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British Airways loses appeal against loyalty program fines - extended

British Airways Plc, Europe's third- largest airline, breached antitrust rules by rewarding travel agents for boosting ticket sales, the European Union's highest court said, upholding a €6.8 million ($9 million) fine.

The European Commission in July 1999 fined British Airways Plc for paying travel agents bonuses if they met or exceeded their previous year's BA ticket sales. A lower EU court upheld the regulator's decision that the pricing plan of the airline, being Europe's largest at the time, was anti-competitive - a ruling British Airways appealed to the top EU court. „The Court of First Instance did not make any error of law in dismissing BA's action,” the European Court of Justice in Luxembourg said today.

The decision coincides with an ongoing revision by the commission of its rules on loyalty rebates. The regulator has faced criticism for using market dominance as an indicator to prohibit loyalty programs without considering their effect on the market, lawyers said. The commission has applied „a very weak theory of harm” to market competition, Luc Gyselen, a partner at Arnold & Porter LLP in Brussels, said before the ruling. „This is the most significant aspect of this case,' he said. Harmondsworth, England-based British Airways, which has changed its incentive policy in line with the commission's 1999 findings, is „disappointed” by the court's judgment, spokesman Thomas Coops said in a telephone interview.

The Brussels-based commission welcomed today's decision, its spokesman Jonathan Todd said by telephone. He wasn't able to say when the regulator's internal revision of its rules for antitrust infringements by dominant companies will be concluded. The EU probe into the pricing policy of British Airways followed complaints by Virgin Atlantic Airways Ltd. in 1993 and 1998 about its rival's incentive program. The commission agreed that the British Airways policy prevented rivals from competing effectively on international routes from London. The three-judge panel ruled today that the lower EU court was right to decide the bonus programs were fidelity-building and „that they therefore produced an exclusionary effect, and that they were not justified from an economic standpoint.” The panel dismissed the airline's claim that its competitors „were financially capable of making competitive counter-offers to travel agents,” saying that the EU's top court can only decide on points of law.

Two earlier EU court decisions against loyalty plans by Unilever NV and Michelin & Cie have made it harder for dominant companies to offer price incentives. Coca-Cola Co. ended a six- year EU probe in 2005 by agreeing to stop offering unfair rebates and let retailers stock competing drinks in Coke refrigerators. Today's outcome may affect a number of pending EU antitrust probes into pricing plans, said Gyselen. In July 2005 the commission raided Intel Corp.'s European office, looking for evidence of anti-competitive conduct. Advanced Micro Devices Inc., which filed the complaint, said Intel abused its dominant position by granting illegal price discounts.

The regulator is also investigating Qualcomm Inc., the world's second-largest maker of chips for mobile phones. Nokia Oyj, the world's largest maker of handsets, and five other companies filed complaints in October of 2005 with the commission, accusing Qualcomm of charging unfair royalty rates. The case is C-95/04 P British Airways v Commission. (Bloomberg)