Archive for the ‘Guest bloggers’ Category
The Economist Corner (III): “Intent” in Article 102 cases
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.”
A turn of the screw (José Luis Buendía on SGEIs)
[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).[1]
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.
Chinese Antitrust Law – The Year of the Rabbit in Review (1)
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.
Reform of UK Competition Law – Again?
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.
Breaking news! Real Madrid´s antitrust case against F.C Barcelona
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]
Death in Venice: The end of a Commission’s locus standi theory in State aid cases?
[Note by Alfonso: Once again, it´s a pleasure to have our friend, State aid expert, and colleague of mine Napoleón Ruiz (don´t be fooled by the picture, he´s real) informing us of what´s new in the world of State aids. We leave you with him].
Thanks again to Nico and Alfonso for inviting me to write a post on State aid matters. My previous post was devoted to explaining how “vaporous” some of the legal concepts which make up the notion of State aid are.
As a sequel of my previous post, I would like to briefly refer to another interesting battlefield within the State aid area: the locus standi of the beneficiaries of aid schemes ( think, for instance, of tax measures) to challenge negative decisions of the Commission. In contrast with antitrust practice where undertakings are always the addressees of the Commission’s decisions, in State aid cases the addressees of Commission decisions are –in theory- exclusively member States.
State aid cases brought before the European Courts by recipients of the aids usually begin with ferocious debates with the Commission on whether the appellants fulfill, or not, the famous Plaumann test. Needless to say, the Commission is not precisely enthusiastic when it comes to accepting undertakings appealing its Decisions; that is true to such an extent that one could attribute it the nickname of “Dr. No” (which is the answer one –almost- always gets when asking whether an aid beneficiary is individually concerned by a negative decision). The Commission’s argument in this regard is simple and sharp: in order for an undertaking to be individually concerned, it needs to prove that it has actually benefited from the aid, and that can only be demonstrated when the applicant has been addressed a recovery order from the Member State before lodging the appeal (and that does not happen so often). Otherwise, that undertaking must refer to the national judge and pray request: (i) that the Court declares itself competent to rule the case and (ii) that it raises a preliminary reference of validity of the Commission´s decision (which does not happen frequently either ).
Frankly, one does not need to be a constitutional law expert to find this argument at odds with the most basic conception of the right to access to justice under article 6 of the ECHR.
That was indeed the state of play in State aid cases until just a couple of weeks ago, when the ECJ issued an important ruling which has gone relatively unnoticed. I am referring to the so-called Hotel Cipriani (a very recommendable place to stay in Venice if one can afford it…) case (C-71/09 P). In that case, the ECJ upheld the GC’s ruling, dismissing the Commission’ pleas on admissibility and clarifying the boundaries of the Plaumann test in such cases. In particular, the Court states in paragraphs 55-57 of the Judgment that:
“The Court must dismiss at the outset the argument that the recovery obligation imposed by the contested decision did not sufficiently identify the applicants at the time that that decision was adopted. (…)
As the Advocate General has pointed out (…), the order for recovery already concerns all the beneficiaries of the system in question individually in that they are exposed, as from the time of the adoption of the contested decision, to the risk that the advantages which they have received will be recovered, and thus find their legal position affected. Those beneficiaries thus form part of a restricted circle (…), without it being necessary to examine additional conditions, concerning situations in which the Commission’s decision is not accompanied by a recovery order. Moreover, the eventuality that, subsequently, the advantages declared illegal may not be recovered from their beneficiaries does not exclude the latter from being regarded as individually concerned.
The Court must also dismiss the Commission’s argument that recognition of the admissibility of actions against a decision of the latter ordering the recovery of State aid had the ‘paradoxical and perverse’ effect of requiring the beneficiaries of the State aid to challenge that decision immediately, before even knowing whether it would lead to a recovery order concerning them. (…)”
It seems to me that the wording of the Judgment leaves little room for interpretation: the Court finds that the order for recovery imposed by the Decision is, by itself, sufficient to individually concern a beneficiary without any further requirements (i.e. individual order of recovery addressed to the beneficiary by the Member State). Thus, the ECJ definitely quashes the Commission’ position regarding the locus standi of beneficiaries and, in my view closes the debate.
In conclusion, although I would not insinuate that the Commission was as “fond” of the argument as was the character of Dr. Von Aschenbach of young Tadzio in Thomas Mann’ tale (masterly brought to the screen by Luchino Visconti), it is however true that this Judgment strikes a serious blow to the procedural strategy of the Commission, which from now onwards will have to focus much more on substance and less on admissibility.
The ECJ rules the ECJ Rules
(Note by Nicolas: We have received a funny and interesting competition-related post from the Blogbuster (who is also a good friend of ours). In this guest post, the blogbuster makes a number of original points on IP and competition, a possible exclusionary abuse committed by the Court of Justice of the EU, and judicial review under Article 102 TFEU).
Remember 28 November 2008? On that day, the European Commission published the preliminary report on its inquiry into the pharmaceutical sector. The preliminary report found pretty much everything to be wrong in the sector. There was still some time before the Commission would release the final report. Yet, all seemed to indicate that the Commission would adopt far-reaching measures to bring back life to the life sciences sector. But things eventually turned out differently.[1] In the end the final report was pretty tame, if not lame, compared to the preliminary report. One of its main recommendations was, however, that the EU should create a EU-wide patent –at the moment, there are only national patents, even though the EPO provides for common procedures and recognition across Europe.
Draft rules for a EU patent have floated around Brussels for some time and on 8 March Luxembourg had a word to say, too. Upon request by the Council, the European Court of Justice examined whether the proposed establishment of a European patent court was compatible with EU law. The background was that the new patent court would (technically speaking) be an international, not EU, tribunal because – oh, horrors! – non-EU members such as Croatia, Norway or Switzerland would also be subject to the patent court’s jurisdiction.
The question was a tough one for the ECJ, which had in the past objected to making the EU and member states subject to an international tribunal –that’s clear from the Laying-up Fund and EFTA decisions. What made the new case difficult was that, unlike the Laying-up Fund and EFTA cases, the EU acquis was not directly affected. Precisely, the main problem with the patent law saga is that this is not an EU, but member state, competence. In addition, the draft patent court treaty lays out a few rules to address some of the concerns the ECJ had in those previous cases –for example, the requirement upon the patent court to apply EU law, and the possibility for the patent court to refer a case to the ECJ, being bound by the ECJ’s ruling in that scenario.
Still, the ECJ killed the patent court initiative. It did so on the basis of a line of reasoning reminiscent of the US Supreme Court’s decision in the case of The U.S. Supreme Court v. Everyone Else.[2] The ECJ found the establishment of the patent court to be unlawful as a matter of EU law because, well, it ruled itself:
“80. While it is true that the Court [ECJ] has no jurisdiction to rule on direct actions between individuals in the field of patents, since that jurisdiction is held by the courts of the Member States, nonetheless the Member States cannot confer the jurisdiction to resolve such disputes on a court created by an international agreement which would deprive those courts of their task, as ‘ordinary’ courts within the European Union legal order, to implement European Union law and, thereby, of the power provided for in Article 267 TFEU, or, as the case may be, the obligation, to refer questions for a preliminary ruling in the field concerned.”
In a separate but related development, Nicholas Forwood[3], judge at the ECJ’s subordinate court –the General Court– spoke out in favor of a specialist competition court at the EU level. At first sight, this proposal may be surprising, as one of the main reasons for creating the GC, despite its name, was to have a court more specialized in competition cases than the ECJ.
The proposal is also surprising because the GC’s track record in some types of competition cases is remarkably good. In cartel cases, the GC subjects Commission decisions to scrupulous scrutiny; around half of all cartel decisions that are appealed are at least partially annulled. In the merger arena, too, the GC puts the Commission under intense oversight. You will surely remember the Sony/BMG and Schneider/Legrand sagas where the Commission’s merger decisions were annulled by the GC. So the only area ‘under construction’ is abuse of dominance (for more, see the recent paper of one my host bloggers). An ‘under construction’ might even be an understatement. Just take a read at the latest ‘margin-squeeze’ judgment in TeliaSonera (an ECJ ruling though):
“54 TeliaSonera maintains, in that regard, that, in order specifically to protect the economic initiative of dominant undertakings, they should remain free to fix their terms of trade, unless those terms are so disadvantageous for those entering into contracts with them that those terms may be regarded, in the light of the relevant criteria set out in Case C‑7/97Bronner [1998] ECR I‑7791, as entailing a refusal to supply.
55 Such an interpretation is based on a misunderstanding of that judgment. In particular, it cannot be inferred from paragraphs 48 and 49 of that judgment that the conditions to be met in order to establish that a refusal to supply is abusive must necessarily also apply when assessing the abusive nature of conduct which consists in supplying services or selling goods on conditions which are disadvantageous or on which there might be no purchaser.
56 Such conduct may, in itself, constitute an independent form of abuse distinct from that of refusal to supply.”
Compare this to the US Supreme Court’s finding in linkLine, in very similar circumstances (ie, local loop access for telecom services):
“[A] firm with no duty to deal in the wholesale market has no obligation to deal under terms and conditions favorable to its competitors. If AT&T had simply stopped providing DSL transport service to the plaintiffs, it would not have run afoul of the Sherman Act. Under these circumstances, AT&T was not required to offer this service at the wholesale prices the plaintiffs would have preferred.”
Which of these two statements makes more sense?
The TeliaSonera decision is not an isolated case, of course. In British Airways, the ECJ (in)famously found exclusionary conduct to exist, even though the rivals supposedly being foreclosed gained market share during the relevant period. And, in Deutsche Telekom, the GC’s and ECJ’s rulings effectively ‘ordered’ DT to raise retail prices –although there was no claim that they were below cost– and the German telecoms regulator had actually signed off on DT’s pricing structure.
The ECJ’s failure to grasp the basics of abuse of dominance cases is all the more striking as, by eliminating its rival in the market for court adjudication –the patent court–, it showed it knows very well what exclusionary conduct is all about!
In this light, therefore, let’s take up Judge Forwood’s proposal but establish a specialized “abuse of dominance court”, not a competition court. Still– it’s a pity that the patent court deal was killed. Otherwise, transferring jurisdiction over abuse of dominance cases to an international tribunal might also have been a –perhaps safer– option!
The Blogbuster
TV and events of ‘major importance for society’
(Once again we have the pleasure of publishing a contribution by Pablo Ibañez Colomo. It seems that the future of broadcasting rights is being decided in Luxembourg, and as he did last week when Kokott´s opinion was issued, Pablo is sharing with us his views on the latest Judgment in this area).
More on TV rights this week. In Cases T-385/07, T-55/08 and T-68/08, the General Court dismissed an annulment action against a Commission Decision declaring the compatibility with EU law of national measures concerning the broadcasting of events of ‘major importance for society’ (read: the FIFA World Cup, the Euro, the Olympics and similar sports events). In accordance with Article 3 of the Audiovisual Media Service Directive, Member States may require that these events are offered on subscription-free TV channels.
Given the way in which the said provision is worded, the outcome of the action is as unsurprising as it is uncontroversial. Some bits of the judgment raise some interesting issues:
Freedom of information: I have always been surprised by the lightness with which freedom of expression issues are addressed in TV rights-related cases. The General Court (as does the Preamble to the Directive) argues that these measures are justified by Article 10 ECHR, which includes the ‘freedom to receive information’. It is far from clear that the freedom of speech encompasses a right to access an event offered by a private actor on a subscription-free basis . Does this mean that publishers breach the freedom of information of their readers when they charge for their newspapers informing about events of ‘major importance for society’?
Have your cake and eat it?: When reading about Article 3 of the Audiovisual Media Services Directive, I cannot help thinking about the hybrid situation they create. Sport has become a multi-million business benefitting its governing bodies. If governments do not object to these developments (and I am not suggesting that they should), I do not see why they interfere downstream in the value chain to create market distortions at the level of broadcasters (which very often means, moreover, that public broadcasters end up paying for the rights).
Advocate General Kokott reinvents (k)opyright
Once again it´s a luxury to have Pablo Ibañez Colomo as a guest blogger at Chillin´Competition. He has some strong views on the Opinion delivered last week by AG Kokott on the “Greek decoders case” that we thought should be of great interest to you. Here they are:
Thanks very much to Alfonso and Nicolas for allowing me to share some of my thoughts with their readers!
I read yesterday Advocate General Kokott’s opinion in Joined Cases C‑403/08 and C‑429/08, already referred to by Alfonso a couple of days ago. Following a wholly unprecedented line of reasoning, the opinion seems to propose to overrule the principle, laid down in Coditel I, according to which the exhaustion doctrine does not apply to the exploitation of the copyright in the form of a communication to the public. The logic underlying this well-established rule is so sensible and obvious that I have little doubt that this opinion has been received as a complete surprise by all EU lawyers.
The fact that such a proposal is clearly unsound (both from a legal and an economic perspective) made me reflect on more general questions relating to the art of judging, with regards, in particular, to economic law issues, such as competition law or copyright.
The importance of FORMAL economic analysis (and the risks of DO-IT-YOURSELF economics): Controversy surrounding the use of economic principles in legal matters is sometimes presented as a debate on whether or not economic tools should be relied upon by judges and policy-makers. I have long insisted that the true question is in fact whether FORMAL economic tools should inform the law or whether, instead, we should accept that judges and policy-makers follow their rudimentary economic intuitions (i.e. DO-IT-YOURSELF economics). Put differently: economic analysis is simply unavoidable in some legal areas (and this includes, to be sure, competition law), and to the extent that it is so there seems to be no reason to refuse following mainstream economic tools.
Advocate General Kokott may be opposed to the use of formal economic tools, but this does not mean that she is able to avoid analysing the economic foundations of copyright when proposing a legal rule. The opinion tries to identify the rationale underlying Coditel I, and because no formal, standardised economic tools are relied upon, it fails in its attempt. For instance, the opinion distinguishes between services that are consumed only once (such as a meal or a haircut) and those that can be consumed ad infinitum. According to the opinion, there would be no reason not to apply the exhaustion doctrine to the latter. In doing so, the Advocate General misses completely the logic underlying Coditel I, which relates to the fact that a broadcast, unlike a book or a CD, is—as explained, by the way, in any basic economics textbook—an example of a public good (i.e. it is non-rival in use and, to the extent that the encryption technology is by-passed, non-excludable).
The importance of factual and sectoral knowledge: It is surprising to see that the bold reasoning displayed in the opinion does not take account of the far-reaching implications of the rule proposed and, more precisely, on how it would alter the way in which television rights are bought and sold.
In particular, it is surprising to note that the opinion never really asks why television rights for sports events are systematically licensed on an exclusive basis (and why, conversely, books and CDs are widely circulated and are rarely offered by a single retailer by means of an exclusive distribution agreement). In this sense, the opinion simply ignores the fact that competition between broadcasters to show the same game at the same time in a given territory may, in the circumstances of the case, empty the right of communication to the public of all of its economic value. Which broadcaster would pay to the FA Premier League knowing that its exclusivity could not be effectively enforced?
This is all the more surprising if one considers that these same issues were carefully identified and understood 30 years ago in Coditel I and Coditel II. In fact, the opinion of the Advocate General in the latter case already displayed a good understanding of these issues and the clear differences between the right of communication to the public and the right of reproduction.
Everything antitrust lawyers should know about State aids (but were afraid of asking)
Note by Alfonso: We are inaugurating our new section on “Everything Competition Lawyers should know about State aids” with a contribution by Napoleón Ruiz, a great friend and a great State aid specialist at Garrigues´ Brussels office. We asked him to write about a sexy topic and, well, this is what we got..
Everything antitrust lawyers should know about sex State aids (but were afraid of asking)
Thanks to Nicolas and Alfonso for giving me the opportunity -and the honor- of inaugurating this new section of their blog (which actually reminds me of the title of a well-known movie of Woody Allen…).
I believe that creating a new section devoted to State aid issues is indeed a good idea. Firstly because despite the fact that they target member States –and not companies- State aid rules play a fundamental role in addressing restraints of competition. Secondly, because State aid control has lately become the “rising star” of the Commission’ competition policy. Since the beginning of the crisis, State aid practice has boomed within DG Comp in the attempt to control that the fabulous amount of money (around 4 trillion euros mainly in the financial sector) poured by member States into their economies does not distort -too much- competition. Quite a herculean task, I’d dare to say…
One of the first things that antitrust lawyers should know is that, perhaps even more than antitrust or merger control, State aids is an incredibly dynamic practice, given that some of its main legal concepts have not yet been completely fixed. Many State aid lawyers would agree that one of the most (probably the most) raging debates amongst scholars, practitioners and enforcers, which has been going on for years now, concerns the notion of selectivity:
According to article 107 TFEU, a measure is deemed to constitute a State aid if it favours “certain undertakings or the production of certain goods”; in other words, whether the measure constitutes an exception deviating from the general rule.
Even though the concept appears to be conceptually clear -in theory-, in practice it has proven to be diabolically difficult and so far its boundaries remain unclear. In general (but not always), while member States and companies seek to clarify and restrict the application of selectivity, the Commission tries to expand its scope. Obviously, the larger the concept of selectivity, the easier it would be for the Commission to qualify as State aid virtually any State measure.
We, antitrust lawyers, are used to expansive, non-determined, concepts, but this one is, in my experience, the most nebulous one of those with which I´ve worked.
Actually, one of the current cases regarding selectivity that may lead to a clearer definition of the concept is one in which I have the fortune of being involved. The case, currently pending before the General Court (the Commission´s decision was appealed by a significant number of Spain´s flagship companies), concerns a provision in Spanish corporate tax law laying down the amortization of financial goodwill for the acquisition of significant shareholdings in foreign targets (a.k.a 12.5 TRLIS). Although the subject sounds like ancient Sanskrit for many non-tax lawyers, I believe it has the ingredients to become a landmark case, for instance:
The case concerns the very substance of selectivity, since the appeal challenges not only the methodology used by the Commission to define the general rule and its exception, but also the interface drawn by the Commission between selectivity de iure and de facto; and
Since tax provisions are selective by nature, the judgement to be delivered by the Court will likely determine how much room for intervention the Commission has regarding member States’ tax systems. Taxation has been -and remains- one of the few fields where unanimity between member States is required in order to legislate. Therefore, many think that in case the ECJ “expands” the notion of selectivity, it will be difficult for the Commission to resist the temptation of using its broad powers as competition watchdog in order to intervene in member States taxation (especially now when voices requesting deeper tax harmonization in the EU are growing).
In any event, it would be desirable that the European Courts –be it in this one or in another case- shed some light into the debate, so that I don’t find myself quoting –again- the great Allen in the above said movie to [sadly] declare that: “When it comes to sex State aids there are certain things that should always be left unknown, and with my luck, they probably will be”.
