Chillin'Competition

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Archive for the ‘Subversive Thoughts’ Category

The definitive article on two-sided markets, by me

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(1) Economic theories on multi-sided markets are now well established and, in fact, earned Prof. Tirole a Nobel Prize earlier this year; (2) Some of the most prominent ongoing cases, including the two concerning Google, go to the heart of antitrust issues in multi-sided settings; (3) In addition, the EU has been said to intend to regulate “platforms” (see here for a piece including some leaked documents). Not that anyone seems to know what a “platform” is exactly (since when is ignorance an impediment to introduce regulation?), but the Commission’s leaked documents make it clear “multi-sidedness” is what the Commission (or at least Commissioner Oettinger, a champion of smart regulation in the digital single market –like this?-) has in mind (the docs also refer to specific search engines, social networks, application stores and internet payment gateways as the quintessential examples of platforms in alleged need of regulation).

In my view, in spite of all these developments we lawyers have not yet reflected enough on how the application of competition law should be refined in this context.

As you may remember, I gave my views on the subject at the Swedish Competition Authority’s “Pros and Cons conference” (French speakers may think that I was the “con” among the pros, which is probably right….) (the slides are available here).

My speech at this event has now been beefed up and features in the latest issue of the Competition Law Journal, published by Jordan Publishing, at [2015] Comp Law 64; it is available here:

The Double Duality of Two Sided Markets_CLJ_Lamadrid

 [The title of the post was perhaps a bit of an overstatement, but since Chillin’Competition is not (yet) a regulated platform, I thought I could use some self-favouring ;) ]

And on 4 June the European Commission has (at the behest of the UK’s CMA) very kindly invited me to talk about these issues in Uppsala at the annual gathering of the European Association of Competition Law Judges; it should be fun. The program for that event is available here: AECLJ Uppsala prov programme

Written by Alfonso Lamadrid

5 May 2015 at 3:46 pm

On appointments to the EU Courts, including some (this time real) breaking news

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A decent fiction or joke should generally aspire to have some element of truth in it. In our April Fools’ day piece on the appointment of Joaquín Almunia as new EU judge there were, at least, a couple of criticisms elements that had a significant link with reality, and there have been recent developments concerning the two of them:

-A first element of reality was contained in the paragraph that said that “[t]he appointment would take place within the timely addition to the Court of 12 more judges, just when the existing ones had managed to clear the backlog”.

That news could have been a joke in its own right, but it really wasn’t, it was criticism to  In fact, a piece published in today’s Financial Times “Judges multiply as EU states fail to agree on appointments” (by Duncan Robinson) is devoted to this reality. The piece does well explaining the poor job that Member States do when it comes to Court-related decisions. In a nutshell, after years of the Court asking for additional staff to clear the backlog in the face of a Council that could not take decisions because of national interests at play, it was decided to hire additional référendaires (clerks); between that and the increased productivity of the existing judges the General Court managed to half the time needed to decide cases. And now, when the problem seems to be solved, Member States are doubling the number of judges. The FT reports that some judges are unhappy (I bet). An arguably wrong and certainly extemporaneous decision to remedy their own inaction. Congrats to the Council for once again giving arguments to those who distrust EU institutions (please note the irony).

-A second reason why our hoax piece may have been taken seriously by some related to our references to how politics could play a role in the selection process adopted by the Spanish government despite the new introduction of a new merit-based appointments procedure. This was really feared by some. Concerns, fortunately, seem to have been misplaced, at least for now: Chillin’Competition is proud to be the first to report that the Spanish Government has made an excellent and truly merit-based choice for new Spanish Advocate General in the name of Manuel Campos Sánchez-Bordona, currently a Supreme Court Judge and formerly, among others, a référendaire at the ECJ. His track record at the Supreme Court, where he dealt, among others, with many competition cases makes him a highly reputed figure in the antitrust community. A great addition to ECJ and very good news for EU law, albeit possibly at the expense of the sound development of competition law in Spain.

Written by Alfonso Lamadrid

13 April 2015 at 6:19 pm

On exclusivity under Art. 102 TFEU, and on why I do care about cases – A response to Pablo

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Searching for an answer. A few days ago I asked Pablo in public (following some private teasing) whether there is any Article 102 TFEU decision adopted by the Commission that he liked. He tells me he replied with a blog post last week (see here). Perhaps I read it too quickly, because I don’t see an answer :)  In any event, the fact that he did not identify any case with which he agrees probably means that there is no such thing.

[Intermission: the fact that we are good friends enables us to discuss things in a way which would be much harder to do with other people. This was also the case with Nico back in the day. This, by the way, confirms that having another brilliant academic with views not always coincidental with mine was a great decision for this blog].

This failure to choose is interesting because, in my view at least, the Commission is quite (perhaps too) selective when it comes to picking abuse of dominance cases (that is unless they are predestined to go through the commitment route; it’s those that I personally like the least, not the Article 7 ones, which tend to be quite solid).

Law in abstract and Law in casu. The reason Pablo doesn’t reply citing specific cases is because he says he “does not see Commission decisions that way” (I can see how people don’t have a list of “best” and “worst” decisions, but if anyone had one, it would have been Pablo…). His point is that he doesn’t really care about cases, nor about who wins or loses, but about “the way in which the law is shaped and evolves over time”.

This is commendable for an academic, but I’m not sure I agree with the implications. In competition law it is cases that shape the law and that drive its evolution, so one can perfectly assess cases in the light of their contribution to the state of the law. If what Pablo means is that he doesn’t care what party wins or loses, I can testify that he truly doesn’t. If what he means is that cases should not be driven by policy but by the law, then we fully agree. However, I don’t see why all of this could mean that there cannot be cases that he likes or dislikes.

The approach of a practitioner is not, or should not be, so different. I only care about the party who wins when the case involves a client of mine. I also take an interest, but one that has nothing to do with the law, when a friend is involved (for disclosure purposes: I have good friends involved in Intel and Post Danmark II). As for the rest of the cases, I have enough with understanding the case-law and how it can relate to my clients’ issues, and I am not so concerned about contributing to the evolution of the law in a particular direction (partly because I don’t know what side I’ll be on in the future, and partly because it would be pretentious on my part: I would rather leave that to those whose jobs is to study cases in the depth they deserve, like the parties to every case, the judge, the clerks, or the academics who may want to contribute to the debate).

In sum, I’m not in the business of trying to influence the evolution of the law (except when paid to do it), and this is what explains that I haven’t written about the ongoing debates on exclusivity rebates, Intel and Post Danmark II, that occupy Pablo and others at a time when these important specific cases are pending.

Pablo’s whole post is about returning a question to me (never mind that mine wasn’t answered!), and to compel me to spend part of a Sunday morning typing instead of doing better things break my silence; the question is:

Do I believe exclusive dealing should be prohibited absent an objective justification or whether, instead, Article 102 TFEU enforcement should follow the principles set out by the Commission in the Guidance and by the Court in Delimitis?

On the key assumptions underpinning the debate. Pablo’s post notes that his (brilliantly written) paper on Intel , everything,  exclusive dealing and loyalty rebates focused not on who won or didn’t, but on the “key assumption underpinning 35 years of case law”.

Discussing key assumptions makes a lot of sense, so let’s start from there:

-Unless I’m wrong, the key assumption underpinning 35 years of case law is that in markets characterized by the presence of a dominant company (not the case in Delimitis, mentioned by Pablo), the use of exclusivity inducing arrangements can be deemed prima facie restrictive of competition. I’m familiar with the case law in this regard and actually think that this is sort of intuitive, for exclusivity almost by definition raises barriers to entry and deprives rivals of scale (as Pablo has very well explained in other domains –see here-, EU Courts have been able to implicitly incorporate sound economic insights to their case law). Many of the most reputed competition economists do not seem to question this. I won’t bother to conduct research on this point for a blog post, but I happen to have read this Carl Shapiro piece yesterday for a case in which I’m working, and it is quite clear.

– And unless I’m wrong, the key assumption underpinning the critique to that case-law is that “the lessons of experience and economic analysis” (this is the formulation in vogue, also used in Pablo’s post, tailored to evocate the Cartes Bancaires Judgment and draw a parallel) undoubtedly show that exclusivity arrangements are more often than not procompetitive, also when carried out by a dominant firm. Leaving aside the fact that experience and economics do not always go hand in hand, there is this widespread assumption that according to economic “science”, it is absolutely beyond discussion that the law here is a mess.

Leaving the theoretical economic literature aside (basically because I don’t know much about it; query: is there so much conving research on the advantages of exclusivity when carried out by a dominant firm?), I know from my personal experience with companies that exclusivity inducing rebates may –in certain cases- be perfectly justified by reasons other than anticompetitive motive. But I frankly do not know whether these outweigh, in the abstract or in general, the anticompetitive perils associated to these practices when carried out by a dominant player.

Those who have heard my presentation on two-sided markets or that will read my forthcoming Competition Law Journal article on the subject will realize that I’m all for taking into account economic lessons -when they are well established- for the application of the law. I’m simply not fully persuaded that economic research so clearly shows that the current state of affairs in the EU is so manifestly wrong.

Since I am asked, in my view the current state of the law strikes what seems to be a reasonable balance, at least in theory.  It may, like almost anything, be debatable, but I fail to see it as the epitome of absurdity:

-In the field of Article 101, the Commission’s soft law as well as the case-law (mainly Delimitis, cited by Pablo) explicitly acknowledge the mixed effects that exclusivity agreements may have, and subject them to a balancing test in which the burden of proof rests on the accusing party. No one seems to complain about this.

-In the field of 102, the case-law takes into account that the degree of competition is already lessened by the presence of a company that is, by definition, able to behave independently of competitors and customers (in a way, conducting a strict foreclosure/effects assessment from this starting point risks incurring a variant of the cellophane fallacy, which is what the Court said, in a way, in the heavily criticized para. 245 of Michelin II) and strikes a different balance. This is explicitly explained in para. 89 of the Intel Judgment.

In the 102 domain, precisely because competition is considered to be reduced, restrictive effects are presumed in a first stage, BUT there always remains an open door to show that the practice is not abusive because parties can always show that the arrangement is objectively justified.

This reflects a double assumption that exclusivity always makes life more difficult for the competitors of the dominant company (as explained in para.150 of Intel, the analysis favored by the Court is one of difficulty, not the one of impossibility linked to the as-efficient competitor test set out in the Guidance; this is a crucial point that many overlook and that has to do with how we define foreclosure) and that sometimes exclusivity is part of a procompetitive strategy.

As I hinted in the first comment to Pablo’s post on Intel, this is key. If this escape door were not here, I would also take issue with the case-law. But it is, as unequivocally stated in paras. 94 and 173 of the Intel Judgment. In my view, this explicitly acknowledged the economic lesson that in some cases these practices may be procompetitive and hence should not be prohibited. Why is this, legally speaking, a problem? To the extent the presumption can effectively be rebutted, I see no problem to it.

Now, a different debate is whether an “objective justification” defense is a mere chimera or not, and there, I do agree that it should be a real possible defense, not just some nice wording.

In an ideal world,  and like I have said more generally with respect to 101, presumptions at the level of establishing the restrictive effect of a given practice should not be so important as they are. Firstly, because if something is so obviously restrictive to be deemed restrictive, then it should not be so difficult to show effects (as, by the way, both the Commission and the General Court were able to do in a few hundred pages in Intel; this, on the other hand, is probably a very good example of why shortcuts may make sense). Secondly, and conversely, because if a practice is so obviously pro-competitive, and if defences (like 101(3) and the objective justification notion) were effectively available, then there would be no obstacle for the practice to be redeemed this way.

On the old debate of form and effects. I have in the past set out very clearly my views on the interface between competition law and competition economics (see here), so I won’t repeat myself. Let me just add that when it comes to exclusivity inducing rebates, even people not at all suspect of “ordoliberalism” [one day we should try to clarify here what this means], like Commissioner Josh Wright, are of the view that cost assessments (like the one advocated for in the Guidance Paper) might not be well suited for loyalty discounts, because their essence lies not in price but on exclusivity (see his speech “Simple but Wrong or Complex but More Accurate? The Case for an Exclusive Dealing-Based Approach to Evaluating Loyalty Discounts”. On this point, see also the excellent writings of one of our Friday Slotters, Einer Elhauge (see e.g. pages 463-464 of this great one).

“Rules and standards need to be crafted to ensure that they are accurate and administrable” is a phrase that appears at the end of Pablo’s post, and that leads me to one final comment. The current situation is, in my view, the one that is easiest to be administered, and, importantly, the one that requires less work from the lawyers, and particularly from the economists advising the dominant company. If we were to apply the Guidance paper test to all these cases, we would need to deploy hordes of public officials, and countless hours of lawyers and economic consultants (as if something good comes out of that mix…)

Under the current situation, on the contrary, companies know that except for one red line, they can design their rebate schemes the way they wish. Most of the objectives of exclusivity inducing practices can be achieved through other, perfectly legitimate and less risky, means. With less intense but more refined and creative legal and economic advice companies could continue competing intensely on the merits whatever the rule on loyalty-inducing rebates.

Written by Alfonso Lamadrid

24 March 2015 at 10:55 am

In no man’s land- Case T-355/13, easyJet

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Last Wednesday, 21st January, the General Court rendered an interesting Judgment in Case T-355/13, easyJet v Commission.

It is well-known that the European Commission has always enjoyed great discretion to reject, shelve or prioritize cases, traditionally under the widely used justification (sometimes pretext) of lack of Community/EU interest (as the case-law has, ever since Automec, acknowledged it may do). With the entry into force of Regulation 1/2003 the Commission was granted another two reasons to dismiss cases (not that it needed  them); pursuant to Article 13 it could now dispose of complaints where “one authority is dealing with the case” already (13(1)) or where a complaint “has already been dealt with by another competition authority” (13(2)).

easyJet v Commission concerns the latter scenario.

The facts in a nutshell

In 2008 easyJet lodged three complaints against Schiphol airport with the Netherlands Competition Authority, based on national legislation governing aviation law and on competition law. The authority rejected the complaints by relying on the laws governing aviation (said to be inspired on the competition rules) and by resorting to its priority policy, which enables it to pick the cases with which it deals.

In 2011 easyJet lodged an abuse of dominance complaint with the European Commission. It acknowledged it had lodged similar complaints in the Netherlands and explained that these had never been assessed on the merits.

After two years (so much for the best practices), in 2013, the Commission rejected the complaint arguing, inter alia, that a national competition authority had already dealt with it.

The Judgment

In Wednesday’s Judgment, the Court rules:

1) That the Commission is entitled to reject a complaint which has previously been rejected by a competition authority of a Member State on priority grounds even if the latter has not examined the merits of the case. The Court explicitly endorses an interpretation whereby what’s important is that the national authority has “formally”, however superficially, “reviewed” the complaint (see, e.g. recital 27 of the Judgment).

2) That the above is valid also where, as in the case at hand, the national competition authority rejected the complaint in the course of an investigation conducted under separate provisions of national law (aviation law in casu) “on condition that the review was conducted in the light of the rules of EU Competition law” (see in this regard para. 46 of the Judgment).

In sum, the General Court rules that when a national competition authority rejects a case without having examined its merits, and without having undertaken an analysis on the basis of the competition law rules this is enough to consider that the said authority has “dealt with” the case within the sense of Article 13(2) of the Regulation.

A few comments

It is also widely acknowledged that judicial review in these cases –also starting with Automec– has been rather lenient. At one point some –like me– saw a possible change of trend in CEAHR, but hopes were later dispelled by Protegé (see here for our comments). This Judgment fits within the classic very deferential stream of case law in this domain.

Whereas it’s true that the facts of the case are very specific, my first inclination is not to share the Court’s reasoning; if you see it differently I’d be happy to discuss.

– First of all, I wonder how this all fits with a stream of case-law (actually cited in this very same Judgment), according to which “where the institutions have a broad discretion, respect for the rights guaranteed by the legal order of the European Union in administrative procedures is of even more fundamental importance; those guarantees include, in particular, the duty of the competent institution to examine carefully and impartially all the relevant aspects of the individual case”. (In the same sense see also the often forgotten recitals 79 to 83 of Automec itself). Given that the EU Courts require –at least in theory- that the Commission examine carefully all the relevant aspects of a case prior to rejecting it out of lack of priority, why doesn’t the GC require the same from national competition authorities prior to concluding that they have “dealt” with a case within the sense of 13(2)? Moreover, doesn’t the case law require that the guarantees provided by EU Law be also applied by national bodies when applying EU provisions?

– Secondly, I’m not sure the Commission needed this favor in a domain in which it effectively already enjoyed almost unfettered discretion. Indeed, it didn’t need to invoke Art. 13(2); had it simply said the case lacked EU interest it would have got away with it

– The risk, in my view, is that after this Judgments authorities will be able to dispose of cases out of prioritization reasons without having examined first the relevant aspects of the case, at was required –at least formally- by EU case law, just because another authority chose to do just that before.

In a way, the Judgment might accordingly make it much easier for authorities to play hot potato. Wanna-be complainants would be in between, in no man’s land, with the frustrating feeling that no one wants to even cursorily look at their case.

– The Commission would probably reply to the above that national Courts are still well placed to deal with complaints, that they’re moreover under the obligation to examine the merits of cases and that they have wider powers (such as that of awarding damages). Query: I wonder how the experience of losing a case that the Commission thought was obvious before a Belgian Court (see here) may have altered the Institution’s perception as to how well placed judges are to deal with competition cases. I also think that the Commission often trusts judges to deal with cases that would need an EU-wide consistent solution, ideally from an experienced specialized agency. For instance, the Commission very recently rejected a complaint against the UEFA Fair Play Rules alleging that Belgian Courts were well placed to deal with it (see here; query: is that really a case that should be dealt with by a national Court instead of by the European Commission?)

Written by Alfonso Lamadrid

27 January 2015 at 4:24 pm

The Double Duality of Two-Sided Markets

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Capture

I’m typing live from the Swedish Competition Authority’s top-notch Pros and Cons conference, which in this 13th edition deals with the pros and cons of two-sided markets.

Despite the fact that the conference has been opened by myself and will be closed by Nicolas Petit, I promise this is a serious and highly reputed event.

In my intervention I have focused on what I’ve called the double duality of (practices carried out in) two-sided markets. A paper on the subject is in the pipeline (to be finished when work and baby allow), but most of the views I just developed are contained in this presentation (comments would be very welcome):

Lamadrid_The Double Duality of Two Sided Markets

 

Written by Alfonso Lamadrid

28 November 2014 at 11:26 am

In brief

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– I watched life –rather heard while working- the European Parliament hearings on the new Commissioner for Competition, Margrethe Vestager. She did so well that I couldn’t help thinking that perhaps she should have been given a more politically decisive portfolio (it also made me compare her with many politicians in my home country, but that’s another story).

– It’s been a while since our last quiz. I offer to pay lunch to whoever is able to tell us what was the new and special method for calculating fines that the General Court says to have used in this case (see in para. 5 the mysterious reference to “the Court’s choice of a methodology that diverges on purpose from the methodology laid down in the 2006 Guidelines”).

– Last Friday the Commission approved the acquisition of Whatsapp by Facebook (on which we had commented here). I’m looking forward to reading the decision, but from the press release I gather that the Commission has significantly refined the approach taken in Microsoft/Skype (e.g. no trace of the “inner circle” argument). Don’t know why that would have been necessary considering that, according to the General Court’s Judgment, that decision was irreproachable…

– Remember our discussion on the Groupe Gascogne Judgments (see here and here)? It has now been published on the Official Journal that Gascogne has introduced a damages action before the General Court…against the General Court: see here.

– If you have a minute (which I guess you do if you are reading this) read Kevin Coates’ new post: Gilding Refined Gold and Painting the Lily

– It is still possible to register to the Competition Day conference within the Brussels Technology Days series of events. I’ll be speaking on a panel discussing the Android proto-case together with Trevor Soames, Thomas Vinje and Neil Dryden. For more info, click here.

Written by Alfonso Lamadrid

7 October 2014 at 6:40 am

In the press this week

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On the tax-related State aid investigations. Many newspapers opened this week with big headlines on the alleged news that the Commission had adopted a “preliminary decision” regarding the State aid probe into Apple (see e.g. here). I’m a bit intrigued by what’s behind this press campaign; the only news is that the Commission has published in the Official Journal decisions that had already been adopted before the summer. This sort of publication is never news, so why the fuss about it now is beyond me.

[It is, by the way, interesting to observe how some developments are “sold” twice, whilst others –including the closure of infringement proceedings against luxury watch manufacturers– go under the radar (disclaimer/advertising: my firm represented one of the main companies subject to that investigation)].

Given that I’ve lately been working on loads of tax-related State aid cases before the General Court I’ve developed a particular interesting in these matters. We might comment more in-depth on them in the future; for the moment, I’ll simply point out that by questioning not national taxation systems or tax rulings in general but rather APAs (advance price agreements) the Commission might be opening Pandora’s box (how many multinationals –including many EU ones- have similar arrangements?; could all of those now be challenged under State aid rules? ) For my previous comments on these issues, see here.

On the Google search investigation. The Google case has been on the news again, which, paradoxically, is no news. It’s been a while since we last commented on this investigation (partly because there wasn’t anything substantial on which to comment, and partly because the susceptibility around these issues is quite acute). One of the main contributors to this blog –Pablo Ibañez Colomo- gave his views to Global Competition Review a few days ago; Pablo explained that “[i]t is very controversial to argue that, as a rule, article 102 [prohibiting abuse of dominant position] requires all dominant companies to give access to their facilities – including operating systems or search engines – on non-discriminatory terms and conditions (…) I do not believe there is case law supporting this understanding of the provision.” According to Pablo, “there is the expectation that remedies are justified even if it is not clear why Google’s conduct is illegal”.

Last time I wrote about the case I made some comments on the politicization of competition law enforcement (see here). Since then, Vice-President Almunia has explained that politics are being left aside of the case (here, ehem). So, politics aside, let me focus on a purely legal point without discussing who’s right or wrong:

The complainant’s interesting main legal argument now seems to be that Google’s proposed commitments do not address the concerns set out in the Commission’s preliminary assessment (see, e.g. here). This a most interesting claim, and one on which many –including myself- can’t really comment because we haven’t read the preliminary assessment. In fact, no one other than Google was supposed to have seen it (according to the Manual of Procedure, “the complainant has no right to a hearing or to receive a (non-confidential) copy of the Preliminary Assessment or to have access to information”). In this case, however, the Hearing Officer granted a request for access on the part of some of the complainants (see the previous hyperlink for a source).

Now, consider the future implications of this move: in the past the Commission could overdo a bit its concerns in its preliminary assessments because, after all, they are not subject to the same requirements as the SO, would not be subject to any rebuttal on the part of its addressee, unlike SOs do not need the approval of the Commission’s President and, at most, could give the Commission a stronger hand in commitment negotiations (which, regardless of what Alrosa says, obviously exist). Now that the Commission is aware of the fact that preliminary assessments will/could be accessed by complainants, will it have to show more self-restraint? Will this have an impact on future commitment negotiations? Would these problems be avoided if the Commission was required to adopt a proper SO prior to entering into commitment negotiations?

On Android. I also saw some headlines this week anticipating, once more, the initiation of a formal investigation into Android. As frequent readers will recall, I’ve already written quite extensively about this (see here). On October 15th (the same day in which, by the way, the Commission will be making public an avalanche of decisions…) I’ll be speaking about it at a conference in Brussels, so in case anyone has thoughts about the case feel free to send them my way.

On the Euribor probe and the role of the Ombudsman. Last week, the fact that Crédit Agricole had resorted to the Ombudsman to complain about a possible bias on the part of the Commission also hit the news. CA’s claim has to do with the Commission having adopted a settlement decision finding a cartel infringement in relation to the Euribor prior to concluding the infringement proceedings against those who chose not to settle (see Gaspard Sebag’s piece for Bloomberg here). This obviously raises most interesting procedural questions, which I’d nevertheless tend to think pertain more to the realm of judicial review than to the Ombudsman. The piece includes a quote of mine which is a candidate for the prize of ‘dullest comment of the year in the press’: “It’s always uncomfortable to have to deal with the Ombudsman”. A deep thought that is… ;)

 

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