I’m writing this short post just to make sure that Pablo doesn’t publish his 7th straight one, which would match my record of posts by the same author (he really does keep track of these things…).
My absence from the blog these past few weeks days is explained mainly by me being swamped with all sorts of possible things at work, including quite a few new and most interesting Court and Commission cases, some of which may be worth commenting on here at some point. Given that I was already foreseeing some of this could happen, I made a new year’s resolution: say no to any invitation I received to speak at least until my annual lecture at the Brussels School of Competition in mid-March.
Well, only two weeks into the New Year, this is how my non-billable speaking calendar for that period is looking (just in case it isn’t clear, what comes below is self advertising events you may be interested in).
- Yesterday I lectured on cartels at LSE. Glad I did it, also for the great burger with Pablo at Fiveguys;
- On January 26th I’ll be speaking on platform regulation (yes, again) at the European Parliament at a dinner debate organized by the European Internet Forum.
- On the January 29th I will participate at a seminar in Madrid (more info on this soon), discussing issues related to the notion of “single and continuous infringement” in cartel cases with Viktor Bottka (Commission’s Legal Service) and Santiago Soldevila (former General Court Judge, now at the Spanish Court of Appeal). If interested in attending, you can drop me a line.
- On February 2nd I will be making comments about the notion of restriction of competition at the Global Competition Law Centre’s annual conference in Brussels. Pablo and I are likely to write a joint piece on the subject soon. Btw, if you haven’t done so yet, you should register to this one; the programme is truly excellent.
- On February 19th I’ll be taking part in another Madrid seminar coordinated by Cecilio Madero, Nick Banasevic and Milan Kristof (programme to be published here soon).
- On March 1st and 2nd I’ll be lecturing on State aid litigation, and on March 15th about the interface between competition law and IP.
- On March 4 and 5, intervening in AIJA’s conference on Competition Law Developments in Technology, Media and Telecommunications in Valencia, Spain (on a weekend, decent weather, paella…; couldn’t say no). Btw, registrations are now open here.
So much for my good intentions (the above also means that my “sleep more” resolution is also done with…).
Fortunately, however, I have found a way to reconcile work and spending time with my son ;)
The mighty Richard Posner is featured in the Harvard Magazine. If you have some time, you will find it interesting. I guess many readers will agree with his views on legal pragmatism, which he considers to be the only viable approach to judging and, more generally, his scepticism vis-à-vis grand theories. I have the impression, through my exchanges with lawyers and officials, that this is the approach that comes more naturally to those exposed to the realities and constraints of daily decision-making.
I have to say that I kept reading the feature because it announced the release of a new book by Posner, Divergent Paths. A few years ago, he published How Judges Think. There is a chapter in this book, ‘Judges Are Not Law Professors’, that I have read a few times already.
That chapter is a good reminder of what meaningful legal scholarship is. But what it does, first and foremost, is to describe the growing gulf between legal academics and the legal profession in the US. It may be the case that some law professors in the US are towering intellectual figures, but what they say, Posner explains, matters little to judges, officials, and practicing lawyers.
Interestingly, the rise of interdisciplinary research – which Posner championed in the 1970s – explains in part the growing irrelevance of legal academics in the US. Too much ‘Law and…’ and little traditional, black-letter research that sheds light on what the law is and how it evolves. I understand that Divergent Paths expands the topic and I look forward to reading what he has to say.
Other than that, here are a few gems:
- ‘I have to say at the risk of blasphemy that I found the Supreme Court an unimpressive institution’ (about his time as a clerk there).
- ‘I hate the moral philosophy stuff. It is theology without God’ and ‘I don’t like theology with God, I don’t like theology without God. It’s preachy, it’s solemn, it’s dull. It’s not my cup of tea at all’.
- ‘One 2014 case, for example, dealt with whether workers at a poultry-processing plant should be paid for the time it took them to remove and put on protective gear at the start and end of their 30-minute lunch break. The workers said it took 10 to 15 minutes; the company said two to three. Posner bought the gear and videotaped and timed his law clerks putting it on (95 seconds) and taking it off (15 seconds), for a total of less than two minutes’.
My admittedly modest resolution for 2016 was to read (at last!) Transport for London’s proposals for the regulation of the private hire sector (aka the Uber proposals). Uber is an immensely popular service that works lawfully, and in the interest of consumers, in London. It is affordable, reliable, and works around the clock.
I genuinely thought that, at least as far as London is concerned, there was no way back. I know it is immensely difficult to change regulation to allow a disruptive service. And I appreciate that managing change is even more difficult. But once the service is lawfully up and running, as Uber is London, I did not think that regulators would try to re-regulate a service to penalise consumers.
Having read TfL’s proposals, I realise that I may have underestimated the power of regulators to adopt rules that harm users for no compelling reason. In this sense, these proposals are a useful case study on the behaviour of regulators and possibly a template of what the current obsession with the regulation of ‘platforms’ (whatever that means) may bring about in the near future.
The most controversial proposals advanced by TfL are the following:
- ‘Operators must provide booking confirmation details to the passenger at least five minutes prior to the journey commencing’. In other words, it is necessary to wait five minutes before getting on a car. What if there happens to be an Uber car around the corner? The rule would still apply. The alleged rationale for the five-minute rule is that it would ‘reduce the risk of a customer getting into the wrong car and/or into an unlicensed vehicle’. Really.
- ‘Operators must offer a facility to pre-book up to seven days in advance’. TfL believes that ‘increasing absence of advance booking facilities will restrict the choice for passengers’ and therefore that it should require all operators to provide this service. This says much about how regulators see competition. TfL does not expect competition to bring about the services that consumers want and value. It is for the regulator to do that.
- ‘Operators must not show vehicles being available for immediate hire, either visibly or virtually via an app’. This proposal seeks to prohibit one of Uber’s most interesting features. The application displays the cars that are in the vicinity and allows users to see where the car is any time. Apparently, this feature creates ‘the impression of vehicles being available for immediate hire’. And apparently, this is a bad thing.
- ‘Operators must specify the fare prior to the booking being accepted’. Something strange must be going on in this city. For some reason, consumers use (massively and enthusiastically) Uber without knowing exactly how much the trip will cost.
The picture that emerges from the above is clear. TfL ostensibly intends to create a level playing field. But it seeks to do so in the wrong way. Instead of changing the regulatory regime with consumers’ interests in mind, it seeks to eliminate some of the competitive advantages of new entrants to protect incumbents (including cabs and large minicab companies).
We have seen this story many times before. My favourite example is that of cable television in the US (here is a great article about it). For years, the FCC prevented the growth of cable systems (which have transformed television, for good and for the better, around the world) simply to protect incumbent broadcasters.
This discussion begs two questions, and I would love to read your views on them. One is whether good regulation is the exception rather than the rule.
The second is whether, paradoxically, good regulation tends to be treated more harshly than dubious initiatives. Right before Christmas Day, the ECJ ruled on Scottish legislation setting a minimum price per unit of alcohol. This is an example of government regulation at its best. It seeks to address a serious concern in a way that is sensible and proportionate. Alas, there is no guarantee that the regime will be upheld after the preliminary ruling.
I have recently uploaded on ssrn another paper, ‘Restrictions on Innovation in EU Competition Law’. It is forthcoming in the European Law Review (many thanks to Panos Koutrakos, editor of the review, for allowing me to upload a pre-edited version!).
I know much has been written about the relationship between competition law and innovation (perhaps too much in the US, perhaps not enough in Europe). I was inspired to prepare this paper because there is a crucial aspect about this relationship that tends to be ignored by commentators specialised in EU competition law. As is often the case with many academics, I write the papers that I cannot find and that I would love to read.
I explain that there are two ways in which innovation considerations may be considered in competition law analysis: direct and indirect.
The indirect introduction of innovation considerations: What do I mean by the indirect introduction of innovation considerations? What the Commission typically does, which is to infer harm to innovation from the effects of a practice on the degree of competitive pressure faced by firms.
In Intel, for instance, the Commission argued that the foreclosure of AMD would have a negative impact on the latter’s incentives to innovate. In Deutsche Borse/NYSE Euronext, the Commission claimed that competitive pressure between the merging parties had been a major driver of innovation in the industry. Thus, the loss of competitive pressure can be presumed to reduce the merging entity’s incentives to innovate.
I fail to see anything problematic with the indirect introduction of innovation consideration. As EU competition law stands, it is not necessary to directly establish, or quantify, the impact of a practice on one or more parameters of competition. Negative effects on prices, output or quality, are typically inferred by proxy, i.e. from factors that relate to the structure of the relevant market, its dynamics, and the position of the parties therein. In Deutsche Borse, the GC has confirmed that this approach is correct (the GC dismissed claims that the Commission had not established harm to innovation to the requisite legal standard).
Why is the indirect introduction of innovation considerations controversial? Because some authors, in particular in the US, argue that the link between market structures and innovation is not strong enough to establish a presumption. As a result, inferences by proxy would be insufficiently robust and not particularly reliable.
In Europe, these arguments do not seem to be particularly powerful. Because establishing harm to innovation is not essential to justify intervention, the lack of a link between market structures and a parameter of competition cannot be a determinant factor in the outcome of a case.
Arguments about the lack of robustness of analysis by proxy could only be considered at the stage of the efficiency justification, once a prima facie infringement (or finding of incompatibility) is established (which, given the nature of innovation as a process, is the same as saying that they can never be considered).
The direct introduction of innovation considerations: Innovation considerations may be introduced in a direct way when the Commission is not able to establish anticompetitive foreclosure to the requisite legal standard, or where it is unable to show that a refusal to license an intellectual property right prevents the emergence of a new product.
In such circumstances, innovation considerations are not the outcome resulting from a reduction in the degree of competitive pressure faced by firms, but the very concern justifying intervention.
The ‘scraping’ concerns raised in the context of the Google investigation provide an excellent example. The Commission has pointed out that using third-party content without authorisation could amount to an abuse of a dominant position. However, it does not seem to argue that ‘scraping’ is problematic because it could lead to foreclosure – and foreclosure does not look like a very credible claim with regard to firms like Yelp or Tripadvisor. Instead, the Commission has argued that ‘scraping’ could have a negative impact on third parties’ incentives to innovate. Innovation as such, not foreclosure, appears to the concern driving intervention in such cases.
The direct introduction of innovation considerations is problematic. There seems to be no room for it in EU competition law. This is an aspect that has not been explored in sufficient detail in existing scholarship, and I thought it was worth making the point. This approach to enforcement is problematic, first, because I do not believe it is possible to provide cogent and convincing evidence of harm to innovation. I do not believe that a competition authority could go beyond arguing that harm to innovation is a plausible outcome of a practice. And plausibility is not enough (and should not be enough) to establish a breach of competition rules.
Second, because it lays down a legal test that does not set meaningful boundaries to administrative action. For instance, a competition authority could, always and everywhere, argue that harm to follow-on innovation is a plausible consequence of a refusal to license an intellectual property right. Can you think of an instance in which this test would fail? I cannot.
In other news:
- You will have heard about Alfonso’s resounding victory before the General Court. And I am sure you very much look forward to his thoughts on it, as I do. He is busy, but he will certainly share his views on the saga.
- This is the last post that I will be writing before the new year. 2015 has been my first full year as co-editor of Chillin’ Competition. I am very pleased that our readership keeps growing. We have received substantially more views and unique visitors than in any of the previous years, which is encouraging. Thank you very much!
I have just uploaded a paper on Copyright Licensing and the EU Digital Single Market Strategy. It will be coming out in the Cambridge Handbook of Antitrust, Intellectual Property and High Technology, edited by Roger Blair and Daniel Sokol (to whom I am really grateful for the invitation to take part in the project!).
The chapter gives an overview of the issues relating to the application of Article 101 TFEU to copyright licensing, in particular against the background of the EU Digital Single Market Strategy (and of the ongoing proceedings on geo-blocking). You will find an analysis of the Coditel II and Murphy, and of the steps taken by the Commission to reform copyright regimes. The later includes last week’s proposal to ensure the ‘portability’ of copyright-protected content across borders.
As I point out in the paper, it is an interesting area insofar as the copyright legislation and EU competition law enforcement seem to be evolving alongside one another.
As usual, I would very much welcome your views on the piece!
[These are exciting days for competition lawyers in Hong Kong. The competition law regime is finally up and running! I have asked our friend Sandra Marco Colino, Assistant Professor at the Chinese University of Hong Kong, author of a textbook and excellent host, to prepare a note on her impressions about the new times. Enjoy!]
This week marks the beginning of Hong Kong’s competition law era. As of Monday 14th December 2015, all the provisions of the Hong Kong Competition Ordinance are fully enforceable, following a progressive 3-and-a-half-year implementation period.
The entry into force of the first ever comprehensive competition legislation is excellent news for my professional future a tycoon-dominated economy prone to anti-competitive conduct such as Hong Kong. As I discussed on this blog when the law was passed by the Legislative Council, the pervasive hostility in the region towards introducing any form of cross-sector competition legislation resulted in a passionate “to competition law or not to competition law” debate that went on for more than 15 years. These antitrust jitters left an imprint on the law which, as I previously discussed, required substantial dilution to be met with sufficient support for its adoption. But we got there in the end, and the Hong Kong Competition Ordinance was finally passed on the 14th June 2012.
So what has happened in the last 3 and a half years, and why has it taken so long for the law to enter into force? For starters, the institutional framework had to be laid down. The Competition Commission (HKCC) and the Competition Tribunal (HKCT) were established in 2013, and both have been warming up for enforcement since. Subsidiary legislation was adopted by the government on the calculation of turnover and excluded bodies in April 2015, and on the Tribunal rules and fees in July 2015. The Competition Commission, in compliance with its obligations under the Ordinance, issued six Guidelines (to be found here) – first in draft form for public consultation, subsequently finalized in July 2015 – on: the First Conduct Rule; the Second Conduct Rule; the Merger Rule; Complaints; Investigations; and Applications for Decisions, Exclusions, Exemptions and Block Exemption Orders. More recently, in November 2015, the Commission announced its finalized leniency policy for cartel cases and its enforcement policy, setting out its enforcement priorities (see here). But beyond guidelines and policy, the Commission has been busy developing various initiatives to promote public awareness and to engage with the business community. It has produced didactic brochures and guidance to help companies understand the kinds of conduct that run contrary to the law. It has organized countless meetings and seminars with SMEs, trade associations and other stakeholders. And for those into soap operas, it has even produced a 10-episode TV mini-series, ‘Compete with Integrity’ (in Cantonese with English subtitles), which aired at prime time on local television. If you are hooked and you missed and episode, fear not – the entire series can be watched on the Commission’s website.
It has taken a while, but it looks like all is set now for competition law to kick in. Although the law is unusually detailed and lengthy, since it has not yet been enforced the Commission and the Tribunal have yet to chisel out some of the fundamental aspects of Hong Kong competition policy which will determine the effectiveness of the regime. It is through their forthcoming investigations and decisions that these aspects will be finally defined. The Commission is expected to start exercising its investigatory powers immediately, and some investigations may lead to enforcement actions before the Tribunal. The Tribunal will then adjudicate on the cases brought before it by the Commission or by private parties, and might impose sanctions if necessary.
As we anticipated, the new law has the potential to tackle many of the anti-competitive practices that threaten the proper functioning of Hong Kong’s free market economy. But the Ordinance, the Guidelines and the policy documents published thus far still leave important questions unanswered. I leave you with a few unaddressed issues to mull over. Under the First Conduct Rule, for instance, it is unclear how vertical agreements will be treated. According to the Guidelines, resale price maintenance “may” be harmful and even anti-competitive by object in some cases; however, the enforcement priorities make no mention of minimum RPM, despite the fact that it is considered to be common practice in Hong Kong. As for the application of the Second Conduct Rule, the Guidelines avoid referring to safe harbours, nor do they give any indication of specific market shares that might amount to “substantial degree of market power”. With regard to the Merger Rule, it remains applicable only to the telecommunications sector, and therefore most concentrations affecting Hong Kong will not be investigated unless they have wider effects and fall under the jurisdiction of other competition authorities. Adequately punishing anti-competitive conduct might also pose prove challenging. Since only the Tribunal can impose sanctions, it is still unclear whether the penalties available will be suitably used to deter anticompetitive conduct; given the relatively low fines that can be imposed (10 per cent of local turnover, for a maximum of 3 years), resorting to other weapons for serious breaches, such as director’s disqualification orders, could be crucial to enhance the punishing potential of the law. In addition, the leniency policy towards cartel members who are not the first to come forward is also far from clear. Moreover, the – virtually absolute – discretion afforded to the Chief Executive to disapply the law to ‘any person’, or to exempt certain conducts, could seriously undermine the authority of the Ordinance.
Only time will tell just how successful Hong Kong’s first cross-sector competition law turns out to be. Both the Competition Commission and the Competition Tribunal are more than sufficiently prepared to make the most of the somewhat limited powers that have conferred on them to fight anticompetitive practices and give a much needed boost to competition in the region. Even though the path towards a fully operational antitrust regime has only just begun, for the time being it is heartening to finally savour the victory of full implementation.
It has taken me a while to realise the significance of the recent Court judgment in Maxima Latvija. On its face, it does not seem to add much to what we know about agreements that restrict competition by object. This impression is probably due to the fact that the Court is not very explicit about why it ruled the way it did. If one takes into account what was not said, but is implicit, together with what the Court did actually say, it is possible to draw some valuable lessons.
What the Court said in Maxima Latvija
The necessary and sufficient factors to establish a ‘by object’ restriction
Paragraphs 22 and 23 are very much in line with previous case law. It is clear from the latter that the question of whether an agreement restricts competition by object is established in light of the content of the agreement and the context of which it is part. This is nothing new, but it is valuable that the Court confirms that these are the necessary and sufficient factors to evaluate whether a set of restraints is incompatible, by its very nature, with Article 101(1) TFEU.
The ‘by object’ category is not a presumption of anticompetitive effects
I repeat myself a lot, but it cannot be emphasised enough that the ‘by object’ category does not encapsulate a presumption of anticompetitive effects. When commenting on Bananas, I mentioned that an agreement such as an exchange of information can be found to restrict competition by object irrespective of whether there is evidence of its impact on competition. As Bananas itself shows, an exchange of information may be prohibited by its very nature even if it is not particularly likely to have a significant impact on prices.
Maxima Latvija is the mirror example. The case is about an obligation included in an agreement between the ‘anchor tenant’ of a shopping mall and the lessor. I understand from the ruling that the ‘anchor tenant’ had to give its consent to the letting of other premises to third parties. This restraint would work as an exclusivity obligation, in the sense that the tenant is given the right to oppose the letting of premises to competing supermarket chains.
The Court concedes that this contractual obligation is capable of having (‘could potentially have’) an anticompetitive effect. However, this fact alone is insufficient to establish that it is restrictive by its very nature. In other words, a restriction by object does not exist merely because an agreement can be presumed to have anticompetitive effects (and no, the Court never said the opposite in T-Mobile).
This is something that the Court has always held, but tends to be forgotten. Selective distribution agreements reduce substantially the ability and incentive of retailers to engage in price competition. It is in fact safe to presume that selective distribution softens price competition. However, the Court has always ruled, from Metro I to Pierre Fabre, that this fact alone is insufficient to establish a restriction of competition. As is well known, selective distribution networks fall outside the scope of Article 101(1) TFEU altogether in some circumstances.
Maxima Latvija is particularly interesting because there is recent empirical evidence suggesting that exclusivity obligations included in agreements between shopping malls and tenants have anticompetitive effects. Itai Ater comes to this conclusion in an article published earlier this year in the Journal of Economics & Management Strategy. So there it is: an agreement that is known to lead to higher prices has not been found to restrict competition by object.
What the Court did not say in Maxima Latvija
Why is an agreement not found to restrict competition by object if it is known – and can be expected – to have negative effects on some parameters of competition? The Court did not say much about it in Maxima Latvija. Actually, the Court does not really explain why the agreement is not restrictive by object. The good news is that past case law is very explicit about these two questions.
An agreement does not qualify as a ‘by object’ restriction if it has redeeming virtues that compensate for the expected negative effects. Think of Metro II. True, the Court held in that case, selective distribution softens price competition. But it benefits consumers in other ways. As a result, it is not restrictive by object.
The reasons why the Court came to the same conclusion in Maxima Latvija are probably not very different. The abundant references to Delimitis suggest that the contentious clauses were understood to be functionally equivalent to exclusive dealing obligations. And the Court has already held that exclusive dealing has redeeming virtues that are in the interest of both parties to the agreement and thus of consumers.
Interestingly, Itai Ater mentions in his paper, referred to above, that exclusivity obligations agreed upon between ‘anchor tenants’ and shopping malls can yield efficiencies. For instance (and this says much about his academic integrity), the author points out that his empirical analysis may have failed to capture that an exclusivity obligation between an ‘anchor tenant’ and a shopping mall may induce relationship-specific investments or may attract such investments at an early stage.