Chillin'Competition

(Note by Alfonso: Last week I announced that Pablo Ibañez, a great friend of ours, a co-author of mine, and a truly brilliant legal mind, would be writing a post on the Google investigation. Here it is. As lucid as always).

Thanks very much to Nicolas and Alfonso for giving me some space to share a few quick thoughts with their (numerous and growing in number) readers on the nascent Google case! I was looking forward to posting something as soon as I read the press release. For the many readers who do not know me, I am a Lecturer in Competition Law at the LSE (P.Ibanez-Colomo@lse.ac.uk).

My concern with the ongoing proceedings has less to do with the technicalities of the case, very well outlined by Alfonso a few days ago, and more with the future of Article 102 TFEU. More precisely, I wonder whether this investigation is in line with the spirit and purpose of the 2009 Guidance or whether it represents, again, a step back to the pre-Discussion Paper era.

Even though it is an imperfect document, the 2009 Guidance represented a great victory in at least two important respects: it promised consistency (i) across competition law provisions and (ii) within Article 102 TFEU itself. Put differently, the Guidance Paper gave us the hope that the standards of intervention would be the same regardless of the provision (in particular, Article 101 vs. 102 TFEU) or the formal label with which the case is brought. This means, for instance, that a ‘margin squeeze’ will from now on be treated as a ‘constructive refusal to supply’ (and, as a result, it will in most instances be necessary to establish that the access to the input in question is ‘indispensable’ within the meaning of the Bronner and Magill cases).

Why is the ongoing investigation in Google problematic from this perspective? Because the European Commission seems to suggest that it is justified to open an investigation on grounds that Google may be discriminating against its rivals in web searches.

- Is secondary-line discrimination a problem in and of itself under Article 102 TFEU? Clearly not, it would seem, in the light of the logic underlying the 2009 Guidance and the Non-Horizontal Merger Guidelines. What is more, secondary-line discrimination is not even an ‘enforcement priority’ for the European Commission (try to find the word ‘discrimination’ in the 2009 Guidance using Microsoft Windows’ built-in search engine!).

- Is a dominant undertaking obliged to provide non-discriminatory access to its inputs in the first place?

o Maybe, if, as in the case of a ‘margin squeeze’, the conditions set out in Bronner are fulfilled (i.e. if non-discriminatory access is indispensable to compete and non-discrimination is necessary to avoid foreclosure on the neighbouring market).

o Maybe, if it is a recently liberalised market (a decisive factor in the few precedents on secondary-line discrimination cases).

o Maybe, if there are concerns with market integration and nationality discrimination (the second crucial factor explaining the outcome of these precedents).

None of these ‘maybes’ seem to apply in the Google investigation. Suggesting that non-discriminatory access to Google (however powerful and dominant its search engine) is indispensable to avoid foreclosure in a neighbouring market is hardly a credible claim. In addition, Google has emerged as a market leader in a deregulated and fast-moving market.

In view of the above, I hope that, it the case is not dropped, the European Commission explains convincingly and at length (even though this seems to exclude the kind of reasoning displayed so far in ‘commitment decisions’) why secondary-line discrimination may in and of itself constitute an abuse of a dominant position in the specific circumstances of the Google proceedings (or, alternatively, that the conditions set out in Bronner are met). If this is not the case, the promise of the 2009 Guidance will not have been fulfilled (and this, only a year after its adoption).

To be honest, I also hope that, if the European Commission adopts a prohibition decision, Google decides not to appeal this decision before the General Court. I can already imagine the General Court stating, in a terse and unreasoned paragraph, that secondary-line discrimination is not a form of ‘competition on the merits’ and is therefore caught by Article 102 TFEU by its very nature (i.e. à la AstraZeneca).

For the first time ever, DG COMP  has posed this question to stakeholders and citizens by carrying out a comprehensive survey about the perception of its activities.

In the framework of this exercise, two independent companies have undertaken  both a qualitative survey targetted to professional stakeholders and a quantitative survey of EU citizens from all Member States.

The aggregate stakeholder report is available here, and the individual reports for the various collectives interviewed are available in the following links (companies, lawyers, economic consultancies, consumer associations, national ministries, and national competition authorities). All of these reports cover issues such as legal and economic  soundness of decisions, integrity, economic effectiveness, and external communication. There are tons of interesting comments on DG COMP´s activities, too many to be summed up here. I very much recommend taking a look at these  if you find time.

The survey on citizen´s perceptions about competition policy can be consulted in its full version, as well as in an abbreviated one.  The results, once again, are also extremely interesting (and sometimes shocking; e.g: did you know that 29% of the Spaniards interviewed doubted that price agreements should be prohibited?).  

Some curious data: in practically all Member States the percentage of citizens who believe they are sufficiently informed about competition policy is below 5%;   more than 25% of Bulgarian, Slovak, Polish and Estonian citizens have no whish whatsoever in becoming more informed about this stuff;  the proportion of citizens who gave a “don´t know answer or who did not consider  themselves qualified to reply was highest in…Belgium!). When asked in what sector the lack of competition was causing problems for consumers, citizens pointed out at energy (44%), pharmaceutical products (25%), telecommunications and internet (21%), transport (19%), financial services (18%), and food distribution (16%).

PS. We´re not ignoring the elephant in the room (the opening of a formal investigation about Google´s allegedly abusive practices); there´ll be plenty to come on this case.

As noticed yesterday by Nicolas, the Commission´s stance with regards to 102 TFEU cases has certainly evolved under Almunia, in the sense that the Commission is nowadays more cautious in pursuing cases where it may lack sufficiently convincing evidence. Nico referred to this as ”the end of an enforcement paradigm”.

However, it seems like this approach could be confined to cases related to alleged abusive conduct.  The reason: rumor has it that the Commission may be thinking about initiating  a “test case”, in which it would attempt to prove a cartel by virtue of economic evidence. The Chief Economist and its team would be playing a major role in the case. Could this be the beginning of an enforcement paradigm?

Such approach is certainly not  unheard of (it was in fact trendy in the 70s given the influence of the Chicago School), but managing to prove a cartel by resorting exclusively to economic analysis is far from being a piece of cake. Discussions on the possibility to follow this path have previously been held, for instance, within the framework of the OECD  (a policy brief is available here). In the course of those discussions, the Commission acknowledged that its “past experience has shown that it is very difficult to base a decision imposing fines on undertakings relying exclusively or in a large  extent on economic evidence” (see here).

If the opening of such case were to be confirmed, it could be a clear indicator of the fact that the Commission´s self-confidence is not at all at its lowest.  Whereas I acknowledge that economics could possibly play a greater role regarding the detection of cartels (an interesting presentation by DG Comp´s staff on this issue is available here), I´m somehow more skeptical in relation to the sufficiency of economic evidence to prove their existence.

It´ll be interesting to see whether this rumour actually turns into a reality or not. And in case it does, would the Court be prepared to undertake a proper review of the Commission´s economic assessment in such a case?

PS. For anyone interested on these matters I recommend a brilliant article by G. Werden: “Economic Evidence on the Existence of Collusion: Reconciling Antitrust Law with Oligopoly Theory”, 71 Antitrust Law Journal 719 (2004).

Almost 9 years ago a U.S. district judge issued a divesture order that, to my knowledge,  has not yet been executed. As reported by The Onion, District Judge Elliot Schofield ordered God to break up into smaller deities arguing that HE had “willfully and actively thwarted competition from other deities and demigods, promoting His worship with such unfair scare tactics as threatening non-believers with eternal damnation (…) In the process, He has carved out for Himself an illegal monotheopoly.”

For more info on this case see here http://www.theonion.com/articles/judge-orders-god-to-break-up-into-smaller-deities,404/

It is not the first time that God faces a trial in the US. Some time ago a State Senator from Nebraska lodged a suit againts God arguing that he was responsible for a wide array of catastrophes. You can read the actual suit here, it´s hilarious. http://www.wired.com/images_blogs/threatlevel/files/chambersversusgod.pdf

But legal threats not only come from the States. Within the EU an earthly subsidiary of the ABOVE-mentioned was also sanctioned for abusing its dominant position in the market for funeral services. See here http://www.concurrences.com/abstract_bulletin_web.php3?id_article=520

Strikingly, no one seems to have considered the possibility of challenging God under Article 106. Pursuant to the “automatic abuse” doctrine stated in Hofner-Elser it could be argued that God has attributed himself exclusive rights and is manifestly unable to satisfy demand or prevent catastrophes. 

Moreover, and according to Stephen Hawking´s new book that posits that God is not necessary to explain the creation, the conditions laid down in Article 106(2) would not be satisfied! http://www.usatoday.com/tech/science/columnist/vergano/2010-09-06-hawking-book_N.htm

The Spanish Competition Authority decided last week to close the file related to the acquisition of joint control of Digital+ (the main satellite pay-tv platform in Spain) by Prisa (one of the largest media groups in Spain which prior to the merger enjoyed sole control of Digital+), Telefónica (you know this one) and Telecinco (a TV channel whose largest shareholder is Berlusconi´s Mediaset).

The CNC´s decision has made big news in the press in the past few days, and many have accused the Competition Authority of having been too sensitive to the government´s wish (yes, that was an euphemism) to avoid the bankruptcy of Prisa, which allegedly could have been declared had the merger not been authorized.

To make a long story short: The merger was initially notified to the European Commission, which, following the parties´request, decided to refer the case to the CNC. In its referral decision the European Commission expressed its fears that the merger could strenghten Telefonica´s position in broadband related markets.  The CNC  issued a Statement of Objections alleging that the merger could significantly impede effective competition. However, the Council of the CNC confirmed a change of views after the parties committed to modify the shareholders´agreements and other covenants in order to remove the veto rights that gave them the ability to exercise a decisive influence over Digital+.  Technically, the operation would therefore cease to be a merger within the meaning of the competition rules (Prisa will retain sole control), so nothing to object…in principle.

The problem after the withdrawal of the notification in scenarios such as this one  is that there could theoretically exist the risk that the parties who formally intented to exercise control could now do so informally.  Query: How should a competition authority address these sort of situations?

From an ex ante perspective,  the resort to the notion of de facto joint control may seem like too much of a long shot given its exceptional nature.  And ex post control does not look like an easy path neither. In this case, the CNC  has committed to remain vigilant with regards to any future agreements between these companies, but other operators (namely Mediapro) have argued that there is a most serious risk of coordination that will turn the audiovisual market in Spain into the least competitive in Europe. Mediapro has announced its intention to fight this decision on every possible ground and has asked for the European Commission´s immediate intervention. It will certainly be interesting to see how this evolves.

My take: a reliable indicator could be whether Digital+ will supply its channels to other competitors (which was, by the way, a commitment that apparently Telefonica was reluctant to accept).

Any opinions?

Remember: comments are anonimous..

While reading last Friday an article written in a Spanish newspaper by Jesús Alfaro (who, by the way, has sometimes made comments on this blog), I came accross a reference to a Wall Street Journal piece that looked interesting.  I checked it and thought that it illustrates pretty well the way in which EU competition law is perceived by many in the US.  Check out this excerpt:

“So if you, as an executive, were to be so foolish as to ask your in-house counsel whether a particular action might run afoul of the EU’s increasingly complex and draconian competition regulations, both your question and your lawyer’s answer would become potential evidence against you.

Yet in the sort of intellectual somersault for which European competition law has become notorious, the Court declared that its ruling would not undermine businesses’ rights of defense. That’s because, according to the Court, “the rights of the defence is a fundamental principle of European Union law,” enshrined both in case law and in the Charter of Fundamental Right of the European Union.”

Aside from the fact that the second paragraph does not make much sense, the article reveals a misconception of EU competition law that I´ve observed many times in the recent past, particulalry on the other side of the pond. Antitrust/competition law is admittedly an area where legal certainty is sometimes the exception rather than the norm. However, are there really any reasons why EU competition law could be considered more of an”intellectual somersault” than its US counterpart?  I truly don´t see them.

As we announced last week , the Commission adopted its decision in the air freight cartel yesterday.

From a policy standpoint there´s one thing that strikes me:

The Commission has fined 11 companies, and all of them (except for Singapore Airlines) have been granted reductions pursuant to the Leniency Notice.  At the same time, the Commission has left out of the Decision a significant number of airlines which had been included as addressees of the Statement of Objections. “Coincidentally”, the ones left out are  the ones which had not asked for leniency (my guess is that many of them would´ve done it and didn´t because ten other airlines were ahead of them).

In my view there were many reasons for excluding some of the airlines from the decision. I´m also conscious that adopting a decision such as this one with regards to more than 20 companies would have implied a hell of a lot of work.  However, and from a policy standpoint, what message does the fact that only leniency appliccants have been sanctioned convey to future potential leniency applicants?  Isn´t  the Commission shooting its own foot?

(For full disclosure: I participated in the case in representation of a company which is not amongst the ones fined. It´s one of those for whose exclusion there were good reasons).

The OFT keeps doing interesting stuff. They have now published two concise and useful guidance documents aimed at ensuring compliance by small and medium companies as well as by company directors.  (The Spanish CNC also did a good job in releasing guidance for associations not so long ago).

Btw, for those of you who have not yet heard about it, one of the members of the OFT´s Board, Philip Marsden, is the new competition law Professor at the College of Europe, where he´ll be replacing Richard Whish.

Unrelated:

-Rumour has it that  next week the Commission will finally announce its long-awaited decision in the air cargo cartel. You can expect truly huge fines.

-Also, yesterday I attended part of the sessions of the FIDE Congress in Madrid, and it was really a privilege  to see such an unusual concentration of great legal minds.  I could only attend the discussion on competition issues (excellentely chaired by Judge Lenaerts), but I hear that all three panels were of great interest.

Some days ago I participated together with José Luis Buendía in a conference on sports law held at the UNED (the only state-run Spanish distance-learning university).  We covered a wide array of issues concerning the application of competition law in this sector, some of which have also been discussed here in the past (e.g. football tv rights, salary caps, state aids in sports, or the SCOTUS decision in American Needle).

In addition, we talked a bit about two cases on which we´ve worked but about which there is not much information available apart from news clips. I think both cases raise extremely interesting questions, and I believe that some of you may have an interest in knowing about their existence.  Accordingly, and as an exception, this post deals with two cases on which I was directly involved (take that as a diclaimer too).  I´ll  be as objective as I can in exposing the facts:

The first case is currently pending before the Court of Arbitration for Sport, so I won´t say much about it. It relates to a complaint lodged by the Spanish Basketball League against the project to partially close the Euroleague (the basketball equivalent to the Champions League). In the near future the CAS will therefore be ruling on whether the partial closure of a previously open league could restrict competition in any of the many markets in which basketball clubs are active.

The second case, which was recently settled, deals with exactly the same issue as the withdrawn preliminary reference  in the Oulmers case, i.e. the right of clubs to be compensated by national federations for the release of their players for international games and tournaments. It was initiated by a complaint lodged by ASOBAL (the Spanish Handball League) before the European Commission in March 2009. The complaint argued that by precluding the payment of a compensation to clubs the regulations governing the release of players restricted competition in a way contrary to both articles 101 and 102 TFEU (in the latter case, it was argued that the resulations were setting “unfair trading conditions”). The Commission took an interest in the case and started a preliminary investigation which was only put to an end pursuant to an agreement between ASOBAL and the European Handball Federation. This case adds up to the settlement between FIFA, UEFA and the European Clubs Association to put an end to Oulmers as one of the most interesting “non-precedents” regarding the application of EU competition law to sport.

I believe that we´re  the first ones to report the following changes within DG COMP  (approved today by the Commission and effective from 1 November):

Nadia Calviño has been appointed Deputy Director General in DG Market. In order to replace her, Cecilio Madero has been appointed Acting Deputy Director General for Antitrust & Mergers.

In addition, Joachim Luecking will be acting as Director of C; Eduardo Martinez will act as Head of C/1; and  Gert-Jan Koopman will become Deputy Director General for State aid.