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Archive for the ‘Antitrust Scholarship’ Category

Intel and the fight for the soul of EU competition law

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Wouter Wils (one the finest legal minds at the Commission, currently Hearing Officer and one of our Friday Slot interviewees -see here-) has today released an article that will certainly have a significant impact in the discussions on the convenience of following a “more economic approach” to abuse of dominance (and that is likely to be highly controversial, particularly among competition law economists).

We’ve recommended many other articles before, but this really is a must-read.

By the way, Wouter was inspired to write the article by Pablo Ibañez Colomo’s comment on the Intel Judgment in this blog and by the ensuing discussion (see here).

The piece (soon to be published in World Competition) is now available here:

The judgment of the EU General Court in Intel and the so-called ‘more economic approach’ to abuse of dominance

We very much look forward to the debate that this piece will spur.

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Written by Alfonso Lamadrid

19 September 2014 at 2:45 pm

10 Comments on the ECJ’s Judgment in Case C-67/13 P, Groupement des Cartes Bancaires

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September 11 2014 was a big day for antitrust at the European Court of Justice. The Court delivered two important Judgments in the Mastercard and Cartes Bancaires cases, and heard oral arguments in Huawei/ZTE. We’ll comment on the latter in due course, and will be devoting our next posts to discussing the content and implications of the two Judgments. Let’s start with Cartes Bancaires, which is the one with greater potential future implications (as already noted by Pablo in the post below).

This can be an analytically complex subject and there’s much to discuss, so allow me to skip the basics and the summary of the Judgment that you can find here (a copy-pasted version will also appear in some newsletters…) Here are my 10 initial reactions to the Judgment. These are not at all definitive positions but rather preliminary thoughts that I’m hastily posting now with the hope that I’ll be able to polish them in the course of follow-up discussions. For the lazy ones, and given that the full text may be lengthy and dense (for a change), all the main messages appear in bold.

1) The Judgment is to be welcomed mainly as a statement, or cautionary message, from the Court in reaction to an often discussed trend on the excessive use and abuse of the “object shortcut” (how many recent EU and national 101 “effects” cases do you know of?)

In the ECJ’s words (para 58) “[t]he concept of restriction of competition `by object’ can be applied only to certain types of coordination between undertakings which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects otherwise the Commission would be exempted from the obligation to prove the actual effects on the market of agreements which are in no way established to be, by their very nature, harmful to the proper functioning of normal competition”.

It seems almost as if the GC had asked to be quashed when writing in its Judgment in this case (para. 124) that “the concept of infringement by object should not be given a strict interpretation”. The ECJ sensibly lambasts this statement in para. 58 (admittedly, though, this may have been a problem of bad drafting on the part of the GC; read in context, the statement seems to have intended to refer to the fact that “object restrictions” are not limited to a closed list of “suspect” hardcore restrictions, which –had it been stated that way- would’ve made perfect sense; AG Wahl also seems to have observed this as evident from para. 67 of his Opinion).

This is not without importance, for the “object” category has arguably been expanded beyond the limits of its logic (remember Areeda’s quote?) not only by the European Commission, but arguably also by the ECJ itself in T-Mobile (see below) and, less visibly, but more excessively and perhaps more importantly, by national competition authorities (as AG Wahl also observed in para. 59 of his Opinion: “caution is all the more necessary because the analytical framework that the Court is led to identify will be imposed both on the Commission and on the national competition authorities, whose awareness and level of expertise vary”). For my previous comments in this regard –in relation to info exchanges- click here.

2) Until now, the ECJ had endorsed an arguably wide interpretation of the notion of restriction by object, placing however the emphasis on the need to conduct a proper 101(3) analysis in any event. This is what the Court has done since Matra, did recently in Pierre Fabre and, most obviously, in Glaxo Spain, although to no avail because –as you may not yet know- the Commission recently decided to drop this case because it allegedly lacks EU interest; this is after 14 years of proceedings, two Court Judgments, a declaration from the ECJ that dual pricing constitutes a restriction by object and also despite the ECJ’s mandate for the Institution to conduct a 101(3) assessment. No wonder they have tried to keep it under the radar… We’ll comment on this case in the future (Disclaimer: my firm represents the European Association of Euro-Pharmaceutical Companies, which has recently appealed the Commission’s decision to drop the case under a quite innovative legal reasoning]. Given the little practical impact of its previous stance and the slow death of Article 101(3), it seems reasonable for the Court to have decided to move beyond it.

3) AG Wahl had rightly observed in his Opinion, “the present case gives the Court another opportunity to refine its much debated case-law on the concept of restriction by object. Query: has the Judgment finally shed light on how to resolve the object/effect conundrum? As developed below, I’m afraid not much.

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Written by Alfonso Lamadrid

17 September 2014 at 6:02 pm

Upcoming events

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Platforms like this blog are supposed to be 2-sided markets where the service is provided to users for free and paid-for by revenues obtained in the other side of the market, notably via advertising. We may be among the few economic illiterates that haven’t devised a way to monetize at all our advertising and, instead, have traditionally advertised anything that friends do (plus the books and journals of which Nicolas gets a copy; e.g. see the post below this one). In that spirit:

On 26 September the Competition Law Scholars Forum (CLASF) will be holding its 23rd workshop in Madrid under the title  Competition Law in Leisure Markets. The program, which includes discussions on Google, ebooks, football and even bullfighting, is available here.

By the way, one of the organizers of this event –Prof. Barry Rodger- has just released a competition law textbook (co-written with Angus MacCulloch) titled “Competition Law and Policy in the EU and UK”. The book will be supported by the Who’s Competing blog. Here’s the flyer: Competition Law & Policy Flyer

On 30 September AntitrustItalia will be hosting a discussion on the Intel Judgment in Brussels featuring Manuel Kellerbauer and Luigi Malferrari, both from the Commission’s Legal Service. Click here for more info.

The university where I studied (which thanks to Prof. Jerónimo Maillo has always paid a great and uncommon attention to competition issues) will be holding an International Conference, also in Madrid, under the title “The Fight against Hard Core Cartels: Trends, Challenges and Best International Practices” on 27-28 November. The call for papers is available here: Call for PapersThe Fight Against Hard Core Cartels

Unfortunately I won’t be able to attend it because on 28 November I’ll be enjoying the warmness of Stockholm at the Swedish Competition Authority’s Pros and Cons Conference, which this time will be centered on Two-sided markets. The title of my presentation will be “The double duality of two-sided markets (on competition law and complexity)”. Now I only have to figure out what the heck to say.

Written by Alfonso Lamadrid

11 September 2014 at 12:14 pm

European Commission’s literature

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Having to spend a couple of quieter than usual days sick at home, I decided to catch up and so some summer reading on some recent European Commission’s publications.

As you know, DG Comp is quite prolific from a literary viewpoint (I’m not saying that this is because anyone there may have free time). Aside from an extraordinary number of soft law instruments it has also tried new genders, such as show-off comics, and regularly issues other seldomly read stuff.

A first point to be made –and oddly enough I’ve just realized about it- is that the Competition Policy Newsletter has disappeared for good. I don’t know what has led to its termination, but it’s a pity; the articles featured in it often offered interesting insights on how some cases were viewed from the inside. The publication has been replaced by the Competition Policy Brief, which mainly deals with policy issues; not really the same concept.

A great candidate for an article on the Competition Policy Newsletter would have been the case on spare pieces of luxury watches shelved yesterday by the Commission, which did not find an infringement. This marked the first and only time that the Commission has used the claw-back clause provided for in Article 11(6) of Regulation 1; it took the case from a national competition authority (the Spanish) that was on the verge of sanctioning it and now it has  concluded that there is no infringement. [For advertising disclosure purposes: we were active in both the national and EU phases of the case representing a number of the companies investigated].

I’ve also done some catching up on actual decisions. We keep on complaining that the Commission adopts fewer infringement (Art 7) decisions in non-cartel cases than it should and that we lack guidance, but then very few people read the scarce ones there are. How many people have, for instance, read Telefónica/Portugal Telecom, which raises very interesting and never discussed points on the self-assessment of restrictive agreements? The very recently published Motorola decision is also an interesting read for those geeky enough.

Then I skimmed trough the latest set of documents published by DG Comp in relation to the 10th anniversary of Regulation 1/2003, namely the Communication on Ten Years of Antitrust Enforcement under Regulation 1/2003: Achievements and Future Perspectives and the accompanying Staff Working Documents (here and here) Aside from interesting stats on enforcement, these documents contain a cautionary discussion on institutional issues related to national competition authorities (in relation, mainly, to their independence vis à vis political authorities, the necessary appointment of members of the authority on the basis of merit, “amalgamation of competences” risking “a weakening of competition enforcement”). I wonder if they had any specific NCA in mind…  Some of the understatements in these papers make evident a couple of problems; for instance, when the Commission says that the “mechanism by which the Commission is informed of national courts judgments (…) has not worked optimally”, what it means to say is that national courts have completely ignored this mechanism in practice.

But what those documents are mainly about –and they’re right on point- is in identifying procedural divergences across Member States as the next obstacle to tackle. This is a recurrent issue on which I’ve insisted every time I had the chance (both in lectures and papers like this one –the others are in Spanish-). At the present moment, and due to the principle of procedural autonomy, very significant differences remain regarding, for instance, inspection powers, discretion to take on cases, powers to impose structural remedies, regulation of commitment decisions, leniency rules, existence of cartel settlements, procedural rights and calculation of fines. This leads to the result that the application of the same –EU competition- rules is very likely to lead to very different outcomes depending on the authority dealing with the case (and rules on jurisdiction often make it difficult to predict who that would be). To me, this is legally the big, fat, painted elephant in the EU competition enforcement room (hence the pic –taken at a Banksy show- at the top of the post)

Lastly, I also read a few speeches by high officials at DG COMP. In preparation for a paper which will touch a bit on commitment decisions and on the technology sector, I read a speech by Vice President Almunia on commitment and settlement decisions in which –this grabbed my attention- he referred to the e-books case explaining that the Commission “accepted commitments in a nascent and extremely dynamic market which called for quick and decisive action”. Why is that so, you may ask. The response is contained in para. 90 of the Staff document on the 10 years of Regulation 1 referred to above: at the beginning of a special section on IT, Internet & Consumer Electronics, the Commission states that “these are industries characterized with strong network efforts [it seems quite likely that they meant to say effects, not efforts] which enable the lock-in of customers and further strengthening of dominant positions. Vigilance on the part of competition authorities is thus warranted”. So, we’re told that nascent and extremely dynamic markets call for quick and decisive action because of the risks generated by network effects. The thing is that I sort of recall having read something different somewhere

Written by Alfonso Lamadrid

30 July 2014 at 2:59 pm

Recent output

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In the course of his time off blogging, Nicolas has remained pretty productive on the academic front. Here are the abstracts and links to some of his latest work:

1. A sequel to the World Cup, with a short paper on the UEFA Financial Fair Play Regulation. In brief, he expressess doubts that the FFPR recently introduced by UEFA will promote competition in the football industry. According to Nico’s view, the FFPR is likely to create an ‘oligopoleague’ of football clubs that will freeze the market structure, to the detriment of the smallest clubs. The conclusion is that the FFPR may well constitute an unlawful agreement under Article 101 TFEU. The paper can be downloaded here.

2. A paper arguing that the TeliaSonera judgment on price squeezes has been in part repealled by subsequent case-law. The paper resorts to a short numerical example to show the flaw of finding a price squeeze in the presence of positive margins. The final version of this paper was published in the “Revue du Droit des Industries de Réseaux“, a new journal on the regulation network industries. See here: Price Squeezes with Positive Margins – Economic and Legal Anatomy of a Zombie (Final)

3. A presentation on the General Court’s Judgment in Intel, where he argueS that the Guidance Paper is not yet dead. In his view, the impact of Intel is confined to leveraging rebates – ie retroactive rebates – which are subject to a quasi per se illegality standard. As for the other rebates – eg incremental rebates – they remain subject to a rule of reason standard, though the assessment method need not be quantitative. The General Court also has generalized the Article 102(3) defense in abuse of dominance cases, though it is complex to see if this will be practical. The paper concludes with an optimistic note on the future of the Guidance Paper, and discusses the more philosophical point of whether Article 102 should seek to protect competitive OUTCOMEs or rather the PROCESS of competition. Nicolas submits that if 102 protects the PROCESS of competition, this should not dispense agencies and complainants to bring a certain degree of economic evidence in support of their allegations. See here: Intel v Commission – ABC Seminar – 10 07 14

4. A presentation on “Problem Practices”, ie practices that do not fall neatly within the conventional antitrust prohibitions: planned obsolescence strategies, most unfavored customer clauses, IP tracking- pricing, etc. He gave a speech on this at the CCP (University of East Anglia) Annual conference on Problem Markets arguing that existing EU rules can be flexibly stretched to capture such practices, and that we do not need a Section 5-type provision in our legal framework. In other words, he submits that there is no gap within the EU competition toolbox. See here: Problem Practices – CCP

5. A presentation on the principles of effectiveness and procedural autonomy in EU competition law given before an audience of judges at EUI as part of a seminar hosted by Giorgio Monti. See here: The Principles of Equivalence and Effectiveness -Petit

Nicolas is currently writing papers developing the content of presentations 3 and 4, so he’ll be grateful to anyone interested in sharing thoughts on those.

Written by Alfonso Lamadrid

23 July 2014 at 12:32 pm

More on the antitrust-privacy interface

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In some previous posts we’ve commented on the interface between the competition rules and data protection/privacy regulation, which is one of the trendiest topics in international antitrust these days.

As you may recall, the European Data Protection Supervisor recently held a high level workshop (high level but for my intervention on it, that is) on Privacy, Competition, Consumers and Big Data. On Monday, the EDPS made available on its website a report summarizing what was discussed in the workshop (conducted under Chatham House rules). The EDPS’ summary is available here:  EDPS Report_Privacy, competition, consumers and big data.

A summary of my intervention at the workshop was published in two recent posts (here and here).

For more, you can re-read Orla Lynskey’s A Brave New World: The Potential Intersection of Competition Law and Data Protection Regulation as well as the interesting comment by Angela Daly on my latest post on the issue.

The German Monopolkommission has also addedd its voice to the debate by issuing a recent report (“A competitive order for the financial markets“) which contains a section on data-related questions regarding the internet economy. The Press Release (in English here) expressess some concerns but notes that, according to the report, “an extension of the competition policy toolkit does not (yet) seem advisable on the basis of current knowledge and understanding“.

Written by Alfonso Lamadrid

16 July 2014 at 9:33 am

Intel v Commission and the problem with wrong economic assumptions

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(by Pablo Ibañez Colomo)

Voices that relativise the problems with Article 102 TFEU case law are not infrequent. It may be true that the case law is not beyond reproach in all respects, the argument goes, but perfection is not of this world. The fact that rulings are often criticised simply means that Article 102 TFEU is an inherently controversial provision and that the stakes in abuse cases are generally very high, not that there is something fundamentally wrong with the preferences expressed by EU courts. And in any event, the alternative, economics-based, approaches have their problems too. The current case law is just the expression of a legitimate choice.

There is of course some truth in this position. At the same time, I find a bit defensive and as such problematic because it can become an obstacle to an honest and constructive exchange of ideas. I can think of at least a fundamental aspect that is uncontroversially (or objectively, if one prefers) wrong with Article 102 TFEU case law. What makes it even more interesting is that it fails to attract the attention that, in my view, it deserves. We all know that exclusive dealing and loyalty rebates are (absent an objective justification) abusive under Article 102 TFEU. The assumption underlying this rule is discussed far less often and is crucial to understand the case law. In paragraph 77 of Intel, the Court repeats the old formula whereby the abovementioned practices, as opposed to quantity rebates, ‘are not based – save in exceptional circumstances – on an economic transaction which justifies this burden or benefit but are designed to remove or restrict the purchaser’s freedom to choose his sources of supply and to deny other producers access to the market’.

This statement, as a matter of economics, is incorrect. Contrary to what the Court holds, there are perfectly valid pro-competitive justifications for exclusive dealing and loyalty rebates. I am inclined to believe that everyone at DG Comp and the Legal Service agrees by now with this idea, which has long been part of the mainstream. Suffice it to check any textbook on industrial organisation or the economics of competition law. To mention the three I had in my office when preparing this post, take Carlton & Perloff; Bishop & Walker; or Niels, Jenkins & Kavanagh (Hans Zenger’s piece on loyalty rebates is great too). Given its peculiar cost structure, some of these justifications are of obvious relevance in the microprocessor industry.

Article 102 TFEU case law will not evolve until the ECJ acknowledges that a rule-based approach to exclusive dealing and loyalty rebates is grounded on a misguided economic assumption. Interestingly, a shift in this direction would not require a major revolution. The ECJ would just have to accept – finally – that what is true under Article 101 TFEU must by definition be true under Article 102 TFEU. In paras 10-12 of Delimitis the Court holds that there are perfectly valid justifications for exclusive dealing and – by extension – for loyalty rebates. As a result, they are not restrictive by object. Article 102 TFEU case law cannot be based on the opposite assumption (i.e. that these practices are anticompetitive by their very nature because they have no economic explanation other than the exclusion of competition). Paragraphs 89-91 of Intel show the difficulties into which EU courts run whenever the tension between these two lines of case law is raised (Van den Bergh Foods being another excellent example).

I am convinced that an effects-based approach would follow logically from the suggested shift. The additional arguments raised in subsequent cases to justify the current approach are not particularly persuasive. The fact that dominant firms have a ‘special responsibility’ that derives from their status does not mean that an effects-based approach to loyalty rebates and exclusivity is not conceivable. There are recent cases, like Post Danmark and TeliaSonera, where the ‘special responsibility’ of dominant firms is seen as compatible with requiring evidence of an anticompetitive effect.

Paragraph 77 of Intel also made me think of the relationship between law and economics in competition law. It is interesting that the General Court reiterates the Hoffmann-La Roche formula to make it clear that there is a long line of case law supporting its position. ‘Exclusive dealing and loyalty rebates have no pro-competitive justifications because we have always said they do not’, the judges appear to claim. What is an economic argument is dealt with, in other words, as a legal one. From an economic perspective, to be sure, the fact that EU courts have consistently relied on the same assumption does not make the latter any less incorrect.

The Intel judgment also made me think of something I often say. Economic analysis is sometimes presented as an exogenous force that has interfered with EU competition law since the 1990s. What wrong assumptions such as the one discussed in this post show is that this view is not accurate. Economics is hard-wired into competition law – it is an integral part of it. The only debate should be whether to rely on one’s more or less accurate intuitions (à la market definition in United Brands, for instance) or to trust instead the analytical tools developed over several decades by competent individuals devoting their professional lives to a systematic understanding of the economic side of the discipline.

Pablo

Written by Alfonso Lamadrid

16 June 2014 at 11:43 am

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