Relaxing whilst doing Competition Law is not an Oxymoron

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Non-working papers (on two-sided markets, object/effect, cartel evidence and Google)

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writingI recently had to devote most of my non-billable work to finishing a few publications (the fact that after a few missed deadlines I was almost under death threat from editors also played a role) and preparing some courses. As if there weren’t better things to do with one’s time…

Anyway, since I did the work, I thought that it could perhaps be useful to post it or refer to it here, both to justify myself and in case any of you might find them interesting or have comments. These “non-working” papers include:

– A paper on “The Double Duality of Two-Sided Markets” which, to a large extent, is a beefed up version of my speech (the ppp is available here) at the Swedish Competition Authority’s Pros and Cons Conference back in November. The editors of Competition Law Journal have kindly offered to publish it, so it will appear there soon. The paper posits that competition law enforcement regarding multi-sided platforms may have not always accounted for the ambiguity of business practices carried out in these settings and attempts to identify the causes at the root of this problem and to propose some solutions. In essence, my take is that multi-sided platforms raise old questions but with renewed intensity, and that this must force us to go back to basics and recall some general principles that we should never lose sight of.

– A presentation on the Cartes Bancaires Judgment (here: Some additional reflections on Cartes Bancaires_Lamadrid ). It’s titled “some additional reflections” because it followed previous interventions at a seminar on the part of Javier Ruiz Calzado (Latham&Watkins; his very good ppp is also available here: Cartes Bancaires_Ruiz Calzado ) and Nicholas Khan, from the European Commission’s Legal Service. It was a privilege to share the panel with them.

– An absurdly lengthy not so succint paper I’ve co-written with my colleague Ana Balcells on cartel evidence in Spain: La prueba de los cárteles en España (Lamadrid_Balcells), forthcoming in JM Beneyto y J Maillo (Dirs): La lucha contra los cárteles en España, Aranzadi, 2015.

– Also, a few days ago the founder of this blog, Nicolas Petit, asked me (with a most kind anticipation of less than 24 hours…) to conduct a case study on the Google investigation at the Brussels School of Competition. It was a very interesting exercise. I only directed the debate asking questions and linking issues together and it was the students who brilliantly taught themselves and arrived to their own conclusions (I’m being nice to them because I told them that suscribing to the blog is a prerequisite for passing, so I assume they’re reading this). The legal issues underpinning the case (which have not always received the necessary attention) are very well-suited to reflect about some basic concepts of Article 102. In fact, Pablo also did this with his students at LSE a few days ago. Just in case any of you is interested in conducting a similar exercise, here is the (very hastily drafted) list of questions I used: Google Case study – BSC_Lamadrid.

On selectivity and alleged fiscal State aid (today’s Judgments in Cases T-290/10 Autogrill /Commission and T-399/11, Banco Santander/Commission)

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I’m writing under the influence of a few bottles of Champagne opened to celebrate two landmark Judgments rendered this morning by the General Court annulling the Commission’s decision that ruled the Spanish tax regime allowing for the deduction of shareholdings in foreign companies to be incompatible with the internal market (click here for the Court’s Press Release).

A very convenient disclosure/explanation: my firm represented all successful applicants.

The Judgments are important not only because of their economic significance (we’re talking of hundreds of affected companies and of billions of euros) but also because they are a welcome clarification on how to interpret the selectivity criterion in cases concerning alleged fiscal State aid. You may in fact recall that already 3 years ago my then colleague and still very good friend Napoleón (now on the dark side, at the European Commission) discussed the issues raised by the case on this blog (see here).

A few comments on the news:

  • Whereas it’s remarkable that appeals by alleged beneficiaries were successful in a case in which the State didn’t appeal the decision, the truth is that the Judgments do not constitute any major overhaul on the system. On the contrary, these Judgments only reinstate the obvious, that in order for a measure to be selective it shall offer an advantage to a certain category of companies. Measures which, like the one at issue, are open to any company operating within the system of reference (in this case the national tax system) are not to be considered selective. Rather than being new, this is actually one of the things that is taught on the very first session of any State aid course; the fact that many people forget about it may be explained either because they arrived late to class or because their memory follows a FIFO pattern ;)
  • The Judgments come at a moment when fiscal State aid –that we’ve been doing for a decade- is in the spotlight (the Lux leaks news broke only yesterday) so the first reaction of many will be to think about the impact this may have on other cases in which the Commission has also embraced an arguably excessively wide notion of selectivity (this includes my 25 fiscal State aid appeals currently pending before the General Court as well as the more recent investigations into tax rulings).
  • The Judgments expose an unusual behavior on the part of the Commission, which only last week adopted another decision building on the one that has now been quashed without waiting for the Court’s Judgment, which they knew was coming. This, which was probably intended to show that Almunia also targeted Spain, doesn’t seem to have played out so well.

Speaking engagements

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Minutes after I published the post on endives’ right to be forgotten I received a call from the European Data Protection Supervisor’s office. At first I admit I thought it was someone (my first suspect was that guy from 21stcenturycompetition because he’d read a draft of the endive thing; don’t worry, Kevin, I won’t disclose you thought it was serious) returning the joke, but it wasn’t, and I got invited to speak next Monday  the most interesting (but closed door) Workshop on privacy consumers, competition and big data (to be held at the European Parliament and arranged in the wake of the EDPS report that we –actually Orla- discussed here).

I’d solemnly committed myself to have a life and not take on any more non-work (non-billable, that is) stuff in the coming weeks/months, but it was an offer I couldn’t refuse. My topic is Market Power in the Digital Economy.

Three days later, on Wednesday 5 June I’ll be providing an overview of the commitment decisions adopted by the Commission since the enactment of Regulation 1/2003 at the Brussels School of Competition’s annual conference. This event you really should attend (click here for info: Programme_Commitments in EU Competition Policy – 5 June 2014).

[ I apologize in advance to all attendants at these two conferences: I’ve an important General Court deadline on Friday and then a bachelor party weekend, so preparing might be a challenge. Yes, this is the ol old expectation-lowering trick ! ]

Then on 8 July I’ll be lecturing on EU competition procedure and on Special and Exclusive Rights (Art. 106) at the College of Europe’s Competition Summer School for Chinese officials. Talking with Chinese officials about how competition law applies to public measures should be quite an interesting experience.  And then on the 11th same procedural class in the context of the College’s summer course on competiiton law.

And then, following my first paternity leave in September, I really plan to take on less of these commitments.

Well, on 28 November I’ll be participating at the Swedish Competition Authority’s annual and always excellent Pros and Cons conference, which on this edition will be devoted to Two Sided Markets, but I couldn’t say no to that either…

Written by Alfonso Lamadrid

28 May 2014 at 5:52 pm

The Diluted Legality of Competition law

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In the past days a Commission official who ranks among my preferred legal minds expressed her/his though that our discipline may not be as legal as we often think. The thought, formulated on the fly  (don’t click, very bad joke) (I told you..) , was triggered by the observation that whereas the law and legal reasoning should be cuasi cartesian, logic, certain, it’s nevertheless very often impossible to predict the outcome of a given case. [This may remind some of a Holmes’ quote: “prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law”].

Then on Monday a lawyer in the audience (not me, really) made a similar remark (this time at a conference in London regarding a certain case I discussed on my previous post, coincidentally published that day). The idea expressed there was that the Commission could have taken exactly the opposite conclusion it took in the face on the very same facts at issue, and it would very presumably also have been endorsed by the Court.

And a few minutes ago a colleague sent me an email discussing the spill-over effects that Alrosa has had in competition enforcement.

As much as I don’t like to admit it, all those are right and share a common theme. I guess Competition Law may indeed be partly losing its last name. I suppose an element of this could be found in other areas of law, but my feeling is that the issue is more acute in our field:

Is it because of the simplicity and vagueness of our main working provisions and the terms they use? (as I observed here, the Court itself recently acknowledged that “Article 101 or 102 TFEU are drawn up using imprecise legal concepts, such as distortion of competition or ‘abuse’ of a dominant position” ).

Is it because of the transformation of the discipline by the incorporation of economic analysis to the assessmente of legallity of market practices? (on that, you know my views). It has become popular to bash ordoliberals, but they crucially emphasised the need to preserve the competitive process through law-making, as opposed to unconstrained policy choices, and this is a lesson we may be forgetting.

Is it because of the Court’s inclination to show deference to (what they see as, and often are) specialized agencies?

Is it because of developments like Alrosa, that enable a disconnect between the problem and the solution and, in a way, may legitimize the abuse of an institutional dominant position?

Is it because of the number of the unavoidable yet more-or-less-reliable proxies (market definition, market shares, cost-assessments, object short-cuts, etc..) we use and the little certain tools we have?

Is it because law and policy-making are inextricably intertwined in our field? (in the sense that policy choices are often expressed through the choice of cases).

As with anything else, the answer is very likely cumulative and complex, but the fact is that competition law may have become a discipline where the authority’s self restraint, negotiations in the shadow of the law, disclaimers in lawyers’ risk assessments, administrative/judicial discretion, and therefore uncertainty, play a larger role than perhaps they should.

The fact that the law needs to be interpreted, or even the fact that legal reasoning can be played with has upsided (allowing me to earn a living or making the profession interesting are just two examples), but I can’t help feeling that there is something not right about it.

P.D. These are, as always, thoughts in progress. If you don’t agree with them, remember our disclaimer.


Written by Alfonso Lamadrid

15 May 2014 at 2:09 pm

A comment on Case T-79/12 Cisco Systems and Messagenet v European Commission (Microsoft/Skype)

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On 15 February 2012, Cisco Systems and Messagenet appealed the Commission’s decision authorizing the purchase of Skype by Microsoft. On 11 December 2013, the General Court rendered its Judgment dismissing the application for annulment.

As many readers of this blog will know, I was one of the lawyers representing the applicants, and was personally very involved in the judicial phase of the case, which I very much enjoyed. For the past 5 months I’ve read some succinct comments about and I think that there are many genuinely interesting things about it that might so far have been overlooked.

Whereas I –biased as I am- have issues with most of what’s in the Judgment (and particularly with what isn’t there), I’ve decided to try to get rid of any bitterness (some irony will be inevitable, I’m afraid) and approach it in a hopefully constructive way, leaving a myriad factual case-specific issues aside, and focusing only on selected matters of general relevance to any competition lawyer.

So instead of re-arguing the case –which would be of little use at this time- my intention is to shed light on some aspects of the Judgment which otherwise not attract the attention they deserve. I’ll touch on 6 selected issues, and will offer some personal views as a conclusion.

Needless to say, my opinions are, aside from non-objective, exclusively attributable to myself, not to anyone else, notably clients and colleagues, and neither Cisco nor Messagenet have anything to do with this post.

1)      The Court ruled that the standards of proof and review applicable to Phase I (Art.6) decisions are identical to those applicable to Phase II (Art. 8) decisions

Whereas we argued that the merger should be annulled regardless of how the Court interpreted the applicable standards of proof and review, we also claimed that the standard of proof must necessarily be higher in the case of Phase I decisions because the Commission has to prove that the case couldn’t objectively give rise to “serious doubts” (which is the applicable legal test according to Art 6 of Regulation 139).

This interpretation, now held wrong, was fairly uncontroverted in academia (see e.g. the contributions EUI’s 2009 workshop on standard of proof in competition law), and had been formulated previous cases. In her Opinion in Impala AG Kokott went even further and explained that a “beyond reasonable doubt” standard applied to Phase I decisions “to compensate for the fact that at that stage the investigation of a concentration is merely a summary one” (…) “[a]t that stage, serious doubts as to the compatibility of a concentration with the common market will only prevented its being cleared to quickly and force the Commission to make a more extensive investigation in a formal procedure”. A test of absence of doubts also governs the initiation of in-depth reviews in the State aid domain, and the Court has established in that context that this test requires a review that “will, by nature, go beyond simple consideration of whether or not there has been a manifest error of assessment” on the Commission’s part (for more on this see, e.g. cases T-73/98, para 47 and T-119/02, para 77).

The Judgment in this case nonetheless states that “the standard of proof is no higher for decisions adopted under Article 6 of Regulation 139/2004 than those adopted under Article 8 of that regulation (para 46). The Court then goes on to explain that even if we correctly argued that the Commission has no discretion as regards the initiation of Phase II whenever it has serious doubts, the Institution “enjoys a certain margin of discretion” to carry out the “complex economic assessments” required in merger cases (para. 49), and that therefore the standard of review for both Phase I and Phase II is the same: that applied to complex economic assessments (limited judicial review).

What the Court is effectively saying in paras 46 to 49 is that even if the notion of serious doubts is an objective one, the Commission has discretion to have doubts or not. In my mind, this would mean that the alleged objectivity of the concept is meaningless, but perhaps there’s a different reading, which I don’t yet grasp. Even if the standard of review is the same for Phase I and Phase II decisions, it seemed intuitive to me that what has to be proved in one case (no serious doubts) and the other (compatibility or incompatibility with the internal market) is different. By rejecting this previously uncontroversial interpretation I think the Court has importantly -rightly or wrongly- expanded the Commission’s margin of discretion in merger cases.

2)      Unless I’m missing something in para. 67 the Court explains that competitive assessments in most Phase I decisions are not to be taken seriously because they do not assess the “real” relevant market.

The applicants therefore base their complaint relating to market power held by the new entity on an incorrect assumption, in so far as the Commission did not define the existence of a specific market for consumer video communications on Windows based PCs. The Commission did not therefore establish in the contested decision that operators present on the narrow market could act independently of the competitive pressure from other means of consumer communications, such as services offered on other platforms or other operating systems. In addition, the applicants did not themselves submit any evidence or study to support the conclusion of the existence of such a narrow market. By contrast, they merely criticised the factors put forward in the contested decision in order to qualify the significance of market shares”.

What this paragraph says isthat the fact that the Commission chose to assess the market for video communications on Windows based PCs was irrelevant, and that we could only have challenged this assessment if we proved that the market was the real one (!). This is quite astonishing may perhaps be a bit surprising to some, because what we were challenging was precisely the conclusion that “the proposed transaction does not give rise to any competition concerns even on the narrowest possible definition of the relevant product market”. The market might have been hypothetical, but its assessment was the only one contained in the decision and therefore the only one that could be appealed.

Unless I’m wrong (again, let me know if you see it differently) what this means that from now onwards any party wishing to appeal a Phase I merger decision should not challenge the assessment actually carried out by the Commission, but will need to prove that the assessment of the “narrowest possible market” corresponds to a real market, which will almost never be the case! In other words, from now onwards the Commission could get immunity from Court review by carrying out assessments of markets whose definition is left open.

3)      On the irrelevance of market shares in dynamic markets

The few paragraphs that have so far received public attention are the ones concerning the irrelevance of high market shares. In para 69 the Judgment states that “the consumer communications sector is a recent and fast‑growing sector which is characterised by short innovation cycles in which large market shares may turn out to be ephemeral. In such a dynamic context, high market shares are not necessarily indicative of market power”.

In fact, I agree with this statement. Market shares in these markets are “not necessarily indicative of market power”; they provide an indication which may be disproved by other factors. My problem with this is they do provide an indication, and even if it can be disproved by looking at countervailing factors, I still struggle to see those here.

In any event, there are a few paras in this section (mainly paras 79 to 84) that that are potentially quite troublesome for enforcement, particularly in technology and communication markets. No wonder these will from now onwards be cited by any company with large market shares.

4)      On the irrelevance of network effects in a non-interoperable communications market

Paragraph 76 also marks –in my view- a change in the way network effects are assessed in EU competition law by stating that the existence of network effects does not necessarily procure a competitive advantage for the new entity”.

This may seem at odds with all past Commission precedents, mainstream economics, regulation of other communication markets, the Commission’s soft law on market definition, 102 and mergers, as well as with Skype’s own repeated statements in official public submissions claiming that “the scale, global distribution and growth of our user base provide us with powerful network effects, whereby Skype becomes more valuable as more people use it, thereby creating an incentive for existing users to encourage new users to join. We believe that these network effects help us attract new users and provide significant competitive advantages”.

You may recall that the Decision’s argument to rebut the role of network effects was that users “make the majority of their voice and video calls to the small number of family and friends that make up their so called “inner cicle” (4-6 people) and that “it is not difficult for these groups to move between communication services”. This peculiar argument was endorsed by the Court. As I’ve repeatedly said over the past two years, I may well Skype the most with my wife, girlfriend (J), mother and best friend, but I would assume that my best friend has in turn a different mother, girlfriend and wife (or so I’d like to think…); in other words, groups of people are interconnected and do not communicate in movable autarkic nodules. On this point, the Judgment simply repeats (thereby endorsing) the Commission’s argument at the end of para 52 (“the network effects to which the concentration might give rise would be diluted by the fact that users tend to communicate in small restricted circles and use a range of operators. Those factors demonstrate the ease with which user groups switch to other communications services”). [On multi-homing, note that the “range of operators” meant the two merging parties –otherwise they couldn’t have a 90% market share- as openly acknowledged in footnote 52 of the decision].

4)      On the identification of competitive constraints.

A paragraph that could also prove important for various markets where companies rely on others’ technology (and for private label products) is para. 72, which dismisses the claim that Facebook (the second largest player with an overwhelming 10% of the market, whose video call service runs on Skype, which has Microsoft as a shareholder and which interoperates with Skype) would not be an effective competitor with this reasoning.

The only factor that they put forward in support of that argument is that Facebook is a licensee and strategic ally of Skype, which cannot use Skype’s software to offer services in competition with the paid services of Skype, called SkypeOut, which make it possible to, inter alia, call fixed or mobile telephone numbers and to conduct video calls involving more than two persons. However, they do not submit that that agreement prevents Facebook from offering its video communications services to consumers who might decide to switch away from the new entity if it decided to exert any market power.

So, being a “strategic ally”, using the same technology and the existence of a non-compete agreement do not indicate mitigated competitive vigor. Note taken.

5)      On switching, statement of reasons and the comparison with the Microsoft (and Google) abuse cases


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Written by Alfonso Lamadrid

12 May 2014 at 9:01 am

A competition law anecdote in the FT

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Last Wednesday’s Financial Times featured a competition law related anecdote that might have gone unnoticed to many of you.  It’s told in a letter to the editor written by Craig Pouncey (managing partner of Herbert Smith Freehills’ Brussels office) reproduced below:

“From Mr Craig Pouncey,

Sir, Lucy Kellaway’s article “We need new excuses for not replying to emails” (April 28) reminds me of by far the most effective excuse I have encountered during my professional life. Many years ago a colleague of mine, after a night of vigorous carousing, missed his flight to London to attend a hugely important client meeting. He took the next flight, arriving hungover and several hours late, to find himself confronted by a roomful of extremely irritated clients. “Just don’t ask”, he said with conviction. They didn’t, and indeed the irritation was immediately replaced by considerable sympathy.

Not one for the faint-hearted, and perhaps to be tried only once, but I have always felt that the approach should be part of everyone’s in extremis armoury of excuses”.

Brilliant. And I’m quite confident I know who that was  ;)



Written by Alfonso Lamadrid

5 May 2014 at 7:26 pm

Wrapping up the week (on SEPs, Uber, Tesla, lawyer moves and legal rankings)

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This week’s blogging inactivity has had a lot to do with a pile of new and old work, the fact that I’m moving houses and have the in-laws here (a painful process; the moving, I meant), the fact that I devoted some time to watching two Spanish teams get to the Champions League’s final (I guess Germans and English will now put increased pressure on the ongoing State aid investigation) and the fact that we had some farewell events for one of my closest friends and colleagues (this guy, who is moving to the Commission).

So, here’s a quick overview of some stuff we couldn’t cover:

– The news of the week was the adoption by the Commission of decisions in two much talked about SEPs cases. The Commission made binding the commitments proposed by Samsung (see here for our initial comment on these) and -as we anticipated last week- adopted a decision declaring an infringement on the part of Motorola, which did not receive a fine. The Commission has sough to introduce some clarity on a matter in which the industry couldn’t agree by providing a safe harbour for standard implementers/willing licensees. We might discuss these more in depth in the coming weeks. For the time being, the Commission’s FAQ’s are available here . The Commission’s decisions might have brought additional clarity to the industry, but they also will have side-effects on conference organizers and on certain academics, lawyers and officials, all of whom will now have to find a new topic to talk about  :) [Btw, WordPress’ new smiley faces are much uglier than the older ones..]

– I also see that the controversy surrounding Uber continues.  To date I don’t think  anyone has brought up a potentially very interesting EU competition law aspect to the case (other than the cartel accusation launched by Neelie Kroes in her most unusual blog post). It’s always surprised me how little we take advantage of the potential of EU law to challenge public restraints on competition…

– On a sort of related note, I was glad to read that 3 FTC staff directors have decided to intervene (albeit informally by means of a blog post; does everybody do blog-policy these days??) against unjustifiable prohibitions on Tesla to sell directly to final customers (that story would merit an ad hoc post) (btw, some people wrongly blame antitrust law for those restrictions: see here).

– There were recent moves at Covington&Burling, this time on the opposite direction as the most recent ones. The firm has hired one of our Friday Slotters (Johan Ysewyn) as well as re-hired Peter Camesasca, who was working with his own firm at Samsung during the course of the above mentioned investigation on SEPs.

- [Sort of self promotion alert] Chambers& Partners rankings came out last week and for some odd reason I seem to be the only ranked associate for EU Competition Law under a certainly narrow “associates to watch” category. Since some of you have sent emails in private commenting on this, I’ll repeat my response in public: I’m not going to lie saying that it bothers me, but off the top of my head I could think of a good pile of names to include there (I won’t list them here because my list -like any list- would also be subjective, potentially discriminatory and based on very imperfect information). In addition to that, (i) I always said these things are to be taken with many pinches of salt, and I of course maintain that; (ii) being there might have to do with being at a smaller place with a lot of exposure to clients (who moreover were kind enough to seemingly do positive reviews) and perhaps (I don’t know) with the non-merits based visibility given by this blog; and (iii) my firm’s overall positioning in the ranking is not yet where it should.

In any event, I’m not even sure this is something to be proud of: I guess it only means that I’m the poorest guy in the list…



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