Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Intel v Commission and the problem with wrong economic assumptions

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(by Pablo Ibañez Colomo)

Voices that relativise the problems with Article 102 TFEU case law are not infrequent. It may be true that the case law is not beyond reproach in all respects, the argument goes, but perfection is not of this world. The fact that rulings are often criticised simply means that Article 102 TFEU is an inherently controversial provision and that the stakes in abuse cases are generally very high, not that there is something fundamentally wrong with the preferences expressed by EU courts. And in any event, the alternative, economics-based, approaches have their problems too. The current case law is just the expression of a legitimate choice.

There is of course some truth in this position. At the same time, I find a bit defensive and as such problematic because it can become an obstacle to an honest and constructive exchange of ideas. I can think of at least a fundamental aspect that is uncontroversially (or objectively, if one prefers) wrong with Article 102 TFEU case law. What makes it even more interesting is that it fails to attract the attention that, in my view, it deserves. We all know that exclusive dealing and loyalty rebates are (absent an objective justification) abusive under Article 102 TFEU. The assumption underlying this rule is discussed far less often and is crucial to understand the case law. In paragraph 77 of Intel, the Court repeats the old formula whereby the abovementioned practices, as opposed to quantity rebates, ‘are not based – save in exceptional circumstances – on an economic transaction which justifies this burden or benefit but are designed to remove or restrict the purchaser’s freedom to choose his sources of supply and to deny other producers access to the market’.

This statement, as a matter of economics, is incorrect. Contrary to what the Court holds, there are perfectly valid pro-competitive justifications for exclusive dealing and loyalty rebates. I am inclined to believe that everyone at DG Comp and the Legal Service agrees by now with this idea, which has long been part of the mainstream. Suffice it to check any textbook on industrial organisation or the economics of competition law. To mention the three I had in my office when preparing this post, take Carlton & Perloff; Bishop & Walker; or Niels, Jenkins & Kavanagh (Hans Zenger’s piece on loyalty rebates is great too). Given its peculiar cost structure, some of these justifications are of obvious relevance in the microprocessor industry.

Article 102 TFEU case law will not evolve until the ECJ acknowledges that a rule-based approach to exclusive dealing and loyalty rebates is grounded on a misguided economic assumption. Interestingly, a shift in this direction would not require a major revolution. The ECJ would just have to accept – finally – that what is true under Article 101 TFEU must by definition be true under Article 102 TFEU. In paras 10-12 of Delimitis the Court holds that there are perfectly valid justifications for exclusive dealing and – by extension – for loyalty rebates. As a result, they are not restrictive by object. Article 102 TFEU case law cannot be based on the opposite assumption (i.e. that these practices are anticompetitive by their very nature because they have no economic explanation other than the exclusion of competition). Paragraphs 89-91 of Intel show the difficulties into which EU courts run whenever the tension between these two lines of case law is raised (Van den Bergh Foods being another excellent example).

I am convinced that an effects-based approach would follow logically from the suggested shift. The additional arguments raised in subsequent cases to justify the current approach are not particularly persuasive. The fact that dominant firms have a ‘special responsibility’ that derives from their status does not mean that an effects-based approach to loyalty rebates and exclusivity is not conceivable. There are recent cases, like Post Danmark and TeliaSonera, where the ‘special responsibility’ of dominant firms is seen as compatible with requiring evidence of an anticompetitive effect.

Paragraph 77 of Intel also made me think of the relationship between law and economics in competition law. It is interesting that the General Court reiterates the Hoffmann-La Roche formula to make it clear that there is a long line of case law supporting its position. ‘Exclusive dealing and loyalty rebates have no pro-competitive justifications because we have always said they do not’, the judges appear to claim. What is an economic argument is dealt with, in other words, as a legal one. From an economic perspective, to be sure, the fact that EU courts have consistently relied on the same assumption does not make the latter any less incorrect.

The Intel judgment also made me think of something I often say. Economic analysis is sometimes presented as an exogenous force that has interfered with EU competition law since the 1990s. What wrong assumptions such as the one discussed in this post show is that this view is not accurate. Economics is hard-wired into competition law – it is an integral part of it. The only debate should be whether to rely on one’s more or less accurate intuitions (à la market definition in United Brands, for instance) or to trust instead the analytical tools developed over several decades by competent individuals devoting their professional lives to a systematic understanding of the economic side of the discipline.

Pablo

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Written by Alfonso Lamadrid

16 June 2014 at 11:43 am

Materials on commitment decisions + upcoming conferences (on Intel, Samsung and Motorola)

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Voluntary2

I realized yesterday that the slides used by all speakers at the Brussels School of Competition’s and Liège Competition and Innovation Institute’s very interesting conference on Commitment Decisions in EU Competition Policy are available here  (the image above corresponds to one of mines;  as an animated GIF it looked better in slidehow).

As for my presentation, I don’t think I said anything that was particularly original. I essentially did a 20 minutes quick overview and categorization of  the commitment decisions adopted so far on the bases of  (a) the (real) underlying reasons to resort to them, which may not always have to do with procedural economy considerations; (b) the sectors they affect (you can observe clear clusters that provide useful insights regarding enforcement priorities complementing regulatory initiatives -or lack thereof-); (c) the theories of harm at issue in each case and (d) the remedies made binding. This exercise made (even more) evident that both the theories of harm and the remedies that we see in these cases are nowhere to be found in Art. 7 infringement decisions. My purpose was merely to provide an objective account of these cases, so I left the discussion on the pros and cons of this approach to my fellow panelists.

Btw, the Liège Competition and Innovation Institute will also be holding other two interesting conferences in the coming days:

Intel v Commission: More eco or more ordo fiendly? next Monday 16 of June

and

The Commission’s Decisions in the Samsung and Motorola Cases – IP v. Competition 2.0?on 11 July

Have a nice w-e!

 

 

Written by Alfonso Lamadrid

13 June 2014 at 11:12 am

Breaking news- The Intel Judgment is out: the European Commission wins

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Minutes ago the General Court released its Judgment in Intel v Commission (T-286/09) dismissing the appeal in its entirety and upholding the 1.06 billion euros fine.

 As I noted to Bloomberg some time ago, the ECJ’s Tomra Judgment had paved the way for the Commission’s victory in this case with regard to the substantive arguments at issue.  Indeed, the Judgment resorts to Tomra in several occassions to support the key proposition that once a loyalty mechanism is demonstrated there is no need to demonstrate effects by means of an as efficient competitor (AEC) test (see mainly para. 145; I’ve spotted a few other references to Tomra in paras: 72, 73 , 77, 78, 91, 97, 103, 117, 119, 120, 132, 153, 176, 182, 184, 193, 527 or 998, plus a few more to AG Mazak’s Opinion in that case)

The General Court has also ruled out the procedural concerns previously identified by the Ombudsman, ruling that there was no procedural irregularity, and that even if there had been one it wouldn’t have affected the outcome of the case (paras. 601-664).

The Judgment has not yet been made public   is available here. [Note: this post was initially written in the light of the Court's Press release and was subsequently updated  following a first very quick look at the actual Judgment]. I’ve only had the chance to skim through it quickly, but a quick look is enough to reveal the Judgment’s likely impact on the law on abuse of dominace and to anticipate that this ruling will no doubt stir many debates in the coming weeks and months.

The Court has found that the rebates are issue were “exclusivity rebates” and declared that these, “when granted by an undertaking in a dominant position are, by their very nature, capable of restricting competition and foreclosing competitors“. The Judgment states that in the face of such rebates it is not necessary to show effect on a case-by-case basis, and that “the Commission was not required to make an assessment of the circumstanced of the case in order to show that rebates actually or potantially had the effect of foreclosing competitors from the market“. Against this background the Court explicitly rejects the applicability of the “as efficient competitor test“.  A similar approach is undertaken with regard to the conditional payments granted to several computer manufacturers.

Key to the Court’s reasoning is the idea that a foreclosure effect occurs not only where access to the market is made impossible for competitors. Indeed, it is sufficient that that access be made more difficult”. (paras 88 and 149). According to para 150 the as efficient competitor test “only makes it possible to verify the hypothesis that access to the market has been made impossible and not to rule out the possibility that it has been made more difficult”.

In para 152 the Court distinguishes Intel from previous cases where the as efficient competitor test had been a key criterion (namely TeliaSonera, Deutsche Telekom and Post Danmark) by observing that “those cases concerned margin squeeze practices or low price practices)” which means that a price-cost comparison was needed. According to this para. “[a] price cannot be unlawful in itself. However, in the case of an exclusivity rebate, it is the condition of exclusive or quasi-exclusive supply to which its grant is subject rather than the amount of the rebate which makes it abusive”. In para. 153 the Court again resorts to Tomra (“which postdates” the above mentioned Judgments) to support its view that no effects assessment is needed.

The Judgment deals directly with the alleged incompatibility of this approach and the Commission’s Guidance paper. In paras. 154-161 the Court explains essentially that it is “not necessary to consider whether the contested decision is in line with the Article 82 Guidance” (157) because the latter only set priorities for cases initiated following its adoption whereas the Intel investigation was already at an advanced stage by then (paras. 155-156). According to the Court, the as efficient competitor test envisaged in the Guidance paper was only relied upon by the Commission “for the sake of completeness”.

In spite of the clear statement of principle regarding the no need to prove effects, the Court has also engaged in a detailed case by case review of both the rebates and the conditional payments and concluded that “even supposing that the Commission was required to show on a case by case basis that the exclusivity rebates and payments granted to Dell, HP, Lenovo and Media-Saturn were capable of restricting competition, the Commission demonstrated that capability to the requisite legal standard in its analysis of the facts of the case”.

This “just in case” review is what explains the  lenght of the Judgment (283 pages in English). It also places the Commission in a much better position regarding an eventual appeal, for even if the ECJ were to quash the GC’s conclusions that effects didn’t have to be established (the upcoming Post Danmark II Preliminary Ruling will tell us whether that is or not likely to happen), the factual assessment of the case -beyond the scope of review of the ECJ- would be most likely to stand.

Even if somehow expected, this is a very important victory for the Commission. The main question relates to how this Judgment will impact future post-Guidance paper enforcement.

 

Written by Alfonso Lamadrid

12 June 2014 at 9:43 am

Umbrella pricing- Case C-557/12 Kone, or when effectiveness may go too far with little effective consequences

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Last Thursday the ECJ delivered its –once again remarkably brief (4 pages)- Judgment in Kone, Case C-557/12. In her widely discussed Opinion in this case Advocate General Kokott had raised the stakes, pointing out that “[t]he Court’s Judgment in this case will without doubts be groundbreaking in the context of the further development of European competition law and, in particular, its private enforcement” (perhaps a bit of an overstatement if you ask me).

The question at issue was whether a national legal system can exclude the possibility that compensation may be sought in relation to damages suffered due to the overprice (legally) charged by non-cartelists who independently and rationally adapted to the cartel by increasing their own prices. The umbrella metaphor signifies that those companies can profitably increase under the cover of their competitors’ cartel.

The Judgment is remarkable because –following AG Kokott’s recommendation- it somehow endorses the “umbrella pricing/damages” theory by ruling that Member States cannot exclude it “categorically”. In the Court’s words:

 “[t]he full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for harm suffered were subjected by national law, categorically and regardless of the particular circumstances of the case, to the existence of a direct causal link while excluding that right because the individual concerned had no contractual links with a member of the cartel, but with an undertaking not party thereto, whose pricing policy, however, is a result of the cartel that contributed to the distortion of price formation mechanisms governing competitive markets”. (Para.33).

A brief background note

The preliminary reference had reached the ECJ because Austria Courts had previously ruled that the “umbrella pricing” theory would not be sufficient to establish a “causal link”. The referring Court cited a legal doctrine that holds sway in Germany and Austria according to which any claimant must establish the infringement of a “protective provision”. According to that doctrine, the decisive factor is whether the provision infringed by the person responsible for the loss had as its object the protection of the injured person’s interest. In this sense, it was generally considered in Austria that “umbrella pricing” theories were out of the scope of the protective provision given that the loss they could cause involved no relationship of unlawfulness and was rather “merely a side-effect of an independent decision that a person not involved in that cartel has taken based on his own business considerations”.

The Judgment’s reasoning in a nutshell

The Judgment (i) recalls the direct effect of the competition rules and that its effectiveness requires that any individual shall be able to claim damages for loss caused to him by a conduct restrictive of competition (paras 20-22); (ii) stresses the role of damages claims as a possibility that “strengthens the working of EU competition rules” (para 23); (iii) reminds that in the absence of harmonization the principle of procedural autonomy applies (meaning that whereas EU Law imposes the necessary “existence” of a right to claim damages national laws must govern the “exercise” thereof) (para. 24); (iv) observes that the principle of procedural autonomy is subjected to compliance with the principles of equivalence and effectiveness (paras 25-26); (v) states that “umbrella pricing” is “one of the possible effects of the cartel, that the members thereof cannot disregard” (paras. 27-30); and (vi) concludes that excluding the link of causality between the cartel and umbrella pricing categorically, for legal reasons and regardless of the circumstances would run counter the effectiveness of EU competition rules (paras. 31-35).

A handful of follow-up thoughts

I haven’t yet given much thought to this, but here are some preliminary -almost instinctive- reactions that might perhaps contribute to sparking some debate:

-          From the viewpoint of general EU Law the Judgment fits within a consistent body of case-law endorsing an indirect harmonization of civil procedural rules by virtue of an ample reading of the principle of effectiveness that narrows the scope of the principle of procedural autonomy.

-          The key assumption or stance underlying the Judgment is that there is a certain causal relationship between the cartel and the umbrella pricing in which the former acts as a facilitator or enabling mechanism for the latter (e.g. (a) “it is not disputed by the interested parties (…) that a phenomenon such as umbrella pricing is recognized as one of the possible consequences of a cartel”; (b) “even if the determination of an offer price is a purely autonomous decision, taken by the undertaking not party to a cartel, it must none the less be stated that such decision has been able to be taken by reference to a market price distorted by that cartel and, as a result, contrary to the competition rules”); and, more clearly, (c) the suffering of loss in “umbrella pricing” settings “is one of the possible effects of the cartel”).

To me this causal relationship would seem intuitively hard to establish, and I wouldn’t have bet on the Court taking it for granted (with the sole supporting arguent that the intervening parties in the case had not disputed that umbrella pricing is, very theoretically, a possible consequence of a cartel). In any event, those familiar with the Court’s case-law in other areas may observe that the ECJ might arguably have embraced a much narrower interpretation of the causality link in other areas, such as that of non-contractual liability of EU Institutions, where a “direct causal link” is required…

-          Effectiveness trumps it all? The deviation from the general principle of procedural autonomy and the arguably flexible interpretation of the “causality” requirement might once again be explained by the perceived need to safeguard the effectiveness of the competition rules (read paras. 32 and 33 of the Judgment). Effectiveness has –rightly- been the core concern at the root of the case law on damages actions (Courage and Crehan, Manfredi, City Morors, Pfleiderer, Otis or Donau Chemie). However, one often has the impression that we hail the effectiveness of these rules too much in order to deviate from general principles of law to a greater extent than we do it with other legal regimes, particularly when dealing with cartels (para. 32 of Kokkot’s Opinion makes this last point more evident). I recently made the same point regarding the Court’s minimalistic interpretation of the limiting principles of necessity and proportionality in these cases for the sake of effectiveness

-          At the level of incentives, what signal would this Judgment send to non-cartelists operating in a seemingly cartelized market? [admittedly not an easy group to target] How about “hey, raise your prices in the shadow of the cartel: you’ll reap the profits plus your rivals will have to pay extra for it”?

- It’s remarkable that, to my knowledge, this is an issue that hasn’t received that much attention in the U.S. in spite of private enforcement being much more developed. In fact, distric courts have tended to view this theory as too speculative or conjectural, observing that independent pricing decisions (which may be affected by several and complex factors) break the chain of causation.  [e.g. Antoine Garabet, M.D., Inc. v. Autonomous Techs. Corp., 116 F. Supp. 2d 1159, 1167-68 (C.D. Cal. 2000)].

-          The Judgment will be welcomed by many lawyers (because we now have an apparent better chance at overcoming the causality hurdle) and particularly economists (for whom, paradoxically, the endorsement of the umbrella theory could bring in a rain of new work) (I get metaphorical at lunchbreaks)

-          At the end of the day, and in spite of all the above, I doubt this Judgment will have very significant practical implications. The only thing  the Court really says is that national legislations cannot exclude the “umbrella theory” categorically and regardless of the specific circumstances of the case. However, it does in no way require national Courts to accept this theory when they examine the causal link originating responsibility in a given case. The causal relationship still will need to be proved in the light of the specific circumstances of the case and, well, good luck with that.

 

Written by Alfonso Lamadrid

11 June 2014 at 3:20 pm

On Privacy, Big Data and Competition Law (2/2) On the nature, goals, means and limitations of competition law

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In my previous post I outlined the content of the main part of my presentation at the European Data Protection Supervisor’s recent workshop on Privacy, Consumers, Competition and Big Data, held in the wake of the EDPS preliminary opinion on the subject.

Today I’ll provide you with my views on the great question underlying both the workshop and the opinion: should data protection considerations be incorporated to competition law’s substantive assessments?

The (preliminary) view implied in the EDPS’ opinion is that they should. In essence, the opinion posits that competition law is or should be about consumers’ welfare, and that this comprises much more than only the narrow set of economic considerations that competition law currently looks at. The EDPS tends to believe that public interest would be better served that way. Some lawyers and the companies they represent also hold these views but perhaps for different –less public interest oriented- reasons.

The somewhat anticlimatic view I conveyed to the participants at the workshop on this point was the following (as in the last post, I’ll basically sketch my conference notes):

Competition law is certainly a most tempting instrument given both its flexibility to accommodate creative theories of harm and the ample remedial powers it offers. These reasons explain the recent use (or instrumentalization) of competition law to pursue other public policy goals [I also talked about the latter yesterday at another conference, but I might develop that in another future post].

But just because competition authorities have a hammer, that doesn’t mean they should view every problem –even if unrelated to competition law- as a nail.

In my view, competition law and competition authorities are not well-suited to factor into their analysis (perhaps more important) public policy considerations alien to the specific matters they are supposed to deal with. Competition law is a legal regime of last resort, which means that their existence is premised upon the assumption that, in those areas where regulation doesn’t say otherwise, competition is the best way to allocate resources. When this is not the case, I think the solution may lie in regulating more or in a smarter way, but not in blurring the already blurred contours of a legal regime that –let’s not forget- is of a quasi criminal nature.

Other reasons why competition law might not be well-suited to deal with privacy/data protection issues relate to the fact that it’s only triggered in very specific circumstances; that it is about conduct and not structure; that if authorities are reluctant to intervene in cases of apparent direct harm to consumers in the form of excessive price it’s not easy to see why they should focus on direct harm through lower privacy alternatives (when moreover there is an additional ad hoc legal regime precisely to establish minimum standards). And on top of those there are institutional factors: if competition authorities struggle to strike a balance between strictly economic factors, how would they be supposed to trade-off economic factors with fundamental rights or other public policy objectives? (environment, industrial policy, labor standards, effects on jobs …)

Coming back to the data protection world. The gap (if any) does not lie in competition law not reaching where it should, but on data protection law lacking adequate regulation and remedies. Accordingly, the way to fill in that gap would require devising an effective data protection regime with its own and more effective rules and principles, but not extending competition law beyond its natural limits.

Some person I very much appreciate personally and intellectually (can’t give names because Chatham rules applied) raised the point that the Charter of Fundamental Rights may perhaps be a game changer in that the European Commission would be bound by it and therefore should not only not violate those rights but also facilitate their exercise by citizens. I tend not to agree. In my mind the argument that the Commission would have any obligation not only to comply with the negative obligations Charter but also to positively ensure that private companies comply with it to an extent that goes beyond that required by specific ad hoc legislation –and that may moreover clash with the fundamental rights of others- is stretching the reach of the Charter too far.

I certainly don’t think public policy should be only or mostly about efficiency and competition (as an admired colleague often says, a world exclusively governed by competition would make a great subject for a dystopian novel). There are values, fundamental rights and public interests which might very well trump economic considerations. But my point is that even if one doesn’t trust market forces to promote optimal levels of privacy (due to consumers’ apparent indolence or for whatever reason), one shouldn’t entrust competition law with that task either.

If you ask me, there are issues far too important to be left to competition authorities and competition lawyers.

Written by Alfonso Lamadrid

6 June 2014 at 12:18 pm

On Privacy, Big Data and Competition Law (Post 1/2)

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As I self-advertised in my previous post, I participated yesterday at the European Data Protection Supervisor’s impressive workshop on Privacy, Consumers, Competition and Big Data, where, by the way, this blog received a few mentions.

My impression is that it provided a useful opportunity for various actors to reflect together on the nature, potential and limitations of each discipline in the wake of the EDPS preliminary opinion on these issues.

The workshop touched on competition issues several times. On the EU side, Kris Dekeyser gave the Commission’s view, and on the private side I was honored (and, frankly, a bit surprised) to be the sole EU competition lawyer speaking.

Julie Brill (FTC Commissioner; her speech is available here) and Pamela Jones Harbour (former FTC Commissioner now in private practice) also shared their views on the US approach to these issues.

I was asked to explain to a non-expert audience (by non-experts I mean those who retain the ability to realize sometimes that the king may sometimes be naked…) the notion of market power, why it is important for the application of our rules, how it is assessed in practice, and what are the particular challenges posed by digital markets and big data in this regard.

I’ll spare you the content on my intervention on the most basic issues; suffice it to say that I pointed out that the traditional means to define markets and market power are far from perfect in many ways, but that they’re not supposed to be used mechanically and in the abstract, that the Commission may depart from standard assessment tools to capture the dynamics of competition in any given sector, and that it enjoys wide discretion to act flexibly in this regard.

Moving on to the more interesting stuff. Following a conventional explanation of the main peculiar features of technology/digital markets and of their mixed competition law implications I gave my (non data protection expert) views on the big relevant issues addressed in the workshop, namely (A) What are the implications of data and big data for market definition and market power assessments and (B) Should privacy data protection standards be incorporated to substantive assessment under the competition rules

Today we’ll discuss A, and tomorrow [on Friday] we’ll deal with B, so:

What are the implications of data and big data for market definition and market power assessments?

(i)                 Data is without doubt an increasing important asset/input, and it should no doubts be acknowledged as such. As some of you may remember, some time ago I commented on an article that essentially posited this idea, which I consider to be fairly uncontroversial. In this sense, I’ve no objection to the idea that, depending on the circumstances, data-related issues may give rise to competition concerns.

At the same time, however, data is an important asset or even crucial asset, but no more; and I don’t see why competition law would be required to adapt its rules to when applying them to data-heavy markets.

(ii)               I see one exception to the above. As I explained in a recent post, our current turnover thresholds are not well-suited to capture mergers in the subsidized side of two-sided markets (which may often be markets where non-traded data is important). Only jurisdictions envisaging market share thresholds (often criticized, also by me) may be competent to assess these transactions. Facebook’s very recent decision to try to have the EU review the acquisition of Whatsapp is to be read within this context. I don’t know what the solution is, but it’s worth a thought.

(iii)             Some (including Pamela Jones Harbour in her dissent to the FTC’s Google/Double Click decision) have advocated for a definition of relevant markets for “data used for x [in that case targetted advertising] purposes”. I’m not persuaded by this proposal (except perhaps when the data is subject to trade) because I’m not sure the intermediate data market is a meaningful market in the sense of competition law. If the alleged problem is that the use of data might have consequences in some markets, then my take is that it makes more sense to assess those markets directly.

(iv)             Regarding the big substantive issue, which is related to scale, aggregation, network effects playing to the benefit of allegedly dominant firms, I essentially said that:

  • far from being an obvious competitive problem this also has mixed implications, for data can also be a source of very significant efficiencies (and big data a source of big efficiencies) in many and important fronts;
  • it is true that access to data may in some circumstances be a barrier to entry and even a very important one depending on the facts (I also noted that barriers to entry are not in themselves a problem requiring intervention because competition law is about conducts and not structure);
  • many people throw out “essential facility” as a buzzword in this context to support the contention that some firms should be mandated to share data. In my view the term is used too loosely. As I explained, the identification of an essential facility is subject to an extremely high legal burden (indispensability, elimination of competition in a downstream market…) which makes it difficult to think of instances where it could be satisfied;
  • some people had formulated the idea that network effects and scale determine that users may be locked-in to a given provider and therefore have no meaningful choice as to the privacy policy applied to them. On this point I recalled, among others, that the recent Microsoft/Skype Judgment (yeah, I’m already starting to quote it) seems to close the doors to any argument based on laziness/stickiness when switching is technically and economically feasible.

(v)              I also observed that the main issue where competition law and data protection policies may converge relates to data portability. In cases where it is shown that scale is of the essence, then practices that could deny rivals a minimum viable scale could fall within the scope of the competition rule (in fact, Google’s proposed commitments -see here and here- already incorporate a section on the portability of data for AdWords campaigns). On the regulatory front, the proposed new EU regulation on data protection (currently stuck at the Council) also incorporates a right to data portability. Btw, some of the major companies cited in these discussions already have tools to facilitate portability (see here or here)

(vi)          My last comment on this point was that privacy policies can also be a parameter of competition (even if admittedly many users currently appear to confer more importance to other parameters).

Apologies for making it so schematic, but having quite some work to do I’ve chosen to basically to a transcript of my notes, plus this is already lengthy enough for a post.

On the next post I’ll state my views on whether non-economic privacy considerations should be included as part of the consumer welfare standard.

Written by Alfonso Lamadrid

3 June 2014 at 3:00 pm

More on AG Wahl and restrictions by object: issues raised by the Commission pay-TV investigation

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Pay TV

I gather from the comments to my last post that there is still at least one reader interested in discussing the issues raised by AG Wahl in Groupement de Cartes Bancaires. I could not think of a better excuse to write yet another post about some ongoing developments where the object/effect divide in Article 101(1) TFEU is relevant. This time, which will most probably leave all readers exhausted (more on exhaustion below), I will address some of the open questions raised by the investigation into pay-TV services launched by the Commission back in January.

AG Wahl emphasised in his opinion the importance of considering the context in which an agreement is concluded when determining whether it is restrictive of competition by object within the meaning of Article 101(1) TFEU. It follows from this principle that an agreement that would in principle violate the said provision by its very nature may not do so – and may even fall outside its scope altogether – in some circumstances.

The licensing of TV rights to broadcasters is a perfect example of an instance in which the context surrounding the agreement makes a real difference. It is well-established since Consten-Grundig that agreements giving ‘absolute territorial protection’ to a distributor are restrictive of competition by object. In Coditel II, however, the ECJ held that an exclusive territorial licence in favour of a broadcaster is not in itself contrary to Article 101(1) TFEU, even though it may amount to absolute territorial protection. Why? As the ECJ lucidly explained, what is true for physical goods is not necessarily true for intangible property. In this case, territorial exclusivity came within the scope of the intellectual property right (communication to the public) that was being licensed. The ‘exclusive right to authorise or prohibit any communication to the public’ (to use the wording of Directive 2001/29) can only be meaningfully exercised if the licensee is entitled to prevent others from broadcasting the work in the area subject to the agreement. In other words, and by reference to the expression used by the ECJ in Coditel II, this is an instance in which territorial exclusivity allows the copyright to perform its ‘essential function’ (that in fact is the very ‘object’ of the agreement). If the existence of the intellectual property right is not disputed, then it would be simply illogical to find that the licence is contrary to Article 101 TFEU by its very nature.

Coditel II, which makes perfect legal and economic sense (and which is yet another excellent example showing that the notion of restriction by object has never been interpreted or applied in a categorical or mechanical way by the ECJ), is now seemingly questioned by the Commission in the pay-TV investigation. Commissioner Almunia’s statement raises concerns about ‘provisions [that] ensure that the films licensed by the US studios are shown exclusively in the Member State where each broadcaster operates via satellite and the internet’. This sentence suggests that, in the Commission’s view, agreements that come within the scope of the right of communication to the public are contrary to Article 101(1) TFEU. This position seems to involve a departure from Coditel II and would as such amount to an expansion of the reach and scope of EU competition law, which has long remained deferential to intellectual property regimes and their internal trade-offs. It would also be based on an expansive reading of the notion of restriction by object.

Because the statement is very ambiguous, however, this is not entirely clear. The Commission, on the one hand, claims that some of these agreements give ‘absolute territorial protection’ to pay-TV operators (which would in turn mean that they are restrictive by object). The Commission, on the other hand, says that it is not ‘calling into question the possibility to grant licenses on a territorial basis, or trying to oblige studios to sell rights on a pan-European basis’. I guess we will have to wait and see how the case unfolds in the coming months. Ideally, the Commission would explain whether it takes the view that an exclusive licensing agreement that allows the copyright to perform its ‘essential function’ is restrictive by object simply because it prevents licensees in other territories from offering the same content.

It should be noted that in Premier League (the case without which this investigation cannot be understood) the ECJ was very careful not to question Coditel II. It made it clear beyond doubt that the ruling only concerned the circulation of physical goods (the decoding devices), as opposed to intangible property. It also pointed out that the general principle whereby an agreement granting absolute territorial protection is restrictive by object does not apply where ‘other circumstances falling within its economic and legal context justify the finding that such an agreement is not liable to impair competition’ (and went on to note that the FA Premier League had not put forward any arguments in this sense). This fundamental qualification is not mentioned in Commissioner Almunia’s statement. The fact that the boundaries of the ruling were so carefully defined by the ECJ suggests, in my view (and this irrespective of what we think of the outcome), that it sought to limit as much as possible its implications for exclusive territorial licensing (there is in fact a very marked difference between AG Kokott’s opinion and the judgment, which would go to confirm this reading).

Pablo

 

Written by Alfonso Lamadrid

30 May 2014 at 4:44 pm

Posted in Uncategorized

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