Chillin'Competition

Last week the European Commission announced the opening of formal proceedings to investigate whether international publishers may have engaged in anti-competitive agency agreements regarding the sale of ebooks (see Press Release). Dawn-raids in connection with this case were carried out last March.

Today´s edition of the Financial Times (edited by Pearson -a publisher affected by the investigation-) features a most interesting piece on a very related topic under the title Don´t make Amazon a monopoly.

Its author -John Gapper- argues that competition authorities in the US and the EU should not challenge the arrangements under which publishers set minimum prices for ebooks and preclude companies such as Amazon, Apple or Barnes&Noble from offering discounted prices. It explains that this is a textbook example of the situation that the US Supreme Court had in mind when it overturned Dr. Miles in its Opinion in Leegin, and submits that it would be paradoxical for competition rules to enable free riding-based discounting on the part of Amazon, thus enhancing its alleged “monopoly”.

This situation and the legal controvery surrounding it raises very interesting questions that go beyond the situation at issue and which have the potential to affect online distribution in general.

Does anyone have any strong views on this?

My “learned” co-blogger (and NY-Times interviewee of the week) initiated a very interesting debate yesterday with regard to the Microsoft/Skype clearance decision. I must confess that I read the decision last evening on the plane back fromFlorence (more on that tomorrow) and, to be frank, I was astonished. Let me briefly, and not exhaustively, explain to you why:

As our usual readers know, I’ve a particular interest in looking at how competition authorities appraise network effects in competition cases (it was the topic of my LL.M dissertation and it’s also supposed to be the topic of a pending PhD project). Since the Microsoft/Skype merger involves two entities benefitting from huge network effects I regarded this decision as a must read.

Well, I was wrong; the decision is a must RE-READ: I had to read certain paragraphs several times in order to make sure that it wasn’t just that I was tired and couldn’t make sense out of it. After several re-reads, I reached the conclusion that, actually, the decision doesn’t make any sense.

Nicolas said yesterday that “the decision clearly shows that a merger involving a large monopoly can get Phase I clearance”. I was not involved in this case and therefore I may be missing something but, if you ask me, the decision reads as if the Commission already knew that it wanted to clear the decision in Phase I and then tried to construct an assessment that would fit its pre-determined conclusion. Arguing in a convincing manner that the creation of a “large monopoly” such as the one at issue does not raise competitive concerns and is suitable for Phase I clearance is practically impossible. Nonetheless, that is what the decision has tried to do. And, inevitably, that leads to serious logical problems.

Even from the perspective of an outsider is easy to detect many defects, but for the sake of brevity (notably because I have only allocated one hour of today’s afternoon to write down my notes about this) let’s focus just on one of the Commission’s errors. I have chosen to present you with an error concerning the market for consumer communications because it involves network effects (which is what initially got me interested) and horizontal effects, and because all of us as consumers are able to understand it better. The decision is equally, perhaps even more, questionable with respect to the assessment of vertical and conglomerate effects in the market for enterprise communications, but that part is harder to explain in a brief post; I might develop my views on this in a later post.

In what follows I´ll explain what the decision says in this regards and I will provide you with my very personal views on the Commission´s reasoning. I might be right, but I certainly may as well be wrong. If interested in taking a look at the substantive stuff in other to arrive to your own conclusions, click here:

Read the rest of this entry »

Oops, the General Court did it again… Last week in EFIM v. Commission, the Court confirmed the Laurent Piau case-law:  a collective dominant position under Article 102 TFEU covers situations of tacit collusion (here labelled, “tacit coordination“) and hinges on proof of (i) detection opportunities; (ii) retaliation mechanisms; and (iii) absence of countervailing power of actual and potential rivals. Interestingly, the Court made no reference to the notions of “collective entity“, “correlation factors” or “economic links“, used in previous cases. A welcome ruling. Yet, much remains to be done in relation to the concept of abuse of collective dominance.

A great hire by Compass Lexecon: Prof. Jonathan Baker just joined them as Senior Consultant. Prof. Baker has been the Chief Economist of the FCC and the FTC. But to me, J. Baker is one of the first economists who articulated a workable theory of unilateral effects in merger cases. For more, see his article with Timothy F. Bresnahan entitled, ” The Gains from Merger or Collusion in ProductDifferentiated Industries”, 33 J. INDUS. ECON. 427 (1985) and see link here (and in particular footnote 15).

On 12 December, the Brussels School of Competition will host a half-day conference on the proposed reform of Belgian Competition Law. See here for the programme. My assistant Norman Neyrinck and my friend Laurent de Muyter will speak at the conference. I cannot wait to listen to them.

An unconvenient truth: it is technically wrong to say that the default of a Eurozone State would trigger the end of the € as a currency. On this, journalists tend to oversimplify. Unless all failed States opt out of the Eurozone, the € will stay in business. And by the way, a defaulting State does not necessarily need to exit the Eurozone. True though, defaulting States may be tempted to exit so as to engage into competitive devaluation, and regain growth in the mid-term.

Finally, because I love self promotion, and also for my fan club – Alfonso, pls forward this asap to your colleague – a picture of me with a Chinese official who attended a lecture on EU competition law in Brussels 15 days ago.

An interesting piece of news was left out yesterday: an adult website company owner has filed an antitrust lawsuit  against the International Corporation for Assigned Names & Numbers (ICANN) contending that website owners are “forced to pay excessive fees for .XXX defensive registrations” that may have little or no value.

We suppose you may not be aware of this, but the landrush period for the .xxx domain has been running since 8 November and until 25 November. General availability will commence on 6 December.  This means that many companies are right now engaging in defensive registration in order to preserve their image by avoiding third parties from, for instance, registering a web with their brand name under the .XXX domain. As you know, that also happens often with regard to less problematic domains such as .com .net or .org.  Why? One example: if you click on www.whitehouse.gov then you´re directed to where you want to go, but check out what happens if you click on www.whitehouse.net .

Antitrust concerns in relation to the ICANN aren´t new. Back in 2003 Professors Frookin and Lemley argued that the ICANN and its policies were contrary to antitrust law (Click here for their interesting paper ICANN and Antitrust).

The full case docket and legal filings are available here.

There has been some interesting stuff going on in the past few days that we haven´t been able to cover. Here’s a brief (and subjective) account of some recent antitrust related news:

- Bill Gates has been (and at the time of writing he may well still be) testifying in a Utah Court in the framework of a case initiated by Novell. Novell is arguing that Microsoft encouraged them to develop WordPerfect software for Windows, only to later withdraw its support because WordPerfect competed with other Microsoft products. Judge Motz, who is presiding over the case, has reportedly expressed skepticism that Novell’s claims have merit.

- Chinese authorities confirmed that there is currently an ongoing investigation concerning a possible abuse of dominance on the part of two State-owned companies (China Telecom Corp. and China Unicom). The antitrust branch within the NDRC is investigating whether these two companies -allegedly dominant in the market for broadband internet services- may have been charging their competitors higher fees for broadband access while offering favorable prices to non-competitors. This is to our knowledge the first high profile abuse of dominance investigation since the Antimonopoly Law was enacted in 2008. The fact that it is targeting two State owned companies makes it particularly interesting. We’ll be asking our “Chinese correspondent” to keep an eye open for any possible developments.

- Here´s one that I´m following with particular interest: NBA players hired the very well known antitrust lawyer David Boies to represent them in their battle against franchise owners that has led to the NBA lockout. The players have now filed two class action lawsuits (one in Minessota and one in California, which are considered to be favorable venues) asking for treble damages (that is, triple the amount of the more than $ 2 billion they would´ve made this season). The lawsuits argue that the lockout “constitutes an illegal group boycott, price-fixing agreement, and/or restraint of trade in violation of the Sherman Act” an hat the owners´ final offer for a new collective bargaining agreement would have “wiped out the competitive market for most NBA players”.  (For our comments on the very similar NFL precedent see here).

- Giorgio Monti (Professor at the European University Institute in Florence and author of one of our favorite competition law textbooks) read our posts on Pierre Fabre and on the future of Article 101 and invited us to participate at a workshop in Fiesole on January 5^th. Should be very interesting; we’ll give you more details in the coming days.

- Antitrust students at Berkeley have started their own Berkeley Global Antitrust Blog. Best of lucks to them!

-Finally, last week we received a couple of emails from readers that reveal that my co-blogger Nicolas is apparently becoming a celebrity. One reader told us about the fact that there is a Nicolas Petit street in Luxembourg, and another reader sent us a picture that shows that a young competition lawyer has a picture of Brad Pitt Nicolas above her desk (!)

See pic below for evidence. We´ll keep the identity of Nico´s fan secret in order to avoid any incidents with Ms. Petit ; )

A message of hope, for our Italian readers.

In Italy, competition experts face promising career prospects:

• Giulanio Amato, once Chairman of the Italian competition authority, twice held the position of Prime Minister – albeit for an ephemeral period;
• Mario Monti, once EU Commissioner for Competition is poised to become the next Italian Prime Minister.

It has been reported today that the European Commission is concerned about the use that is being made of patents essential to the 3G  mobile communications standard in the context of the ongoing legal battles surrounding the smartphone technology markets.

The Commision has confirmed that it has addressed requests for information to both Samsung and Apple, but it has not yet provided any further details. A legal filing by Apple in the U.S. nevertheless reveals that this preliminary investigation on the part of the Commission may be targetting a possible abuse of FRAND (Fair Reasonable And Non Discriminatory) licensing agreements on the part of Samsung, which in the recent past has initiated a large number of proceedings against Apple in several jurisdictions.

This is not the first antitrust investigation regarding anticompetitive behavior related to enforcement, use and misuse of patents undertaken by the EU Commission (think, for instance, about the Qualcomm or Astra Zeneca cases), and it certainly won´t be the last. Patent wars may be a newcomer in the antitrust world, but they´re here to stay.

By the way, I´m very fortunate to be  -together with Miguel de la Mano (Deputy Chief Economist at DG Comp and currently Acting Chief Economist at the UK´s Competition Commission), Hans Zenger (CRA), and Renato Nazzini (LMS and Southampton University)- part of the team that is currently should be drafting the chapter on Article 102 for the next edition of the Faull&Nikpay (which, as you know, is one of our favorite books), and given the rise of IP-related abuse of dominance cases we´re planning to devote a specific section to these issues.

Have a nice weekend!

(Image possibly subject to copyright)

The term “leverage” is commonly used in antitrust law to refer to practices whereby a firm with market power exerts such power with a view to stretching it to a related market.

It seems that not only dominant firms may engage in such behavior. Last week gave us a couple of real-life examples of instances in which competition authorities may, perhaps, have also engaged in leverage:

This is the first one: “Commission market tests IBM’s commitments on mainframe maintenance and closes separate case into alleged unlawful tying“.  The European Commission has been tough on IBM, and, in the end, it has been able to secure very significant commitments from it. Whether the Commission has or not used the “threat” of continuing the tying investigaton as a bargaining tool is unknown, but I would tend to imagine that, at the very least, this is a factor that was in the minds of all sitting at the negotiating table (particularly when the Commission always has the winning hand when it comes to Art. 102 cases). We are aware of the fact that the Commission denies that commitments are “voluntary” and that the process leading to their adoption does not imply any negotiation, but as we´ve stated before also with regard to settlements, such denial is reminiscent of one of Magristte´s best known works:

(By the way, did you know that this image was used at the oral hearing of the Compagie Maritime Belge case? We´ll tell that story some other time..).

The second example of leveraging on the part of competition authorities comes from the US, is much more obvious, and was reported also last week by the Financial Times: “US accused of unfair antitrust tactic“. In a nutshell, the US DOJ is said to be resorting to immigration law with a view to obtaining guilty pleas from foreign businessmen. Views with respect to the legitimacy of this strategy are mixed; what´s yours?

As Nico advertised announced yesterday, on September 30th the GCLC will be holding a major conference on the Reform of State Aid Rules on Services of General Economic Interest (SGEI) in Bruges.

The conference couldn´t be more timely, because last Friday the European Commission launched a public consultation on some proposed new texts regarding the application of State aid rules to SGEIs.

This reform is set to be one of the highlights of Commissioner Almunia´s tenure. The Commission has been working on this for some time, and we can provide you with some insights on how they have undertaken this work.

A famous quote by John Godfrey Saxe -often attributed to Otto von Bismarck- states that “law and sausage are two things you do not want to see being made.“  

Sure you don´t?  We´ll show you anyway

In the case of sausages, they are basically made like this:

And if you want to see part of the process of how law is made, check out this first draft of the SGEIs package that was circulated amongst the European Commission´s services under the coordination of the Commission´s General Secretariat, and promoted by Commissioners Almunia, Andor and Barnier:

paquet SSIG-Interservice

It includes some highlighted internal comments, my favourite being this one:

“[voir absolument son [Judge Lenaert´s] intervention postée sur youTube in http://www.youtube.com/watch?v=L52IhxqxUXo ]”

It´s good to know that European Commission officials share our (and CPI´s) taste for competition law videos.

Note: We received this some months ago because our addressess were included in a large mailing list (no kidding).

We´ve a very busy evening, but if any of you has time, we would recommend you to watch Eric Schmidt testifying before the US Senate´s Antitrust Subcommitte.

The Hearing is taking place as we write:

Watch it live now on C-SPAN.

P.S. If you missed it live, click here to watch the webcast or here to read the statements.