Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Law Firms = Cartels

with 9 comments

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From Judge Bork himself:

The typical law partnership provides perhaps the most familiar example [of agreement on prices and markets]. A law firm is composed of lawyers who could compete with one another, but who have instead eliminated rivalry and integrated their activities in the interest of more effective operation. Not only are partners and associates frequently forbidden to take legal business on their own …, but the law firm operates on the basis of both price-fixing and market-division agreements. The partners agree upon the fees to be charged for each member’s and associate’s servicse (which is price fixing) and usually operate on a tacit, if not explicit, understanding about fields of specialization and primary responsibility for particular clients (both of which are instances of market division)” The Antitrust Paradox, 1978, p.265.

Bork used this example to criticize the blanket per se  prohibition of price-fixing and market division schemes. Cartels formed amongst lawyers yield redeeming efficiencies (the combination of complementary skills, notably) + there are many law firms and all compete fiercely. Hence, output restriction is not a tenable hypothesis.

This later point ties in well with C‑226/11 Expedia Inc. v. Autorité de la concurrence, a judgment poised to earn a “worst antitrust development Oscar”. Bork’s example casts a bright light on the judgment non-sense: in this case, the Court held at §37  that conduct with marginal market coverage (<10%) ought to be deemed to have appreciable anticompetitive effects as long as it can be categorized as a restriction by object:

It must therefore be held that an agreement that may affect trade between Member States and that has an anti-competitive object constitutes, by its nature and independently of any concrete effect that it may have, an appreciable restriction on competition

In other words, a price-fixing scheme that covers 5% of the market is per se illegal under Article 101(1) TFEU. Again, a dispairing judgment…

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Written by Nicolas Petit

18 April 2013 at 5:03 pm

9 Responses

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  1. I wouldn’t characterise the judgment quite in that way. The question was posited in the the context of the de minimis Notice, and the Court left the question of whether an agreement with a sub 10% market share was appreciable very much in the hands of the domestic court (as they were not bound but he Notice); not that it was a per se violation of Art 101 TFEU.

    amacculloch

    18 April 2013 at 5:41 pm

  2. Thank you so much for your comment.

    The reason why I am more pessimistic than you is that preliminary references rulings are not to be read in a specific context, but judgments on points of law. And the judgment here says things which beyond the mere question of the applicability of the de minimis Notice (and in this respect, says more than the French judge initially requested, but this is standard in such cases).

    The wording employed at §§ 35-37 leaves little doubt that a restriction by object is automatically “appreciable” and in turn falls foul of Article 101(1) TFEU:

    35 Moreover, it should be noted that, according to settled case-law, for the purpose of applying Article 101(1) TFEU, there is no need to take account of the concrete effects of an agreement once it appears that it has as its object the prevention, restriction or distortion of competition (see, to that effect, Joined Cases 56/64 and 58/64 Consten and Grundig v Commission [1966] ECR 299; Case C‑272/09 P KME Germany and Others v Commission [2011] ECR I‑0000, paragraph 65; and Case C‑389/10 P KME Germany and Others v Commission [2011] ECR I‑0000, paragraph 75).

    36 In that regard, the Court has emphasised that the distinction between ‘infringements by object’ and ‘infringements by effect’ arises from the fact that certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition (Case C‑209/07 Beef Industry Development Society and Barry Brothers (‘BIDS’) [2008] ECR I‑8637, paragraph 17, and Case C‑8/08 T-Mobile Netherlands and Others [2009] ECR I‑4529, paragraph 29).

    37 It must therefore be held that an agreement that may affect trade between Member States and that has an anti-competitive object constitutes, by its nature and independently of any concrete effect that it may have, an appreciable restriction on competition.

    I concede that theoretically, the appreciable restriction by object could be salvaged under 101(3) TFEU, but many would agree that in practice, the exception rule is a no go.

    Nicolas

    Nicolas Petit

    18 April 2013 at 7:44 pm

  3. Nicolas, there is an important point in the Expedia judgment that is not apparent in your analysis. What the Court held in para 37 is that the threshold of appreciability is met when an agreement that restricts competition by object affects trade between Member States. While there is scope for disagreement, this looks like a reasonable proxy to me. If the agreement is important enough to fall under the scope of EU competition law, then it makes sense to conclude that the restriction at stake is not ‘insignificant’ within the meaning of Volk (which offered no guidance in that regard). What is more, Volk examined the two conditions together.

    Bagnole

    18 April 2013 at 9:20 pm

  4. I fully agree with Bagnole: this is indeed a reasonable proxy: hard core cartels (ie by object infringements) arr regarded as infringements regardless of effect – this is settled case law as Nicolas himself cites it from paras 35-36 of this judgment.if you accept this proposition,then it would be indeed very strange to create an exception from this rule by referring to an alleged “absence of effects” due to low market share.Hardcore cartels are like speed limits:you cannot say nobody got hurt when you were well above the limit and you also cannot argue that practically nobody could have gotten hurt since the road was fully empty and the weather was very good(see ag kokott’s famous opinion on this)

    Asimo

    18 April 2013 at 10:49 pm

  5. Plus: law firms are concentrations and not cartels – hence the different treatment under law (although i do understand that the economic effects could be the very same)

    Asimo

    18 April 2013 at 10:51 pm

  6. @Bagnole: thanks, I can just agree that the effect on trade condition still provides a safety net against undue expansions of the law. But using the appreciability of effects on trade as a proxy for the appreciability of the restriction looks like a tricky, possibly dangerous idea. Think of agreements (horizontal or vertical) or unilateral conduct (e.g. rebates) covering a minor part of the market, but involving very large companies, located accross the EU. Should we just deem them appreciably restrictive of competition simply because they affect trade, and dispense with the analysis of effects? The fact that conduct is adopted by firms with EU transnational operations (or a large turnover under the Commission’s guidelines) just says nothing of the conduct’s impact on competition. The two notions should remain separate (one is economic, the other jurisdictional).

    Not to talk of the very extensive interpretation of the effect on trade condition in practice (many lawyers in private practice just assume it is fulfilled, and I suspect many courts and agencies do the same).

    BTW, Expedia is a funny case, because it originates from a category error of the French NCA, which should have not envisioned this as a price fixing agreement but as an ancillary restriction for the setting up of a joint venture.

    @asimo:agreed, hardcore cartels are like speed limits, and the appreciability doctrine is like a drinking limit. If you drink below 0.5g, there is no risk of wrongdoing. If you cartellise below 10%, you cant restrict output. You may question where to set the threshold, but this is the idea. And it is a sound idea from an enforcement and legal certainty standpoint.

    Nicolas Petit

    19 April 2013 at 1:52 pm

  7. Nicolas: I think the judgment is quite clear in that regard. This principle only applies to agreements that restrict competition by object (those that are restrictive by their very nature). This means that only a narrow category of agreements would be subject to the rule. In all other cases, it would be necessary to engage in an analysis of their effects (ie whether these market effects are insignificant) irrespective of whether they affect trade between Member States. As far as unilateral conduct is concerned, there are two clear safeguards. One is of course the need to establish dominance, The other is the need to show that this position is enjoyed in a substantial part thereof.

    Bagnole

    19 April 2013 at 5:54 pm

    • Bagnole, even with such safeguards, I find odd (i) to say that RPM applied to 5% of a market has appreciable anticompetitive effects; (ii) that price fixing in a horizontal JV that has 10% of a market is problematic; or that (ii) a dominant company in a substantial part of the EU that forecloses 1% of a market is unlawfully abusing. Combined this with the open ended nature of object based infringements, and you surely can understand my concerns.

      Nicolas Petit

      20 April 2013 at 11:10 am

  8. Formalism is not a good guide to enforce antitrust rules. If an agreement – even a price-fixing agreement – do not allow the parties to such agreement to raise prices (i.e., does not create market power), freedom of contract prohibits competition authorities to impose a fine. Except if you don’t care about fundamental rights and think antitrust rules are above the Constitution

    jesus alfaro

    24 April 2013 at 7:29 pm


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