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Playing for the gallery- On the European Parliament’s resolution on the unbundling of Google

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I’m typing on Sunday morning, on my plane back from Stockholm, right after reading the excellent pieces by The Economist on market power in the digital age (the image above comes from it), which summarizes many of the things we have been discussing here for quite a while in relation to the Google case (too many links to cite them here), the Microsoft/Skype Judgment (here), to the practical articulation of the economic theories on two-sided markets (here among others) and the interface between competition law and privacy (here and here). If you haven’t read it yet, we suggest you to do it here.

The Economist pays particular attention to what has been the talk of the town these days, European Parliament’s approval of a resolution that suggests the Commission “to consider proposals with the aim of unbundling search engines from other commercial services”. I’d told myself some time ago that I would reduce my coverage of Google related news (despite the increased number of visits they attract to the site) because I had the impression that it had ceased being about the law (admittedly, I´m not sure it ever was), but since everyone’s taking about it, and since I have been asked for my views on this quite a few times (Reuters actually published some of them in this piece), here you have them:

On the politicization of competition law. I very much like politics, and I very much like competition law, but I don´t like them together, at least when it comes to individual cases. In previous posts I have written about competition law and big politics (see here for “Antitrust and the Political Center” and here for a follow-up CPI interview on it) as well as, more recently, about competition law and “small politics” (see “On Competition Law and Politics”). When the new Commission structure was unveiled, we also wondered whether it meant that competition law would become more permeable to other policy areas (see here). Interestingly, last week I read that Commissioner Vestager had talked to Henry Vane at GCR about how she was concerned about lack of democratic accountability in competition law and believed that “building bridges with European Parliament is key”. I was intrigued by these words, and am curious as to how this will play out in practice.

On separation of powers (and Montesquieu’s death). My initial reaction was of surprised by the superficiality of the exercise; I thought it was remarkable that that 384 MEPs have voted for this resolution without undertaking any prior inquiry and without apparent due reflection on an issue that would require very careful scrutiny (unbundling cannot be taken lighltly; think of the debates about the energy and telecom sectors, where the remedy is far less controversial than it would in a rapidly moving industry). On second thought, I realized that that is not even the real issue: the true problem is that something is wrong with separation of powers (even in the peculiar EU context) when the legislative branch steps into the application of the rules and puts pressure on the executive -acting as quasi judiciary- to interpret and enforce the rules in a given way.

I, for one, am much more comfortable leaving competition law enforcement in the hands of perhaps less accountable, but independent, well trained and specialized DG Comp officials, who are, for good reasons, the ones empowered to apply the rules.

A bias against US companies? We’ve discussed this before in some depth (see here). Aside from the irony in politicians in the US telling politicians here not to politicize the debate (not the first time, though; see here), I find that particular criticism without merit. The EU doesn’t play industrial policy with competition law. If you look at the fines imposed in the EU and the US for antitrust violations, you’ll see that whilst most fines imposed in the EU affect EU firms, those imposed in the US are imposed on non-US firms. In my view, MEPs were certainly sought to protect certain interests, but not those of the EU versus those of the US.

As I told Reuters last week, the investigations don´t have to do with nationality bias but rather relate to the fact that “in most cases U.S. firms are the allegedly dominant players worldwide. I wish more European firms were in a position to be subject to similar investigations in the U.S.” I was glad to see The Economist making the exact same recommendation in their piece (“Europe’s leaders should ask themselves why their continent has not produced a Google or a Facebook.”)

The underlying strategy. Despite the significant media attention, I doubt that many people have taken this “suggestion seriously”. The way to spin it will be to say that even if a break-up seems excessive, the resolution shows that Google’s, sorry, search engines’ dominance has become too much of a problem. This is yet another smart move on the part of Google’s complainants (which, as I’ve always said, have played the game exceptionally well), but I guess I can’t say the same for the Parliament.

Overdoing criticisms might give one visibility, but only at the expense of credibility. The Parliament has always been on a quest for more recognition and powers, and, frankly, these things don’t help.

Written by Alfonso Lamadrid

1 December 2014 at 6:30 pm

On selectivity and alleged fiscal State aid (today’s Judgments in Cases T-290/10 Autogrill /Commission and T-399/11, Banco Santander/Commission)

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champagne

I’m writing under the influence of a few bottles of Champagne opened to celebrate two landmark Judgments rendered this morning by the General Court annulling the Commission’s decision that ruled the Spanish tax regime allowing for the deduction of shareholdings in foreign companies to be incompatible with the internal market (click here for the Court’s Press Release).

A very convenient disclosure/explanation: my firm represented all successful applicants.

The Judgments are important not only because of their economic significance (we’re talking of hundreds of affected companies and of billions of euros) but also because they are a welcome clarification on how to interpret the selectivity criterion in cases concerning alleged fiscal State aid. You may in fact recall that already 3 years ago my then colleague and still very good friend Napoleón (now on the dark side, at the European Commission) discussed the issues raised by the case on this blog (see here).

A few comments on the news:

  • Whereas it’s remarkable that appeals by alleged beneficiaries were successful in a case in which the State didn’t appeal the decision, the truth is that the Judgments do not constitute any major overhaul on the system. On the contrary, these Judgments only reinstate the obvious, that in order for a measure to be selective it shall offer an advantage to a certain category of companies. Measures which, like the one at issue, are open to any company operating within the system of reference (in this case the national tax system) are not to be considered selective. Rather than being new, this is actually one of the things that is taught on the very first session of any State aid course; the fact that many people forget about it may be explained either because they arrived late to class or because their memory follows a FIFO pattern ;)
  • The Judgments come at a moment when fiscal State aid –that we’ve been doing for a decade- is in the spotlight (the Lux leaks news broke only yesterday) so the first reaction of many will be to think about the impact this may have on other cases in which the Commission has also embraced an arguably excessively wide notion of selectivity (this includes my 25 fiscal State aid appeals currently pending before the General Court as well as the more recent investigations into tax rulings).
  • The Judgments expose an unusual behavior on the part of the Commission, which only last week adopted another decision building on the one that has now been quashed without waiting for the Court’s Judgment, which they knew was coming. This, which was probably intended to show that Almunia also targeted Spain, doesn’t seem to have played out so well.

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… ;)

 

A new Commissioner for Competition

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Putting an end to all rumors and speculations the European Commission confirmed yesterday the names of the members of the upcoming Juncker Commission (European Parliament confirmation is still pending and may be tricky for some). It’s now public that once Vice President Almunia leaves office on 31 October the competition portfolio will go to Danish Commissioner Margrethe Vestager.

As widely reported, Ms. Vestager is a 46 year old politician, mother of three, until recently Deputy Prime Minister in charge of economic affairs in Denmark (previously she was also Minister for Education and for Ecclesiastical issues) who has built a very solid reputation both in Denmark and in European circles.

As you may have read, President Juncker has introduced structural innovations in the Commission’s work, creating project groups under a hierarchical system under which Commissioners will report to a Vice President. The Commissioner for Competition will not hold a Vice Presidency this time but will liaise with other Commission Vice Presidents and contribute to their projects. The Mission Letter given by President elect Juncker to Ms. Vestager (available here) insists on the fact that Commissioner Vestager “will, in particular, contribute to projects steered and coordinated by the Vice-President for Jobs, Growth, Investment and Competitiveness, the Vice-President for the Digital Single Market and the Vice-President for Energy Union. As a rule, you will liaise closely with the Vice-President for Jobs, Growth, Investment and Competitiveness in defining the general lines of our competition and state aid policies and the instruments of general scope related to them”.

Juncker’s Mission Letter to Vestager also asks the new Commissioner to focus on “[m]obilising competition policy tools and market expertise so that they contribute, as appropriate, to our jobs and growth agenda, including in areas such as the digital single market, energy policy, financial services, industrial policy and the fight against tax evasion. In this context, it will be important to keep developing an economic as well as a legal approach to the assessment of competition issues and to further develop market monitoring in support of the broader activities of the Commission”.

Query: does all this suggest that competition law will be playing more of an instrumental role and would be more permeable to influences from other policy areas? Not that the instrumental role of competition policy is new,  particularly in the wake of the Lisbon Treaty, but this is a move that may satisfy the various politicians who have expressed concerns in the course of the present mandate, and that could fit within a “politicization” trend that we’ve discussed here before. I was also surprised to read in the letter that competition law will be mobilized to fight tax evasion (see here for our preliminary –soon to be developed- take on this).

Another most important point. I’ve also skimmed through the new Commissioner’s twitter account (here) only to find out –despite my poor Danish- that she’s got a good taste for pizza (see here for a tweet from last week displaying a picture of easily identifiable Mamma Roma’s great material eaten in between talks with Juncker).

Ms. Vestager will take office in November 2014 and will also have to face a number of pending issues. Most attention in this regard has focused on the Google investigation (by the way, the Wall Street Journal quoted some of my views on this matter a couple of days ago- full text available here). Commissioner Almunia now seems to have accepted that he won’t be able to finish the case during the rest of his time in office, which is something that many –including myself- would have thought impossible only a few weeks ago.

But despite the media focus, not everything done by Almunia has had to do with Google. This is now the time for observers to review what has been done under his mandate, and the Commissioner himself has started to do just that. Speaking yesterday at Georgetown he did a first balance of his time in office (the speech “Looking back on 5 years of competition enforcement in the EU” is available here).  And tomorrow he’ll be participating at a roundtable at Fordham’s annual antitrust conference that will also take stock of what has been done in the course of his mandate; the roundtable will be chaired by my partner Marcos Araujo and will also feature U.S. Assistant Attorney General Baer, Christine Varney and Ian Forrester.

We’ll report on that discussion asap. For now, I’m going to take advantage of the fact that my 10 days old baby is asleep to read and comment on the important MasterCard and Cartes Bancaires Judgments rendered by the ECJ only minutes ago…

Written by Alfonso Lamadrid

11 September 2014 at 12:44 pm

Recent Judgments of the EU Courts

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In the past few days there have been some remarkable competition-developments coming from EU Courts, the last of which took place only minutes ago in the Greek lignite case  (if you’re only interested in that one you can go directly to the bottom of the post). This is just a quick overview of some of those recent developments:

Some were anecdotal, such as President Barroso giving testimony as a witness before the General Court.

Others are relevant mainly for cartel geeks, such as the GC’s granting reductions of fines in 3 paraffin wax cartel related cases, in which it also (a) carried out a particularly detailed review of the exercise of decisive influence between a parent and its subsidiary (Sasol, available here); (b) observed a violation of the principle of equal treatment and, most unusually, found an infringement of the principle of proportionality in the calculation of the basic amount of a fine (but only due to the peculiar circumstance that the Commission had partly taken into accout the turnover of a company that had merged, in the course of the cartel, with another company participating in the infringement; see the Judgment in Esso, available here); and (c) shed some light on the assessment of the exercise of decisive influence in JV settings (in RWE, available here).

That challenges against the proportionality of fines imposed within the 10% limit are unlikely to be successful was confirmed by last week’s Judgment from the ECJ in the Telefónica case. Telefónica had challenged the GC’s Judgment upholding the controversial decision sanctioning it for a margin squeeze abuse. The ECJ’s Judgment contains nothing of particular interest (aside from an interesting explanation of why the General Court’s review is fully compatible with the requirements stemming from the ECHR). The case will mostly be remembered because of Advocate General’s Wathelet’s Opinion both on the issue of proportionality as well as on the qualities of the appeal lodged by Telefónica, which we’re told broke a record as the lenghtiest in the history of the ECJ. (For those of you who are wondering whether limitations on the number of pages didn’t apply, you should know that there’s a way to bypass them, which I won’t explain here in the interest of the efficient use of Court’s resources…).

And, finally, most interesting news came from Luxembourg minutes ago, as the ECJ has annulled the General Court’s Judgment in the Greek lignite case concerning the joint application of Articles 106 and 102 TFEU. As you may recall, some time ago we held a most interesting ménage à trois debate on the GC’s Judgment with Marixenia Davilla (see here), José Luis Buendía (see here) and Makis Komninos (see here). The ECJ and the Advocate General have followed the approach that José Luis had forecasted (the Mr. 106 nickname has a justification).

The Judgment is much more important than many may realize at first sight. The main issues raised by the case are covered in our previous posts, so I refer you to those. Observe only that the Judgment goes pretty far -in the right direction, I would argue- in ruling (in para 46) that “[a]ll that is necessary is for the Commission to identify a potential or actual anti‑competitive consequence liable to result from the State measure at issue. Such an infringement may thus be established where the State measures at issue affect the structure of the market by creating unequal conditions of competition between companies, by allowing the public undertaking or the undertaking which was granted special or exclusive rights to maintain (for example by hindering new entrants to the market), strengthen or extend its dominant position over another market, thereby restricting competition, without it being necessary to prove the existence of actual abuse“.

The Judgment would insuflate some life to Art. 106 which, as I said last week, has a tremendous potential which still today remains largely unused. This would nonetheless largely depend on politics at the incoming Commission and on the Commission’s discretion, and, judging by history, I’m not opimistic. As the GC reminded us with another Order last month declaring an appeal inadmissible (here), “the Commission’s refusal to act under Article 106(3) TFEU following the filing of a complaint by an individual against a Member State does not constitute a challengeable act“.  This ruling is based on the max.mobil case-law, which I’ve always seen as unfortunate and in need of repeal.

Written by Alfonso Lamadrid

17 July 2014 at 11:41 am

Of Politics and Competition Law (and on the Google cases too)

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In a recent post on the diluted legality of competition law I voiced out the view that our discipline could partly be losing its last name, a development for which I blamed a number of factors. However, some developments in the past few weeks have led me to think that perhaps I missed a critical feature: the increasing involvement of politics in the application of the competition rules.

To be sure, since its inception and all along its development, antitrust law –as a public policy tool at the core of the economic Constitution of any State- has had as much of a tight link with politics as it has with economics. But whereas economics not only provides a justification for the existence of the rules but also plays an important role in the development of legal rules and in individual cases, politics had traditionally exerted its influence in the exercise of enforcement discretion, and arguably not so much in the development of the rules and the outcome of cases.

The link between politics and competition enforcement might have been more obvious at the national level, where national competition authorities often are attached (organically or otherwise) to the Government at issue, which often appoints its members in the light of political considerations. It’s against this backdrop that one has to interpret the European Commission’s recurrent calls for independence of national competition authorities (most recently on a Staff working paper issued last Wednesday).

I think it’s fair to say that the influence of politics on the European Commission’s application of the competition rules has been more tenuous. For the most part, EU competition law has developed under the auspices of a firm political view on the advantages of competition in a system of social market economy, but in isolation from short-sighted political interests/small politics. This is largely explained by the theoretical legal status of the Commission as a body independent from Member States, and by the practical status DG Comp as a quasi-specialized agency within the Commission that one was not to second-guess. However, there are signs that this might be changing. In recent times national politicians have increasingly given their views on how competition law should be applied (here is one very recent example), and so have members of the European Parliament and a number of EU Commissioners. Moreover, they are doing so not only when their national interests are at stake (political solutions have been and are all the more common in State aid cases and in some high-stakes mergers), but also concerning investigations of potential infringements.

There are several examples of this evolution. Most recently we have seen politicians –mainly Chancellor Merkel- vouching for the approval of the Telefónica/E-Plus deal (see here). But perhaps the best illustration of the trend can be found in the Google case, on which we have written extensively on this blog.

This is a case in which DG Comp has extracted (arguably using the commitment procedure and its impressive record in judicial review of 102 decisions to stretch the boundaries of current legal standards) a set of significant commitments on the part of Google (see my comments here), going beyond what US authorities did. This could be regretted by people interested in the clarity of the law, but would normally have been seen as a practical enforcement success on the part of the Commission. However, a number of motivated and well-funded complainants –led by some smart lawyers who know how to play with the system and who deserve credit for getting near what I would’ve thought was impossible- now start to seem capable of derailing the commitment procedure by politicizing it. First, the German and French ministers for economics wrote a most unusual joint letter to Vice-President Almunia asking for a tougher stance on Google. And now, a widely extended rumor has it that a few EU Commissioners are being persuaded not to approve any Article 9 decision during Mr. Almunia’s tenure. As you can imagine, not all Commissioners are persuaded with sophisticated legal arguments related to evidence on foreclosure and the such, some being more receptive to political lines alien to antitrust analysis, mainly “don’t let these guys off the hook because they don’t pay taxes in Europe and because the US spies on us”. Obviously, this has nothing to do with the law, or at least with competition law.

It’s difficult to guess how this will turn out. As recently explained in the FT (Alex Barkers’s coverage of EU competition issues is, by the way, excellent) “[s]ome people involved think the pressures make it more likely Mr Almunia will decide to launch a formal probe of Android”. And indeed, the Android investigation may be the second leg of this political game, and once again the Commission might be under enormous pressure to take a hardline. [By the way, if you’re interested in reading about the competition issues involved in the Android investigation, I would very much suggest you read the insightful pieces recommended by Kevin Coates here ;) as well as this interesting brand new piece on the matter (particularly enjoyed footnotes 26 and 127…) (thanks to Jorge Marcos –ULg- for drawing our attention to it)]

Much more could be said about the politicization –and possible transformation- of antitrust and I look forward to your comments, but I’ll close it off now (mainly because the Word Cup final is already on). Some of you will recall my piece on Antitrust and the Political Center, in which I outlined some views on how antitrust embodies a centrist political ideology and can contribute to the expansion of sensible political views internationally. Well, in my view, the same is not true the other way around; infusing minor, short-sighted, political goals into the application of competition law can only contribute to disfigure even more a branch of the law which –let’s not forget- is, on its sanctioning dimension, quasi criminal in nature.

The political agreement in having technical competition rules applied by independent agencies is now an established idea, heralded internationally by the European Commission. And it makes sense because in spite of its unquestionable benefits, competition law’s constituency is diffuse and unable to mobilize politicians in the right direction. If you ask me, competition law can better serve its goals when dissociated from small politics.

Written by Alfonso Lamadrid

14 July 2014 at 4:58 pm

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