Chillin'Competition

Some posts ago we referred here to the Spanish Competition Authority’s decision sanctioning the main Spanish electricity companies with fines totaling some 61 million euros as a good illustration of how quantity and quality may not necessarily go hand in hand with regard to competition law enforcement in Spain.

(Btw, the comments to our previous post express interesting views on the CNC´s attitude and offers possible explanations to its causes. In the days after that post was published several other pieces on the CNC´s performance also appeared elsewhere).

As anticipated then, I believe that the “innovative” theories put forward by the CNC on its decision (which include “sham litigation” and a version of what Nicolas has labeled as “Karate competition law“) merit a comment on this blog, so here go some brief remarks on the decision:

(Before getting started, a disclaimer is in order: my firm is representing one of the entities sanctioned by the CNC. Accordingly, and although I am expressing my very personal views, you are at liberty to take them with a pinch of salt). Those interested in a summary overview of the facts and of the CNC’s official position, check out the CNC´s Press Release here.

Even though the decision declares that companies are responsible for two infringements I will merely focus on the one that can be of greater interest to our readers:

According to the CNC, this infringement consisted of a strategy (note: not a conduct, but a strategy revealed by circumstantial evidence) aimed at hindering customers from changing of electricity supplier at a moment in which deregulation was taking place.  One –the main- component of this strategy was an agreement adopted by electricity companies within the framework of their association to appeal a Ministerial Order on the grounds that it contravened data protection rules by not envisaging the right of companies to refuse to provide certain personal data.  The other alleged elements consisted of a temporal “cutt-off” of operations relating to applications to move to the free market (which both the Ministry and the Energy Regulator consider justified) as well as of a refusal to meet the requests of one supplier (that had previously been sanctioned by the CNC on a different decision).

(Click here if you’re interested in a comment on the issues that perplex me the most)

Sham litigation: One of the “innovations” of the case lies on the extension of the “sham litigation” doctrine. In its Judgment in ITT Promedia (T-111/96) the then CFI revised the conditions that the European Commission had applied to examine whether the pursuit of a legal claim could be deemed contrary to EU competition rules, the first one being that it “could not reasonably be considered as an attempt to establish legitimate rights and can therefore only serve to harass the opposite party” (emphasis added).

In the case before the CNC the reality is that (i) the appeal was challenging a general rule adopted by the administration and did not target any competitors;  and (ii) the appeal lodged by the sanctioned companies not only was admitted, the Spanish Audiencia Nacional even adopted interim measures ex parte which were later confirmed and suspended a Ministerial order of general application (something extremely rare). The CNC, however, concludes that the fate of the appeal in Court was irrelevant because the Audiencia Nacional was not aware of the context in which the action was lodged.

In other words, no matter how well founded, legitimate and even successful your action, it may be considered illegal because of other external factors. Moreover, this can be so even if the judicial challenge is aimed at the administration. Measured by this standard, appeals against decisions adopted by the CNC or by Commission could also be declared anticompetitive.

No comment.

Karate competition law? As seen with regard to the appeal of the Ministerial Order, the decision assesses a handful of practices that could have been legitimate on a stand-alone basis and treats them as anticompetitive because of the context in which they take place. The CNC does this not only with the appeal, but also, for instance, in relation to a temporal “cutt-off” of operations relating to applications to move to the free market which both the Ministry and the Energy Regulator have considered to be justified and normal.

(By the way, it’s interesting to remark that both the Ministry and the Regulator provided written observations questioning the CNC´s reasoning and that as it often happens with the European Commission’s comments the CNC did not pay much attention to them).

In this sense, for instance, the decision appears to confer great importance to the fact that the companies had drafted legislative proposals that were to a certain extent adopted by the Ministry. Although the CNC states that the Competition Act cannot be applied to the drafting of normative proposals, it concludes that it is a very relevant factor to be taken into account as it determines the legal and factual context in which the conducts took place, and therefore as an additional obstacle that reinforces the effects of other conduct which, as a consequence, is then included as an element of an “anticompetitive strategy”.

The bottom-line: No matter if considered individually all practices at issue were legitimate, pursuant to the CNC’s decision it’s their cumulative effect that makes them anticompetitive. In Nico’s expression: Karate competition law. Should such theories be admissible?

A final comment: all throughout the decision -and particularly with regard to the second infringement (not dealt with in this post but which relates to agreements on commercial conditions that were encouraged and called for by the Government)- one gets the impression that the CNC is not at all happy with the Administration and that in a way it blames it for a great part of the problem. However, it’s not easy for a competition authority to confront the government.  On the contrary, imposing a sanction on private companies is certainly much easier.