Some of you may remember that I wrote a few months ago about the regulation of pay TV markets by Ofcom. Back in 2010, the regulator required Sky to supply its premium sports channels to its rivals even though there was (is) no evidence that they were (are) indispensable for downstream competition (there is in fact strong evidence suggesting the opposite), and even though intervention could have the paradoxical effect of strengthening the position of the incumbent telecommunications operator (thereby contradicting the very logic and purpose of the EU Regulatory Framework for electronic communications).
The battle between BT and Sky has made the headlines again, unfortunately for the wrong reasons. BT instigated Ofcom to start the pay TV investigation that resulted in the imposition of wholesale supply obligations on Sky. It now appears that the latter wants an inquiry into the BT’s Openreach, the division that runs the network of the incumbent operator. The ultimate aim of Sky and other major broadband providers like TalkTalk is to achieve the structural separation of Openreach, which they would like to become an independent company. This question is particularly topical against the background of the (ongoing) merger between BT and EE (the leading mobile operator in the UK).
BT and Sky cannot be blamed for using regulation as a means to obtain competitive advantages (or as a means to compensate for a competitive disadvantage). If Ofcom has created the impression that lobbying to obtain regulatory favours pays off, it is natural that Sky follows that route in an attempt to achieve a level playing field in the operation of broadband Internet services. Those of us interested in competition law (and competition tout court), however, see this trend with concern. Where companies devote their resources to achieve regulatory advantages, and not to improve their services, consumers are typically made worse off.
These developments also suggest that bad regulation (and bad intervention under competition law, may I add) is more harmful than commonly assumed. Imposing an obligation on Sky to supply its premium sports channels is problematic not only because it is entirely unjustified, but also because it distorts firms’ incentives and encourages them to compete before the regulator, not in the marketplace. Not to mention that overregulation tends to create the need for ever more regulation to remedy the distortions created by the piling up of successive interventions.
It was sad and shocking to see some French taxi drivers resorting to violence in their demonstrations against Uber. These events, and the response of the French government, are the expected consequence of bad regulatory design. Regulation in the sector, as originally conceived and still enforced in many European cities, is simply not justified anymore. Applications like Uber address very effectively the market failures that used to provide a rationale for it. As an enthusiastic and regular user of the service in both London and Brussels, my impression is that Uber is in fact more effective, more responsive and more protective of the consumer than any local rules I have seen (and I have lived and used taxis in a few European cities).
The problem at the heart of the current troubles relates not so much to whether legacy regimes are justified (which they are not), but to the way in which they could be reformed to accommodate disruptive technologies. Some taxi drivers use violence because the legislator had created the expectation that existing regulation would apply forever. This expectation is reflected in the hefty prices paid for taxi licences in many cities. A government (local or national) has to be very courageous to change such a system. It is infinitely easier to prohibit a new service – no matter how good for the public at large – than to confront technological reality.
Why do I discuss all of this, which is well known by all readers of the blog? Well, if there is a lesson that the Uber debate provides is that regulation should be carefully crafted so that it can adapt seamlessly and effectively to technological change. Unless flexibility and adaptability are enshrined in the regime itself, change is unlikely to occur (or unlikely to occur at the pace required by the underlying economic and technological reality).
The European Commission had this lesson in mind when the Regulatory Framework for electronic communications was proposed in 1999. The telecommunications sector was rapidly changing, and it was already clear that technology alone would progressively address many of the concerns that were deemed to justify intervention at the time.
Thus, the Regulatory Framework was not conceived as a collection of rules imposing precise requirements on operators but as a set of broad principles that national authorities would follow when considering the need for intervention in a particular market. Because administrative action is subject to regular review, remedies are only imposed insofar as, and for as long as, they are necessary to advance the objectives of the regime.
The Regulatory Framework was an impressive legislative achievement that, alas, has been progressively undermined. Maybe it is true that good things never last. The most recent nail in the coffin has come from the recent political agreement to introduce net neutrality rules at the EU level (and which apply at least to what the press release calls the ‘open Internet’). As far as I can gather, the new rules will provide for an unconditional ban on some practices. Such prohibitions would be directly enshrined in the Framework. This is the very regulatory technique that the Commission considered to be inappropriate back in 1999.
I have never seen anything close to a theory providing a convincing case for net neutrality. But this is not really the issue here. What I find worrying is that, because of the regulatory device chosen by the European legislator, net neutrality is here to stay, and is likely to stay even if it becomes clear that it does more harm than good. The Regulatory Framework was conceived as a ‘future-proof’ instrument. It is ironic that, over time, it has evolved to become more rigid and less evidence-based.
Given that my most recent posts have been substantive and lengthy, I think I’ve earned myself a
lazy short self-serving post today:
Two events have just been announced concerning some of the trendiest topics in competition law these days, so save the dates:
– On Monday 13 July the Spanish Association for the Digital Economy (Adigital) will be holding a talk about Competition law and e-commerce featuring Thomas Kramler (head of the DG Comp task force in charge of the sector inquiry and one of the greatest experts in competition digital markets) and myself (not head of anything). All info is available here.
– After the summer, on 24 September the European Data Protection Supervisor and the Academy of European Law (ERA) will be hosting a most interesting conference titled “Competition Law rebooted: Enforcement and personal data in digital markets“. I will be sharing a panel with Jorge Padilla and Orla Lynskey. For more info click here.
In the coming days I will also be participating in other fascinating events, including 8 hours of lectures with consecutive translation into Mandarin in Bruges, 4 cartel hearings in Luxembourg, a peculiar race in Brussels that you should join if you’re around, and swimming baby lessons, but I’m guessing I will not be attracting much public to any of these…
As I wrote almost 4 years ago (On the EU and the sovereign debt crisis- Because life isn’t just competition law), discussing about EU competition law considering everything that’s going on these days feels a bit weird; it’s as if in the midst of the Titanic’s sinking we –competition lawyers- were only discussing about the colors of the paper wall of one of its most luxurious ball rooms…
Some years ago, as part of PhD courses, I wrote a pretty lengthy research paper on the value of precedent in EU Law for Professor Gil Carlos Rodríguez Iglesias, the former President of the ECJ. The topic was most interesting. For some time I entertained the idea of turning it into a proper article on the subject and then doing a spin-off for competition cases alone. I now acknowledge I most likely won’t have the time to do that (although I encourage any of you looking for thesis topics to give it a try), but the interest remains.
This is to explain why something the US Supreme Court said in its recent Opinion in a patent case, Kimble v Marvel, caught my attention (the case, concerning a licensed Spiderman product that lets children “and young-at-heart adults” to shoot “webs” from a device held in the palm of the hand; [sounds pretty cool, no?]) reaffirms a precedent –Brulotte– pursuant to which a patentee cannot collect royalties on sales made after expiration of the patent). Actually, many of the things I read there caught my attention, and for different reasons:
As serious antitrust experts, you would mainly be interested in the SCOTUS’ acknowledgment that stare decisis is nuanced in antitrust cases (no news, but it’s always interesting to read it so explicitly). The Opinion -written by Justice Kagan- contains a very interesting discussion about the value of stare decisis (“stand by things decided”) even when it may lead to “sticking to some wrong decisions”. Remarkably, at one point it says the following:
“If Brulotte were an antitrust rather than a patent case, we might [address the issues] as Kimble would like. This Court has viewed stare decisis as having less-than-usual force in cases involving the Sherman Act. See, e.g., Khan, 522 U. S., at 20–21. Congress, we have explained, intended that law’s reference to “restraint of trade” to have “changing content,” and authorized courts to oversee the term’s “dynamic potential.” Business Electronics Corp. v. Sharp Electronics Corp., 485 U. S. 717, 731–732 (1988). We have therefore felt relatively free to revise our legal analysis as economic understanding evolves and (just as Kimble notes) to reverse antitrust precedents that misperceived a practice’s competitive consequences. See Leegin, 551 U. S., at 899–900. Moreover, because the question in those cases was whether the challenged activity restrained trade, the Court’s rulings necessarily turned on its understanding of economics. See Business Electronics Corp., 485 U. S., at 731. Accordingly, to overturn the decisions in light of sounder economic reasoning was to take them “on [their] own terms.” Halliburton, 573 U. S., at ___ (slip op., at 9)”.
This paragraph confirms, once again, that antitrust is an odd legal animal and that general legal principles often apply to it with a twist. It also confirms that antitrust is a discipline in permanent evolution, which is why many of us enjoy it (and even write blogs about it).
But perhaps more importantly, the reflection that this paragraph triggers is that the “changing content” of antitrust as opposed to other disciplines means that it is a product of common sense distilled from decades of experience on individual cases and of established economic thinking rather than a product of political preferences embodied in a statute. Changes in competition law are (most often) dictated by logic applied by technical bodies and judges, not by political agendas. I made already many of those points here.
It is important not to forget this at a time when some, at least in the EU, are talking about changing/adapting the content of the competition rules (i.e. to replace those decades of distilled thinking by a more hands-on approach on the part of legislators, which would imply the adoption of rules guided by the political concerns of the day and not by the evolution of technical knowledge).
As not-so-serious readers of this blog, you’ll probably also be interested by the language used both in the Opinion and in the dissents. Justice Kagan describes the product at issue as “a toy that allows children (and young-at-heart adults) to role-play as “a spider person”, when describing IP protection explains that “Patents endow their holders with certain superpowers, but only for a limited time”, and after referring to a “web of precedents” reasons that “as against this superpowered form of stare decisis, we would need a superspecial justification to warrant reversing Brulotte.” In sum, the Opinion concludes that “what we can decide, we can undecide. But stare decisis teaches that we should exercise that authority sparingly. Cf. S. Lee and S. Ditko, Amazing Fantasy No. 15: “Spider Man”, p. 13 (1962) (“[I]n this world, with great power there must also come—great responsibility”)”. And these are only some examples (our great intern, Pablo, found many others J)
P.S. And speaking of the US Supreme Court, this past week it featured in the news for reasons other than antitrust and superpowers. As you know, in an Opinion authored by Justice Kennedy (of which many have highlighted the last paragraph), the SCOTUS declared bans on gay marriage unconstitutional. This Opinion and the dissents (particularly the controversial ones by Scalia and Thomas) have once again revealed how fascinating those characters are (admittedly, in Europe we have recently learnt that it is not only there that Courts fight internally…).If you have a few minutes, I would very much recommend reading this on Scalia’s dissent, this on Thomas dissent, and, above all, Richard Posner’s brilliant take on the whole thing. [By the way, if you’re interested in knowing what insult Scalia would have for you, click here] I was fortunate enough to take US Constitutional Law with Michael Klarman (who that year won the prize for the best rated professor at Harvard Law School) and possibly the best thing about the lectures were the myriad anecdotes he told about the Justices. Anyone interested in these should read this extraordinary book. Anecdotes aside, and whereas there are a bunch things I don’t like about the Supreme Court, there are a couple that I wouldn’t mind importing to the EU; one is the drafting style and the other is the fact that submissions, transcripts and recordings of hearings are publicly available (
I could not make it to Wouter Wils’s visit to London last week, but fortunately he has shared his views online. The paper – short and to the point – is a refreshing read that dispels some commonly held views about commitment decisions. It is, to begin with, a great reminder that one should be very careful when analysing, and making inferences from, data (this is definitely an area where lawyers have much to learn from economists!).
But more important is Wouter Wils’s attempt to put commitment decisions in perspective. In line with the points made in the paper, I keep telling to anybody who is willing to listen that it is wrong to perceive commitment decisions as having significantly changed the enforcement landscape. Informal settlements existed under Regulation 17, and exemptions worked in many ways like today’s Article 9 decisions (just think of the seamless transition exemplified by UEFA Champions League, an exemption, and Bundesliga, the first ever – if I remember correctly – commitment decision).
In the same vein, it is usually pointed out that commitment decisions are rarely ever challenged before EU courts and that, as a result, they leave substantive questions unaddressed. But I would be interested to see whether the old exemptions were really challenged much more often that commitment decisions and thus whether there is a marked difference in this sense with the previous regime. In case you are curious too: my wonderful research assistant and I are gathering the data and should be able to share some findings soon!
The underlying theme in the paper is probably that commitment decisions are just that – an instrument through which policy is expressed. And I agree. We have reached a point where some substantive trends in EU competition law and policy – for instance, the perceived ‘regulatory’ turn in the field – are explained by the recourse to commitment decisions. From the perspective of some commentators, the medium would determine the policy, which does not seem correct. As the experience of the old regime shows, it is the policy that determines the instruments, whether these are formal ones or created in an informal way to address some enforcement needs (which cannot always be predicted or anticipated in legislation).
Wouter Wils is not the only one who has been productive lately. @CompetitionProf, aka our co-blogger emeritus, sticks to his prolific pace. He has recently written and presented (at the OECD, no less) on oligopolies and on competitive neutrality. And we received earlier this week a good summary (forthcoming in JECLAP) of the main issues raised by the on-going e-commerce sector inquiry and prepared by Lars Kjølbye, Alessio Aresu and Sophia Stephanou. By the way, Alfonso will be speaking on this topic together with Thomas Kramler in Madrid in a couple of weeks.
The European Commission is a great Institution. When I was an EU law student I used to revere it, and now, after knowing much more about its inner workings, my views are much more nuanced, but still overall very positive, particularly in comparison with what goes on at the national level. Still, it is the EU Institution that should be giving impulse to the EU project, a mission that it has not always accomplished in recent times. And in our field, it is the Commission that calls the shots.
Some readers of this blog have remarked that I tend to be “too” Commission friendly. Some friends at the Commission see it otherwise. I see those opposing views as a good thing (for my views on the importance/difficulty of not taking the same side on every issue, see here).
Frequent readers of the blog may also remember me saying multiple times that the human factor is very often what determines whether institutional arrangements work or nor. An organization or Institution without the right people is very unlikely to function as it should. Today I want to insist on that point.
[Those interested in reading more can click here]
Last week the ECJ rendered its Judgment in Deutsche Bahn, a case that was already discussed in this blog at the time Advocate General Wahl issued its Opinion
For background on the case, comments on the Opinion, and interesting readers’ comments, see our previous post). Those already knowledgeable of the case and of the issues it raises can jump directly to the second half of the post, in which we discuss the ECJ’s ruling and give our views.
(This is a bit lengthy, but I bet you’ll find a couple of interesting points)
The facts. For those too lazy to read the Judgment or our prior comments, the case is, in a nutshell, about an inspection carried out without judicial authorization in the course of which the Commission found documents related to a possible different infringement in relation to which the Commission had received a prior complaint (apparently, and this is key, inspectors had also been briefed about that complaint, although the Commission says this was only for background purposes). Since the subject matter of that evidence was out of the scope of the inspection decision, the Commission adopted a second inspection decision on the fly [old/bad joke alert!]. Those as well as a third inspection decision were later appealed before the General Court.
[By the way, the substance of the case would have also been interesting. The first suspected infringement was about whether Deutsche Bahn could offer preferential treatment to its subsidiaries; does that sound familiar? The case was nevertheless eventually closed pursuant to commitments (see here) which, as it happens, closed the case but did not clarify the law].
The General Court’s Judgment (see here) unsurprisingly confirmed the Commission’s wide inspection powers, stating that there was no need for the Commission to obtain judicial authorisation prior to a raid and that documents discovered (genuinely) by accident which indicated a separate infringement could be used as evidence of that infringement, as long as the proper procedural requirements were respected.
AG Wahl’s Opinion nicely summarized the relevant case law on inspections, and essentially took the view that whereas the Commission shall have a certain leeway when it comes to inspection powers, those already ample powers are to be used prudently, and their misuse must be subject to effective judicial review.
Firstly, with regard to the alleged necessity of prior judicial authorization, Mr. Wahl considered that ex post judicial review on the part of EU Courts already offers an adequate level of protection of fundamental rights, and observed that in Delta Pekarny (a recent case in which the ECtHR ruled that fundamental rights were infringed) the ECtHR decision could be explained by the fact that the inspection decision was not subject to any—either ex ante or ex post—judicial review. Secondly, on “surprise” discoveries, the AG took a different view from the General Court and took issue with the fact that the Commission had informed inspectors about the “second” infringement. AG Wahl suspected the “only plausible explanation […] is that information on the DUSS suspected infringement was given to the Commission staff so that they could ‘keep their eyes peeled’ for evidence related to the second complaint” (para 77). This means that the Commission effectively circumvented Art 20(4) of Reg 1/2003, either deliberately or through negligence. Whereas in Dow Benelux, the Court ruled that there is no reason why the Commission should disregard documents pointing to a different infringement if it was genuinely found by accident, AG Wahl noted in para. 82 that “[t]his is clearly not the type of conduct which the Court meant to allow under its Dow Benelux case-law. There is, in my view, no difference between a case in which the Commission launches an inspection without a valid decision and one in which the Commission proceeds on the basis of a valid decision, but searches for information relating to another investigation, not covered by that decision”.
The ECJ’s Judgment:
On whether a judicial authorization is necessary:
In a prelude of what is to come, the ECJ analyzes the case law of the ECtHR concerning the fundamental right to the inviolability of the home, observing (i) that it states expressly that absence of prior judicial authorization nay be counterbalanced by a post inspection review covering both questions of fact and of law; and (ii) that the EU legal system is premised on that basis, and that its legality under the ECtHR is ensured by the fact that EU Courts carry out an in-depth review of law and fact (unsurprisingly, the ECJ cites KME and Chalkor in support of this declaration). Judicial authorizations are only necessary, pursuant to Art. 20(6) and (7) of Regulation 1, when the undertaking opposes the inspection, which was not the case here.
The ECJ also goes on to explain why this system is also compliant with the fundamental right to effective judicial review, thus dismissing the applicant’s second ground of appeal.
On the “not-so surprise” findings:
The debate before the ECJ focused on whether the Commission had had valid reasons for telling its officials about the existence of suspicious concerning the second infringement prior to the inspection, as declared by the General Court, but as disputed by the applicant and the AG.
I didn’t take for granted that the ECJ would have dealt with the issue given that –as argued by the Commission- it could be characterized more like a question of fact than of law, and as you know issues of fact cannot be reviewed by the ECJ. Nonetheless, the ECJ states very very succinctly in para. 54 that DB “is arguing that the GC erred in law by holding that the Commission had valid reasons to tell its officials about the existence of suspicions concerning [the second infringement] before the first inspection”. The ECJ does not explain why the claim is really a legal and not a factual one (interestingly, the whole incident does not appear in the factual introduction to the Judgment…) but right away asserts the admissibility of the plea [perhaps to reassure some as to the appropriateness of the judicial review carried out by EU Courts in this area??? ;) ] (to better understand this, we suggest you read our comments below).
As to the merits, the ECJ recalls the relevant case law in the field, emphasizes that the Commission can only search for documents coming within the scope of the subject-matter of the inspection as defined in the decision (para. 60), recalls that pursuant to Dow Benelux the Commission can start new investigations if it comes across new evidence genuinely by surprise (para 59) , but concludes –siding with the AG- that although inspectors need to be provided with background info about a case, “all that information must nevertheless relate solely to the subject-matter of the inspection ordered by the decision” (para. 62). The Court then concludes that the first inspection was vitiated by an irregularity “since the Commission’s agents, being previously in possession of information unrelated to the subject-matter of that inspection, proceeded to seize documents falling outside the scope of the inspection as circumscribed by the first decision” (para. 66). The ECJ decided to give itself final Judgment under Art. 61 of the Statute of the Court and annulled the second and third inspection decisions instead of sending the case back to the GC.
–The Judgment is solidly built on the case law of the ECtHR, which is abundantly cited, as well as on AG Wahl’s Opinion, which is also repeatedly cited. It is no surprise that procedural standards have progressively aligned with those set out by the ECtHR, whose great influence in Luxembourg is already now undeniable and increasingly more visible, even pre-EU membership to the Convention.
-As we said in our previous post, we agree with the idea that it would be excessive to necessarily require prior judicial authorization, when ex post judicial review is available, but, in our view, the key issue is that of the quality of the judicial review itself. The ECJ actually cites case law of the ECtHR saying exactly that, “that the key issue is the intensity of the review covering all material matters of fact and law and providing an appropriate remedy if an activity found to be unlawful has taken place (…)” (para. 41 of the Judgment). The ECJ then assumes that since judicial review extends to both matters of law and fact, and includes the power to assess evidence and annul decisions, it is intense enough. In my view, however, scope and intensity are two different things, and the ECJ does not really talk about intensity. Admittedly, the intensity of judicial review is hard to assess, it is more a matter of attitude than of law (as I explained here; in Spanish, sorry…).
– With regard to the misconduct of the investigation:
(i) it may be just me, and I see how this is arguable, but I think it is possible that the Court may have blurred the lines between what is an issue of law and fact amenable to appeal before the ECJ as a way to appease concerns about the intensity of the review required by the ECtHR; if so, that would be an interesting development;
(ii) on the merits, the Judgment endorses a strict approach towards the Commission’s misuse of the very ample powers that it enjoys and that EU Courts recognize –and typically uphold- with no problem. The thing is that when one has such great powers, there is really no need to use shortcuts or engage into arguable practices; the Commission could have avoided this whole problem by adopting two different decisions, or by referring to the two suspected infringements in the same one. Why it did not do that is not easy to understand;
(iii) at the end of the day, in my view, the Judgment is more remarkable for its sensible approach and general message than for its practical consequences (not only was the situation at issue very specific but also I, for one, have first-hand recent experience confirming that the Commision had already learnt the lesson prior to the Judgment being rendered..)
P.S. I offer a couple of rounds of beers to anyone who can tell good inspection anecdotes in the comments to this post (hearsay is admitted) :)