Ideas originating in North America cross the Atlantic sooner or later. The view that competition law should be concerned with choice, rather than with a particular measure of welfare, or another objective, seems to be gaining popularity in the EU. In addition to the references to choice found in Commission decisions and other statements of policy, there is a growing strand of literature emphasising the importance of choice in the competitive process.
You have certainly guessed from the title that I am quite sceptical about this move, and that I find express reliance on choice by competition authorities to be problematic in certain instances. More than anything, I see this trend as the repetition of past mistakes. As such, it also provides a suitable topic for the first post of the year, when we all think about resolutions. Indeed, ‘don’t repeat past mistakes’ is probably the best resolution of which one can think. Before I forget, by the way: happy 2015 to all!
There is already quite a lot written on competition law (or antitrust) and choice, which means that the main arguments are already well-known. Saying that competition law should be about choice amounts in a way to stating the obvious. Preserving the sources of competitive pressure to which firms are subject can be expected to lead to increase choice for consumers, in the same way it can be expected to lead to lower prices.
It is also abundantly clear that the competitive process often leads to what look like choice restrictions. By definition, selective distribution limits choice for consumers, insofar as they may only be able buy the product in question from certain retailers. Yet such systems are known to be pro-competitive (they tend to promote competition and thus choice). They fall outside the scope of Article 101(1) TFEU altogether in certain instances. The same can be said of franchising. It would certainly enhance choice to have McDonald’s hamburgers sold alongside Pizza Hut products. However, the ECJ held very clearly in Pronuptia that franchisors may take steps to protect their know-how and their reputation without infringing Article 101(1) TFEU.
In light of the above, it is not clear why choice as such would be advocated after the experience acquired over many decades. I do not believe choice advocates claim that we should prohibit altogether selective distribution, franchising or other vertical restraints. I am certain that they accept free-riding as a concern that can justify choice restrictions in such and other instances, and I am also sure that they accept the idea that the protection of the competitive process tends to lead to increased choice. In this same vein, I do not think they have in mind an alternative, internally coherent and fully-fledged standard revolving around choice.
What are we left with, then? It is difficult to tell. My impression is that choice could be useful in practice as something akin to a ‘back-up’ quasi-standard; that is, as a contemporary abracadabra that would allow for intervention when conventional analysis would not. Remedial action is not warranted under the established framework? Well, one can always resort to the vague idea of choice to make a case for intervention. It may not be as robust as a properly articulated theory of harm, but it may sound plausible and, hey, sure nobody is heartless enough to be against consumer choice.
If this is really what is going on, there is every reason to be concerned. It shows, first and foremost, that the lessons of history are easy to forget. We have come a long way to make enforcement sensible and predictable. It would seem, however, that the temptation to rely on nebulous concepts will never fade. Expanding the boundaries of intervention will always be appealing. The good news is that EU competition law is now much better equipped to deal with insufficiently robust and/or poorly articulated claims.
Last week General Court Judge Marc van der Woude (click here to read his Friday Slot interview with us) and Nicolas Petit did a joint presentation on recent EU competition case-law at the Vereniging voor Mededingingsrecht (Dutch Competition Law Association).
The must-read slides are available here: Slides -17 December – Van der Woude and Petit
(A teaser: the slided identify an apparent misquote in the Cartes Bancaires Judgment…).
The revived interest in exclusive dealing and rebates forces us to come back to some of the concepts around which debates revolved in the mid-2000s. I had not anticipated that there would still be some confusion about the meaning of some of these concepts. In particular, I thought it was clear what lawyers and economists meant when they referred to the ‘form-based’ approach to Article 102 TFEU. I now realise that a post on the matter is not only appropriate but even necessary to help the ongoing discussions (which I hope will remain as lively as they have been in the past few months).
The prohibitions set out in Articles 101 and 102 TFEU may be triggered (i) by the practice itself; or (ii) by the effects of the said practice. Under the first approach, the practice, if established by an authority or a private claimant, will be prohibited unless the dominant firm is able to put forward an objective justification or unless the parties to the agreement are able to show that the conditions set out in Article 101(3) TFEU are fulfilled. Under the second approach, it would be necessary to show that the practice under consideration has, or is likely to have, anticompetitive effects. To be sure, it would still be possible to justify the conduct even under this second approach.
The expression ‘form-based’ is used (and, as far as I understand, has always been used) to refer to the first of these two approaches. A ‘form-based’ approach to some practices seems wholly uncontroversial. Cartels, for instance, are prima facie prohibited regardless of their effects (and irrespective of whether they have actually been implemented). Thus, any claims that the cartel is on the whole pro-competitive (as in BIDS) would have to be considered under Article 101(3) TFEU. The same is true of agreements aimed at restricting parallel trade, as confirmed by the ECJ in Glaxo Spain (more about parallel trade restrictions soon).
Some practices, including exclusive dealing and loyalty rebates, are treated like cartels under Article 102 TFEU (but not under Article 101 TFEU). In other words, their legality is established in accordance with a ‘form-based’ approach. If some aspects of the case law have been criticised, this is because exclusive dealing and loyalty rebates differ significantly in their purpose and effects from cartels. As I explain in my paper, experience and economic analysis show that it is appropriate to presume an anticompetitive intent in the case of a cartel, but not in relation to exclusive dealing and loyalty rebates. Similarly, one can safely assume that, if implemented, a cartel will have anticompetitive effects. As cases like Michelin II and British Airways show, the same cannot be said of exclusive dealing and rebates.
As can be seen, references to the ‘form-based’ approach sometimes followed by EU courts in Article 102 TFEU cases have nothing to do with the fact that legal analysis involves by definition the use of categories and bright-lines, nor are they a plea for the unstructured balancing, on a case-by-case basis, of the pro- and anticompetitive effects of a practice. These references are simply used to convey the idea, enshrined in the Commission Guidance, that a ‘form-based’ approach to enforcement is not appropriate for the most common categories of potentially abusive conduct.
[I took the above picture this morning on my way to the LSE. Londoners should be able to guess where!]
A great initiative right before the weekend. Professor Alison Jones and her colleagues at King’s College London have launched a Competition Law Moot. We are convinced it will be a great success. I hope LSE will send a team. Alfonso, in turn, is hoping to set up Chillin’ Competition Team with postgraduate students from all over Europe. Do not hesitate to contact him. Please see below for details (about the moot, not about Alfonso’s idea):
The Dickson Poon School of Law, King’s College London is very proud to offer students from across the world the opportunity to participate in the Herbert Smith Freehills Competition Law Moot, the first international competition law mooting competition to be held at King’s. The competition is generously sponsored by Herbert Smith Freehills, one of the world’s leading law firms.
In 2015, we will invite 12 teams to compete in a moot competition in the home of The Dickson Poon School of Law, Somerset House East Wing, London. The competition will provide an excellent opportunity for students to practise and improve advocacy skills in front of a judging panel, drawn from international competition law specialists.
The amount of commentary to which the Intel ruling has given rise in less than six months is quite extraordinary. There is every reason to welcome the debate and exchange of views. Given the interest in the topic, I thought it would make sense to develop the ideas I sketched in a post published back in June. Click here to download the paper. Your comments would be most welcome (e-mail: P.Ibanez-Colomo@lse.ac.uk).
I started my LLM in Bruges in September 2003. A couple weeks into the programme, Michelin II came out. I remember vividly the discussions we had in class about it. Even for a postgraduate student with no experience it was easy to understand the significance of the judgment and its implications. 11 years have passed, I am now the one teaching LLM students, and the relevant case law continues to generate considerable controversy. It seems clear that the debate touches upon some fundamental questions in EU competition law.
The lack of clarity – in spite of the frequent and lively discussions – about the issues that are really at stake is what prompted me to write the paper. I argue that the controversy, while being of major importance, is far more limited in its nature and scope than commonly assumed. Upon closer scrutiny, it seems to me that the case law on exclusive dealing and rebates is criticised not so much because there is a disagreement about the objectives of EU competition law, but due to the tensions (or ‘frictions’, as I call them in the paper) that have arisen in the case law.
What the controversy is NOT about: This endless controversy has nothing to do with the so-called ‘more economic approach’ or ‘more economics-based approach’. I never liked these expressions. They suggest that economic analysis has been introduced by the European Commission from the top down in an attempt to change EU competition law. Nothing could be further from the truth. As I show in the paper. EU courts have always relied upon mainstream economic analysis to shape EU competition law (just think, among the many examples, of Woodpulp II or AKZO) and have frequently taken the lead in this sense. Tetra Laval and Airtours, both of which unambiguously embraced mainstream positions, are indispensable to make sense of the policy shifts observed in the course of the past decade.
Similarly, this debate is NOT about the objectives of EU competition law. As I explain at length in the paper, the current approach to exclusive dealing and rebates is not the only conceivable one under the Treaty. The prohibition, absent an objective justification, of exclusive dealing and loyalty rebates does not follow logically from the fact that the objective of EU competition law is to create a system of undistorted competition. Likewise, there is nothing in the said objective that is inimical to the use of efficiency considerations to shape the law, as rulings like AKZO, Deutsche Telekom, TeliaSonera and Post Danmark show.
How I see this controversy: EU competition law evolves and is shaped from the bottom up in an incremental manner. As a result, tensions in the case law are inevitably bound to arise. Some rulings may hint at a particular logic, while others at a different one. There is nothing wrong with that. Quite to the contrary, it is the very reason why law is fascinating as a scholarly discipline. Over time, doctrines are refined, and contradictions between cases addressed, through the interaction between (and disagreement between) judges, officials, lawyers and scholars. Nothing else is going on in relation to Intel. As I see it, the real (and only) issue at stake is that the case law on exclusive dealing and rebates is difficult to reconcile with Article 101 TFEU and Article 102 TFEU case law applying to the same or comparable practices. Read the rest of this entry »
A few days ago the Chinese government announced that it will put an end to what is perhaps the oldest monopoly in the world, that of salt, which has been in force for well over 2,000 years (see here).
As of 2016 salt prices will be liberalized in China, and in 2017 the government will commence to grant new licences to operate in the market. Many citizens have expressed their reluctance to see the salt monopoly go (see here).
The salt monopoly was adopted in China by the Han dynasty in 119 B.C. with a view to funding the largest expansion in the history of China. Over the years, salt came to be the origin of 80-90% of the public revenues in certain Chinese states. The role that the salt monopoly has had in Chinese history, at all economic and even philosophical or religious levels is determinant, having been at the roots of major debates on foreign relations, wealth and inequality and the role of the State in the organization of the market. Or that’s at least what I’ve read…
Interestingly, salt monopolies also played a key role in other parts of the world, as, btw, did salt taxes (with the British salt tax in India eventually leading to Gandhi’s Salt March or Salt Satyagraha in 1930 and the French “Gabelle” contributing to the uprise that became the French Revolution). Salt is not the only monopoly that has had a transforming impact in history; think of the East India Company or the Casa de Contratacion (among many others).
I started reading about all this stuff almost by accident, and then spent part of Sunday evening reading a bit more with the idea to write a post on the role of monopolies in history.
On a second thought, that’s too ambitious a goal, but the subject is -I think- fascinating.
If any of you knows of any books or studies that touch on the role of monopolies in history, please send them my way and we’ll give them due publicity here.