Ofcom announced earlier this week the opening of an investigation into the licensing by FA Premier League of its live TV rights. This is an area where competition and regulatory authorities have been very active over the past decade. The way in which football associations offer their rights is now subject to tight conditions, which prescribe the TV operators to which the content is to be sold or the appropriate length of the agreements. The same can be said of the licensees who acquire these rights to exploit them. The fact that the regulatory apparatus is growing across the value chain does not mean that intervention was needed in the first place and/or that it has improved the functioning of markets. And it does not mean, to be sure, that the sort of intervention at which Ofcom hints in its press release will achieve anything meaningful.
In 2006, the Commission adopted a decision requiring the FA Premier League to license its TV rights in several packages, as it had done in previous cases like UEFA Champions League. The twist in Premier League is that the Commission sought to ensure that consumers would be made worse off following intervention. The football association was not allowed to sell all of its live TV rights to a single operator (which was assumed to be Sky, as it had successfully bid for them in previous auctions). After the decision, sports fans were required to subscribe to two different Pay TV services to have access to all games (some Commission officials have been candid with me about the angry letters they received from some of these fans).
Then came Ofcom’s pay TV investigation. In 2010, the sectoral regulator required Sky (the licensee of the TV rights offered by the FA Premier League) to offer its premium sports channels to its downstream rivals on regulated terms and conditions. Ofcom’s officials issued hundreds of pages during the investigation but never claimed that Sky’s premium sports channels were an ‘essential facility’ for competing pay TV operators or that they were indispensable within the meaning of IMS Health (most probably because they are a far cry from being one or the other). What is certain, on the other hand is that BT (which, in case younger readers do not know, is the incumbent telecommunications operator in the UK) is clearly better off in the aftermath of the investigation (and even better off when its effects are combined with those resulting from the Premier League decision). This was not, I believe, what the regulator intended.
Now Ofcom seems to suggest that the FA Premier League may not be licensing enough games to TV operators. Virgin Media, the complainant, claims that only 41% of Premier League games are offered on TV, which is apparently a low figure when compared to practices in other EU Member States. At first blush, this looks like a convincing case. It is a horizontal agreement whereby football teams taking part in the Premier League restrict output in a coordinated manner. This is it. A plain-vanilla cartel.
Well, reality is much more complex than that. The joint licensing of TV rights in this context has absolutely nothing to do with the restriction of output that one observes in the context of a cartel, for the simple reason that football teams are not really rivals offering the same product and limiting competition between them. Co-operation between football teams allows them to create a new, complex product, which is the league as a whole and which the teams individually would have been unable to offer. An agreement of this kind is similar in its nature to other pro-competitive horizontal ventures, including the one examined by the ECJ in Groupement des Cartes Bancaires or by the US Supreme Court in BMI v CBS.
If ‘output restriction’ in this context is not comparable to a cartel arrangement (I remember a wonderful piece by Bill Bishop and Alison Oldale explaining this point clearly and concisely), then it is necessary to understand why the FA Premier League does not license all of its games. The most plausible explanation, in my view, is that it is all about creating a certain brand image, that is, about making sure that fans are not flooded with football games. Is creating relative scarcity bad per se? And again, scarcity relative to what? I struggle to see why it would be an issue in itself. Is it not precisely what Apple or luxury firms do, and what explains in part their success? Is the Premier League itself not an excellent example of successful global brand positioning? Is the task of a regulator exercising its powers under the Competition Act to decide about brand positioning on behalf of right holders?
[about the pic: there is always an excuse to include one of the best magazine covers of all time!]
-The talk of the town these days –as reflected in our most recent posts- is about “Lux leaks” and the uncomfortable position in which it places President Juncker, State aids and our victory in Court last week. But there’s a paradox regarding these cases that has surprisingly not received much attention: do people realize that if Luxembourg’s rulings were declared to constitute illegal State aid the result would be that Luxembourg would receive several thousands of millions of euros??
- This blog is intended not only for us to get things off our chest, but also to foster some debate. In this context, I would suggest you to read the most recent comments on this and this post. You won’t find that sort of discussions in many other places and this is what makes this blog different; we’re very fortunate to have such active and sapient readers and we probably don’t emphasize that enough.
- The comments I just referred to reveal that there are still a few open issues regarding, in particular, the concept of restrictions by object and on how they can avail themselves to objective justifications. For those interested in clarifications, we remind you about the forthcoming ERA event on the subject (Restrictions by Object after Cartes Bancaires and the Commission’s initiatives); for more info click here.
- Btw, for those needing clarification on a wider set of issues, we will soon be announcing the program of the 18TH edition of the Competition Law Course that Luis Ortiz Blanco and myself direct in Madrid from January to March, with the participation of, among many others, my former and my current blogging partners. If you are interested in attending or know of someone who might be, you can drop me a line (email@example.com). This course is, by the way, where I first met Nicolas, interestingly through the intermediation of his subsequent replacement on this blog, Pablo.
- Thanks to Competition Policy International we have found this piece at the intersection of competition law and religion titled Is there a Vatican School for Competition Policy? For the record, we were pioneers in writing on the link between religion and antitrust: see my (2010!) post on An Antitrust Challenge to God
- Our friend Stephen Ryan, now at the Hong Kong Competition Commission, has informed us about a new media campaign initiated by the authority to inform the general public about the benefits of competition (see here and here). We’ll add these to our list of candidates for the Antitrust Oscars. The authority is also active on other fronts, having just released draft guidelines on the interpretation of the Competition Ordinance for public consultation.
Champagne tastes great. A resounding victory against the European Commission probably tastes better. Yay! As the academic one in the duo (read: as someone who does not know how it feels to win a tough case after years of hard work), however, I cannot help spoiling the party with a geeky and anti-climactic counterpoint to Alfonso’s last post.
Last year, I published a statistical analysis of State aid litigation before EU courts. I was curious about the factors influencing the outcome of challenges against Commission decisions. I had of course some intuitions, but I was genuinely surprised with the results. It is interesting to compare some of the findings with the cases on selectivity that Alfonso discussed in his post.
- The single most remarkable finding is that the chances of success of an annulment action against a Commission decision increase dramatically when the Member State becomes involved in the proceedings (either as an applicant or in support of the recipient’s application). Close to one in two (44%) decisions were annulled with Member State involvement. Without the support of the central government, recipient firms did less well: only in in four decisions were annulled (26%).
- Many factors may account for this substantial divergence in outcome (I discuss some of them in the article). What matters for this post is that both Autogrill and Santander challenged the Commission decision without the support of the State, yet they won. One may interpret this outcome as meaning that their case was very strong on substance, or that they hired excellent lawyers. Or both, as they are not mutually incompatible. The latter is true here. Clearly. No doubt.
- What if the Commission decides to appeal the rulings before the ECJ? Interesting one. My study shows that the Court does not set aside GC rulings very often, except when the case revolves around selectivity… which is precisely the issue at stake in Autogrill and Sandander. If one examines the case law of the past few years, it seems clear that the ECJ tends to favour a broader notion of selectivity and the GC a narrower one (think of NOx, Gibraltar or British Aggregates).
- Against this background, the interdisciplinary scholar in me would say that the Commission would have a fair chance of winning the case on appeal. The black letter lawyer that I still am, on the other hand, would say that these cases will prove the limits of statistical studies. It is indeed difficult to believe that the ECJ will uphold the analysis of the Commission. Rendez-vous in a couple of years!
On selectivity and alleged fiscal State aid (today’s Judgments in Cases T-290/10 Autogrill /Commission and T-399/11, Banco Santander/Commission)
I’m writing under the influence of a few bottles of Champagne opened to celebrate two landmark Judgments rendered this morning by the General Court annulling the Commission’s decision that ruled the Spanish tax regime allowing for the deduction of shareholdings in foreign companies to be incompatible with the internal market (click here for the Court’s Press Release).
A very convenient disclosure/explanation: my firm represented all successful applicants.
The Judgments are important not only because of their economic significance (we’re talking of hundreds of affected companies and of billions of euros) but also because they are a welcome clarification on how to interpret the selectivity criterion in cases concerning alleged fiscal State aid. You may in fact recall that already 3 years ago my then colleague and still very good friend Napoleón (now on the dark side, at the European Commission) discussed the issues raised by the case on this blog (see here).
A few comments on the news:
- Whereas it’s remarkable that appeals by alleged beneficiaries were successful in a case in which the State didn’t appeal the decision, the truth is that the Judgments do not constitute any major overhaul on the system. On the contrary, these Judgments only reinstate the obvious, that in order for a measure to be selective it shall offer an advantage to a certain category of companies. Measures which, like the one at issue, are open to any company operating within the system of reference (in this case the national tax system) are not to be considered selective. Rather than being new, this is actually one of the things that is taught on the very first session of any State aid course; the fact that many people forget about it may be explained either because they arrived late to class or because their memory follows a FIFO pattern ;)
- The Judgments come at a moment when fiscal State aid –that we’ve been doing for a decade- is in the spotlight (the Lux leaks news broke only yesterday) so the first reaction of many will be to think about the impact this may have on other cases in which the Commission has also embraced an arguably excessively wide notion of selectivity (this includes my 25 fiscal State aid appeals currently pending before the General Court as well as the more recent investigations into tax rulings).
- The Judgments expose an unusual behavior on the part of the Commission, which only last week adopted another decision building on the one that has now been quashed without waiting for the Court’s Judgment, which they knew was coming. This, which was probably intended to show that Almunia also targeted Spain, doesn’t seem to have played out so well.
The slides on the Android investigation Alfonso uploaded a few weeks ago got me thinking. In many ways, this is a dream case for an academic. As in Macondo, everything is so recent that many things lack names. Fertile ground for categorisation, which is what I enjoy doing and, more important, what I happen to do for a living. On a related note, and since it has become de rigueur, allow me to disclose that I have absolutely nothing to disclose.
As I see it, the Android investigation is guided by two main themes: modularity and competition for bundles.
Modularity – I see in the case a value chain composed of three main layers: mobile handsets, operating systems and, on top of them, a set of core applications. Interestingly, not all firms follow the same business model. The different strategies relate to the different degrees of modularity each of the firms is willing to accommodate. By modularity I mean the extent to which the three layers are integrated with one another. At one extreme, there is Apple, which does not seem to allow for modularity (its handsets, and only its handsets, feature iOS, which comes with its own set of core applications). At the other extreme, there is Google, which allows for maximum modularity, at least in relative terms (Alfonso tells me that this point was not disputed at the conference). Android is offered to third-party manufacturers and made available – at the very least in theory – with or without Google’s core applications.
It is important to bear in mind this issue when trying to make sense of potential competition concerns. Because different degrees of modularity lead to different business models, one may fall into the trap of comparing apples (unintended) and oranges. In other words, one cannot simply cry ‘predatory pricing’ in relation to the distribution of Android to mobile handset manufacturers without taking into consideration that Google’s business model differs from Microsoft’s. It would be like claiming that Metro and the Evening Standard engage in predatory pricing simply because – unlike The Guardian or The Times – their papers are given away for free to tube users.
At the same time, the fact that Apple, Microsoft and Google allow for different degrees of modularity may make us lose sight of the fact that they are rivals and put competitive pressure on one another. ‘Thank you, Captain Obvious’, more than one reader must have thought, ‘otherwise there would be no complainants and no investigation on Google’s practices’. To which I answer: ‘Sure. But before we jump into any conclusions about bundling claims we need to understand how these firms compete with one another’. Which brings me to the second theme.
Competition for Bundles – Competition in the industry very much reminds me of rivalry in pay TV among cable, satellite and broadband operators. These operators try to attract subscribers by offering a combination of channels to viewers. It would be really awkward to claim that bundling in this context is anticompetitive. This is how competition is organised in the industry, and there is a compelling logic behind it. The fact that it would be awkward to bring such a claim does not mean that nobody has tried to do so. The argument was given a shot in California (there must be something in the water) and of course failed miserably before the US Court of Appeals for the Ninth Circuit.
Apple, Google and Microsoft also compete by offering a bundle of core applications. Several important conclusions follow from this fact, in my view. Dominance (that is, the extent to which Google is subject to effective competitive pressure) should be assessed at the level of the bundle, not at the level of individual applications. In other words, the alleged practices should be understood in a context in which players compete by offering a set of applications, not by offering them à la carte. Requiring Google to offer its applications à la carte ignoring industry dynamics would be as awkward as requiring cable operators to offer TV channels à la carte. Wondering if somebody has given this one a shot? Yes, and no other than Senator John McCain.
Some of you will recall that a while ago, in this post, I announced that I’d be speaking about the Android investigation (which I did already, as explained here) and that I would welcome any views anyone could send my way. Geoffrey Manne then sent us the post he’d publish on this topic in Truth on the Market and asked whether it’d be possible for us to republish it for it to have a greater EU audience. We did re-publish it because we thought it was topical and provocative even if it could be seen as one sided, and because it saved us from thinking about what to write for one day.
The post seems to have had more impact than expected. The piece was first subject to criticism by Trevor Soames (Microsoft’s lawyer in the case) in the course of the panel in which I participated (this, by the way, led one of my new associates to comment that he had been surprised at how people actually read what is published on this blog…). And yesterday, ICOMP also published its own equally harsh rebuttal to Manne’s post, purporting to provide information on issues that “many of the ChillinCompetition readers may not be aware” of.
Against this background, in the light of ICOMPs previous legal actions, and in order to preempt any claim that we’re dominant on a competition law blogging market (which we’re not according to revenue-based shares, we can assure you) and should hence be subject to a blogging neutrality principle, we are also linking to ICOMP’s piece and giving it a level of visibility comparable to the one we gave to Manne’s post.
We only have three
additional puns comments on this story:
- We are grateful to ICOMP for sending us increased traffic and take no issue with any scraping from content published in Chillin’Competition;
- We frankly have no interest whatsoever in the who-pays-who debate (unless anyone paid us, which very unfortunately isn’t the case) and only regret that academic writing on economically relevant issues these days is suspect (with reason or not) of being paid for. Since we are rather interested in the substance of things, my co-blogger Pablo –who should be free from all suspicion- has committed to writing about some legal issues relevant to the Android investigation before the end of the week (in what seems like a déjà vu, I agreed with this proposed commitment but I may change my mind if a substantial number of you disagree…) [By the way: I’m sure that post will have more readership than his most recent one on two intricate issues such as State aid and string theory J; forgive him, he’s new to this… :) ]
- ICOMP’s piece states the following: “If Manne doesn’t have a basic understanding of European competition rules, why should he be featured on the ChillingCompetition blog?”. Well, just to clarify a possible misunderstanding: it should be apparent to any usual readers that having a basic knowledge of EU Competition rules was never really a requisite for writing on this blog; we’re the living example.
As promised, I am back with a few more comments on Eventech (more about it here). I am sure the State aid diehards will appreciate. One of the interesting aspects of the case is that there are questions both on the notion of State resources and on the notion of selectivity. As raised by the national court, these are not mutually interdependent, in the sense that the answer given to one of them does not determine the outcome of the other, and vice versa. I did not immediately realise the significance of this aspect of the reference. Looking back at some early landmark rulings, one sees that, typically, questions before the Court either relate to whether a given measure qualifies, in general, as State aid or they assume as undisputed that the contentious measure confers an advantage within the meaning of Article 107(1) TFEU.
What happens when the issue of selectivity is examined in isolation by a national court, as in Eventech? The impression one gets when reading AG Wahl’s opinion is that it may be a source of major confusion. From the national court’s perspective, the question of whether the regulatory advantage conferred upon London taxis is selective depends on whether it favours some firms over others that are in a comparable factual and legal situation. If this is the case, the national court assumes that it would be necessary to determine whether the differential treatment can be justified by reference to the objective of the regulatory regime in question before concluding that it is caught by Article 107(1) TFEU.
Why would it be necessary to identify firms that are in a comparable situation, let alone define the relevant market, to establish whether a measure is selective within the meaning of Article 107(1) TFEU? That is the question I asked myself when reading the opinion. Even though he diligently provides an answer to the national court, paragraph 50 of the opinion suggests that AG Wahl asked himself the question too.
It is clear from decades of case law that a measure can be selective irrespective of whether disadvantaged firms are in a comparable situation to those being favoured by the State. Of course it can. This is what the notion of selectivity is all about. Article 107(1) TFEU applies, inter alia, to measures that favour some sectors of the economy over others, or firms in one region over others. The fact that firms do not compete in the same market is immaterial in this respect. Using market definition as a tool to establish the ‘comparability’ of firms can only add to the misunderstanding. It may be the case that minicabs and London taxis only compete to a limited extent (for pre-bookings, as the opinion suggests). But how can this factor be relevant, if it only reflects the fact that London taxis benefit from even more regulatory advantages than those considered in the case?
It is remarkable that, after so many years, the notion of advantage (of which, as I understand Article 107(1) TFEU, and as the Court held in Altmark and many other cases since, selectivity is an element) can still be a source of major confusion. Which brings me to string theory (and impossibly complex topic that provides, alas, a suitable analogy here). The geekier readers will know that, in the early 1990s, there were five competing versions of string theory. In 1995, Ed Witten surprised everybody at a conference by suggesting that each of these five versions were in fact different ways of looking at a single, unifying theory (which was labelled M-theory).
This is how I feel about the notion of advantage in EU State aid law. The Commission and EU courts look at different dimensions of the notion depending on the needs of the case. Sometimes, the compensation for public service obligations is at stake and one issue acquires prominence. Sometimes, the relevant question is whether the measure is justified by the nature and the logic of the system and it is another aspect that becomes relevant in the analysis. But we do not seem to have a comprehensive and coherent framework to assess the issue systematically. It is therefore inevitable to end up with awkward situations like the one in Eventech, where the national court does not seem to dispute that the measure in question confers an advantage on some firms and at the same time raises questions about the selectivity of the same measure (!?). If only Ed Witten could take a break from Princeton and his equations and teach us some State aid.