We had this morning at the GCLC a half day conference on pay for delay arrangements in the pharmaceutical sector.
This was a great event, which triggered the following thoughts.
On the law, the problem is not the conduct in itself, i.e. the payment arrangement (also referred to as a “settlement” agreement). Any agreement which consists in paying to seclude a competitor can be unlawful. The FTC apparently talked of a “classic violation” in old documents. We see such agreements all the time in the area of vertical restraints, when firms pay distributors in exchange for exclusivity so as to keep rivals off the market.
The problem lies elsewhere, in the proof of the anticompetitive impact of the agreement, actual or potential (the second component of an infringement). Economists talk about a credible theory of competitive harm.
Now, a settlement payment from originator to generic can only be deemed to restrict competitive entry if the judge would invalidate the patent. In other words, a settlement payment can only be anticompetitive if the patent is invalid. Otherwise (if the patent is valid), competitive entry could just NOT occur, and the payment question is irrelevant.
If I understand correctly, the Commission apparently assumes invalidation. In other words, it assumes that judges would invalidate litigated patents. This stance on what the judge is poised to do is similar to that found in the abuse cases involving Standard Essential Patents, where the Commission seems also to assume that the judge will grant injunctions.
My take on this: this is a meritorious assumption to make if only because patents are deemed presumptively valid once granted. And this weak assumption is not good practice when one has to formulate new policy. As J. Wright, FTC Commissioner, explains beautifully in a recent speech: the formulation of new theories of harm should be based on empiricism, not on guesswork.
Now, the one funny thing here is that to overcome what I may call the weak assumption problem (and to make the case for enforcement), the Commission relies on classic Chicago school reasoning (or if you prefer on basic rational incentives theory). The idea is as follows: an originator cannot rationally be paying a generic firm to stay out of the market if its patent is valid. The sole rational explanation is that the patent is invalid.
This line of reasoning has some teeth in conventional EU competition law. The AKZO “sacrifice test” in predation cases is one example of this: a dominant firm cannot be rationally pricing below costs. The sole rational explanation is that it is seeking to predate.
I believe, however, that one should err on the side of caution when it comes to crafting such “rules of inference”. Indeed, inferential equations of the AKZO kind are not mundane in EU competition law. They are exceptional, based on rich doctrinal debate as the AKZO ruling shows (it transposes the AREEDA and TURNER test) and on years of judicial precedents. Moreover, the problem is that there are many other possible explanations to the originator payment (irrationality, aversion to risk, etc.), including a whole raft of behavioral economics reasons.
So for patent settlement cases, I would actually apply a different type of “rule of inference”, such as the one applied in Woodpulp or CISAC, whereby the Commission can only find infringement if it proves the conduct has no other purpose than the restriction of competition, and thus must dispel all alternative explanations.
Funnily enough, most of the discussion on patent settlements has not touched upon this issue, and has instead focused on the “object-effect” distinction. This debate is, however, an uneasy one, given the lax state of the case-law. Maybe discussing about patent settlements under a “rules of inference” angle could help reach new ground.
The question that I get the most often from readers of Chillin’Competition relates to how I manage to reconcile an already quite time consuming job –and a few adjacent academic and business activities – with blog writing
(other typical questions being: why don’t you change your pic on the blog? why don’t you use a fake pic of a better looking dude? do you really not make any money out of the blog? (that has a follow up: are you dumb?); why are you not at a fancy firm with a sequence of anglo-saxon names? how does your firm let you write a blog? are you and Nico lovers, friends, do you hate each other?; are you two the same person?)
I generally have a decently good -if long- response to that, and the fact is that I’ve -generally- managed to find the time to juggle everything.
However, I recently
whined justified myself wrote about not being able to find the time needed to write something worth your reading time, and commited to make a greater effort. However, in spite of my good intentions, I will not be able to honor my commitment (including the one about writing down my detailed views on Google’s commitments).
I will be taking a short leave of absence away from blogging until 30 May. In a way it’s a pity, because there’s most interesting stuff going on on which to comment, but work these days is as interesting and fun -really- as it is absorbing. As it is becoming customary, Pablo Ibáñez (LSE) will be covering my absence.
P.S. On Google’s proposed commitments, and in a nutshell, I would argue that the Commission’s strong hand play has yielded very good results for the Institution. Whereas I retain my doubts about the underlying
and arguably unknown theories of harm, it’s hard to deny that the Commission has managed to extract very significant concessions from Google that should make its competitors’ lives easier.
Found in the final report on the pharmaceutical sector inquiry:
“§537. Patents are proprietary, exclusive rights and enforcing one’s patents against parties infringing them is a legitimate procedural dimension of the material right granted to the patent holder. It furthermore is part of the fundamental right to a fair hearing before court as manifested in Article 7 of the European Convention of Human Rights (ECMR)“.
PS: beware of acronyms. With this §, some may believe that the substantive scope of the ECMR has hugely expanded .
A refreshing – and couterintuitive – quote from Judge Bork as the EU is heading towards increased private enforcement:
“Much of the improvement in antitrust policy over the past decade and a half has come not from the courts but from the enforcement agencies. If the courts abandon economic rigor, only those agencies can preserve the rationality of the law, and then only partially. Private plaintiffs and their lawyers have rather less interest in rational rules than they do in triple damages and contingency fees. Expert economic witnesses can be found to support any theory. Without firm judicial control, private actions make antitrust “policy” ad hoc, as trials become ad hominem. Much more could be said about the devastating unfairness and anticompetitive consequences of much private antitrust litigation, but that is outside the scope of this book. In antitrust, it is possible to think the European Community as has wisely not followed the american example but has instead centralized all enforcement in a single government agency” (The Antitrust Paradox, Epilogue p.439).
In brief, Bork accuses the US courts system of the state of theoretical confusion in which antitrust law was until the 1980s. And he says that agencies often promote better substantive standards (though they select those most advantageous to them) than courts who hear cases brought randomly by private parties with evolving business interests.
We surely can agree with Bork – as we have endlessly advocated on this blog – that with prospects of increased private enforcement in the EU it becomes compelling to (i) induce judges to delve more into economic analysis; (ii) require a very stringent system of judicial review.
You already know this trick: busy days=
attempts at light funny or stupid posts. Today’s post isn’t particularly funny, but it sure is particularly stupid. Even though it’s not prima facie related to competition law, I’m sure that you’ll be able to find it of practical application to your law firm, competition authority, university or psychiatric institution (to name only the four organizations from which we get more readers):
A couple of Swedish professors (M. Alvesson and A. Spicer) have recently published an article titled A Stupidity-Based Theory of Organisations in which they develop the concept of “functional stupidity” and conclude that organizations with too many smart individuals risk being disfunctional. Their article has been discussed in other places like Fortune or New Scientist, where it was originally published.
The authors posit that stupidity boosts productivity, streamlines things in an effective manner, facilitates consensus, conveys respect for hierarchy, fosters a culture of commitment and effort, and that it can even help you (no offence; I didn’t mean you, I meant the stupid at issue..) get a promotion faster (the argument supporter the latter being that bosses would not promote their most useful assistants because they couldn’t do without them).
The theory also goes that people who try to make sure that everyone notices how smart they are are likely to do worse than those who hide their intelligence (a troubling thought for many of us show-off lawyers). Likewise, places where people tend to be
lieve they are clever are, according to this theory, quite inefficient (I wonder whether profit per partner ratios confirm this intuition)
Interestingly, the Fortune piece discussing this article and the benefits of stupidity concludes with a reference to Google’s simple and functional user interface (as already anticipated a few times, whether Google’s UI will be smartened up or made more complex thanks to DG Comp will be discussed in our upcoming comments on Google’s commitments; but don’t take my word for it, a couple of years ago we also committed to hold a Chillin’Competition conference and, well…).
For more on stupidity, check out Cipolla’s masterpice on The Basic Laws of Human Stupidity.
P.S. If you ask me, whereas there may be some logical basis and abundant practical evidence for some of this “functional stupitidy” theory, holding it as true would be a bit stupid, and, as most things stupid, quite dangerous.
In the past months, our savory series of posts on food and competition law had been kept in the freezer.
Thanks to the French Competition Authority (“FCA”), it is our pleasure today to defrost this category of posts.
In Groupe coopératif Agrial/Bakkavör (a merger case), the FCA concluded to the existence of a product market for salads, distinct from the product market for other fresh vegetables.
But this is not all. The FCA further delineated the market on the basis of the “technology“(sic!) applied in this sector. It accordingly distinguished between salads of 1st category (i.e. fresh, raw, unwashed, unpeeled) and salads of 4th category (i.e. fresh, raw, washed, peeled).
The bottom-line: there’s technology everywhere.
PS: thanks to A. Ronzano for the pointer.
Being a competition lawyer one cannot help but to be interested in the competitive dynamics of the very market in which we operate.
There are a few odd things to it, but I usually -although not on this blog- refer to one particular market failure in the market for EU competition law legal services: its lack of transparency (not price wise, but rather quality wise). My take on this (developed below) is that making certain legal submissions public would contribute to addressing this market failure. The report on accesibility of Court documents just issued by the European Parliament has given me
an excuse not to comment on the Google commitments that I’ve been unable to read in full the push I needed to write about it.
It’s funny to observe that the cult of personality/firms prevalent in the EU competition world is, to a great extent, grounded on practically no available information. Firms and individuals are revered and ranked in various ways and tiers; they (we) are reviewed, reveive prices, etc, but, if you stop for a sec to think about it: how do you know that any of them/us is any good?
The maximum information that one can get about the quality of a firm’s or lawyer’s work merely relates to the cases in which a given firm/lawyers has worked. Interestingly, the outcome of those cases tends to matter little; what appears to matter is to have been involved in them. Many lawyers advertise the fact that they have acted on particular cases regardless of the result, and there’s no way of knowing whether they did excellent, good enough or poorly (at the extreme, I know a few cases of lawyers who show off for having represented clients in proceedings initiated as a result of poor legal advice in the first place). To be sure, although outcomes are, at times, a very good proxy, they are not a definitive criterion, for we often know little about the objectives pursued, about the details of a case, or about its a priori odds. Actually, telling whether an outcome is positive or not, as well as determining what a lawyer’s/economists’ contribution to this result was, is almost always unfeasible.
I’d argue that the only ones who can really have an informed idea about how good a firm or a lawyer is are the people working at the Commission and at the Courts who have shared cases with them/us; they are the sole ones who are able to measure their/our work against the background of all factors in play (when it comes to pleading, the Mlex guys who listen in at the hearings could have something to say too; I’ve said before that Lewis Crofts could make some extra money by publishing a litigators’ ranking..) but no one asks them (and even if they were asked, it’s arguable whether they should disclose favoritism in this regard either).
You could argue that in-house lawyers can be good comparative judges as well, but this is not always the case: in-house lawyers are often exposed to a very reduced subset of lawyers (sometimes retained due to political reasons outside their control). Moreover, many in-house lawyers may not be experts in the area for which they hire external lawyers (this is frequent in the competition world except when you deal with particularly large firms with specialized competition counsel), and very often the less risky thing to do is to pick people who others perceive as triple A, even if the reasons justifying the perception are
ranking based unknown (the force of inertia and virtuous/vicious circles do the rest).
I’ve worked in various cases where I’ve seen well-known lawyers and firms produce documents that were not…worthy. I’ve also seen well regarded firms (sometimes even the sames as in my previous example) produce excellent work. And I’ve also seen work by less-known firms that was pretty good. The interesting thing is that in these cases the quality of the work tends to impact the result ot the case, but not the firm’s/lawyer’s reputation, for good or for bad, because no one can see and assess what was done.
In sum, to a great extent, law firms and economic consultancies are credence goods.
If you ask me, the only way to get rid of many of the absurdities derived from this market failure, and to improve the quality of legal services at the same time, would be to increase the transparency of legal submisions. It has happened all too often that I read something (a document, a plea or an argument) and wonder whether it would have been
billed for written had its authors known that it would be publicly available.
Nico and Miguel Rato wrote a few years ago about sunshine regulation; I would argue that sunshine lawyering would also be a good thing; why not follow the example of the U.S., where Court filings are considered to be public records? There are very good reasons why this should not be the case in administrative proceedings, but I see no impediment in the case of Court proceedings, and nor does the European Parliament’s report recommending that changes be adopted in order to facilitate access to Court files at the EU level.