Loyalty Rebate - a Look at Tetra Pak Case and Intel Case（Part 1）

On November 16, 2016, the State Administration for Industry and Commerce (hereinafter the “SAIC”) issued a Competition Enforcement Announcement, making its definitive ruling on the abuse of a dominant position by Tetra Pak International Co., Ltd. (hereinafter "Tetra Pak"). In such Administrative Punishment Decision, in addition to the conduct of tying and restrictive dealing prohibited by Article 17 of the Anti-Monopoly Law, Tetra Pak, also implemented loyalty rebates. In respect of the Tetra Pak case, it is the first time that China’s antitrust authority sets out its position on the issue of loyalty rebates. Nowadays, the loyalty rebate is a hot topic in global competition law circle, and the methods adopted by different countries in dealing with loyalty rebates differ considerably. This article seeks to compare the new Tetra Pak case with the Intel case, with the aim of analyzing the perspective and method adopted in the two cases on the issue of loyalty rebates.
1. Case Background
(1) Tetra Pak Case
In the Tetra Pak case, SAIC identified three relevant product markets, i.e., market for paper-based aseptic packaging equipment, market for paper-based aseptic packaging material and market for technical services of paper-based aseptic packaging equipment. In the above three markets, Tetra Pak's market shares each exceed 50%, and Tetra Pak holds a strong market power in the three markets, which is heavily relied on by other business operators. In addition, the market-entry barriers for relevant product markets are very high, requiring tremendous capital inputs and R&D expenses. Therefore, SAIC confirmed that Tetra Pak holds a dominant market position in the above three relevant markets.
After confirming Tetra Pak's dominant market position, SAIC proceeded to confirm that Tetra Pak had undertaken the conduct of abusing a dominant position, including loyalty rebates; and this is the first time that SAIC gives a clear answer on whether or not loyalty rebate is illegal. Currently loyalty rebate is not expressly set out under China's Anti-Monopoly Law or in the relevant rules stipulated by SAIC itself. As a matter of fact, the issue of loyalty rebate in the Tetra Pak case witnessed the specific application of Article 17 (1) (7) of the Anti-Monopoly Law and Article 9 of the Provisions on Prohibiting the Abuse of Dominant Positions, which grant SAIC the discretion to determine the nature of other activities of abuse of a dominant market position on which the legislation remains silent.
Given that loyalty rebates are subject to regulation by SAIC in the Tetra Pak case, it can be recognized that monopolistic conducts not specifically set out in the Anti-Monopoly Law of China or other relevant administrative rules, are also likely to become the target for antitrust investigations in the near future.
From 2009 to 2013, Tetra Pak had implemented various rebates in the packaging material business, among which SAIC deemed that retroactive cumulative sales rebates and personalized target rebates belonged to loyalty rebates.
Retroactive cumulative sales rebates are at the heart of the Tetra rebate system, meaning that a customer may receive rebates of a certain unit price when purchase volumes of the customer reach the specified quantity within a certain period and such rebates may be retroactively applied to all of the cumulative purchases of the customer in such period, and when the amount of purchases reaches a higher threshold, then the extent of rebates will be larger. In the Tetra Pak case, retroactive cumulative sales rebates consist of the single-product retroactive cumulative rebates and the compound-product retroactive cumulative rebates, and the former has regard to the cumulative amount of purchasing a single product by a single customer within one year on the basis of the pre-set standards, and the latter refers to uniform rebates after the amount of purchase of two or more categories of packaging materials is aggregated on the basis of the single-product retroactive cumulative rebates or to extra rebates in addition to the single product retroactive cumulative rebates[1].
As for the personalized target rebate, it means the rebate conditional on reaching or exceeding the target ratios or individually fixed numbers by specified customers within a certain period[2]. In the Tetra Pak case, the target rebates are often tailored by Tetra Pak for specific customers with very strong objectives.
(2) Intel Case
In the Intel case, the European Commission (hereinafter “the Commission”) released its decision on May 13, 2009, arguing that Intel had abused its dominant position in the x86 CPU market, which constitutes a breach of Article 82 of the EC Treaty, and it levied a fine of € 1.006 billion on Intel and required Intel to cease its illegal acts as determined. Intel was not satisfied to the decision and brought a lawsuit before the General Court. On June 12, 2014, the General Court issued its ruling which dismissed Intel's claim and upheld the Commission's decision. Currently, the case is in the process of the appeal. However, according to the trial history of the European Court of Justice (hereinafter the “ECJ”), the ECJ tends to respect and uphold the ruling of the General Court.
In this case, the Commission found that Intel had more than 70% market shares in x86 CPU market, and that “there are significant barriers to entry and expansion present in the x86 CPU market”. As a result, all of Intel's competitors, except AMD, were driven out of the relevant market or were left with an insignificant share. Intel’s conduct of abusing its dominant position which is contrary to Article 82 of the Treaty, mainly referred to the implementation of loyalty rebates. More specifically, Intel conducted the following activities:
Firstly, Intel granted rebates to four computer manufacturers (Dell, HP, NEC, and Lenovo), on condition that the four manufacturers should purchase all or almost all of their requirements of x86 CPU products from Intel.
Secondly, Intel provided direct payments to MSH, the largest PC retailer in Europe, conditional on MSH selling exclusively Intel-based PCs.
Thirdly, the Commission found that Intel had implemented the so-called "naked restrictions". Specifically, Intel provided direct payments to computer manufacturers (HP, Acer, and Lenovo), on condition that these manufacturers halted or postponed the launch of products containing AMD CPUs, which are in competition with those of Intel. Intel also put restrictions on the distribution of AMD CPUs.
The above first conduct belongs to a typical loyalty rebate, and it is thus at the core of this article. In my view, the above second and third conducts are loyalty rebate activities in a broad sense, rather than those in a narrow sense, since the beneficiaries received benefits from Intel by accepting direct payments without purchasing products from Intel directly and therefore, such benefits were not obtained through rebates.
[1] See Page 34 of The Administrative Punishment Decision ofthe State Administration for Industry and Commerce on Administrative (No.1 of Gong Shang Jing Zheng An Zi [2016]).
[2] See Page 36 of The Administrative Punishment Decision ofthe State Administration for Industry and Commerce on Administrative (No.1 of Gong Shang Jing Zheng An Zi [2016]).