Chillin'Competition

With the Menarini judgment, the ECHR has demonstrated that it has nothing to envy to other Courts in terms of cryptic reasoning.

There are indeed two ways to read this judgment. If you follow what the Court says as a matter of principle, the EU judicial review system is not Article 6(1) compliant. Remember, the ECHR says that review courts should have  full jurisdiction in competition matters. In the current state of affairs, the GC does not have full jurisdiction on all aspects of a case, and particularly not when it comes to “complex economic assessments“.

But if you read what the ECHR says on the facts, the EU judicial review system might well be Article 6(1) compliant.  In casu, the Court considers that the Italian system of limited (or “weak“) judicial review is arguably akin to full jurisdiction (!) and thus compatible with the ECHR. This is obviously fictitious.  On close examination, no such intense review exists under Italian law. Yet, the ECHR contends that the Italian review courts  ”ont pu examiner le bien-fondé et la proportionnalité des choix de l’AGCM et même vérifier ses évaluations d’ordre technique” (§64). With this ruling, the treshold for full jurisdiction comes real low…

Today, the ECJ just chose which of those two readings prevails in  the EU. In its KME v. Commission ruling, handed down today, the Court states at §133 that:

“The review provided for by the Treaties thus involves review by the Courts of the European Union of both the law and the facts, and means that they have the power to assess the evidence, to annul the contested decision and to alter the amount of a fine. The review of legality provided for under Article 263 TFEU, supplemented by the unlimited jurisdiction in respect of the amount of the fine, provided for under Article 31 of Regulation No 1/2003, is not therefore contrary to the requirements of the principle of effective judicial protection in Article 47 of the Charter“.

I attach hereafter the slides presented by Marco Bronckers at today’s GCLC lunch talk: GCLC – Menarini 8 12 11REV

Confessing a lack of inspiration tonight, I paste hereafter a link to an interesting NYTimes paper on the ongoing Commission investigation against Google. Thanks to James Kanter for the opportunity to be interviewed.

The topic of this paper also gives me a nice pretext to remind our readers that the merger clearance decision in Microsoft/Skype was published a month ago. This decision is well worth reading. It makes a bunch of interesting points on several counts. Here’s a taste of them. First, the decision clearly shows that a merger involving a large monopoly can get Phase I clearance.

Second, it suggests that the tide has turned in so far as the Commission’s appraisal of ICT markets is concerned. On several occasions, the decision unambiguously depicts Microsoft as a vacillating player, in a sector (communications services) where the Facebook, Google and Apple of this world are poised to become – or are already – the market leaders.

Third, the §§ on the tying of Skype with Windows OS are not wholly consistent with the 2004 and 2009 decisions, where pre-installation was deemed problematic in itself, because of the lack of subsequent (switching) user behavior. Remember, those decisions relied on this theory that lazy users were often stuck with WMP and IE, for behavioral biases (the so-called “end-users’ inertia” at §870 of the 2004 decision). Here, the Commission stresses that pre-installation is unproblematic at any rate because consumers do not use whatever communication service found on Windows + there are many alternative means for rivals to reach out to consumers + Skype is already pre-installed on >50% of Windows PCs, but only a small share of Skype are registered and connected users.

Finally, the decision contains some nice wording on the flaws of standard antitrust analysis in dynamic markets. See for instance, §78, which calls for caution in applying conventional market share analysis to such sectors: “consumer communications services are a nascent and dynamic sector and market  shares can change quickly within a short  period of time. Furthermore, almost all communications services are offered free of charge”. See also §122: “Consumers are very sensitive  to innovative services or products in consumer communications services. Providers of consumer communications services lose traction quickly if they are unable to offer users new and innovative functionality”.

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“Oops“, the Commission did it again…

Yesterday, in the S&P case, the Commission again closed abuse of dominance proceedings with an Article 9 decision. As already explained, Article 9 decisions have become the conventional procedure in Article 102 TFEU cases.

What is less conventional is that the lion’s share of recent Article 102 TFEU cases involves exploitative abuse allegations. Think of  Rambus, S&P, IBM  – where the Commission dumped bundling allegations to focus on excessive pricing – and the recent Apple-Samsung investigation.

As a matter of principle, I see no wrong to this. But, this raises several interesting questions, which cast doubt on a number of commonly accepted viewpoints.

First, is there  a Rick Perry problem at the Commission? I mean how could our Commission friends forget that the Guidance Paper states that exploitation cases are no enforcement priority?

Second, does the focus on exploitation means that those cases are easier to manage than exclusion cases, in particular under the effects based approach (where proof of anticompetitive foreclosure involves proof of exclusionary effects + proof of subsequent exploitation).

A final remark. Exploitation cases are conceptually close to constructive refusal to supply cases (see what the Commission says in IBM, §3), and thus can be also deemed exclusionary cases. But the crux of the matter is that all exploitation practices necessarily foreclose someone. From an economic standpoint, the deadweight loss of monopoly that arises out of price hikes is nothing but the foreclosure of customers. Hence my question: is the distinction between exploitation/exclusion really useful?

Yesterday we attended the first session of the annual conference of the Global Competition Law Center (of which, btw, Nicolas is the director). As expected, the conference was extremely interesting, and gave us plenty of ideas for future posts. Here´s one.

Our friend Damien Gerard made a very good presentation in which, following a historical approach, he presented several paradoxes of the modernisation of EU competition law. After he concluded, I posed a question to the panel, asking whether the interplay of the three dimensions of modernisation that Damien mentioned (substantive, procedural and institutional) may have had the effect -or perhaps the object..- of killing Art. 101(3).  The comments that followed showed that this is a widespread concern.

Let me now explain to you how I view this, and why the usual question (who did it?) has no clear answer. My take is that all the usual suspects bear some responsibility:

In the early days of the classic case law, EU Courts paid great attention to Art. 101(3) because they were conscious of the crucial role that the drafters of the Treaty had attributed to this provision. But it wasn´t their task to apply it. They saw it as something too complex and abstract, so they washed their hands off: they left  its application up to the Commission and decided to apply a light standard of review. That is, in fact, where the “manifest error of appraisal”  test of judicial review was born for EU competition law.

For many years, the Commission exercised its monopoly over the application of 101(3). Those were, in a way, the “golden days” of this provision (even though there were some obvious disfunctionalities as a consequence of the centralized system). With the entry into force of Regulation 1/2003 this whole situation changed. The Commission shifted its priorities to focus on the “most serious infringements” which, as a matter of fact, are also the “most obvious” ones. It therefore also washed its hands and left the cases where Art. 101(3) would be relevant to national competition authorities (NCAs) and national courts.

But NCAs and national courts also regard the application of 101(3) as something which is too complex, and, let´s face it, the Commission´s Guidelines on Art. 101(3) are far from being decisively helpful. Couple that with the feeling that undertaking an effects analysis under 101(1) is also too burdensome, as well as with the fact that NCAs have, logically, their own priorities, and what you get is a situation where at the national level there are essentially only “object cases” where 101(3) assessments are reduced to an absolute minimum under the argument that “object restrictions” are hardly redeemable (which, btw, is at odds with all case law departing from European Night Services) There are no available stats on this, but I bet they would be mindblowing.

The Commission hasn´t done much to solve this situation. It has failed to provide case by case guidance, and has instead focused on sanctioning cartels, abuses of dominance (mostly in network industries) and in releasing general guidance; moreover, where an issue appears as uncertain, the usual solution is to adopt a commitment decision. Not really helpful. Furthermore, the Commission has contributed to fostering the confusion by enlarging (with the help of EU Courts) the “object” category (e.g. with regard to information exchanges).

EU Courts, on their part, could also be charged as accomplices. Three pieces of incriminating evidence are (i) the enlargement of the “object” category in T-Mobile; (ii) the ruling in Tele 2 Polska precluding NCAs from adopting negative decisions; (iii) the adoption of distinct standards for the review of 101(3) assessments: would the overly simplistic Premier League Judgement, where the Court says, without providing much support for its assertion, that the exclusivity arrangements at issue do not meet the conditions of Art 101(3) (see para 145 of the Judgment) comply with the Court´s tough stance against the Commission in Glaxo Spain?

What does this imply for competition law:

In my view, this situation is dramatic for EU competition law (well, as dramatic as a legal matter in the competition law field can get, which, to be frank…).  The interplay of all the factors above has led to an overly simplistic view of competition law, to a shifting of the burden of prove, and to even more arbitrariness and uncertainty.

 PS. The painting illustrating the post is “Prometheus bound” by Rubens. As Art. 101(3) in the world of competition law, Prometheus was “credited with -or blamed for- playing a pivotal role in the early history of mankind“. As you know, immortal Prometheus was punished by Zeus to a -quite nasty- eternal punishment: he was bound to a rock where his liver was eaten daily by an eagle,  only to regenerate and be eaten again the following day. Mithology has it that Hercules finally slayed the eagle and freed Prometheus. Will anyone eventually free Art.101(3)?

The ECJ ruling in Tele2 Polska is a joke (actually a bad one).

I’ve already blogged on the nefarious effects of this ruling. Today, I’d like to make a few more points.

Remember: the judgment states that National Competition Authorities (“NCAs”) cannot, under Regulation 1/2003, adopt declaratory decisions stating that there has been no breach of Article 101 and/or 102 TFEU (on the merits).

This judgment is likely to have far reaching consequences. As written in a paper below, and confirmed by a number of colleagues at the GCLC lunch talk yesterday, it means that NCAs cannot adopt individual exemption decisions under Article 101(3) TFEU.

Since the inception of Regulation 1/2003, however, many – including me – have repeatedly stated that decentralisation was all about empowering NCAs to take Article 101(3) TFEU decisions. More importantly, several NCAs have taken exemption decisions over the past 7 years. Is this decisional practice now unlawful?

The Commission’s response to this is that the ruling does not change much. Rather than taking a negative decision under 101(3) TFEU, the NCAs can still adopt decisions that “there are no grounds for action on their part” pursuant to Article 5 of Regulation 1/2003.

Now, is this really true? As noted by F. Zivy yesterday, could a NCA conceivably write in a decision:  « The impugned practice infringes Article 101(1) TFEU. There is strong evidence that it is nonetheless justified under Article 101(3). But we are sorry, the only thing we can do is to say there are no grounds of action against this infringement”?

Or to be even more extreme:  ”The impugned practice constitutes an infringement of Article 101(1) TFEU. Hence, there are no grounds of action on our part“? Come on..

To me, decisions that there are no grounds of action are like Canada Dry to “negative decisions”: they look like negative decisions, they taste like them, but they are not like them.

In practice, rather than making such paradoxical statements, NCAs willing to exonerate anticompetitive agreements are likely to reason within Article 101(1) TFEU, under a “rule of reason“-like approach (which BTW has been consistently held alien to EU law by the ECJ).

A last remark: the judgment is primarily based on a litteral reading of Article 5 of Regulation 1/2003 which sets the powers of NCAs, and is supposed to be exhaustive. Article 5 says  nothing of inapplicability decisions. hence, NCAs cannot take them.

Now, has the ECJ really read Article 5 of Regulation 1/2003?

I mean had it done so, it would have realised that this provision is all about the decisions taken for the application of Article 101 and 102 TFEU (“The competition authorities of the Member States shall have the power to apply Articles 81 and 82 of the Treaty in individual cases“). Hence, it is somewhat unavoidable that this provision is silent on negative decisions, that DO NOT apply Articles 101 and 102 TFEU.

Hereafter a paper that I have written with my assistant (in French) + the slides presented at the GCLC lunch talk yesterday.

Commentaire Tele 2 Polska – Petit et Lousberg – Final

24October2011_GCLC_Vebic&Tele2Polska

GCLC 24-10-2011 amended

GCLC_Tele2 and VEBIC_slides only

I was yesterday at the General Court with my LL.M. students from Liege. We attended the hearing in CISAC v. Commission.

Here’s a grab bag of ruminations on the CISAC case, and some information on the Court. Let’s start with the case.

I.     CISAC v. Commission 

In this case, the Commission argues that national collecting societies have entered into an unlawful concerted practice “‘by coordinating the territorial delineations of the reciprocal representation mandates granted to one another“. The evidence brought in support of this finding hinges primarily on proof of parallel conduct, through the adoption of similar reciprocal representation contracts by the collecting societies.

During the hearing, the Judges repeatedly questioned  the Commission on why it had brought no other evidence of concerted practice, in particular, documentary evidence. The judges found that surprising, especially given that the Commission enjoyed the implicit support of two collecting societies, i.e. BUMA and SABAM.

The Commission awkwardly conceded that there could not be any evidence of this kind, because it was not necessary for the collecting societies to “agree” on the terms of the reciprocal representation contracts (I heard something like: “there was nothing to agree upon“).

If I understand correctly, those terms – and more generally, the monoterritorial agreements – had been applied previously in other types of contracts, and it was simply the most rational decision for each collecting society to replicate them individually in the impugned reciprocal contracts.  In so saying, however, the Commission made a daft mistake. It implicitly admitted that the wide-ranging parallel adoption of dozens of similar reciprocal contracts had an explanation alternative to concertation (i.e. individual, rational behavior from collecting societies) … and that it had not discharged the burden of proof required under the Woodpulp case-law.

The main applicant’s lawyer rightly noted, moreover, that territorial exclusivity makes a lot of sense from a rational, individual standpoint.

II.     Reform of the Court

Alfonso referred to the reform of the Court a few days ago. Here’s some fresh information on the reform.

The General Court and the Court of Justice now have an agreement to propose the appointment of 12 new judges +3 référendaires for each (and importantly, 12 cars (without a driver though)).

Those 12 new judges will surely be appointed under a rotation model, similar to the one that prevails at the Civil Service Tribunal. There will be new jobs for référendaires thus, in particular in fields such as competition law. As pointed out by Alfonso, being a French native speaker is a HUGE asset. In fact, in each cabinet, there’s generally at least on French speaking guy. And this is unlikely to change. I heard that the new selection panel – which assesses candidate  judges – drafted a report stressing that new appointed judges should  hold two skills: a very good French and a strong publication track-record. As a French speaking academic, I could simply commend the work of those authors. That said, I will never hold a such prestigious position , given (i) my insulation from the French legal system; and (ii) that I have not followed THE standard professional avenue to the ECJ, i.e. Council of State or Ecole de la magistrature.

More information:

• At the ECJ, a vice-president will be appointed. New (I heard five) AG’s positions will be created.
• Specific rules will be adopted in relation to the 5 judges chambers;
• Other aspects of the reform may entail suppressing the rapport d’audience, providing for an accelerated preliminary reference procedure (duration <3 months), limiting the size of written pleadings, etc.
• It will be up to the heads of State to decide on this.

Last Thursday, the ECJ issued its Judgment in Case C-439/09, Pierre Fabré Dermo Cosmétique v. Président de l´Autorité de la Concurrence. Little attention has so far been paid to this Judgment which, to me, appears as having more substance than it meets the eye. Let´s see:

In 2009, the French Conseil de la Concurrence adopted a decision sanctioning Pierre Fabré  (“PF”) for including a de facto ban on the sale of its cosmetics and personal care products via the internet in its selective distribution contracts. In reality, PF´s contracts obliged its distributors to sell its products in the physical presence of a person with a degree in pharmacy. The Conseil considered that this constituted a restriction of passive sales in so far as it precluded online sales.  PF appealled the decision and the Cour d´Appel de Paris addressed a reference for a preliminary ruling to the ECJ.

What meets the eye:

The specific  and obvious discussion at stake relates to whether the exception contained in Art. 4 c) of Regulation 2790/1999 (now replaced by the same Art. of Regulation 330/2010 ) [pursuant to which " the exemption to the prohibition laid down in Article 101(1) TFEU is not to apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object  (...) c)  the restriction of active or passive sales to end users by members of a selective distribution system operating at the retail level of trade, without prejudice to the possibility of prohibiting a member of the system from operating out of an unauthorised place of establishment") (emphasis added)] justifies a requirement such as that included in PF´selective distribution contracts. The solution adopted by the Court is that, given that companies will allways enjoy the possibility of benefiting from an individual exemption pursuant to Art. 101(3) TFEU, it is not necessary to give a broad interpretation to the provisions bringing agreements within block exemption regulations.

In sum, the ECJ ruled that in case of doubt Block Exemption Regulations are not to be interpreted broadly, and that in such circumstances the competitive assessment of the agreements at issue shall be carried out within the framwork of Article 101(3). You may or may not agree, but it is reasonable enough.

What doesn´t meet the eye:

As we said above, there might be more about this Judgment than meets the eye. Perhaps we´re wrong; the fact that this Judgment has grabbed no one else´s attention does not mean we´re smarter (which is definately not the case), but simply that we may not be right. Let us explain ourselves:

(Click here to continue reading)

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Last week, the European Commission adopted a formal position on the reform of EU Courts. The document refers to both the ECJ and the General Court, but for the moment we will focus on the latter as the main subject of the proposed reform.

The Commission´s position advocates for the appointment of 12 new Judges to the General Court (which would make a total of 39) as well as for the creation of at least two new specialised chambers (one of which would most likely be devoted to competition cases). These reforms are aimed at addressing the enormous workload that the General Court currently faces (with over 600 new cases registered every year and ever growing delays).

The Commission´s proposal -which to a great extent endorses that of the President of the ECJ, Mr. Skouris- has now been circulated to the Parliament and to the Council.

Unsurprisingly, the most contentious issue that has arisen in the context of the ongoing discussions between Member States relates to the designation and nationalities of the new Judges. As you know, the method for the designation of Judges falls entirely upon Member State, which have always acted on the basis of informal consensus. The Commission, fully aware of the fact that abandoning the principle of equal representation would be tough to swallow for some Member States, has attempted to tackle the issue by proposing two alternative methods of designation (see recitals 42-50 of the document that appears in the link above). In our view, the merits of the candidates should weigh much more than their nationality, and therefore the second option proposed by the Commission appears to be preferrable.

We feel nonetheless, that several important issues remain unaddressed:

First, whereas the nationality of the Judges may certainly be important, there is another very relevant nationality factor at the General Court that has so far gone unnoticed.

What would you say is the percentage of French référendaires (clerks) at the General Court?   Under a system of equal representation, the answer should be approximately 4%. In real life, that number is however…..40%!

We know some truly excellent French référendaires, and of course French is the working language at the Courts, but, as a mater of principle, when it comes to judging shouldn´t quality and credentials matter more than language abilities? (I´m using “we”, but maybe Nico, being a froggy French citizen sees things differentlly…)

Secondly, there is nothing the Commission can do about designations of candidates at the national level. The Committee envisaged in Art. 255 TFEU has certainly helped by acting as minimum filter in the most flagrant cases. Nonetheless, some Member States may still be tempted by the possibility of appointing candidates on grounds other than those strictly technical (although the second option proposed by the Commission has the virtue of perhaps shifting those incentives).

In our view, Member States should ideally follow the Dutch example (we believe that other Member States are already doing it). They arranged a merit-based competition and eventually appointed two outstanding Judges such as Sacha Prechal (ECJ) and Marc van der Woude (GC).

Article 101 and 102 TFEU have little grip against public restrictions of competition.

Of course, Article 4(3) TEU, read in conjunction with Articles 101 and 102 TFEU may provide a legal basis to challenge public restrictions of competition in the context of infringement proceedings. But to date, the Commission has been understandably reluctant to take Member States to Court. And to  the best of our knowledge, the Italian matches case-law (ECJ, Consorzio Industrie Fiammiferi (CIF), C-198/01), which compels NCAs to declare such measures inapplicable, has been little applied in practice.

With this background, it will often fall on “positive integration” measures (read EU regulations) to remove public restrictions of competition. In connection with this, my research assistant Norman Neyrinck recently informed me of an interesting ECJ ruling  that I had overseen.

In  Société fiduciaire nationale d’expertise comptable v. Ministre du Budget, des comptes publics et de la fonction publique (C-119/09) the Court found that Directive 2006/123 on services in the internal market (AKA the “Bolkestein Directive“) ”ought  be interpreted as precluding national legislation which totally prohibits the members of a regulated profession, such as the profession of qualified accountant, from engaging in canvassing“.

This is likely to have profound practical implications, given the wide substantive scope of the services directive. Other regulated professions (legal services?) may no longer apply bans on advertising to their members.

And this is likely to also have important cultural consequences. See video hereafter:

The day before yesterday, in Joined Cases C‑403/08 and C‑429/08 (Premier League), the Court of Justice :

(i) failed to understand what a public good is;

(ii) further expanded the “object” box.

And a proposition: would I be a monopolistic supplier (like FAPL), I’d sell to one buyer only in the EU, at a very high price.  Or I’d sell to all of them, at a very high, similar price (to limit arbitrage).

This case has been presented as a victory for market integration. I am afraid this is more of a knock-out.