Chillin'Competition

Publicly exposed as I have been, I have no choice but to be back in my capacity as interim blogger (which I confess is something I pretty much enjoy). It is not even a bad time for Alfonso to be extremely busy. Some readers will remember a post I uploaded a few months ago on a ‘not-so-mainstream’ pending case, which addressed some questions that I follow closely. Right on time, Advocate General Cruz Villalon delivered his opinion on 30 April, which is for the time being only available in French.

The fundamental question raised was that of whether a multichannel bundle offered by a cable operator is an ‘electronic communications service’ within the meaning of the Regulatory Framework for electronic communications. The material scope of the Framework was defined in an awkward way, as ‘services providing, or exercising editorial control over, content transmitted using electronic communications networks and services’ were not covered by it. This would mean that audiovisual media services (TV channels, on demand services and others) are subject to a different set of rules (typically media laws, which follow a different logic).

A careful reading of the Regulatory Framework suggests that multichannel services provided by cable operators do not qualify as ‘electronic communications services’ . In that sense, the question raised by the Dutch Court looked like a non-issue. This seems to stem clearly from Recital 45 of the Universal Service Directive, pursuant to which ‘[s]ervices providing content such as the offer for sale of a package of sound or television broadcasting content are not covered by the common regulatory framework for electronic communications networks and services’. It is also something that derives from Article 31 of the same Directive, which is carefully worded so as to make it clear that ‘must-carry’ obligations do not apply to the said packages but only to the exploitation of the infrastructure. What is more, the Commission and the National Regulatory Authorities seemed to assume that the said services are not caught by the Framework.

In his analysis of the question, Advocate General Cruz Villalon does not refer to the Universal Service Directive. This is surprising, if only because it seems to provide the most straightforward and directly relevant answer to the question. The Opinion does not go beyond the generalities and the definitions found in the Framework Directive. As a result (and this time unsurprisingly), the answer suggested by the Advocate General fails to bring a satisfactory solution to the real problem created by the truncated scope of the Regulatory Framework. He takes the view that multichannel bundles qualify as ‘electronic communications services’ insofar as (my free translation of ‘des lors que’) they comprise the transmission of electronic communications signals. But then does this mean that only the transmission element of the activity is caught by the Framework? Or does it mean that the bundles as a whole are caught by it? I hope the ECJ will be more explicit in this regard.

A la prochaine!

Pablo

A post on food and competition law dedicated to our friend Alfonso, who is busy prepping for the big hearing in Cisco v. the two best antitrust friends Commission+Microsoft.  

One of our readers has informed us that the Bundeskartellamt has conducted dawn raids at firms active in the potato sector (growing and distribution). Although lengthy, the press release does not say much of the substance of the case. Apparently, the BKartA suspects price fixing.

Neither does it mention whether there was a leniency application. Yet, we are told that the BKartA never gives such info at this stage of a case.

Thanks to Andrea for the pointer.

Our friends from the University of East Anglia Centre for Competition Policy (CCP) have put together an original and attractive conference (see link at the end of this post).

This is not yet another conference on competition enforcement. The programme tackles institutions for competition enforcement, but offers to do this through several lenses:  historical, comparative, economics, etc.

Besides this, there’s a significant number of enforcers on the programme, which promises well informed discussions.

A must attend.

CCP Conference Programme – final version

We had this morning at the GCLC a half day conference on pay for delay arrangements in the pharmaceutical sector.

This was a great event, which triggered the following thoughts.

On the law, the problem is not the conduct in itself, i.e. the payment arrangement (also referred to as a “settlement” agreement). Any agreement which consists in paying to seclude a competitor can be unlawful. The FTC apparently talked of a “classic violation” in old documents. We see such agreements all the time in the area of vertical restraints, when firms pay distributors in exchange for exclusivity so as to keep rivals off the market.

The problem lies elsewhere, in the proof of the anticompetitive impact of the agreement, actual or potential (the second component of an infringement). Economists talk about a credible theory of competitive harm.

Now, a settlement payment from originator to generic can only be deemed to restrict competitive entry if the judge would invalidate the patent. In other words, a settlement payment can only be anticompetitive if the patent is invalid. Otherwise (if the patent is valid), competitive entry could just NOT occur, and the payment question is irrelevant.

If I understand correctly, the Commission apparently assumes invalidation. In other words, it assumes that judges would invalidate litigated patents. This stance on what the judge is poised to do is similar to that found in the abuse cases involving Standard Essential Patents, where the Commission seems also to assume that the judge will grant injunctions.

My take on this: this is a meritorious assumption to make if only because patents are deemed presumptively valid once granted. And this weak assumption is not good practice when one has to formulate new policy. As J. Wright, FTC Commissioner, explains beautifully in a recent speech: the formulation of new theories of harm should be based on empiricism, not on guesswork.

Now, the one funny thing here is that to overcome what I may call the weak assumption problem (and to make the case for enforcement), the Commission relies on classic Chicago school reasoning (or if you prefer on basic rational incentives theory). The idea is as follows: an originator cannot rationally be paying a generic firm to stay out of the market if its patent is valid. The sole rational explanation is that the patent is invalid.

This line of reasoning has some teeth in conventional EU competition law. The AKZO “sacrifice test” in predation cases is one example of this: a dominant firm cannot be rationally pricing below costs. The sole rational explanation is that it is seeking to predate.

I believe, however, that one should err on the side of caution when it comes to crafting such “rules of inference”. Indeed, inferential equations of the AKZO kind are not mundane in EU competition law. They are exceptional, based on rich doctrinal debate as the AKZO ruling shows (it transposes the AREEDA and TURNER test) and on years of judicial precedents. Moreover, the problem is that there are many other possible explanations to the originator payment (irrationality, aversion to risk, etc.), including a whole raft of behavioral economics reasons.

So for patent settlement cases, I would actually apply a different type of “rule of inference”, such as the one applied in Woodpulp or CISAC, whereby the Commission can only find infringement if it proves the conduct has no other purpose than the restriction of competition, and thus must dispel all alternative explanations.

Funnily enough, most of the discussion on patent settlements has not touched upon this issue, and has instead focused on the “object-effect” distinction. This debate is, however, an uneasy one, given the lax state of the case-law. Maybe discussing about patent settlements under a “rules of inference” angle could help reach new ground.

Found in the final report on the pharmaceutical sector inquiry:

“§537. Patents are proprietary, exclusive rights and enforcing one’s patents against parties infringing them is a legitimate procedural dimension of the material right granted to the patent holder. It furthermore is part of the fundamental right to a fair hearing before court as manifested in Article 7 of the European Convention of Human Rights (ECMR)“.

PS: beware of acronyms. With this §, some may believe that the substantive scope of the ECMR has hugely expanded .

In the past months, our savory series of posts on food and competition law had been kept in the freezer.

Thanks to the French Competition Authority (“FCA”), it is our pleasure today to defrost this category of posts.

In Groupe coopératif Agrial/Bakkavör (a merger case), the FCA concluded to the existence of a product market for salads, distinct from the product market for other fresh vegetables.

But this is not all. The FCA further delineated the market on the basis of the “technology“(sic!) applied in this sector. It accordingly distinguished between salads of 1st category (i.e. fresh, raw, unwashed, unpeeled) and salads of 4th category (i.e. fresh, raw, washed, peeled).

The bottom-line: there’s technology everywhere.

PS: thanks to A. Ronzano for the pointer.

With a group of LL.M. students from Liège, we attended last Wednesday the hearing at the General Court in Chimei InnoLux Corp v Commission (T-91/11).

This case is better known as the LCD panels cartel case. In a nutshell, Chimei InnoLux challenges a Commission infringement decision inflicting a €300,000,000 fine. Chimei seeks primarily to obtain a reduction of this fine. Its key argument is that the Commission could not include in the value of the sales used to calculate the fines, the so-called “Direct EEA sales  through transformed products“, namely sales of cartelised LCD panels incorporated into finished products (screens) by downstream Chimei subsidiaries located outside the EEA. According to Chimei, those internal sales were outside the juridictional reach of  EU competition law (the parties rely on Woodpulp).

On this occasion, we also had several most informative meetings with several people working at the GC and the CJ. Here’s a grab bag of impressions following this trip at the Court:

• It’s all about the facts => once again, I was amazed by the granularity of the arguments raised in proceedings before the General Court;
• G. Berardis, the juge rapporteur was just impressive. He was very picky, seemed to know the file inside out, and asked a gazillion questions to the parties. On several occasions, the parties had a tough time responding to his inquiries. External observers, like myself, often pass judgment on the intensity of judicial scrutiny just by reading judgments. I guess my views have slightly changed since last Wednesday. Judicial review is also about what happens in the Court’s room, and about how judges discharge their duties. Whilst I have, a few weeks ago, voiced concerns about the appointment of a former Commission official as judge at the GC, I also recognize that such appointments probably come with increased expertise, and in turn contribute to strenghtening the intensity of judicial review. The trade-off between impartial and efficient judicial review is clearly a complex one;
• Read Wouter Wils! We’ve praised Wouter’s papers on many occasions. But we did not know that his prose was that influential. In response to a question on the compatibility of administrative proceedings with Article 6 ECHR, someone working at the General Court said something close too: “we know there is a big debate over this issue in scholarship. I read Wouter Wils’ papers. Wils considers that there are no such problems. So my conclusion is that there are no problems“;
• Internal drafting guidelines: judges and référendaires are apparently requested not to quote any piece of scholarship, or at least to limit such quotes;
• And to conclude: rumour has it that the draft Intel judgment is approx. 700 pages long (double spaced)…

Overall, this was a great day in Court.

Today we hit the 500,000 visits mark on Chillin’Competition, so we just wanted to say THANKS!

Nicolas started this on March 2009, and I joined a few months later, in October (with a guest corner at the time). It’s been 4 years, 765 posts, 1 or 2 interesting posts, 763/4 nonsense ones, 1,050 comments, 1042 Linkedin group members, 506 WordPress subscribers, and a few hundred hours of telephone calls [during which I tried to censor persuade Nico not to publish some stuff (one I can tell you about is the proposal to do the EU competition law version of this) and he complained at my (alleged) lack of political incorrection], $ 72.08 of AdWords earnings and $ 65 spent in preserving the chillingcompetition.com domain (that’s a $7 profit in 4 years, or $ 0,02 per hour spent writing here; as you see, we’re still struggling with the notion of opportunity costs…).  Below’s the wordpress table depicting our evolution.

P.S. Nico has committed to pay you all a beer when we hit 1 million…