Archive for the ‘Guest bloggers’ Category
For this second part of our first ménage à trois discussion we are proud to present you with José Luis Buendía’s view of the Greek Lignite Judgment in response to Marixenia Davilla’s earlier post. Aside from being the head of Garrigues’ Brussels office -where I happen to work-, José Luis is widely regarded as “Mr Article 106″. He also masters the art of illustrating all hiw views with metaphores and parables. Continue reading and you’ll see what we mean….
[For a contrarian view of José Luis' arguments check our Makis Komninos post (which we will publish here tomorrow)].
It is a real pleasure to be invited to contribute to this blog. This is even more the case given the topic, the format, and the identity of my nice and learned counterparts – Marixenia and Assimakis. Even if I don’t share their enthusiasm about this judgment, it is clear that they have done an excellent job as lawyers. So, congratulations to them and to their colleagues who worked om the case.
Contrary to them, despite having been in the past an EC official, I have not had any involvement in this particular case. I am nevertheless very interested in it, since I am working on a new edition of my book on Article 106. Moreover as I have explained in a recent article, unfortunately there are not so many Article 106 cases to comment. So I am glad to have this opportunity.
This case made me think of François Truffaut’s film Jules et Jim about a genuine ménage à trois. The Catherine of the movie (Jeanne Moureau) had – simultaneously – a husband and a lover. As Marixenia rightly implies in her interesting comment, Article 106 also has simultaneous links with State aid on the one hand and with antitrust on the other hand. In my view the problem with the judgment is to assume that Article 106 is only married with antitrust and faithful to it. It is not. Article 106 is about State measures and is therefore essentially different from antitrust.
It is for this reason that, in my opinion, this judgment is not really consistent with the previous case law that it claims to be following. Indeed, previous judgments, like RTT, considered that the mere granting of an exclusive right to a public undertaking previously enjoying a dominant position was in itself contrary to Article 106 combined with Article 102 TFEU. This conclusion was based on the effects of the State measure creating the extension of a dominant position from one market to another one (effects that were similar to those of an abuse). The said conclusion did not require any actual abusive behavior.
In today’s judgment the General Court reads the previous case law in a different manner and finds that it does require the existence of an abusive behavior, at least a potential one. Since the EC decision did allegedly not established the abuse but relied only on the effects, it was according to the Court in breach of the Treaty. This reasoning seems to me clearly contradictory with the case law.
This reasoning seems also a little bit abstract. Indeed, the judgment itself concedes that the mere possibility of a future potential abuse would have been enough to satisfy the legal test. However, since according with the judgment, the decision did not explore this issue in an explicit manner, it had to annul it. It seems however obvious to me that a State measure extending the dominant position from one market to a neighbor one has, at the very least, the potential to lead to abusive behaviors. So, the Court seems to say that it is only the lack of an explicit reference to this obvious consequence that leads to the annulment.
I assume that the Commission may appeal the judgment before the Court of Justice in order to clarify the application of Article 106 with regard to special or exclusive rights. I also think that in the future the Commission should be more active and more coherent in the application of this provision.
In any event, I also know that my Greek friends would have a view different from mine, so I really look forward to the continuation of the debate.
[Note by Nicolas and Alfonso: In the second of his guest posts on reform of UK competition law and enforcement, Christopher Brown looks at potential reform of private redress mechanisms]-
On 24 April 2012, just weeks after announcing the Government’s intentions in respect of reforms to the public enforcement regime, BIS launched a Consultation on reform to the private enforcement of competition law in the UK. Such reform might be said to be long overdue: it has been some five years since the OFT made recommendations to Government stressing the desirability of changes to facilitate private redress.
The Government’s stated objective is to encourage private-sector challenges to anti-competitive conduct to complement public enforcement. Elsewhere in the document, it is said that the aims of the reform proposals are (i) to increase growth, by empowering small firms to tackle anti-competitive behaviour which is stifling their business, and (ii) to promote fairness, by enabling those who have suffered loss as a result of such anti-competitive conduct to obtain redress. The principal proposed reforms are:
- to increase the role of the Competition Appeal Tribunal (CAT) as a forum for private actions, by allowing it to hear ‘standalone’ claims as well as ‘follow-on’ claims;
- controversially, to introduce an opt-out collective actions regime;
- to protect the leniency regime by preventing at least certain leniency documents from being disclosed to claimants bringing private law claims and protecting at least immunity applicants from joint and several liability.
These 3 proposed innovations are touched upon below.
(a) The role of the CAT
The proposals to make the CAT a major venue for private litigation based on competition law have been broadly welcomed. In its twelve years of existence, it has built up a strong reputation in its handling of appeals under the Competition Act 1998 (and other legislation) and follow-on private actions under section 47A of that Act. It is widely regarded as efficient, fair and competent. It makes eminent sense, in principle, for the CAT’s jurisdiction to be extended so as to make most efficient use of the resources at its disposal.
Some of the detailed proposals in relation to the CAT are, however, more controversial. In particular, the Government proposes the introduction of a “fast-track” system for claims brought by SMEs (which, as part of its growth agenda, the Government is very keen to support). The Government is particularly concerned that SMEs are in practice prevented, or substantially deterred, from seeking redress for loss caused to them as a result of competition law infringements. It points, with some justification, to the considerable cost of litigating in the UK and the length of time cases take to reach resolution. What they need, the Government seems to think, is a quick and easy way of getting their complaints in front of a court. The fast-track proposal is the Government’s suggested way of improving matters. So what is it?
[Over the course of two posts, Christopher Brown (Matrix Chambers) blogs on the substantial reform agenda in the UK. The first post looks at the reform of the public enforcement regime; the second will consider the recent proposals to reform private enforcement].
As readers will probably know, back in March 2011 the UK Government, through the Department for Business, Innovation and Skills (“BIS”), launched a consultation on potential reform to the UK competition law landscape (see my earlier post here). It contained a number of bold suggestions for redesigning the domestic regime. After a 3-month consultation period and, seemingly, much head-scratching, BIS announced its concrete proposals for reform on 15 March 2012. Those proposals are now contained in the Enterprise and Regulatory Reform Bill, which is currently making its way through Parliament. Then, as if the Department didn’t have enough on its plate already, it launched a consultation on reform to private actions in the UK. In these posts, I touch on the main aspects of both proposals and offer some limited comments.
Reform of the public enforcement regime
Given space constraints, this section touches on just three of the reform proposals, relating to institutional architecture, enforcement model and the cartel offence.
Note by Alfonso: The Court of Justice has published yesterday its long-awaited decision in UsedSoft v. Oracle. Even though the matters are issue are mainly IP-related (they concern the application of the so-called ”exhaustion doctrine” to computer programs), they have important competition law implications. Marcos Araujo (a friend of ours and a partner at Garrigues) has followed closely this case as well all others concerning the intersection of IP and competition law. We’ve asked him to provide us with his first views on this very fresh Judgment. Here they are:
In a Grand Chamber judgment, the ECJ has taken a determined stance in favour of THE free movement of goods and the exhaustion doctrine. Today’s Judgment has dismissed not only Oracle’s arguments, but also those raised by the Commission and by the various intervening Member States, and has affirmed vigorously the right of licence holders to “resell” their rights of use of computer programs, supporting intermediaries and end customers in the way.
The case had attracted much attention given the contradictions in this area of European Law, which on the one hand declares that the sale of computer programs exhausts the rights of the owner (art. 4.2 of Directive 2009/24) and therefore that the program can freely be re-sold, and, on the other hand, states that the provision of services over the Internet does not cause exhaustion of rights (Recital 29, Directive 2001/29). In this situation, software companies which license (and arguably do not “sell”) software over the internet may claim that their IP rights should not be deemed to become “exhausted”, as they would be providing a service rather than selling a product.
Given today’s announcement, I suspect Alfonso has better to do than posting on this blog. Run, Alfonso (on the banks), run!
With this, it is thus my duty, and honour, to introduce the 4th edition of the Economist Corner. For this edition, Benoît Durand (RBB Economics) has sent us a good piece on a money-related issue, i.e. fines for cartel infringements. Enjoy!
In the last decade the European Commission has imposed higher fines on cartels, in particular under the helm of Neelie Kroes. The stated purpose for this increase was that fine levels were not sufficiently high to deter the formation of cartels.
In general, the deterrence property of sanctions is a key aspect of law enforcement. Becker (1968), who was the first to apply economic principles to crime and punishment, explains that the level of sanctions should be set so as to deter crime. A high level of sanction in turn contributes to minimise the costs of enforcing the law.
Firms consider the expected benefits and costs of participating in a cartel. Under this logic, if the expected sanctions are higher than the collusive gains, then firms will not take the chance. Because there is always a significant probability that cartels slip through the net, the penalties should be several times larger than the gains such that no firm would dare try fixing prices. By way of example, consider that a cartel member expects to pocket 50 million euros extra every year for about 6 years, whilst the probability of being caught is 1 out of 5. In this setting, it would take a massive fine of slightly more than 1.5 billion euros to convince a firm not to collude.
As cartels continue to exist, it must be the case that the current level of sanctions is ineffective. This is the conclusion that Combe and Monnier (2011) draw after reviewing the fines for 64 EC cartel decisions between 1979 and 2009. They show that in virtually all cases fines were set below the optimal deterrence level; i.e. in spite of the sanctions, the cartels were profitable.
Is it therefore necessary to raise corporate fines above the current levels to deter the formation of cartels? It is hard to say, but to achieve full deterrence, competition authorities need not increase fines at stratospheric levels as suggested by the logic described above. First, they could adjust sanctions to give cartel members the incentive to undercut each other, which would trigger the collapse of cartels. Second, in complement to corporate fines, competition authorities could consider applying measures targeted at company officers who have brokered the cartel agreement.
For this third edition of The Economist Corner we have invited Hans Zenger. Hans used to be a member of the Chief Economist Team at DG Comp and is currently Senior Consultant at CRA. He’s is not only one of the most brilliant economists in town, but he’s also a great gruy.
As noted here some months ago, and even though there remains much to be done, Hans will also be one of the co-authors (the others will be Miguel de la Mano, Renato Nazzini and myself) of the Article 102 chapter of the next edition of Faull & Nikpay’s The EU Law of Competition.
We leave you with his ruminations on the role of intent in Article 102 cases. This topic, and many others, are dealt with in his article “Loyalty Rebates and the Competitive Process”, which is forthcoming in the Journal of Competition Law & Economics.)
In criminal law, proof of intent plays an important role in establishing the scope of liability. If A intends to benefit at the expense of B, then A is probably up to no good. In antitrust, this principle has all too easily been extended to unilateral conduct law. The problem is that the intent of benefitting at the expense of others is essentially what generates the beneficial outcome of a market economy:
• The prospect of “exploiting” consumers is what provides firms with an incentive to produce valuable products that improve over existing varieties.
• And the prospect of “excluding” rivals from making sales is what provides firms with an incentive to cut price to expand output.
In other words, the self-serving intent to “exploit” and “foreclose” is a cornerstone of the competitive process.
Adam Smith succinctly explained this in 1776: “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard of their own interest … By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
If one too readily transposes the zero-sum logic of criminal law to unilateral conduct investigations, then Smith’s conclusion constitutes a paradox: If A intends to benefit at the expense of B, how could that possibly be good for B? But as Schumpeter has explained, “There is no more of a paradox in this than there is in saying that motorcars are traveling faster than they otherwise would because they are provided with brakes.”
The evidentiary value of intent evidence in Article 102 cases therefore has its limits. Perhaps not surprisingly, regulators on occasion have shown a tendency to read too much into such documents. As Judge Easterbrook has noted, “firms ‘intend’ to do all the business they can, to crush their rivals if they can … Rivalry is harsh, and consumers gain the most when firms slash costs to the bone and pare price down to cost, all in pursuit of more business. Few firms price unaware of what they are doing; price reductions are carried out in pursuit of sales, at others’ expense. Entrepreneurs who work hardest to cut their prices will do the most damage to their rivals, and they will see good in it. You cannot be a sensible business executive without understanding the link among prices, your firm’s success and other firm’s distress. If courts use the vigorous, nasty pursuit of sales as evidence of forbidden ‘intent,’ they run the risk of penalizing the motive forces of competition.”
[Note by Nicolas and Alfonso: Since we learnt the news that the Commission was preparing a reform of the State aid rules applying to services of general economic interest we have been trying to have our friend (also Alfonso's boss) José Luis Buendía to give us his views on the reform. Apart from a being a top-notch State aid lawyer and the author of the seminal (and perhaps only) book on Article 106 (a new edition is in the pipeline), he was heavily involved in the drafting of the original "Altmark package" at the time when he was working for the European Commission. In fact, a few months ago a member of the European Commission said at a conference that whereas some people call this package the "Monti package", many Commission officials refer to it as the "Buendía package". We are very thankful for him for having taken the time to write this insightful piece that we believe will be a "must" for anyone dealing with this subject. It's a privilege for us. Enjoy!]
The editors of this blog have kindly invited me to comment the recently adopted ‘Almunia package’, in which the EC has revisited the State aid rules applicable as regards the financing of Services of General Economic Interest (SGEI).
I have chosen the expression “a turn of the screw” to introduce this short comment for two reasons. The first and most obvious reason is that the new rules would – at least at first sight – increase the pressure and make life more difficult for the big operators of SGEI. The second relates to a Henry James novel, “The Turn of the Screw” (1898), subsequently adapted to cinema by Jack Clayton under the title “The innocents” (1961). The reference to the story seems pertinent to me because it has had very differing interpretations, often mutually exclusive. The ambiguity of the story makes difficult to conclude whether the governess has actually seen the ghosts or whether she simply dreamed. “The Turn of the Screw” definitively looks like a ghost story but… is it really a ghost story? In any case it is a great story I can recommend.
As I will try to explain, when comparing it with the previous post-Altmark (or Monti-Kroes) Package, the Almunia package definitively looks as a turn of the screw as regards the rules applicable to the financing of SGEI.
In my opinion, and given the current political context, the most remarkable feature is the mere adoption of the package by the Commission. One has to remember that some Member States wanted that the rules on SGEI were adopted, not by the Commission but by the Council and the Parliament, under the new legal basis introduced in Article 14 TFEU by the Lisbon Treaty. Despite this political pressure the Commission chose not to make a proposal under this new basis (probably for the same reason that turkeys do not vote for Thanksgiving). Instead, it revisited the package under its own powers under Articles 106 and 107 TFEU. This decision seems wise and legally well founded, in particular given the limits of Article 14, but is still quite courageous in this time of centrifugal tendencies at the EU level.
Obviously this small comment cannot cover all the interesting issues raised by the package. It is however fair to say that the content of the reviewed package does not look as particularly conciliatory with those who wanted more flexibility for SGEI. It is true that there are some changes going in that direction. This is the case for the small operators in charge of SGEI that are exempted from notification (in particular, there is a new exemption of some social services and a new draft de minimis specially conceived for SGEIs), but the story seems quite different for the bigger operators that remain subject to individual notification. Under the Almunia package – and contrary to the previous Monti-Kroes package – the rules applicable to the big operators are going to be different and stricter from the rules applied to the smaller.
The Year of the Rabbit is over, and the Year of the Dragon just started today in China. This is thus a good moment to look at the rabbit in the rearview mirror, and reflect on what has been achieved in Chinese antitrust over the past year. Our colleague and friend Adrian Emch from Hogan Lovells Beijing has proposed us a series of posts on the Year of the antitrust Rabbit. If time allows, Adrian has promised a “trilogy!”
For this first post, let’s just review the main developments in Chinese antitrust law over the year of the rabbit (the description is not meant to be exhaustive)? The year started with a bang: on 1 February 2011, a total of five new regulations implementing the Anti-Monopoly Law came into effect. Two of them were released by the National Development and Reform Commission (NDRC), and three of them issued by the State Administration for Industry and Commerce (SAIC). (For in-depth analyses of these regulations, see here.)
Besides this, and focusing on case-work, here’s a flavor of what Chinese agencies and Courts have been busy working on.
NDRC. As already reported, one of the highlights in NDRC’s activities was the Unilever decision in May. In November, NDRC also adopted a decision against two domestic pharmaceutical companies, with the highest fines ever imposed for an infringement of competition law. The case was about two of only a handful of distributors of a drug (promethazine hydrochloride) that entered exclusive supply arrangements with the two only domestic producers of the drug. The result was rather obvious – significant price increases. The legal reasoning in NDRC’s public announcement of the case, in turn, was less clear. Press reports indicated that the two distributors were affiliated, so a possible theory that the two distributors had engaged in cartel conduct would not make much sense if one were to accept the “single economic entity” defense (which is not explicitly in the law inChina, though). It seems that NDRC, instead, held that the distributors had abused their dominant position. But there is no explanation on this in the announcement, so one can only speculate whether the dominance was found pre- or post-agreement, and whether it was single or collective dominance.
Finally, in December, NDRC officials told the domestic press that they were investigating a potential abuse of dominance by two ofChina’s three large telecoms companies, China Telecom and China Unicom. In the absence of an official decision or announcement, the exact facts of the case are not fully clear. For example, it is, again, not entirely clear whether the dominant position would be each company individually (China Telecom is strong in the South of China, and China Unicom in the North) or jointly (collective dominance can be presumed if the aggregate market share of two companies is two-thirds or more). As for the alleged abuse, it seems it consisted of making difficult access to the broadband network. The particular allegation may be that the two companies granted access on a discriminatory basis, with higher access charges for companies that compete with them downstream.
Finally, in terms of human resources, NDRC has started restructuring its antitrust team in 2011. In July, the main body was re-named Price Supervision and Anti-Monopoly Bureau (in English), and the antitrust team inBeijingis scheduled to grow from half a dozen to over 20 in the coming months.
Our friend Kit Brown (Matrix Chambers) has sent us an interesting blog post on the proposed reform of the UK competition system. Kit is one of the most talented Barristers of his generation and it is a great honour to publish his writings on this blog.
In March 2011 the Department for Business, Innovation and Skills launched a consultation on potential reform to the UK competition law landscape. The consultation document, A Competition Regime for Growth: A Consultation on Options for Reform, sets out options in respect of virtually every aspect of the domestic regime apart from the substantive tests themselves. Most notably, the Government is adamant that there shall be a merger of the two principal competition agencies, the Office of Fair Trading and the Competition Commission, creating a Competition and Markets Authority (CMA); it is considering amending the antitrust enforcement framework such that cases would be prosecuted by the CMA rather than decided in the traditional administrative manner; it is pondering the introduction of some form of mandatory merger notification system; and it is interested in removing the dishonesty requirement contained in the criminal cartel offence. But this reform agenda comes just 8 years after the most recent major piece of competition legislation – the Enterprise Act 2002 – came into force and just 11 years after the entry into force of the most radical reform of them all here in the UK: the Competition Act 1998. An important question is this: why yet more reform?
Initially, before the consultation document emerged, many in the profession suspected that the Government would look to merge the competition agencies as part of the “bonfire of quangos” [for a panorama of quangos, see picture above] announced shortly after the last General Election; that the merger of the OFT and CC would be motivated by a desire to cut costs. After all, why have two agencies when one will do? Cost-cutting is not, however, the Government’s motivation. Instead, it considers that a merged agency will be better able to make flexible use of the powers currently available to the authorities; will be able to make better use of resources; and will become a stronger advocate for competition in the UK. In particular, the CMA will be able to deploy its powers to inquire into markets more flexibly than is currently the case – at present, the OFT may conduct market studies or (where it suspects the presence of features of a market which have an adverse effect on competition) may formally refer markets to the CC for in-depth (and costly) investigation.
Surprising competition authorities as well as its own players –who have just started the pre-season in Los Angeles- Real Madrid C.F. (hereinafter “RM”) has apparently lodged an antitrust complaint against FC.Barcelona(“FCB”). RM alleges that FCB has abused the dominant position it has enjoyed in the European and Spanish football market for the past 3 years.
Some rumors point at a charismatic RM employee as the mastermind of this complaint, which was submitted on the same day he returned from his holidays in his hometown of Setúbal (Portugal).
The complaint is based on the following grounds:
Dominance. The complaint alleges that FCB is dominant in as much as it enjoys a 77% market share (having won 10 out of the 13 titles in play in the past 3 years). A more detailed analysis reveals that FCB controls 75% of the Spanish market (having won 6 out of 8 competitions) and 80% of the EU market (having won 4 out of 5 competitions).
Barriers to entry-Vertical Integration. According to RM´s complaint, FCB´s vertical integration makes it impossible for other clubs to gain a foothold on this market. The complaint explains that for the past 20 years a subsidiary of FCB (La Masía) has produced players (e.g. Messi, Iniesta or Xavi) with such features that enable them to correctly interoperate/play only with other FCB players and not with those of competitors. Besides, injured or retired FCB players can be constantly replaced by a new folk from La Masía, thus guaranteeing an unfair market control by the alleged abuser.
Abusive Behavior. According to the complaint, the misconduct of FCB also includes “acting and faking”. Such conduct would have allegedly led regulators and referees to incur in errors in the events where a direct competition between RM and FCB has taken place. In this sense, the complaint appears to be based on the General Court´s Astra Zeneca Judgment.
The complaint – in which the word “why” is repeated 17 times- also mentions the reinforcement of the situation by international organizations such as Unicef and the reputed publication The Economist, which recently published an article entitled The Catalan Kings, where FCB virtues were praised but its misconduct was not denounced.
Remedies sought. RM seeks the cessation of the allegedly anti-competitive conduct as well as the reparation of the damage suffered during these years. In particular, RM has asked the competition authorities to impose both structural and behavioral remedies on FCB.
Some suggested structural remedies would consist of divesting some of the most decisive assets of FCB (“primarily FCB should get rid of Lionel Messi or, subsidiarily, the binomial Xavi – Iniesta should be somehow split”). Possible behavioral remedies would include “restricting the possession of the ball to no more than 50% in any game” or “sharing of know-how with rivals before, during and after any game”.
[Note by Alfonso: César Chaparro (a very good friend, a former antitrust lawyer, and currently an official at the World Bank –based in Washington DC and Nairobi-) has sent us this report about a competition case that could bring about a revolution in world football. As you have seen, it´s a joke with which César –who is a great guy but happens to support Barça (nobody is perfect) wanted to tease me. Given that the lawyer who represents Real Madrid in competition related matters is a subscriber of this blog it would also be interesting to find out about his opinion on this “news” too..) And if you really want to know how FC Barcelona trains, watch this]