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On the (mis)application of Article 101(3): of judicial capture and cross-market assessments

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Lawyered

We competition lawyers are probably more stupid than other lawyers (and that’s saying something!). Think about it, on the behavioral side many lawyers essentially work with only two provisions (Arts 101 and 102 TFEU) and they don’t really know what to do with them. Granted, I’m oversimplifying, but perhaps not so much: how many people have a clear idea of what a restriction of competition is? [my previous experiment on this point was used by some to criticize our discipline; see here] How many know how to extract the consequences of Article 101(2) [see here for my take]? And how many know how to apply Article 101(3)?

Today I’ll focus only on the last of these questions, to which the answer is: very few, and I’ll give you an example.

(Note: the first half of the post is mere background; the more interesting stuff is emphasized in bold at the end. The following may be a bit dense, but I bet that if you manage to read it you’ll find it quite interesting)

In the early days the Commission essentially did what it pleased with 101(3), using it often with common sense but with very little, and often divergent, reasoning, thus bordering on the arbitrary. The Court didn’t put much order in that mess: starting with Consten & Grunding it devised the manifest error of assessment test to review the legality of “complex economic assessments”, a label which was said to apply to the application of Art. 101(3). The result of this approach is that prior to the adoption of Regulation 1/2003 the Court only rendered a handful of Judgments (30 approximately) dealing with this sub-provision, which nevertheless is at the core of our enforcement system.

Following the adoption of Regulation 1 the Commission ceased applying Article 101(3) as well, seemingly acting under the assumption that its Guidelines on the application of what then was Article 81(3) would fill the void. But the Guidelines didn’t fix much and, in fact, as will be seen in a second they also created new trouble. Also, Article 5 of Regulation 1/2003 (later interpreted by the ECJ in Tele2Polska effectively precluded national competition authorities from adopting individual exemption decisions under Article 101(3) TFEU (they can only conclude that there are no longer grounds for action)

The result is that the Commission seldom undertakes a serious evaluation of 101(3) in its individual cases, that EU Courts very rarely have the chance to review its application and that national competition authorities can’t do it to a full extent either (in spite of the fact that decentralization was intended precisely to empower them to do it…). Passivity in this regard is so extreme that even when the ECJ has instructed the Commission to perform a 101(3) assessment, the Commission has felt free enough to take a pass (we’re currently working on a case wich is a perfect example of this).

Far from being unimportant, I often contend that many of the problems encountered in modern competition law (like the object/effect debate and the discussions on how far into the “legal and economic context” one must look within 101(1)) (see here, for instance) derive from the fact that 101(3) isn’t taken seriously in individual cases.

But what is even worse is that the very exceptional cases in which Article 101(3) is indeed applied, it doesn’t seem to be properly applied.

I’ll give you an example, resorting to an issue I dealt with in my presentation on two sided markets at the Swedish Competition Authority’s Pros and Cons conference a few weeks ago and which, I realized, not many seem to be aware of.

Let’s take a simple question which should have a straightforward answer:

Can you balance the efficiencies obtained in one market against the restrictions of competition caused in a different market?

-When this question first arose before EU Courts it was made it pretty clear that any positive effect should naturally have to be considered, regardless of the relevant market in which it occurs:

For the purposes of examining the merits of the Commission’s findings as to the various requirements of Article [101(3)] of the Treaty (…) regard should naturally be had to the advantages arising from the agreement in question, not only for the relevant market (…) but also, in appropriate cases, for every other market on which the agreement in question might have beneficial effects, and even, in a more general sense, for any service the quality or efficiency of which might be improved by the existence of that agreement”  (Case T-86/95, Compagnie Générale Maritime and others, [2002] ECR II-1011, paragraphs 343 to 345).

Sounds pretty unequivocal, right? Well, again, keep on reading….

Then came the Guidelines on 81(3) and ruined it. Para. 43 of the Guidelines states that “[n]egative effects on consumers in one geographic market or product market cannot normally be balanced against and compensated by positive effects for consumers in another unrelated geographic market or product market. However, where two markets are related, efficiencies achieved on separate markets can be taken into account provided that the group of consumers affected by the restriction and benefiting from the efficiency gains are substantially the same”. In other words, they said precisely the contrary to what the case law said. And, cunningly enough, the Commission did so citing in its support the very same case law that it was departing from (not that EU Courts haven’t occasionally done the same regarding their own case-law…) Indeed, the footnote (57) accompanying this paragraph refers to Compagnie Générale Maritime (quoted above) but adds a long explanation aimed at confining the Court’s ruling to the very specific situation at issue in that Judgment, in which the group of consumers affected by the restriction and the efficiencies is said to have been the same. Read it for a good example of manipulation a lawyer-like interpretation of the case law.

This very same issue returned to the EU Courts in the post-guidelines era with the Mastercard case. And instead of correcting the Guidelines’ intendedly wrong interpretation of the earlier case law, the Courts endorsed it, and I’m not sure that they did so consciously.

Click here to continue reading about how the Commission lawyered everyone:

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Written by Alfonso Lamadrid

20 January 2015 at 5:19 pm

Posted in Case-Law, Hotch Potch

Prof. Whish on the Intel Judgment

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Professor Richard Whish (click here for his Friday Slot interview with us) has just written an editorial piece for the Journal of European Competition Law and Practice commenting on the General Court’s Intel Judgment (for our previous publications on the Judgment, see Pablo Ibañez´s “Intel and the problem with wrong economic assumptions” as well as the post on Wouter Wils’ piece, available here) [Btw, Pablo has written a proper article on the subject that will be out in a few days].

The editorial, which we are making available with the consent of both Prof. Whish and JECLP (thanks very much to both), predicts that “the Court of Justice will uphold the judgment of the General Court, not because it believes in the Dark Ages and enjoys wreckage, but because the judgment is perfectly sensible“. It then goes on to develop the reasons why he finds some criticism targetting the Judgment unconvincing.

The piece is as succint as it is interesting, so instead of summarizing it, we leave you with it:

R.Whish_ Intel v Commission_Keep Calm and Carry On _JECLP

Written by Alfonso Lamadrid

3 December 2014 at 11:58 am

Posted in Case-Law

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.

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.

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.

Click here to continue reading:

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Written by Alfonso Lamadrid

17 September 2014 at 6:02 pm

Groupement des Cartes Bancaires and the resilience of the case law on restrictions by object

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[Note by Alfonso: I devoted part of the weekend to drafting a comment on the recent Court Judgment in GCB, but Pablo Ibañez Colomo has proved quicker. Here’s his reaction to the Judgment; mine will follow].

The ECJ judgment in Groupement des Cartes Bancaires will be discussed at length in the coming months (maybe more so than MasterCard). The outcome is unsurprising (at least in my view). The Court, as AG Wahl, applies the principles stemming from a well-established line of case law, which has proved to be remarkably resilient. It should now be clear beyond doubt that relying on pigeon holes or formal categories to identify object restrictions can often be misleading. What matters is the rationale behind the agreement (as inferred from its wording and the economic context), and not so much whether it includes a particular restraint. Thus even an agreement providing for price-fixing may not be restrictive by object (in para 51 of the judgment the Court is careful not to refer to any form of price-fixing between competitors, but to naked price-fixing cartels and their functional equivalents). Conversely, an agreement that does not fit within the ‘suspect’ categories may also be restrictive by its nature – this is how I understand Allianz Hungaria, and the reason why it makes sense to me.

It should also be clear after Groupement des Cartes Bancaires that identifying the object of an agreement and establishing its restrictive effects are two separate steps. The first one may at times require a careful and lengthy analysis of the relevant legal and economic factors that explain the logic and purpose of a restraint. However, this fact does not mean, as has sometimes been claimed (in light of what now seems to be a misinterpretation of T-Mobile), that it is tantamount to establishing the restrictive effects of the agreement. The ECJ finds that the GC did not distinguish between the two steps. Claiming that an agreement is capable of having restrictive effects is not the same thing as saying that it is, ‘by its nature’, contrary to Article 101(1) TFEU (see para 69). Additional questions around this point will soon be addressed in academic articles and discussed at conferences. I am ready to guess that the formula chosen by the Court (‘sufficient degree of harm to competition’) will give rise to speculation about its exact scope and meaning (I have my answer, but it would be the nth time I write about it in the blog). It is also necessary to read some paragraphs (49-51, for instance) together with the judgment in Expedia, where it was clarified that ‘by object’ agreements that have an effect on trade between Member States appreciably restrict competition.

There is another aspect that is not strictly related to the substantive analysis but that will have piqued the interest of some people. The ruling could be used in textbooks to illustrate the principles of judicial review in EU competition law. The Court is very explicit and structured in this regard. First, it sets out the legal criteria for the assessment of the object of an agreement and comes to the conclusion that the GC had erred in law by applying a different set of principles. Secondly, it examines the legal characterisation of the agreement as restrictive ‘by nature’ and finds an additional error in law. It would seem from the judgment itself that the analytical clarity with which judicial review is conducted is a ramification of KME and Chalkor. In fact, the ECJ holds that the GC had not complied with the standard of review set out in the case law (para 91).

Groupement des Cartes Bancaires is likely to have consequences for some cases pending before the Commission and the GC. I thought ‘pay for delay’ when I read the bits about the relevance of ‘experience’ and about BIDS. I thought ‘pay TV investigation’ when I read that, in order to determine whether an agreement is restrictive by object, ‘it is […] necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question’. In spite of its relevance for the case, this issue was never considered by the ECJ in Murphy. It had not been raised by the parties. In the context of formal proceedings before the Commission, it would inevitably have to be addressed. I have recently published a paper discussing how this factor could influence the outcome of the investigation.

Interesting times ahead!

Pablo

Written by Alfonso Lamadrid

15 September 2014 at 3:53 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

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