, an executive summary, or press release.

Tying:

Der Oberhammer (2004)2

The case concerned Deutsche Telekom’s practice to supply Telekom ISDN

connections (regular base rate plus call charge) together with a T-Online connection

with a “call-by-call tariff” and no regular base rate. Deutsche Telekom formerly had a

state monopoly in telecom networks and telecommunication services in Germany and

is still dominant in the fixed-line telecommunication services market. T-Online is a

subsidiary of Deutsche Telekom and had a strong market position in the internet

connection market.

The Federal Court of Justice held that although the customers were not contractually

bound to use T-Online internet services the conduct at issue constituted tying that

violated German antitrust law. Both products were separate, both objectively and in

accordance with industry practice. The court underlined that anticompetitive effects of

bundling might not necessarily only arise when customers were forced to use the tied

product, i.e. the T-Online internet services, but could also materialize when the tying

resulted in a quasi-automatic loss of customers for other online service providers who

used the pre-installed internet access and were not expected to switch to other

providers. Consequently, by way of tying, the dominant firm leveraged its market

power to the tied product market and strengthened the internet provider’s market

position on that market.

Strom und Telefon I and Strom und Telefon II (2003)3

2 BGH (Federal Court of Justice), Case KZR 1/03, WuW/E DE-R 1283 – Der Oberhammer.

3 BGH (Federal Court of Justice), Case KZR 16/02, WuW/E DE-R 1206 – Strom und Telefon I; Case

KZR 38/02, WuW/E DE-R 1206 – Strom und Telefon II.

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Both judgments of the Federal Court of Justice concerned proceedings initiated by

Deutsche Telekom, the German incumbent telecommunication services provider. The

firm still holds a dominant position in the market for fixed-line telephone services in

Germany. The proceedings concerned the combined offer by a municipal utility and a

telecommunications provider for electricity and telecommunication services.

Deutsche Telekom argued, inter alia, that the defendant municipal utility was abusing

its dominant position in the local market for the provision of electricity to end

customers by offering to provide telecom services together with electricity for a cheap

combined price or, respectively, with refunds amounting to approx. 60 and 150 euros

per annum.

The Federal Court of Justice stated that all undertakings, including dominant ones, are

free to conduct their business activities as long as they did not run counter to the aims

of the ARC to ensure competition. The court underlined that, as a consequence,

dominant firms are in general not prevented from making attractive offers to their

customers. The court also stated that the lower court correctly found that the offer did

not involve a coercion element nor combined an attractive with a less attractive

service4. Customers were not induced or obliged to purchase not only electricity but

also telecommunication services from the defendant. To the contrary, they would

have had to decide not to purchase telecommunication services from the incumbent

company but from other providers. Consequently, there was no “suction effect” to the

dominant firm.

Bundled discounting:

Strom und Telefon I and Strom und Telefon II (2003)5

The cases referred to above, although considered as cases of tying (“Kopplung”) in

Germany, can basically be seen as bundling cases (for further details, see above). It is

clear from the Federal Court of Justice’s decisions that a dominant firm is, in general,

not prevented from making attractive offers to its customers by bundling products and

selling them at a lower price than the individual products.

Stadtwerke Düsseldorf (20086)

A company that had been supplied by Stadtwerke Düsseldorf, a municipal utility, with

electricity, gas and long distance heating, entered into negotiations with various

energy suppliers in 2005 for the supply of energy in 2006 and 2007. After having

compared the offers, the company decided to continue to purchase electricity and

long-distance heating from Stadtwerke Düsseldorf but to purchase gas from another

supplier which had made a much better offer. In response, Stadtwerke Düsseldorf

stated that if it was not commissioned with the supply of all forms of energy, it would

have to raise the price for long-distance heating alone by 12%. The court found that

4 Consequently, the cases may rather be classified as bundling cases according to the definition of this

questionnaire. The reasoning of the court implies that a dominant firm’s tying practice involving a

coercion element or combining an attractive with a less attractive service would be problematic under

German law. 5 BGH (Federal Court of Justice), Case KZR 16/02, WuW/E DE-R 1206 – Strom und Telefon I; Case

KZR 38/02, WuW/E DE-R 1206 – Strom und Telefon II. 6 OLG (Higher Regional Court) Düsseldorf, Case VI-2 U (Kart) 8/06, WuW/E DE-R 2287 –

Stadtwerke Düsseldorf.

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Stadtwerke Düsseldorf had a dominant position in the markets for gas and long-

distance heating. The court held that the firm had abused this dominant position by

granting a reduced price only if its customer purchased not only long-distance

heating, but also other forms of energy. The court stated that such bundling was not

uncommon, may give rise to efficiencies and could in principle also be applied by a

dominant firm. If, however, such bundling had the effect that entry barriers were

maintained, established or fortified, such conduct was contrary to the objectives of the

ARC to keep markets open for competition. The court found that in the case,

Stadtwerke Düsseldorf's conduct in linking the better price to the bundled supply with

all forms of energy, maintained and fortified barriers to entry, contrary to the aims of

the ARC to liberalize the energy sector. Cost-saving arguments found their limits

when these aims were compromised by the conduct at issue.

Fertigfutter (1980)7

Fertigfutter is an older but important case. The Berlin Higher Regional Court found

that Effem, a firm held to be dominant in the market for cat and dog food, abused its

dominant position by operating a bonus system. In particular, the firm granted a bonus

on all goods for animals purchased from Effem within one year. The court found that

the bonus granted on the rebate scale operated by Effem was not economically

justified and led to the exclusion of (potential) competitors. In its analysis the court

looked at the rebate steps and analyzed the incentives for customers to purchase

additional sales from the dominant firm rather than switching to competitors.

5. Does your jurisdiction allow private parties to challenge tying or bundled

discounting in court? Yes/No. If yes, please provide a short description of

representative examples of these cases. If known, indicate the number of cases

(or an estimate thereof) brought by private parties.

Yes, private parties may challenge tying and bundled discounting in court. Indeed,

such proceedings are common in Germany and have led to important decisions in

recent years (see the Telefon und Strom cases, the Oberhammer and the Stadtwerke

Düsseldorf case mentioned above, question 4).

There is no robust statistical data on private tying or bundled discounting cases. Civil

litigants have brought at least one tying and four bundled discounting cases in the last

ten years.

Evaluation of Tying Arrangements

6. In your jurisdiction, is the term tying used in a manner different from

the definition in the introductory paragraphs above? If so, how?

In principle, the same definition is used. As can be seen from the cases mentioned to

above (Question 4) the term “tying” may be used in a somewhat broader sense in

German antitrust practice and may to a certain extent overlap with what is referred to

as “bundled discounting” in the introductory paragraphs above. In German, the term

“Zwangskoppelung“ (coercive tying) describes what is referred to as tying in the

questionnaire, while “Kopplung“ (tying) is also used to describe bundled discounts.

7 KG (Higher Regional Court) Berlin, Case Kart 32/79, WuW/E OLG 2403 – Fertigfutter.

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7. Please explain the competitive concern(s), if any, generally associated with

tying in your jurisdiction, e.g. maintaining dominance/substantial market power

in the tying market, distortion of or harm to competition in the tied product

market, exploitation of consumers, exclusion of competitors, price

discrimination, other.

One concern with tying is that dominant firms may use their market power to

foreclose (actual or potential) competitors: Dominant firms may use tying to leverage

their market power to another market8. This may have negative effects on competition

in the tied product market by foreclosing (actual and potential) competitors from the

market9 and by creating, maintaining or by reinforcing barriers to entry

10. Tying may

also have effects on the tying market: dominant firms may use tying as a means to

secure or strengthen their market power by hindering or foreclosing (actual and

potential) competitors from this market. As a result, competition may be further

harmed in a market where competition is already weakened as a result of the very

high degree of market power of one firm.

German competition law has the objective to protect the competitive process rather

than focusing directly on consumer harm. Indirectly, protecting the competitive

process also prevents consumer harm because in the medium and long-run, anti-

competitive rebates will also harm consumers because hindrance and foreclosure will

result in less product diversity and higher prices.

8. What specific tests, if any, are applied to determine under the competition

law whether two products or services are separate rather than a single integrated

product?

To determine whether two products are separate, competition authorities and courts

have to analyse whether the products objectively belong together or whether there is

an industry practice to sell two products only together11

. In the Oberhammer case the

Federal Court of Justice found that neither was the case and that the provision of an

ISDN connection as the necessary infrastructure for telecom services on the one hand

and the provision of internet services on the other hand were distinct. The court held

that there were no conclusive technical or economical reasons for combining both

services. Finally, there was no industry practice but, quite to the contrary, both

products were generally offered apart and by different undertakings.

9. In what market(s) – e.g., the tying or the tied market – must effects, if

any, be shown to demonstrate an illegal tie?

Negative effects on competition may arise in the tying as well as the tied market. If a

8 BGH (Federal Court of Justice), Case KZR 1/03, WuW/E DE-R 1283 - Der Oberhammer, under item

II.5.b), with further references. 9 BGH (Federal Court of Justice), Case KZR 16/02, WuW/E DE-R 1206 – Strom und Telefon I.

10 Düsseldorf (Higher Regional Court, Case VI-2 U (Kart) 8/06, WuW/E, DE-R 2287 – Stadtwerke

Düsseldorf. 11

BGH (Federal Court of Justice), Case KZR 1/03, WuW/E DE-R 1283 - Der Oberhammer, under

item II.5.c), with further references. Cf. also Court of First Instance (CFI), Case T-201/04, Microsoft

Corp. v Commission, not yet reported, paragraphs 912 et seq., where the distinctness is assessed in

particular by reference to customer demand, the supply side and commercial practice. As regards the

latter, agencies would need to take into account that commercial practice may to a large extent be

influenced by the dominant firm, cf. ibid., at paragraph 940.

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dominant firm uses tying to leverage its market power to another market, negative

effects on competition must be shown on the tied market12

. Tying practices may also

be used to maintain or strengthen market power in the tying product market (see

question 7 above).

a. What specific types of effects must be shown, e.g. market distortion,

market foreclosure, harm to consumer welfare?

According to the jurisprudence of the European courts the conduct of an undertaking

in a dominant position must have the effect of hindering the maintenance of the

degree of competition still existing in the market or the growth of that competition in

order to constitute an infringement of Article 82 EC13

.

Under German law it needs to be shown that competitors are hindered and

(potentially) foreclosed from the tied market14

. The Bundeskartellamt understands

market foreclosure as a situation where actual or potential competitors of the

dominant firm are completely or partially denied profitable access to a market and

thereby the degree of competition or the growth of competition in the market is

hindered. Tying may also result in raising barriers to entry and may help a dominant

firm to maintain market power (see also question 7 above).

Both under European and German law it is not necessary for a certain conduct to

cause direct consumer harm. Rather it is sufficient that conduct is detrimental to

competition and to an effective competition structure and thus harms consumers

indirectly15

.

b. What degree of proof is required? Must the effect be actual, likely, or

potential?

Negative effects on competition need to be at least potential or likely (but need not be

actual) to give rise to liability16

.

The requisite standard of proof in German competition law depends on the type of

proceedings. In administrative fine proceedings (where the Bundeskartellamt may

issue a decision imposing a fine) the violation of antitrust law needs to be shown with

“no reasonable doubt” (note that, as far as can be seen, the Bundeskartellamt has not

yet conducted such proceedings with respect to tying). In administrative proceedings

(where the Bundeskartellamt may issue a cease and desist order) the standard of proof

12

Cf., e.g., BGH (Federal Court of Justice), Case KZR 1/03, WuW/E DE-R 1283 - Der Oberhammer,

under item II.5.b). 13

ECJ, Case 85/76, Hoffmann-La Roche v Commission, [1979] ECR 461, paragraph 91; ECJ, Case

322/81, Michelin v Commission, [1983] ECR 3461, paragraph 70; ECJ, Case C-62/86, AKZO v

Commission, [1991] ECR I-3359, paragraph 69; CFI, Case T-228/97, Irish Sugar v Commission,

[1999] ECR II-2969, paragraph 111; CFI, Case T-203/01, Michelin v Commission, [2003]

ECR II-4071, paragraph 238. 14

Cf. BGH (Federal Court of Justice), Case KZR 1/03, WuW/E DE-R 1283 - Der Oberhammer, under

item II.5.d). 15

See ECJ, Case C-95/04 P, British Airways [2007] ECR I-2331, paragraphs 106 and 107.

The provisions of the ARC have the objective to ensure an effective competitive process which has the

effect of enhancing consumer welfare and an efficient allocation of resources. 16

Cf. BGH (Federal Court of Justice), Case KZR 1/03, WuW/E DE-R 1283 - Der Oberhammer, under

item II.5.b) “the danger [that market power is leveraged to other market]”

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can be described with “probability” or “balance of probabilities”.

10. Does intent play a role, and if so what role and how is it demonstrated?

In principle, it is not necessary to show that the dominant firm intended negative

effects on competition or the violation of antitrust provisions, since abuse of

dominance is an objective concept. However, if there is evidence of intent, this may

be of relevance in the analysis of effects and, under German law, in the process of

weighing the interests involved, including justifications (e.g. if internal documents

show that the conduct was intended to foreclose competitors). Furthermore, if an

investigation was conducted in administrative fine proceedings (so far, there are no

administrative fine proceedings concerning tying), intent would also be relevant, in

particular with respect to the determination of fines.

Evaluation of Bundled Discounting

11. In your jurisdiction, is the term bundled discounting used in a manner

different from the definition in the introductory paragraphs above? If so, how?

The term is used in the same manner. As was pointed out above, the term “tying” may

be used in a broader sense in German antitrust law and comprise to a certain extent

what is described as bundled discounting in the introductory paragraphs (see question

6 above).

12. Please explain the competitive concern(s), if any, generally associated with

bundled discounting in your jurisdiction, e.g. maintaining dominance/

substantial market power, distortion of or harm to competition, exploitation of

consumers, exclusion of competitors, price discrimination, other.

Dominant firms may use their market power to secure or strengthen their market

position by hindering or foreclosing (potential) competitors from this market17

and by

creating, maintaining or by reinforcing barriers to entry. As a result, competition may

be further harmed in a market where competition is already weakened as a result of

the very high degree of market power of one firm. Furthermore, competition may be

restricted as a consequence of the leverage of market power to another market, e.g. by

market foreclosure, in a market where the firm under investigation is not dominant18

.

German competition law has the objective to protect the competitive process rather

than focusing directly on consumer harm. Indirectly, protecting the competitive

process also prevents consumer harm because in the medium and long-run, anti-

competitive rebates will also harm consumers because hindrance and foreclosure will

result in less product diversity and higher prices.

13. Does price-cost comparison play a role in the evaluation of bundled

discounting? Yes/No. If yes, please describe the comparison used and the role

that it plays. Please also indicate if recoupment plays a role and, if so, what role

it plays.

17

Cf. OLG Düsseldorf, Case VI U Kart 34/02 – Blutprodukte. 18

Cf. BGH (Federal Court of Justice), Case KZR 16/02, WuW/E DE-R 1206 – Strom und Telefon I,

OLG (Higher Regional Court) Düsseldorf, Case VI-2 U (Kart) 8/06, WuW/E DE-R 2287 – Stadtwerke

Düsseldorf; Cf. OLG (Higher Regional Court) Düsseldorf, Case VI U Kart 34/02 – Blutprodukte.

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In Germany, competition authorities and courts analyse whether bundled discounting

leads to foreclosure effects (e.g. by increasing entry barriers). To this end competition

authorities and courts analyse inter alia the possibilities and incentives of companies

to switch to other suppliers. In this context, the Bundeskartellamt examines the

quantitative effects of the discount, i.e. in particular the discount percentage, the

discount scale, the turnover on the basis of which the discount percentage is

calculated, individualized sales targets, the length of reference period, the importance

of the dominant firm as a trading partner and the importance of its products (e.g. as

“must-stock items”), as well as potential losses that switching would bring about.

So far, price-cost comparisons have not played a role. If price-cost data was readily

available, it might possibly be used in investigations.

Recoupment is not relevant in the assessment. If, however, evidence showing

recoupment of losses incurred was readily available, this might be used in the

analysis.

14. What sort of effects, if any, must be shown to demonstrate an illegal

bundled discount? For example, must market distortion, market foreclosure,

harm to consumer welfare or any other effect be shown?

It must be shown that the conduct results in the hindrance or foreclosure of (potential)

competitors. Foreclosure can be described as conduct by the dominant firm which

hinders or eliminates actual or potential competitors’ profitable access to the market,

thereby weakening competition (see also question 12 above).

In its assessment, the Bundeskartellamt analyses the economic incentives that arise as

a consequence of bundled discounting, in particular whether they provide for a

suction effect that is likely to lead to unjustified hindrance or foreclosure19

.

No consumer harm needs to be shown (see questions 9.a) and 12 above).

a. What degree of proof is required? Must the effects be actual, likely,

or potential?

Negative effects on competition need to be at least potential or likely (but need not be

actual) to give rise to liability20

.

The requisite standard of proof in German competition law depends on the type of

proceedings. In administrative fine proceedings (where the Bundeskartellamt may

issue a decision imposing a fine) the violation of antitrust law needs to be shown with

“no reasonable doubt”. In administrative proceedings (where the Bundeskartellamt

may issue a cease and desist order) the standard of proof can be described with

“probability” or “balance of probabilities”.

15. Does intent play a role, and if so what role and how is it demonstrated?

Generally, intent is not needed to show that bundled discounting violates antitrust

19

Cf. KG (Higher Regional Court) Berlin, Case Kart 32/79, WuW/E OLG 2403 – Fertigfutter; KG

(Higher Regional Court) Berlin, Case Kart 27/76, WuW/E OLG 1767 – Kombinationstarif. 20

Cf. KG (Higher Regional Court) Berlin, Case Kart 27/76 WuW/E OLG 1767 – Kombinationstarif.

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law. Intent may, however, be of relevance in the context of demonstrating (potential

or likely) negative effects on competition (e.g. if internal documents show that the

conduct was intended to foreclose competitors). It may also be relevant in

administrative fine proceedings, in particular with respect to the determination of

fines (see question 10 above).

Presumptions and Safe Harbors

15. Are there circumstances under which tying or bundled discounting is

presumed illegal? Yes/No If yes, please explain, including whether the

presumption is rebuttable and, if so, what must be shown to rebut the

presumption.

No.

16. Are there any circumstances under which there is a safe harbor? Are there

any circumstances under which there is a presumption of legality? Please

explain the terms of any presumptions or safe harbors.

No.

Justifications and Defenses

17. What justifications or defenses, if any, are permitted (e.g., reduced

manufacturing or distribution costs, meeting competition, product

reputation, technological linkages) for tying or bundled discounting?

According to the jurisprudence of the European Courts a conduct does not violate

Article 82 EC if there is an objective economic justification for a system of rebates,

discounts or bonuses21

. In this context, efficiencies are of relevance22

.

The Bundeskartellamt, when applying the national provisions (§§ 19, 20 ARC)

balances the interests of the undertakings involved, i.e. especially the economic and

competitive interests of the dominant firm and its competitors. In this respect, the aim

of the ARC to ensure competition and open markets is of particular importance. In

balancing the different interests, the Bundeskartellamt also takes into account

objective necessities and efficiencies.

Under both European and German competition law, the justifications invoked by the

dominant firm would need to outweigh the competitive harm caused by the conduct at

issue.

a. Please specify the types of justifications and defenses that your

agency considers in the evaluation of tying arrangements, the role

they play in the competitive analysis, and who bears the burden of

21

ECJ, Case C-95/04 P, British Airways v Commission [2007] ECR I-2331, paragraph 86; ECJ, Case

322/81 Michelin I [1983] ECR 3461, paragraphs 73 et seq.; ECJ, Case 85/76 Hoffmann-La Roche

[1979] ECR 461, paragraph 90; ECJ, Case 40-48, 50, 54-56, 111, 113, 114/73 Suiker Unie [1975] ECR

1663, paragraph 518.

22 ECJ, case C-95/04 P, British Airways v Commission [2007] ECR I-2331, paragraph 86. See also CFI,

Case T-201/04, Microsoft Corp. v Commission, not yet reported, paragraph 1091 et seq.

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proof.

In principle, all of the above mentioned issues may be of relevance in the analysis but

pro-competitive effects would need to outweigh the anticompetitive concern.

The case law on justifications and defenses is not extensive. In the Oberhammer case,

the Federal Court of Justice did not refer to justifications. However, the court did not

give a definite judgment but referred the matter back to the lower court. From the

Telefon und Strom cases it emerges that the Federal Court of Justice follows a very

strict approach as far as coercive tying is concerned.

The burden of proof to show that the conduct is justified is on the firm under

investigation. It would then fall to the Bundeskartellamt to assess whether the

justifications outweigh the anticompetitive effects.

b. Please specify the types of justifications and defenses that your

agency considers in the evaluation of bundled discounts, the role

they play in the competitive analysis, and who bears the burden of

proof.

In principle, all of the above mentioned issues may be of relevance but pro-

competitive effects would need to outweigh the anticompetitive concern.

From the jurisprudence it emerges that efficiencies leading to cost saving,

rationalization and synergy effects would have to be substantial23

and were in practice

often not held to be sufficient to outweigh foreclosure effects24

. In one case, the

Federal Court of Justice confirmed that conduct that aims at averting insolvency may

justify bundled discounting that has anticompetitive effects25

.

The burden of proof to show that the conduct is justified is on the firm under

investigation. It would then fall to the Bundeskartellamt to assess whether the

justifications outweigh the negative effects on competition.

18. What policy considerations does your jurisdiction consider with respect to

tying and bundled discounts?

You may wish to address the following sorts of issues: Are tying and

bundled discounting common? Does your jurisdiction generally consider

them to be procompetitive? Does your answer depend on whether the

firm is dominant? Does your jurisdiction view tying and bundled

discounting by a dominant firm as generally anticompetitive? What

23

Cf. BGH (Federal Court of Justice, Case KVR 9/81, WuW/E BGH 1965 – gemeinsamer

Anzeigenteil. The court held the dominant firms interest to organise product more efficiently to

generate greater turnover was in particular legitimate if savings were passed on to

customers/consumers. 24

Cf. OLG (Higher Regional Court) Düsseldorf, Case VI-2 U (Kart) 8/06, WuW/E DE-R 2287 –

Stadtwerke Düsseldorf; KG (Higher Regional Court) Berlin, Case Kart. 32/79, WuW/E OLG 2403 –

Fertigfutter. In the latter case, the court stated that bundled rebates based on shorter reference periods

are more likely to be justified. 25

BGH (Federal Court of Justice), Case KVR 9/81, WuW/E BGH 1965 – gemeinsamer Anzeigenteil;

OLG (Higher Regional Court) Stuttgart, Case 2 Kart 2/78, WuW/E OLG 2126 – Kombinationstarif I.

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1

competitive concern(s), if any, are generally associated with tying and

bundled discounts in your jurisdiction?

Tying and bundled discounting are neither considered pro- nor anticompetitive as

such. There is no such rule that each and every tying or bundled discounting by a

dominant firm is problematic.

As was mentioned above, tying and bundling may, however, have negative effects on

competition in particular by foreclosing markets.

Dominant firms are encouraged to compete on the merits and, like non-dominant

firms, are not prevented from making attractive offers. This finds its limits if entry

barriers are raised and markets foreclosed.

19. Please provide any additional comments that you would like to make on your

experience with tying and bundled discounting and enforcement in your

jurisdiction. This may include, but is not limited to, whether there have been

– or whether you expect there to be – major developments or significant

changes in the criteria by which you assess tying and bundled discounting.

The Bundeskartellamt’s track record of tying and bundled discounting in recent years

is rather limited and the number of cases brought in civil litigation seems to be rather

low. Consequently, overenforcement and significant chilling effects are highly

unlikely.

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Agency Name: Bundeskartellamt

Date: November 20, 2008

Single-Product Loyalty Discounts and Rebates

This part of the questionnaire seeks information on ICN members’ analysis and

treatment of loyalty discounts and rebates. The information provided will serve

as the basis for a report that is intended to give an overview of law and practice

regarding loyalty discounts and rebates in the respective jurisdictions.

Unless otherwise stated, the questions concern unilateral conduct by a dominant

firm or firm with significant market power.

For this questionnaire, loyalty discounts and rebates are defined as discounts or

rebates on units purchased of a single product, conditioned upon the level or

share of purchases.

This part of the questionnaire concerns only treatment of single-product

discounts rather than pricing practices involving multiple products (bundling,

tying, and related practices).

You should feel free not to answer questions concerning aspects of your law or

policy that are not well developed. Answers should be based on agency practice,

legal guidelines, relevant case law, etc., rather than speculation.

Experience

1. Please state the statutory provisions or legal basis that allow your agency to

address loyalty discounts and rebates. Are loyalty discounts a civil and/or a

criminal violation of your jurisdiction’s antitrust laws? Do these provisions

apply only to dominant firms or to other firms as well?

a) The Bundeskartellamt applies Article 82 EC and national provisions (§§ 19, 20 Act

against Restraints of Competition, henceforth ARC26

) on unilateral conduct.

Article 82 EC states:

“Any abuse by one or more undertakings of a dominant position within the

common market or in a substantial part of it shall be prohibited as incompatible

with the common market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair

trading conditions;

26

An English version of the ARC is available at

http://www.bundeskartellamt.de/wEnglisch/download/pdf/06_GWB_7__Novelle_e.pdf.

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…

(c) applying dissimilar conditions to equivalent transactions with other trading

parties, thereby placing them at a competitive disadvantage;”

§ 19 (1) ARC provides for a general prohibition for dominant undertakings to abuse

their market power and is similar to Article 82 EC (first sentence). Similar to Article

82 EC (sentence 2), § 19 (4) ARC sets out four non-exhaustive examples of forbidden

abusive behaviour.

§ 19 ARC reads:

“(1) The abusive exploitation of a dominant position by one or several

undertakings shall be prohibited.

…

(4) An abuse exists in particular if a dominant undertaking, as a supplier or

purchaser of certain kinds of goods or commercial services,

1. impairs the ability to compete of other undertakings in a manner affecting

competition in the market and without any objective justification;”

Besides § 19 ARC, another provision, § 20 ARC, addresses unilateral conduct.

§ 20 provides:

“(1) Dominant undertakings, associations of competing undertakings within the

meaning of §§ 2, 3, and 28 (1) and undertakings which set retail prices pursuant to

§ 28 (2), or § 30 (1) sentence 1, shall not directly or indirectly hinder in an unfair

manner another undertaking in business activities which are usually open to

similar undertakings, nor directly or indirectly treat it differently from similar

undertakings without any objective justification.”

(2) Paragraph 1 shall also apply to undertakings and associations of undertakings

insofar as small or medium-sized enterprises as suppliers or purchasers of certain

kinds of goods or commercial services depend on them in such a way that sufficient

and reasonable possibilities of resorting to other undertakings do not exist. A supplier

of a certain kind of goods or commercial services shall be presumed to depend on a

purchaser within the meaning of sentence 1 if this purchaser regularly obtains from

this supplier, in addition to discounts customary in the trade or other remuneration,

special benefits which are not granted to similar purchasers.

(3) Dominant undertakings and associations of undertakings within the meaning of

paragraph 1 shall not use their market position to invite or to cause other

undertakings in business activities to grant them advantages without any objective

justification….”

b) Violations of the above mentioned provisions are civil not criminal. The

Bundeskartellamt investigates potentially anticompetitive loyalty discounts and

rebates in administrative proceedings. The Bundeskartellamt may also investigate

such conduct in administrative fine proceedings in which it may impose

administrative fines.

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1

c) § 20 (2) and 3 ARC (see above) apply to undertakings that do not have a dominant

position but have superior market power. The following focuses on abuse of

dominance.

2. How many in-depth investigations (i.e., beyond a preliminary review) of

loyalty discount and rebate programs has your agency conducted during the

past ten years? Please describe what prompted the investigations (e.g.,

competitor complaints).

a) 4 cases, of which one case was investigated under Article 81 EC27

.

b) Investigations were prompted by competitor complaints.

3. State the number of loyalty discounts and rebate programs that your agency

found to be unlawful over the past ten years (1999 to date); include cases

resolved informally as well as those that led to a formal decision. If your

agency has found any loyalty discounts and rebate programs to be unlawful,

please describe the anticompetitive effect and the circumstances that led to

the finding.

For administrative systems (i.e., the agency issues its own decisions on

the legality of the conduct, which may be appealable in court), state

the number of agency decisions finding a violation or settlements that

were challenged in court and, of those, the number upheld and

overturned.

The Bundeskartellamt found violations of antitrust law in two cases, DSL-

Connections and Share deals, of which the latter was analysed under Article 81 EC,

i.e. not as an abuse of dominance but as an anticompetitive agreement.

In the DSL-connections case, the conduct at issue was investigated by the

Bundeskartellamt and the Federal Network Agency in parallel. In May 2006 the

Federal Network Agency issued a prohibition decision in which it declared Deutsche

Telekom’s conduct to be abusive according to § 28 Telecommunications Law. The

Bundeskartellamt refrained from issuing a decision in. It terminated proceedings

when Deutsche Telekom had withdrawn its appeal against the Federal Network

Agency’s decision and this decision had become final.

In the Share deals case the Bundeskartellamt issued a decision imposing

administrative fines, which was not appealed and became final.

DSL-Connections (2006)

Approximately until the end of 2005, Deutsche Telekom AG offered DSL-

connections for resale on the basis of a model called "Resale DSL". According to this

model resellers were granted a standardized deduction of 11.5% on the end customer

price charged by DTAG. After the end of 2005, Deutsche Telekom alternatively

offered resellers a model called "DSL Net Rental" and concluded respective contracts

with United Internet AG and AOL Deutschland GmbH & Co. KG. This new model

27

See English press release at

http://www.bundeskartellamt.de/wEnglisch/News/Archiv/ArchivNews2007/2007_11_30.php.

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1

which was characterised by Deutsche Telekom as the "supply of virtual net

capacities" differed from "Resale DSL" essentially only with regard to the pricing.

Within the new model the pricing was based on the connection areas of Deutsche

Telekom’s network. There are several thousand of such connection areas. For each

connection area a minimum net capacity of 192 ports was billed irrespective of the

actual use. This minimum capacity and additional 64 port packages were supplied for

a minimum term of 24 months. Ports within the minimum capacity or the additional

64port packages were not physically reserved for the resellers, but were allocated

dynamically according to demand. The prices were calculated by Deutsche Telekom

on a diminishing scale based on the number of ports billed for each connection area.

As the number of ports increased, the price charged for the supply of each port

decreased, at a certain point significantly below the price level under the "Resale

DSL" model.

The Bundeskartellamt came to the preliminary conclusion that the "DSL Net Rental"

model violated both Article 81 EC/§ 1 ARC and Article 82 EC/§ 19 ARC. With

regard to the latter provisions, Deutsche Telekom had a dominant position in the

market for upstream services for broadband internet connections. The new tariff can

be qualified as a volume rebate for the same services offered on the basis of “Resale

DSL”. There was the danger that these benefits granted to large resellers could drive

competitors out of the market and lead to the establishment of an oligopoly. Relevant

differences in terms of technology or risk between both offers could not be

determined. Therefore, it was relevant whether, along general lines, the quantity scale

was consistent with the cost function of Deutsche Telekom. However, there were no

facts supporting this assumption. Rationalisation advantages over “Resale DSL” on

Deutsche Telekom’s side could not be ascertained in the investigations.

Share deals (2007)

In November 2007, the Bundeskartellamt issued a decision imposing fines totalling

216 million euros against the advertising time marketing companies of the two private

broadcasting groups RTL and Pro7Sat.1. The marketing companies IP Deutschland

GmbH, active for RTL, and SevenOne Media GmbH, active for Pro7Sat.1, had

concluded agreements with media agencies and the advertising industry in the form of

contracts for the broadcasting of television advertising spots. These vertical

agreements violated Article 81 EC as well as the corresponding § 1 ARC: Under the

agreements, the media agencies were granted significant discounts and other refunds

if they placed certain substantial proportions of their advertising budget with the

respective broadcasting group. These discounts provided the media agencies with a

strong economic incentive to place the respective proportion of their advertising

budget with the two large marketing companies rather than with other broadcasters,

thus foreclosing markets for (potential) competitors. The reason for this was that the

discounts were granted retroactively for the entire budget, i.e. not only for incremental

placements exceeding the discount thresholds. The Bundeskartellamt analysed the

potential loss that media agencies would incur by switching to other suppliers and

found that it was substantial and led to the foreclosure of the TV advertising market.

There were no indications, and the companies themselves did not claim that the

requirements for exemption under Article 81 (3) EC were satisfied, i.e. that the

agreement contributed to improving the production or distribution of goods or to

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1

promoting technical or economic progress while allowing consumers a fair share of

the resulting benefit.

For judicial systems (i.e., the agency challenges the legality of the

conduct in court and the court issues a decision), state the number of

cases your agency has brought that resulted in a final court decision

that the conduct violates the competition law or a settlement that

includes relief. Also state the number of cases that resulted in a final

court decision that the conduct did not violate the competition law.

N/a.

Please state whether any of these cases were brought under a criminal

antitrust law.

Proceedings concerning violations of the above-mentioned provisions are civil

(administrative) proceedings, not criminal proceedings. The Bundeskartellamt may

also conduct administrative fine proceedings which are, however, very rare in abuse

of dominance cases.

Please provide a short English summary of the leading loyalty

discount and rebate cases in your jurisdiction, and, if available, a link

to the English translation, an executive summary, or press release.

The recent leading discount cases concern bundled discounting and are mentioned in

the context of case law (question 3 concerning tying and bundling). In recent years

there have not been any decisions on loyalty discounts/rebates beyond the cases

mentioned above (see question 3 above).

4. Does your jurisdiction allow private parties to challenge loyalty discounts

and rebates in court? Yes/No. If yes, please provide a short description of

representative examples of these cases. If known, indicate the number of

cases brought (or an estimate thereof) by private parties.

Private parties may challenge loyalty discounts and rebates in court. There is no

robust statistical data concerning private cases.

Evaluative Criteria

5. In your jurisdiction, is the term single-product loyalty discounts and rebates

used in a manner different from the definition in the first paragraph above?

If so, how?

The same definition is used.

6. What are your jurisdiction’s criteria for evaluating the legality of loyalty

discounts and rebates?

When analysing the legality of loyalty discounts and rebates under EC or German

competition law, the Bundeskartellamt employs the following criteria (based on the

above-mentioned provisions in the light of the case law):

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1

- Dominant Position

- Hindrance/ foreclosure or discrimination

- No objective justification

a. What anticompetitive effects or other criteria make loyalty discounts

and rebates abusive? Must the practice exclude or threaten to exclude

rivals from the market? If only threatened exclusion is required, how

is it determined? If neither actual nor threatened exclusion is

required, what other factors are considered?

Loyalty discounts and rebates are considered to be abusive if they are likely to or

actually do result in foreclosure effects. The Bundeskartellamt defines market

foreclosure as a situation where actual or potential competitors of the dominant firm

are completely or partially denied profitable access to a market and where the

maintenance of the degree of competition still existing or the growth of competition in

the market is thereby hindered28

.

Neither German nor European competition law requires the competition agency or, in

civil litigation, the plaintiff, to show that competitors were actually forced to exit the

market as a consequence of the conduct at issue. Rather, it suffices to show that the

conduct is capable of producing an exclusionary effect29

, i.e. that the discount scheme

provides for a strong economic incentive to concentrate purchases - in the dominated

or another market30

- on the dominant firm so that the entry of potential competitors is

made difficult or the market exit of actual competitors is probable or likely in a way

that can reasonably be expected.

Both under German and European Competition law a discount scheme is likely to

produce foreclosure effects if it has a strong fidelity-building effect, i.e. if it produces

strong economic incentives to concentrate purchases on the dominant firm (suction

effect)31

.

In the assessment of foreclosure, the Bundeskartellamt analyses the economic

incentives of discount schemes. In this context, the Bundeskartellamt examines the

quantitative effects of the discount, i.e. in particular the discount percentage, the

discount scale (a progressive discount scale may induce customers to purchase

products merely to avoid losing the discount that would be granted when the next

discount step is attained), the turnover on the basis of which the discount percentage

is calculated (total turnover or incremental turnover), individualised sales targets, the

28

Cf. the case law of the European Courts, e.g. European Court of Justice (ECJ), Case C-95/04 P,

British Airways v Commission [2007] I-2331, paragraph 66. 29

Cf. European Court of Justice (ECJ), Case C-95/04 P, British Airways v Commission [2007] I-2331,

paragraph 68. 30

Note that anti-competitive discounts of a dominant firm can also be addressed under § 19 ARC when

they relate to products or services in the market not dominated by the firm under investigation (see (KG

(Higher Regional Court) Berlin, WuW/E OLG 3124, 2129 – Milchaustauschmittel). On the other hand,

§ 20 (1) ARC only applies to discriminatory practices in the dominated market (see Bundesgerichtshof

(Federal Court of Justice), WuW/E BGH 2483, 2490 – Sonderungsverfahren). 31

Cf. European Court of First Instance (CFI), Case T-219/99, British Airways v Commission [2003] II-

5917, paragraph 271 et seq., CFI, Case T-203/01, Michelin v Commission [2003] II-4071, paragraph 75

et seq.

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length of reference period, the importance of the dominant firm as a trading partner

and the importance of its products, (e.g. as “must-stock items”), as well as potential

losses that switching to other suppliers would bring about32

.

Hindrance, according to German competition law, is a market behaviour which has

objectively negative effects on the hindered firm in the sense that the behaviour at

issue is not objectively justified33

. Discriminating between undertakings may also be

held to be anti-competitive if it is not objectively justified (as to objective

justifications, see Question 9 below).

b. Does intent play a role, and if so what role and how is it

demonstrated?

In principle, it is not necessary to show that the dominant firm intends negative effects

on competition or the violation of antitrust provisions. However, if there is evidence

of intent, this may be of relevance in the analysis of effects on competition and, under

German law, in the process of weighing the interests involved, including

justifications34

. Furthermore, if an investigation was conducted in administrative fine

proceedings intent would also be relevant (so far, this has not occurred), in particular

with respect to the determination of fines.

If, as in most cases, no exclusionary intent can be shown, the Bundeskartellamt

analyses the effects that the granting of discounts is likely to have (see question 6 a

above).

c. Does price-cost comparison play a role? If so, please describe the

comparison(s) used and the role that it plays.

In your answer, you may wish to address the following sorts of issues:

What cost measures are used (e.g., average variable cost, average

avoidable cost, average total cost)? Are price and cost compared with

respect to all of a firm’s sales to a particular customer or only with

respect to incremental sales? How significant a role does the cost test

play (e.g., is pricing below the relevant cost measure required or a

pre-requisite to prove illegality? Does pricing above cost prove

legality)? Please also indicate if recoupment plays a role and, if so,

what role it plays.

32

For example, in the share deals case (which was analysed under Article 81 EC), the

Bundeskartellamt analysed that a media agency that had already placed an advertising budget

amounting to 13 million Euros and was planning to place advertising worth another million would

qualify for a rebate of 11% instead of 10.5%, i.e. 1.54 million Euros instead of 1.365 million Euros. If

the additional budget was placed with a competitor, it would thus lose 0.175 million Euros. On the

other hand, the newly placed advertising budget of 1 million Euros would – if the bonus system of the

firm under investigation were applied – account for a bonus of 5.000 Euros. In other words, switching

would cost the media agency 0.17 million Euros. See also the European case law, e.g. ECJ, Case C-

95/04 P, British Airways v Commission [2007] I-2331, paragraph 63. 33

Bundesgerichtshof (Federal Court of Justice), Case KVR 8/80, WuW/E BGH 1829 et seq. - Original

VW-Ersatzteile II. 34

Under EC competition law, if it is shown that the objective of the conduct of an undertaking in a

dominant position is to limit competition, it is assumed that the conduct will have such an effect, cf.

CFI, Case T-203/01 Michelin II [2003] II-4071, paragraph 241

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So far, price-cost comparisons have not played any role. If price-cost data was readily

available, it might be used in investigations. If, e.g. data was available which showed

that pricing was below a price-cost benchmark that indicates predatory pricing (i.e., in

principle, (a) below average total cost with evidence that the firm intended to produce

an exclusionary effect, (b) pricing below AVC, AAC or LRAIC35

), this would mean

that, a fortiori, such granting of rebates and discounts would also be held to be

abusive.

Since price-cost comparisons are, in principle, not relevant in the assessment of

loyalty discounts and rebates, the relevant cost measures are neither required nor a

prerequisite to prove illegality. Furthermore, pricing above cost would not prove

legality.

Recoupment is not relevant when assessing loyalty discounts and rebates. As was

explained above, the Bundeskartellamt focuses on the competitive effects of the

granting of discounts and rebates (foreclosure effects, see question 6.a) above).

Presumptions and Safe Harbors

7. Are there circumstances under which loyalty discounts or rebates are

presumed illegal? Yes/No If yes, please explain, including whether the

presumption is rebuttable and, if so, what must be shown to rebut the

presumption.

No such presumption of illegality exists under German and European law.

8. Has your jurisdiction developed any safe harbors governing loyalty discounts

or rebates? Yes/No If yes, please explain the terms of the safe harbor.

There are no safe harbours with respect to loyalty discounts and rebates.

Justifications and Defenses

9. What types of justifications and defenses, if any, are available to the

dominant firm (e.g., efficiencies, meeting competition)? Please specify the

role they play in the competitive analysis and who bears the burden of proof.

According to the jurisprudence of the European Courts a conduct does not violate

Article 82 EC if there is an objective economic justification for a system of rebates,

discounts or bonuses36

. In this context, economic justifications or efficiencies are of

relevance37

.

When applying the national provisions (§§ 19, 20 ARC) the Bundeskartellamt

35

For more details, see the Bundeskartellamt’s reply to the Questionnaire on Predatory Pricing,

available at www.internationalcompetitionnetwork.com/unilateralconduct. 36

ECJ, Case C-95/04 P, British Airways v Commission [2007] ECR I-2331, paragraph 86; ECJ, Case

322/81 Michelin I [1983] ECR 3461, paragraphs 73 et seq.; ECJ, Case 85/76 Hoffmann-La Roche

[1979] ECR 461, paragraph 90; ECJ, Case 40-48, 50, 54-56, 111, 113, 114/73 Suiker Unie [1975] ECR

1663, paragraph 518.

37 ECJ, Case C-95/04 P, British Airways v Commission [2007] ECR I-2331, paragraph 86. See also

CFI, Case T-201/04, Microsoft Corp. v Commission, not yet reported, paragraph 1091 et seq.

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balances the interests of the undertakings involved, i.e. in particular the economic and

competitive interests of the dominant firm and its competitors. In this respect, the aim

of the ARC to ensure competition and open markets is of particular importance. In

balancing the different interests the Bundeskartellamt also takes into account

objective necessities and efficiencies.

The Bundeskartellamt also analyses whether rebates and discounts relate to cost

savings as argued by the dominant firm. Other economic justifications may also be

demonstrated by the dominant firm. In the cases decided by the Bundeskartellamt,

firms mainly argued that discounts were introduced in order to induce customers to

place orders and purchases in a cost-saving manner (and to pass on part of these

savings to the customers).

The case law on justifications and defenses in Germany is not extensive. The Federal

Court of Justice confirmed that a dominant firm’s interest to organise production

more efficiently to generate greater turnover was in particular legitimate (and

important in the balancing of interests involved) if savings were passed on to

customers/consumers38

. Another aspect that was analysed in the jurisprudence is

whether the discount was introduced as a reactive measure taken by the dominant

company in the given market circumstances in order to avoid losing customers39

. The

court concluded that in the specific circumstances of the case, the discount was

justified.

Under both European and German competition law, the justifications invoked by the

dominant firm would have to outweigh the competitive harm caused by the conduct at

issue.

Policy

10. What policy considerations does your jurisdiction consider with respect to

loyalty discounts and rebates?

You may wish to address the following sorts of issues: Are loyalty discounts

and rebates common? Does your jurisdiction generally consider them to be

procompetitive? Does your answer depend on whether the firm offering the

discounts is dominant? Does your jurisdiction view loyalty discounts and

rebates by a dominant firm as generally anticompetitive? What competitive

concern(s), if any, are generally associated with loyalty discounts and rebates

in your jurisdiction?

Discounts are common. In the majority of cases, discounts and rebates do not have

negative effects on competition.

All firms, including dominant ones, are encouraged to compete on the merits. They

are generally free to determine their sales strategy and are not limited in their

competitive behaviour including pricing and granting of discounts.

38

Cf. BGH (Federal Court of Justice, Case KVR 9/81, WuW/E BGH 1965 – gemeinsamer Anzeigenteil

(concerning bundled discounting). 39

KG (Higher Regional Court), WuW/E OLG 3656 - TUI-Partnerschaftsbonus.

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Loyalty discounts and rebates offered by dominant firms may, however, have a

negative effect on competition if they produce suction and foreclosure effects that

could, e.g. further weaken competition in a market where a firm has a very high

degree of market power (see question 6.a.) above). Furthermore, competition may

also be distorted by anticompetitive price discrimination.

11. Please provide any additional comments on your experience with loyalty

discounts and rebates. You may wish to address whether there are

significant policy and/or practical considerations that may lead to greater or

lesser agency enforcement against loyalty discounts and rebates pursuant to

your unilateral conduct rules, e.g., concern with the risks of false

positives/false negatives and/or the presence or lack of evidence of consumer

harm.

The number of the Bundeskartellamt’s investigations into single product loyalty

discounts and rebates is rather limited. There have not been any significant single

product discounts and rebates cases in civil litigation in recent years. It appears from

the case law (although reliable data are not available) that, in the past, rebates were

treated as much more critical by competition authorities and courts than they are

today. This is reflected in the track record of the last ten years (see question 3 above).

Consequently, over-enforcement and significant chilling effects are not very likely.

The Bundeskartellamt aims at investigating only such conduct that is potentially

likely to have negative effects on competition. It is well aware of the risks of false

positives and false negatives. It aims to prohibit only such conduct that has negative

effects on competition.

The Bundeskartellamt holds the view that single-product loyalty discounts should be

analysed by focusing on whether they are capable of producing a loyalty enhancing

suction effect which may lead to negative effects on competition (e.g. foreclosure, by

maintaining or raising barriers to entry). To this end, price-cost analysis may be

helpful. Such analysis should however not be limited to examining whether the

discounts at issue amount to predatory pricing. If competition authorities constrained

themselves to regard only such discounts as anticompetitive that can be seen as

predatory pricing they would risk to miss out on those loyalty discounts that lead to

prices that are not predatory but may nevertheless produce negative effects on

competition.