Archive for the ‘Case-Law’ Category
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.
(by Giorgio Monti)
[Note by Alfonso: The US Supreme Court delivered last week an antitrust Opinion in North Carolina State Board of Examiners v FTC. We asked Giorgio Monti -whom we knew would be interested in the issues raised by the case- to write a comment for Chillin’Competition and he kindly accepted. Giorgio needs no introduction, but I’ll do a quick one: he’s one of the leading EU competition law professors, the author of this great book, currently holds one of the most envied posts in competition academia at the European University Institute in Fiesole, and, more importantly, he’s also a very nice guy. We leave you with him]
The quiet life of incumbents is often shattered by new paradigms – Uber’s controversial challenge to the taxi businesses of many countries is a colorful example of the synergy of technology and entrepreneurship doing battle with a rentier establishment. In the case at hand, the FTC saw something similar in a market for the vain: teeth-whitening services being offered by non-dentists at a price lower than the same services offered by dentists. The latter, using the State Board (the majority of which is made up of dentists), issued warnings to these pesky new entrants stating that the unlicensed practice of dentistry (including whitening of teeth) was a crime. Faced with such a potentially steep entry barrier, the new entrants abandoned the market. Is the conduct of the State Board an unfair method of competition under Section 5 of the Federal Trade Commission Act?
The answer to this question is more of constitutional law than antitrust. The anticompetitive effects are clear; the justification for this restriction on the basis of risks to health if teeth whitening was performed by non-dentists was not even pleaded on the facts; contrariwise, as the majority reports, complains to the State Board were based on the lower prices of the new entrants. Indeed it wasn’t even clear if it was true that the unlicensed practice of teeth whitening services was indeed a crime because the legislation did not include this service. And yet, in the world’s freest market, where under Federal Law the antitrust rules are compared to the Magna Carta, State laws may restrict competition, and there’s nothing (much) the Federal government can do about it. However, and this is the vital point which this judgment sheds light upon, such restrictions must be the result of state action for there to be antitrust immunity.
In briefest outline, this immunity (so-called Parker immunity after the seminal judgment) applies if the actor that restricts competition is either (1) the State acting in its sovereign capacity or (2) a private party, and then in this case only if (a) the restraint of competition is clearly articulated State policy and (b) that this policy is actively supervised by the State.
The State Board claimed that they benefited from immunity under the first limb of this doctrine because the Board had been created by the State. The bone of contention was how far this Board, created by the State (here under the Dental Practice Act) but populated by practicing dentists, merited immunity under that first limb. In the view of the majority, they did not: ‘A non-sovereign actor controlled by active market participants’ has to satisfy the second limb of the test and in this case it failed to do so because there was no active State supervision when the Board took the view that teeth whitening fell within its competences and that it was thus appropriate to send letters ordering non-dentists to stop offering teeth whitening services.
It follows that companies like Pro-Teeth Whitening, whose logo I used for this entry, might now re-open in Charlotte, North Carolina where it operated before the Board’s actions.
(1) The widening scope of Federal Competition Policy
The three dissenting Justices considered that more deference to State policies was warranted. Beneath the technical debates on whether the majority approach is consistent with precedent one gets a sense that the dissenting Justices are worried about departing from the original division of powers, so that the main bone of contention is about the constitutional balance being fixed rather than fluid. Thus the dissenters open by noting that State Dental Boards were always organized thus even before the Sherman Act. To Europeans this is a bit odd, because we know that we can use the TFEU precisely to challenge age-old practices. In Consorzio Industrie Fiammiferi the competition rules were used to challenge a 1923 Royal decree, for instance. To Europeans, competition law (and internal market law) applied to state conduct is a powerful crowbar to force states to rethink age-old restrictive practices. Of course some think this leads to neo-liberal oblivion, to others it shows we’ve got the most free market constitution in the world.
(2) Rules and Standards
The dissent felt, rightly, that the approach of the majority was also problematic because it would yield implementation problems. The rule-based approach supported by the dissent is easy to apply (Is the Board created by the State? If yes immunity) is a lot easier to apply to any case that may arise than the test of the majority (is the Board ‘controlled by active market participants, who possess singularly strong private interests’ such that there is a ‘structural risk of market participants’ confusing their own interests with the State’s policy goals’? If yes then immunity must satisfy the second limb of the Parker immunity doctrine). Is this a sufficiently strong argument to lead one to support the dissent’s view that the standard is unwieldy? I am optimistic that Federal courts will be able to find a way of testing how far the composition of the agency is sufficiently remote from the commercial interests the agency regulates. Moreover, even if we agree with the dissenting justices that ‘regulatory capture can occur in many ways’ is it not preferable to have a test that tries to challenge more of those occurrences, rather than fewer of them?
In oral argument, many of the Justices were troubled by the tension: surely the best way of regulating a profession is to ask professionals what to do (an example that was used is neurosurgery: surely nobody wants bureaucrats deciding on the best practices for neurosurgery). But this is to misread the debate. The FTC was not claiming that a regulatory board composed of self-interested experts is illegal. It is merely saying that if a State creates such a regulator, it has to actively supervise it and so the State has a duty to be the competition advocate and to ask the regulator to justify restrictive policies.
(3) Procedural Public Interest
North Carolina may still try and ban non-dentists by more direct involvement with the Board. As the majority said, if State can make a claim that an anticompetitive policy is the State’s own choice, then this suffices for antitrust immunity. No substantive test is needed to measure how far the harm caused by an anticompetitive market compares to the benefits of state regulation. The public interest, to recall Harm Schepel’s important paper (’Delegation of Regulatory Powers to Private Parties under EC-Competition Law: Towards a Procedural Public Interest Test’. (2002) 39(1) Common Market Law Review 31) is defined procedurally rather than substantively. Why so?
Perhaps doing this kind of comparison between consumer interests and producer interests is invidious (but isn’t cost-benefit analysis now so widespread?).
Perhaps States value what little residual sovereignty they still have over economic policy (spare a thought for Greece).
Or perhaps it all boils down to this: as the majority noted, if North Carolina wants to ban cheap teeth whitening services it may do so in a way that falls under Parker immunity. It will be for voters to then decide if this was the right policy choice. If so, here is a nice exam question: ‘Democracy can, and should, determine how free markets are. Discuss.’
Writing about the Intel Judgment seems to have become one of the favorite hobbies of some of our leading competition law experts.
One of the most downloaded and talked-about competition law articles of the year was Wouter Wils‘ one on “The Judgment of the EU General Court in Intel and the So-Called “More Economic Approach” to Abuse of Dominance“, which we discussed and first announced here.
Wouter’s piece was followed by other equally interesting ones, like Richard Whish‘s (see here), and like my current co-blogger’s, which also received considerable attention (see here for Pablo Ibañez‘s “Intel and Article 102 TFEU Case Law: Making Sense of a Perpetual Controversy” [Wouter’s and Pablo’s articles are by the way both nominated for the Antitrust Writing Awards (see the “Dominance” category here); for some reason Pablo is also co-nominated in the business category for two other pieces I wrote myself (I now understand why he likes to theorize about free riding… ;) ]
The latest addition to this list of worthy reading is a paper just made available by our friend and founder of this blog, Nicolas Petit. His piece, titled, Intel, Leveraging Rebates and the Goals of Article 102 TFEU discusses the positive law standard applicable to exclusivity rebates following Intel. He finds that the GC’s Judgment sets a modified per se prohibition rule for exclusivity rebates, and endorses the theory of anticompetitive leveraging that formed the core of the Commission’s Guidance Paper on Article 102 TFEU. Nicolas also discusses the purposivist debate that has arisen in the scholarship, and whether it is right that the General Court endorsed a non-welfarist approach to Article 102 TFEU. In his view, this cannot be right, for non welfarist goals cannot be acclimated in moden competition law. Nicolas calls for clear dicta from the ECJ along the lines of Post Danmark.
Those interested in knowing even more (or, rather, in having even more mixed views) about the Intel case should (1) have attended Nick Banasevic’s (who was Case Manager in Intel) excellent talk about the Judgment last Friday in Madrid; and (2) take a look at a new competition law journal (Competition Law & Policy Debate) which, in its first number, features a bunch of Intel-related articles authored by a very impressive line-up of authors (the same issue includes as well an interesting piece on the Google case by the former President of the CFI, Bo Vesterdorf, also available in SSRN).
P.S. Following the publication of this post I have received another piece on the Judgment. This one is authored by Luc Peeperkorn -a European Commission official and one of the main proponents of the effects-based approach, currently on a one-year leave of absence at NYU-, and its title is self-explanatory: “Why the General Court is wrong in Intel and what the Court of Justice can do to rebalance the assessment of rebates“. The piece is also interesting, and unusual, for it is not every day that a Commission official criticizes (although in an academic capacity) a Judgment that the Institution won in first instance and is defending on appeal.
Anyone for a spot of fishing? Opinion of AG Wahl in Case C-583/13 P Deutsche Bahn AG (and others) v European Commission
(by Alfonso Lamadrid and Sam Villiers)
Last Thursday AG Nils Wahl delivered his opinion on the Deutsche Bahn case, criticising part of the General Court’s September 2013 judgment (see here).
As you may remember, this General Court judgment served to confirm the Commission’s wide inspection powers under Art. 20 of Regulation 1/2003 when conducting dawn raids, stating specifically that there was no need for the Commission to obtain judicial authorisation prior to a raid and that documents discovered (genuinely) by accident which indicate a separate infringement may be used as evidence of that infringement, as long as the proper procedural requirements are respected.
The Commission had information that DB was offering its subsidiaries preferential rebates when supplying electric traction energy to operators.
During the course of the dawn raid at various DB premises in Germany, documents were discovered which the Commission considered may be indicative of separate anti-competitive conduct, outside the scope of the inspection decision (regarding the ‘strategic use of infrastructure’), but in relation to which it had also received a prior complaint. The Commission decided that a fresh investigation needed to be carried out in relation to this new conduct and so adopted a second inspection decision while it was still inspecting DB premises. (Seemingly not fully satisfied with the evidence gathered in the first two inspections, the Commission returned to DB premises later that year for a third inspection.)
DB was not all happy with the conduct of the Commission during the inspections and so brought actions for the annulment of all three Commission inspection decisions.
Prior judicial authorisation required for dawn raids?
DB argued that because the three inspection decisions were taken without prior judicial authorisation, various articles of the ECHR and the EU Charter (the right to the inviolability of private premises and the right to fundamental judicial protection) were infringed. With this plea the applicants were effectively challenging the current legal framework applicable to inspections under EU Competition law. AG Wahl dismissed this argument, agreeing with the General Court’s interpretation of the case law of the ECtHR.
Citing the ECJ’s Judgments in Chalkor and KME Germany, Wahl states that ex post judicial review carried out by the EU Courts offers an adequate level of protection of fundamental rights. He also makes a distinction between this case and the recent and interesting Czech case of Delta Pekarny, where the ECtHR ruled that fundamental rights were infringed, observing that this was due to the fact that the inspection decision was not subject to any—either ex ante or ex post—judicial review.
The opinion of the AG (and General Court) would seem to be sensible, in theoretical terms. Necessarily requiring prior judicial authorization, when ex post judicial review is available, seems excessive. A separate issue, though, is the quality of the judicial review itself. It is all very well catering for a judicial review – but it must be effective, and it is arguable that this has always been the case when it comes to, among others, the Commission’s investigatory powers (see here).
In any event, as we will explain below AG Wahl seems to strike the right balance in this regard.
It is on the issue of the discovery of documents indicating a second infringement that the AG’s opinion differs from the General Court’s judgment. Although they both agree that under Art. 28 Reg. 1/2003 any documents collected during the inspection must be used for the purpose for which it was acquired (save for some exceptions in the regulation), and also that, by way of derogation, following the Dow Benelux case, documents found which aren’t covered by the inspection decision can be used to start a new investigation, AG Wahl thought that the GC neither correctly applied the Regulation nor the Dow Benelux case (paras 58-83) to the facts of this case.
The Commission’s undoing, it seems, is that before carrying out of the first inspection, Commission inspectors had been notified that a separate complaint had been filed against DB for a separate infringement. Dismissing the Commission’s argument that inspectors had been told about this merely for background information, AG Wahl suspected the “only plausible explanation […] is that information on the DUSS suspected infringement was given to the Commission staff so that they could ‘keep their eyes peeled’ for evidence related to the second complaint” (para 77). This means that the Commission effectively circumvented Art 20(4) of Reg 1/2003, either deliberately or through negligence.
In Dow Benelux the Court ruled that there was no reason why the Commission should disregard documents pointing to a different infringement if it was genuinely found by accident, but, as observed by AG Wahl in para. 82 “[t]his is clearly not the type of conduct which the Court meant to allow under its Dow Benelux case-law. There is, in my view, no difference between a case in which the Commission launches an inspection without a valid decision and one in which the Commission proceeds on the basis of a valid decision, but searches for information relating to another investigation, not covered by that decision”.
As Wahl states, there seems to be no good reason why the Commission did not just adopt two separate decisions, and simply carry out the inspections at the same time.
(For an interesting discussion on the subsidiary issue of the burden of proof, see paras. 84-99).
AG Wahl recommends the ECJ to annul the second and third Commission inspection decisions, believing that the breach of DB’s rights of defence and right to the inviolability of private premises is a sufficient basis. It will be interesting to see whether the ECJ takes the advice.
AG Wahl’s sensible and nicely drafted Opinion does a very good job summarizing the state of the law regarding inspections on the part of the European Commission, and only for that reason makes an interesting read. More importantly, in our view it also strikes a right balance by acknowledging that the Commission is to enjoy a certain leeway when it comes to investigations powers whilst, at the same time, advocating for an effective review over the use, and possible misuse, of those powers.
Old followers of this blog might remember that when we started it we had a fairly popular section on “Competition Law and Sport” in which we also anticipated a few developments which ended up materializing, such as the state aid investigations into football clubs (not that one had to be a genius to see that one coming…).
It had been quite a while since we wrote out last post in this series, but developments in this area haven’t ceased to arise. This is unsurprising because, as I often repeat, what happened with competition law in this area is a perfect example of a “be careful with what you wish for” situation. Sports always claimed special antitrust treatment, and it got it, but perhaps for worse; following the Meca Medina and Piau Judgments it is clear that virtually any sporting rule can be challenged under competition law in the light of the Wouters test (which implies assessing whether any effects restrictive of competition are inherent in the pursuit of legitimate objectives and are proportionate to them).
In the past few months we’ve had plenty of interesting developments in this area, like, among others, the O’Bannon v NCAA decision in the U.S. (in which the NCAA’s rules prohibiting the payment of compensation to former athletes in order to preserve the amateurism of college sports was quashed); the Pedro León v LFP case, in which a Spanish Court declared (in an interim measures order, available here) that the Spanish football league’s rules setting a limit on club expenditure on player’s salaries in the light of their debt ratios constituted an abuse of a dominant position given that they limited clubs’ ability to go into whatever debt they considered necessary. And in the past few days it was made public that the Spanish and Portugal leagues lodged a complaint targeting FIFA’s third-part ownership prohibition (see here).
On top of the above there have been a few developments regarding state aid and media rights, as well as some national cases that haven’t made headlines, such as the Swedish bodybuilders case (see here), or one concerning compensation for the release of players to national teams (see here) which is actually a follow up of a case in which I worked some years ago (see here).
We might comment on some of the least-discussed issues raised by the above-mentioned cases, but for now we’ll focus on the most recent development, which has great potential ramifications and that seems to have gone largely unnoticed, at least in the competition law world; I’m referring to the Judgment of Munich’s Oberlandesgerich of 15 January in the Pechstein saga.
Act 1- Switzerland. The Judgment concerns a longstanding legal dispute between speed skater Claudia Pechstein and the International Skating Union (“ISU”), who had banned her from all its competitions for two years due to her positive in a doping control. Mr. Pechstein unsuccessfully challenged this ban before the Court of Arbitration for Sport (“CAS”). The CAS was chosen in compliance with a dispute resolution clause in the registration form for one of the championships from which she was banned. The CAS’ award was subsequently appealed before Swiss Courts, but once again Ms. Pechstein didn’t have much success.
Act 2- Germany. Ms. Pechstein then decided to take the matter to German Courts and her luck started to change. The Regional Court of Munich held that the arbitration agreement had been invalid because of a “structural imbalance” between the athlete and the ISU, given that the latter’s dominant position in the organization of championships made Ms. Pechstein decision to go to arbitration “involuntary”. However, the Regional Court considered that, by not raising this issue in the proceedings before the CAS, Ms. Pechstein had validated and remedied the said imbalance. Showing once again her tenaciousness, Ms. Pechstein also appealed this decision before the Higher Regional Court of Munich.
The Higher Court takes the view that the arbitration agreement between Ms Pechstein and the ISU was invalid because it was contrary to mandatory competition law given that it was imposed by the ISU, which enjoys a dominant position and could therefore not impose non-competitive business terms.
The Court does not object to dominant undertakings requiring that an arbitration agreement be signed as a matter of principle, but it does rule, in casu, that forcing Ms. Pechstein to submit to arbitration before the CAS as a necessary condition to participate in tournaments constituted an abuse of a dominant position. The reasoning underlying the Court’s decision was that, at the time, sporting organizations such as the ISU had more influence than athletes in the designation of arbitrators; this, in turn, was considered to cast doubts on the independence of the CAS.
Interestingly, the Higher Court holds (in paras. 129 et seq) that the CAS’ award cannot be recognized in Germany in as much as it runs counter competition law, that is, to public order (the High Court refers to the ECJ’s seminal Eco Swiss Judgment in this regard) The Judgment states that “[t]he recognition of an award based on an agreement contrary to competition law would perpetuate the abusive conduct of the ISU, which would be contrary to the objective underlying the ban on abusive practices imposed by the competition rules”.
The Judgment does not go as far as to state that making participation in sporting championships contingent upon agreeing to an arbitration clause constitutes per se an abuse of dominance on the part of sporting organizations, but is rather carefully drafted in the light of the specificities of the CAS (some of which appear to have change pursuant to a reform of the rules in 2012).
In any event, this ruling (which ISU has announce that it will appeal to the Supreme Court) may provide weaponry for those wishing to contest arbitration clauses or to oppose to the recognition of arbitral awards in certain circumstances.
Whereas some have claimed that this Judgment is “revolutionary”, I recall that in the past the European Commission itself has also held a tough stance towards mandatory arbitration, considering that that provisions in private agreements whereby private parties in a situation of preeminence/dominance limited available legal actions to arbitration to the exclusion of national Courts could amount to anticompetitive conduct.
This position has been particularly evident from the Commission’s intervention precisely in sport cases, in which it was considered that the imposition by sporting federations of arbitration as the exclusive means of settling disputes would –in the absence of the possibility to appeal to national Courts- amount to a restriction of competition. In a case concerning FIA, one of the Commission’s concerns was to ensure that legal challenge against FIA decisions would be available not only within the FIA structure but also before national courts. Following the Commission’s intervention, FIA agreed to insert a new clause clarifying that anyone subject to FIA decisions could challenge them before national courts.
Similarly, the Commission insisted in the negotiations with FIFA on transfer rules that arbitration would be voluntary and would not prevent recourse to national courts, which led to FIFA modifying its transfer rules to this end. In fact, in that case the Commission also insisted on the need of creating an independent arbitration structure, with an independent chairperson and members designed on a parity basis by players and clubs.
So, in essence, the German Court in this case has reached very similar conclusions to the ones reached by the European Commission some time ago; the main difference is that the German Court has stated its position in a Judgment (which is what Courts do) and the Commission did it over negotiations (which is what the Commission does too).
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.
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?)
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,  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: