Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Chillin’Competition DMA Symposium: Will the DMA deliver? On carrots and sticks (and some magic tricks), by Oles Andriychuk

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[This post is the next instalment in our ongoing series of guest posts bringing a range of perspectives on the Digital Markets Act (see here for the preceding entries). It is also a follow-up on the posts I published last week, in which I asked — here and here — whether, and to what extent, the DMA will deliver on its promises. This time it comes from Oles Andriychuk, whom I have been fortunate to know for many years and who has been thinking reflecting on the intersection between law and technology for as long as I can remember. No wonder he is emerging as a thougthful voice on ongoing reforms. Enjoy the piece!]

In one of his latest Chillin’Competition contributions on the DMA proposal, Pablo has raised a number of reasonably sceptical points about the ability of the DMA to deliver on its promises. He is asking these questions not from the technical, legal – but rather from a broader, societal – perspective. By this short note, I would like to offer my understanding of the processes underpinning the DMA, and which respond to Pablo’s observations – and again, in the genre of a friendly coffee-chat polemic. The focus of the first original post, addressing DMA’s substantive aspects, is placed on the critique of the following three strategic goals of the DMA: (i) making leveraging the dominance from one market to others less straightforward; (ii) rents re-allocation and (iii) triggering competition in bottleneck segments of digital markets. The main attention is paid to the third issue, which is described as “an impossible, or virtually impossible, task”. The argument being that for very well-known reasons many digital markets (and clearly most of the CPSs) are inherently close to natural monopolies, and those seeking enthusiastically to change this foundational feature of the markets by introducing a long list of substantive ex-ante obligations are likely to be disappointed, as the task may turn out to be Sisyphean: “No matter how forcefully one may want to preserve rivalry on a market, if it does not structurally allow for it, it will not happen”.

It will be hard for DMA to change the markets’ DNA

The ‘Sisyphean task’ point is indeed one of the underrepresented topics in the discussions on the role and function of the DMA in shaping digital markets, and its proper analysis could help to discover a master-key to the entire DMA project. In my view, the real purpose of the DMA is based less on bringing paradigmatic changes to the functioning of digital markets. What really matters in this overall legislative endeavour is horizontal, not vertical aspects.

The vertical task in many senses may become Sisyphean indeed. Of course, some meaningful refinements on the periphery of business-models are possible, and some of these refinements will contribute incrementally to the improvement of vertical and downstream rivalry at the intra-platform level. Here we are essentially talking about P2BR+ function of the DMA. These issues are indeed important and even if the task of the DMA would stop here, it is still a project worth pursuing. But it is hard to share the holistic optimism that the DMA is capable to identify correctly – let alone address comprehensively – all/most/many systemic flaws and market failures of the digital economy. It is in fact illusionary to think that any public regulation can capture – let alone steer – such a dynamic, technically complex multilayer market.

Following the latest regulatory activities in the field, the gap between the enforcers and the technology has indeed decreased significantly: from being catastrophic to becoming huge, and this is probably the maximum we can realistically expect. We are dealing with the problems, designed two or three decades ago. Do we really think that the Digital Leviathan had invented these business models and then hibernated peacefully for 20 years? The most one should expect from a successful intervention is that it will make the gap a decade shorter. To paraphrase Kelsen, Big Tech are like King Midas. Just as everything King Midas touched turned into gold, everything to which Big Tech refers becomes their advantage. No matter what is introduced in the law, sooner or later (sooner) the algorithms will process all the technical constraints to the benefits of their controllers. This is unchangeable. Call it dark patterns or an extended privacy paradox, but despite the fact that most of the market participants (business- as well as end users) disagree with the status quo normatively, many are adapted to the situation behaviourally. We say ‘interoperability’ – they hear ‘another challenge to my business model’; we say ‘multihoming’ – they hear ‘fragmentation’. Is it likely that the DMA alone will make a paradigmatic change to this systemic condition? Don’t ask the GDPR adepts.

Vertical, horizontal, asymmetric (some DMA geometry)

My expectation from the DMA is different. I understand why – and I see how – it can have a significant impact on competition for the digital markets. In my view, this dimension of the DMA is more important than the previous one. Let me begin though with a broader point.

Pablo asks rhetorically if it is indeed within the public mandate of competition law and policy (even if taken sensu lato) to pursue macroeconomic objectives. His answer is clearly negative: “competition law is now expected to achieve something it cannot and was never designed to do”. My answer is less clearly positive. After the disillusioning in the omnipotent absolutism of Law & Economics consensus to define, measure and manage economic competition, the question of rediscovering the normative goal/s and methodological toolkit of competition policy becomes open again. Leaving aside the substantive aspects of this discussion, it appears that the new modality of competition policy will be characterised by two features: (i) its greater preparedness to engage with broader economic and non-economic goals (without co-opting them explicitly into the disciplinary apparatus); and (ii) pluralistic co-existence of different approaches and theories, allowing enforcers to shop around in search for the most suitable one, pretty much, ad hoc.

In this emerging reality the goal of the DMA is less about redesigning the unredesignable, and more in adjusting the regulation to the broader societal interests. What exactly constitutes such an interest for the EU? Who exactly holds the required strategic vision and powerful will for pursuing this broader societal task? – Answering these existential questions is beyond my competence. Suffice it to say that such a broader projection exists. And if it does not – it should. The horizontal dimension is less about recalibrating the inner features of digital markets as such, and it is more about establishing closer links between these markets and EU’s strategic interests. Yes, the substantive provisions of the DMA are focused on vertical relationships, which triggers a logical expectation that the DMA is about ‘improving’ something, which is in Pablo’s (and in my) view fundamentally unimprovable (introducing workable competition to naturally monopolised markets). The main purpose of the DMA, however, appears to be in facilitating horizontal non-ecosystem entries. In my opinion, without this strategic goal, the DMA would doom to underperform.

Mind the old saying: it is the lender who suffers from insomnia, not the borrower

Not elaborating on what, let me elaborate on how. This links me to Pablo’s second post “Institutional aspects (or obligations do not become self-executing by decree)”. He makes an important observation that technically, the monitoring of compliance with most of the requirements of Arts 5 and 6 DMA (as well as other DMA obligations and expectations) is a very laborious task. He offers a very good example of how technically dense the EU Electronic Communications Code – which covers only a fraction of what will be covered by the DMA – is. Extrapolating it to the wide by scope and opaque by design obligations of the DMA, we can see that it is likely to end up with the labyrinth of requirements, which could be interpreted differently depending on the will and the skills of interpreters, constellations of stars in the sky and – as our friends-legal realists proclaim – on what judges ate for their breakfasts.

For the DMA’s addressees – as well as for those expecting the DMA to improve unimprovable – this characteristic of the proposal is its main systemic bug: ‘make obligations clear and precise, do not just do a generic hotchpotch of previous cases – and gatekeepers will be complying’, – say the former; ‘make obligations clear and precise, do not just do a generic hotchpotch of previous cases – otherwise gatekeepers will not be complying’, – say the latter. However, the opacity appears to be not a bug, but the DMA’s main distinctive feature, capable to address the consequences of the ‘Sisyphean task’ aporia. It is hard to disagree that the totality of the DMA obligations is realistically neither monitorable nor achievable. But it is equally non-compliable. The question is if this laborious technicality condition places the compliance burden on the Commission or on the gatekeepers. Evidently, the burden is placed on the gatekeepers. From the vertical, intra-platform, rationale, this would make little sense. However, from the horizontal, ‘opening-up’ perspective this is very pragmatic. The DMA, in other words, is not limited to its façade-goal of protecting downstream markets from vertical misconducts of the gatekeepers. This task would require some DSA-style regulatory supervision, designing obligations not in a strictly binary 102-style fashion, but in a more proportionate, pyramidal way (the bigger the intermediary, the stricter the requirements). Yes, the DMA speaks about this vertical duty, and it is an important dimension of the act. Its more important strategic task, however, goes beyond its wording. Or less euphemistically, the vagueness of the wording of the DMA is intentional, allowing the wording to be further instrumentalised.

The mechanics of such instrumentalisation is designed in a juristically elegant (elegant for supporters but cynical for opponents) way. Essentially, the susceptibility of being further specified format envisages the situation when a gatekeeper is invited into a room with a carrotstick object on the wall. Whether this object is a carrot or stick would depend on the ability of the gatekeeper to read between the lines and on its readiness to compromise during the regulatory dialogue (and the ex-tunc/ex-nunc discretion is only the smallest of the available carrotsticks). Technically, the agenda of the dialogue would be limited to the relevant provisions of Art 6(1) DMA. Factually, the opaque by design scope of these provisions, full of open-textured adjectives and theories of harm, would mean that the discussions could end up approximately anywhere.

The power of the DMA, in other words, is not in the ability of the Commission to enforce the catalogue of obligations in its totality. It is rather in the ability of the Commission to identify an instance of non-compliance ­(and then an instance of systematic non-compliance) whenever it is necessary. And even more so, this power is in the Commission’s ability to turn a blind eye to the practice whenever it is not strategically important in the enforcer’s judgement. This feature may explain the desire of the Commission to share the magic wand for converting carrots into sticks (and back) neither with the NCAs (beyond some assistance and strategic planning) nor with the third parties (beyond follow-on actions). Like with the leniency vs. private enforcement dilemma, the magic stops once exclusivity is lost. Yes, “obligations do not become self-executing by decree”. The expectation of the opposite would be overly optimistic, and I agree that those waiting for the DMA to transform the Wild-West-Wonderland into a Civitas-Solis are likely to be hugely disappointed. This would become a major problem for the enforcer, which really means to maintain the order by executing obligations in their totality. This same feature, however, turns miraculously into a strategic advantage for the enforcer maintaining the order by establishing instances of non-compliance instrumentally. The real purpose of the DMA is not in changing markets vertically, but in opening them up horizontally.

Written by Pablo Ibanez Colomo

26 October 2021 at 4:30 pm

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Will the DMA deliver on its promises? Part II: institutional aspects (or obligations do not become self-executing by decree)

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When you want something, all the universe conspires in helping you to  achieve it. - Paulo Coelho - Quotespedia.org

In the post published on Wednesday, I covered the substantive reasons why the Digital Markets Act (DMA) is likely to underdeliver (and if it does, it will do so by design). There are, in addition, a number of institutional factors that one needs to consider.

It is not a secret that the institutional context within which a regime is applied may play a major role in its success (not to mention its substantive scope and reach). The DMA is not an exception in this regard. It makes sense to ask, and debate, whether the premises underpinning the regime (and the resulting institutional setup) are in line with what the restructuring of digital markets requires.

Getting to the remedy stage is just the end of the beginning

Competition law has been criticised by some stakeholders for placing cumbersome demands on authorities. If it were easier to establish an infringement (or if establishing an infringement were not a precondition to intervene in the first place), the argument goes, enforcement would be more effective. Alternatively, some commentators have argued that some of the recent cases have been a “failure” (no less) because of the remedies chosen by the Commission.

These criticisms come across not only as unfair to the Commission, but also as misguided. As I have mentioned many times, establishing an infringement in digital cases is, to paraphrase Churchill, just the end of the beginning. Intervention aimed at fundamentally restructuring markets and/or altering business models is distinctly difficult and resource-intensive at the remedy stage.

In other words: the real challenge in digital cases is to figure out how to redesign a product, how to change a monetisation strategy and how to recalibrate the allocation of rents within an ecosystem. Establishing an infringement, by comparison, is just an amuse-bouche. We have always known that competition law struggles with remedies of that nature and therefore nobody should be surprised that intervention demanding authorities to restructure markets takes time or fails to fulfil the expectations of some stakeholders (more on this below).

Discussions around the DMA occasionally give the impression that the new regime is based on the idea that, by reversing the burden of intervention and, effectively, moving to the remedy stage from the get-go, the main difficulties will have been addressed. The opposite, in fact, is true.

I have often said that some of the obligations set out in Article 6 of the DMA would each require a regulatory framework of their own. In fact, a few of these duties seem far more challenging, for an agency, than regulating telecommunications. And if you take a look at how the latter are regulated in the 179 pages of the EU Electronic Communications Code, you will get an idea of the magnitude of the task ahead in digital markets.

As can be seen, the DMA does not represent a substantial change from competition law on what really matters in practice. For the same reason, it seems likely that the same stakeholders that expressed frustration with the pace and effectiveness of Article 102 TFEU enforcement will be just as dissatisfied once the DMA is in force.

Obligations do not become self-executing by decree

The solution to the challenges raised by fundamentally restructuring digital markets is, according to some, to ensure that obligations are “self-executing”. With the appropriate regulatory design, the argument goes, gatekeepers will adapt their conduct, products and business models to the demands of the DMA.

This line of thinking is what I have labelled the “Paulo Coelho School of Regulation”. It seems based on the hopeful view that the self-executing nature of an obligation depends on the willpower of the legislature. If it believes hard enough, it will ensure that the regime works without delays in its implementation and without a large regulatory apparatus.

I am afraid I do not share the optimism of the coelhians in our community. In the same way that a regime cannot turn natural monopolies into effectively competitive oligopolies, it cannot turn obligations into self-executing mandates by decree.

Again, the experience acquired in telecommunications provides a valuable cautionary tale. The liberalisation of that sector in New Zealand was based on the hope that competition law alone would do the job, and that the cumbersome access and interconnection obligations would become self-executing through court action. It did not take long to realise that such hopes would not materialise.

There is a chance that the DMA will become a second “New Zealand moment” in the history of regulation once it becomes clear that, more than “further specification”, some duties necessitate all but a sector-specific framework of their own.

The risk of perpetual grievances: when will obligations go far enough?

One can think of a third, final factor, that may stand in the way of the DMA delivering (or, rather, which may create the impression that the DMA fails to deliver).

The design of the DMA makes it particularly vulnerable to the risk of perpetual grievances. First, the obligations (at least those enshrined in Article 6) are relatively broad and vague, in the sense that they can be construed in a multitude of ways. Second, there is no obvious benchmark to assess whether or not they meet the objectives set out in the regime. Third, there is no point at which obligations cease to be imposed: there is no real sunset clause or similar mechanism.

Combine these three instruments, and one can see how stakeholders benefitting from intervention would be able to claim that a particular incarnation of the obligations in insufficient in the sense that it does not go far enough, or that it is not ambitious enough. And it would be difficult to blame them: why not go for the maximalist approach allowed under the regime? Is it not what any authority that is serious about achieving the objectives of the DMA would do?

Add to the above the fact that several agencies will compete for the same regulatory space (within or outside the confines of the DMA; within or outside the EU) and it is easy to see how a never-ending quest towards maximalism may be a feature of intervention in digital markets.

I look forward to your comments (I had nothing to disclose on Wednesday, and nothing to disclose today).

Written by Pablo Ibanez Colomo

22 October 2021 at 7:25 am

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Will the DMA deliver on its promises? Part I: substantive aspects (or markets do not become contestable by decree)

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How Tech Companies' Election Promises Have Held Up – The Markup

As the legislative train carries on its journey towards the adoption of the Digital Markets Act (DMA), academics, stakeholders and consultants have produced a great deal of work examining how the future regime can be improved and made more effective, whether from an institutional or a substantive standpoint.

One of the questions that is far less prominent in these debates is whether the DMA can actually deliver on its promises. Put differently: is it realistic to expect that the regime will achieve every one of its ambitious aims? It seems to me that this question is, at the end of the day, more relevant. Achieving the optimal design of the regime would be a futile effort if it appears that it is expected to achieve an impossible task.

A regime that promises what it will be exceedingly unlikely to deliver is bound to create frustration (and even the false impression that failure is not a function of the regime’s structural inability to achieve its aims, but rather the regulator’s lack of willingness to meaningfully enforce it).

Against this background, I thought it might be a good idea to start a debate along the abovementioned lines, if only because managing expectations about what regulation can and cannot achieve is always a good idea.

The DMA is not particularly explicit about how it intends to transform digital markets. Contestability and fairness are, in this sense, more high-level aspirations than operational principles. Beneath Articles 5 and 6, I identify the following three goals (which I discussed in this paper of mine too):

Address the risk of leveraging from bottleneck segments to neighbouring ones: this is a traditional goal in competition law and sector-specific regulation (think of telecoms regimes, for instance). The idea is simple: ex ante intervention seeks to avoid the possibility of the extension of dominant position from one market to adjacent ones.

Re-allocate rents (away from so-called gatekeepers to firms in neighbouring markets): there should be little dispute that the ambition (arguably the single most important ambition) of the DMA is to redistribute rents within and across digital ecosystems. This goal is achieved through several mechanisms. A straightforward technique is to ban or water down gatekeepers’ monetisation strategies (for instance by allowing the side-loading of applications). Another one is to limit gatekeepers’ ability to fight free-riding (for instance, by banning altogether MFN clauses).

Inject competition in bottleneck segments: the final, and most ambitious, goal of the DMA is to inject competition within bottlenecks (that is, markets where a gatekeeper enjoys a dominant, if not superdominant, position). In this regard, the regime seeks to change the structure of platform markets to introduce and preserve effective rivalry. For instance, the DMA does not hide its ambition to inject competition on the market for search engines.

So: can the DMA deliver on these promises? When it comes to the first two goals, I am ready to guess that the consensus is that they are, in theory and practice, at least achievable. Preventing leveraging and re-allocating rents is what utilities regulation has routinely done for decades.

The real question, in relation to these first two goals, is whether they are necessary and/or desirable. I am not uncovering any secret when I say that there is no consensus on this front. Some believe ex ante intervention in this sense is both necessary and desirable, some do not. My views are also well known, and I developed them in this paper.

The third goal is far more interesting. As far as I can see, the DMA has probably set itself an impossible, or virtually impossible, task. If a market is a natural monopoly (or displays extreme returns to scale, to use the expression found in the Special Advisers’ Report), regulation, alone, cannot change the tendency of a market towards concentration (or, more precisely, towards the emergence of dominant or superdominant positions).

The above is also true, by the way, of competition law. No matter how forcefully one may want to preserve rivalry on a market, if it does not structurally allow for it, it will not happen (which is why we have, for instance, the failing firm defence in the field of merger control, and the reason why dominance is not prohibited as such under Article 102 TFEU). It is important to bear this point in mind when debating whether competition law is working or is being applied effectively in digital markets: are some stakeholders frustrated with recent enforcement because competition law is now expected to achieve something it cannot and was never designed to do?

At most, competition law and regulation can intervene at the margin, and act against any practices that may accelerate the natural tendency of the market towards concentration (by acting, for instance, against exclusivity obligations). Ultimately, however, they will have to deal with the reality that the economic context allows: they cannot force, by regulation, different features.

Effective competition in a market that is structurally unsuited for it will come from technological and economic change, not from regulation. Regulation can, at most, accompany the process and perhaps reduce the scope of the bottleneck segment (not eliminate it). Telecommunications is a wonderful example in this regard (and the EU Regulatory Framework for electronic communications is the gold standard, in my view, of how regulation is to engage with changing realities).

The task is even more difficult as far as the DMA is concerned: dealing with natural monopolies is hard enough when the issues are well known and have been researched inside out (as in telecommunications or electricity). Just think of how much harder it is when the drivers of markets and technologies are not fully understood (and, as the Special Advisers point out in their Report, market dynamics in digital markets are not yet fully grasped).

I tell myself that a task for academics, moving forward, is to manage expectations: I just hope that the success or the failure of the DMA will not be measured against its ability to deliver deconcentration in bottleneck segments controlled by one or two gatekeepers. This point does not justify, alone, changing the regime, but it is a powerful reason to be realistic and to understand that the DMA will most probably underdeliver (and will do so by design).

(As you know, I have nothing to dicslose in this or indeed any other matter).

Written by Pablo Ibanez Colomo

20 October 2021 at 12:27 pm

Posted in Uncategorized

IEB Postgraduate Competition Law Course (25th edition)

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Diez cosas que no sabías sobre Madrid - Datos interesantes y curiosidades  sobre la capital: Go Guides

2022 will mark the 25th edition (!) of the EU and Spanish competition law course founded by Luis Ortiz Blanco. This is a course that is particularly dear to us: I took it as a student back in 2005, and have co-directed it for the past few years; Pablo is also actively involved as lecturer and module coordinator.

The course (taught partly in Spanish and partly in English) will run from January to March 2022 in a hybrid format (attendees can participate either in person or online). Lectures take place in the afternoon (16h to 20h CET) to help make it compatible with other professional or academic activities.

As always, it will feature a great line-up of international lecturers (70 in the past edition) that include Judges from EU and national courts, officials from the European Commission, the Spanish CNMC and other national competition authorities, as well as top-notch academics, in-house lawyers and practitioners. Students are tipically officials from competition authorities, in-house lawyers as well as lawyers/economists in private practice. The course is designed to cater to all levels.

All relevant information (program, coordinators, cost, sponsors, and list of lecturers in the past edition of the course) is available here:

IEB COMPETITION LAW COURSE 2022

In addition to registering for the full course, it is also possible to register for the 1-day seminars that will be fully taught in English. The seminars in this 25th edition will be the following:

Seminar 1- Recent Developments in EU Competition Law (4 February 2022). Coordinators: Fernando Castillo de la Torre and Eric Gippini-Fournier

Seminar 2 – Competition Law in Hi-Tech Markets (25 February 2022). Coordinators: Nicholas Banasevic and Alfonso Lamadrid

Seminar 3 – Sport and Competition Law (18 March 2022). Coordinator: Marcos Araujo

Seminar 4 – Private enforcement of the competition rules (25 March 2022). Coordinator: Mercedes Pedraz

Special Seminar – Celebrating 25 years of the Course (1 April 2022).

If you want to know more, please drop us a line at competencia@ieb.es

Written by Alfonso Lamadrid

15 October 2021 at 10:42 am

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Of undertakings, legal entities and groups of companies. The CJEU’s judgment in Sumal (C-882/19)

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(Guest post by Marcos Araujo Boyd)

On 6 October 2021, the Grand Chamber of the CJEU issued its much-awaited decision in respect of the legal entities against which follow-on claims may be made (link here)

This decision that will be remembered for reasons way beyond the liability of subsidiaries in a follow-on cartel claim. As suggested by the appointment of a Grand Chamber, the Court soon realised that it would have to reconsider a particularly convoluted area of EU competition law:  the theory of the undertaking or economic unit and its relationship with legal persons and groups of companies. The answer provided may be ranked alongside Hydrotherm, Viho, Dansk Rørindustri , Confederación Española de Estaciones de Servicio , Akzo Nobel or Skanska in its importance on the construction of the undertaking as a legal concept in EU competition law.

The discussion follows the order of the arguments in the judgment starting from its paragraph 31, after having dealt with procedural and admissibility issues. For a fuller discussion on the context of the judgment, the reader is invited to check my previous guest post on AG Pitruzzella’s Opinion.

The opening statements: On Giant’s Shoulders (paras 32 to 37)

After rephrasing the three initial questions as whether a victim may indifferently sue a parent company sanctioned by the Commission or an affiliate provided both entities constitute an economic unit, paragraphs 32 to 37 of the judgment recall the jurisprudence of the Court on private enforcement. The arguments feature Skanska prominently, stressing that the determination of the liable entity is a matter of EU law only, and abundantly noting the link between public and private enforcement.

While there is little new in this section, these references usefully reveal the reluctance of the Court to heed to the temptation of facilitating private claims under the principle of effectiveness or, as suggested in para 52 of AG Pitruzzella’s Opinion, by admitting that national courts affirm it without that being required by EU law. Rather, the Court builds its arguments on private enforcement over the strong shoulders of public enforcement, dismissing by implication potential divergences between the two tools. That perspective enables it to rely on its rich public enforcement case-law in the sections that follow.

The Centrality of the Notion of Undertaking (paras 38 to 44)

Following the discussion on public and private enforcement, the Court moves on to a second constitutional stepping stone, constituted by the notion of undertaking. Quoting earlier jurisprudence, the Court depicts it as ‘an autonomous concept of EU law’ that designates ‘the perpetrator of an infringement (…), who is liable to be punished’ and ‘the entity on which the Commission may impose a fine’, contrasting it with other concepts such as companies or legal persons, and observes that this notion is employed both in primary and secondary legislation, especially the Damages Directive 2014/104. It then recalls the jurisprudence on the notion of undertaking by recalling Imperial Chemical Industries, Confederación Española de Estaciones de Servicio, the 2009 and 2017 Akzo Nobel judgments and Knauf Gips before moving on to the application of the principle of personal responsibility to the undertaking and not to legal entities, an apparent oxymoron that has, not without some reaction from various AGs, featured prominently in EU competition law since ETI. That recollection ends with a surprising, yet reiterated, principle of EU competition law used in public enforcement since at least Siemens Österreich whereby the joint and several liability amongst the entities of a single economic unit applies ipso iure or automatically, no decision to that effect being actually needed, an argument that resonates differently in the context of private enforcement than when discussing a case where the separate entities have been identified in a decision following a procedure. That is, in any event, inevitable given the logic of parallelism between public and private enforcement already noted.

The consequence of the above is clear: upward and downward liability are placed on equal footing, both resulting from the very nature of the undertaking as defined in EU law, and not as a result of control or agency theory. But thar is not the end. Keep reading.

Undertakings within Groups of Companies? (paras 45-50)

After reaching the above conclusion, the Court moves on to a correction required by the problem identified already by AG Pitruzzella: the link that should exist between the legal entity against which the claim is made and the undertaking that is initially liable. It will be recalled that the AG had proposed to require an involvement by the subsidiary on the specific economic activity under consideration, for example, by selling the goods object of the cartel (see para 57 of the Opinion).

Quoting the AG’s Opinion, the Court follows its logic with a significant twist. Taking conglomerate groups as an example, the Court argues that groups of companies may contain various ‘economic units’ (or undertakings, although the judgment avoids that term in this context). This would be the case where the groups are active in ‘several economic fields having no connection between them’. It even notes that, in those conglomerate groups, ‘the same parent company may be part of several economic units made up (…) of itself and of different combinations of subsidiaries all belonging to the same group of companies’, thereby affirming that a group of companies, all linked by control, may actually contain several separate ‘economic units’.

This logic is used to solve the absurdity that a subsidiary ‘could be held liable for infringements committed in the context of activities entirely unconnected to its own activity and in which they were in no way involved, even indirectly’ (para 47). However, its impact is far reaching beyond the matter at hand, changing the notion of undertaking as hitherto regarded by supplementing the presence of ‘control’ with ‘sharing an economic field’. Wow.

It is difficult to overestimate the relevance of this logic. From now on, groups of companies may, at least where their activities substantially differ, be understood to integrate various economic units or undertakings. Worldwide turnovers used in the calculation of sanctions may need to be determined separately for each economic entity. One can not help but to note the divergence this represents with the notion of undertaking as used in the EUMR, where conglomerate groups would remain to be a single ‘undertaking’. It might even be wondered if Article 101 could apply to agreements between separate ‘economic units’ of a conglomerate group, a door that might have appeared to have been closed in Ecoservice not that long ago.

Other questions to be clarified in future cases will look at what standards may be used to tell an activity from another. Sumal has been cautious in presenting this in the context of conglomerate groups where the legal entities act in ‘several economic fields having no connection between them’, That said, it will be interesting to follow what intensity of ‘connection’ is relevant for these purposes.

That said, the answer given by the Court adequately resolves the problem of inverse or downward liability in a consistent way which is firmly anchored on the notion of undertaking. It also provides a hook to resolve the inconsistency resulting from Recital 22 of the Merger Regulation, which appeared to recognise the existence of separate undertakings within public conglomerates, an option arguably unavailable for private ones.

What About Rights of Defence? (paras 51 to 67)

Read the rest of this entry »

Written by Alfonso Lamadrid

7 October 2021 at 3:39 pm

Posted in Uncategorized

The mardis du droit de la concurrence at ULB are back: 2021-2022 programme

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The mardis du droit de la concurrence at the ULB’s Institut d’études européennes need no introduction: led by Denis Waelbroeck and Jean-Francois Bellis, they continue to be a classic, and a must, of the Brussels scene. The programme for the new academic year can be downloaded here.

The series will be closed by the President of the Court of Justice, Koen Lenaerts, on 17 May; and includes the traditional overview of the case law on cartels by Fernando Castillo de la Torre (Principal Legal Advisor and Head of the Competition Team at the Commission’s Legal Service).

I am honoured (and very much grateful to Denis and Jean-Francois) to be joining the impressive line-up of speakers to discuss the recent developments on sports and competition law (on 16 November — I hope to see many of you there).

The topic is dear to my heart (you may remember my post on the General Court’s ISU judgment earlier this year) and the invitation could not be more timely (SuperLeague and all). I hope to be able to share a paper ahead of my presentation via the blog.

The full programme is the following:

26 October 2021: Competition Law and Digital Markets: challenges ahead, by Frederic Jenny (ESSEC and OECD)

16 November 2021: Sports and Competition Law: Recent Developments, by yours truly

14 December 2021: The Review of the Vertical Block Exemption Regulaiton, by Andrzej Kmiecik (Van Bael & Bellis)

11 January 2022: Recent developments in EU Merger Control, by Guillaume Loriot (DG Comp, European Commission)

8 February 2022: La jurisprudence récente en matière de cartels, by Fernando Castillo (Legal Service, European Commission)

8 March 2022: Recent developments on abuse of dominance, by Nicholas Banasevic (who, after a stellar career as a top official at DG Comp, is transitioning into pastures new)

26 April 2022: Recent developments in State aid policy, by Karl Soukup (DG Comp, European Commission)

17 May 2022: The Court of Justice and Competition Law, by Koen Lenaerts (President, Court of Justice)

Written by Pablo Ibanez Colomo

5 October 2021 at 10:30 am

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On the Android hearing (Case T-604/18): when competition law challenges business models

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Article Teaser: How Google Makes Money from Android

Few cases are as exciting and potentially as consequential as Android. The hearing before the General Court is now well under way. For us outside observers, Lewis Crofts‘ quasi-live tweeting is truly invaluable (witty and insightful as ever, and this time with a fascinating digression about the differences between the dental and the alveolar ‘d’ in MADA).

Today’s session was devoted to the tying aspects of the decision. In this respect, the case is more interesting than the Microsoft saga (and thus not simply a re-run of it). In the latter, the Commission did not question Microsoft’s monetisation strategy: the dominant firm could carry on making money via licensing Windows and other software, just as it had done prior to the decision.

In Android, on the other hand, the Commission challenged the primary mechanism through which the firm monetised its assets (the licensing, free of charge, of a set of applications conditional on their pre-installation). As I have explained before, the decision is akin to finding that a free-to-air broadcaster’s business model (which involves the bundling of content and advertising) is anticompetitive.

Does it make a difference that a decision finds that the core of a firm’s monetisation strategy (as opposed to a peripheral aspect thereof) is anticompetitive? As I tried to explain in this paper on product design and business models, it does. Does the case law account for that difference? I think so.

I can gather from Lewis’ tweeting that the counterfactual was at the heart of the discussion. This is hardly surprising (I already identified the point in this post, drafted a lifetime ago). The identification of the relevant counterfactual is inevitably more complex when intervention in a case challenges the firm’s very business model, as in Android.

Arguing that a particular monetisation strategy restricts competition means little unless we identify a relevant benchmark against which the validity of the claim can be assessed. If a business model is said to be anticompetitive, the question should be: ‘anticompetitive compared to what?’. What does the but-for world look like? Can we say that the strategy restricts competition that would otherwise have existed?

From the outset, the Court emphasised the need, for an authority or claimant, to identify the counterfactual against which effects are established. Competition, the ECJ told us in Société Technique Minière, must be understood as such competition which would have existed in the absence of the contentious practice.

This analysis may reveal that there is no restriction of competition after all. Perhaps the monetisation strategy was objectively necessary for the firm. Perhaps an alternative business model would have made room for less, not more, competition. Nothing in the case law suggests that dominant firms are not entitled to monetise their assets. For the same reason, one cannot simply assume that the but-for world is one in which rivals would have had the same opportunities to compete.

The bottomline, in theory and practice: one cannot take for granted the positive or uncontroversial aspects of a business model and assume that they would remain untouched when other aspects, deemed undesirable, are removed or tinkered with. If a monetisation strategy is challenged, it is challenged with all the consequences (both intended and unintended). A meaningful analysis of its impact can only consider them without exceptions.

There are not many details, so far, about how the counterfactual was discussed at the hearing, and in how much detail. It will be fascinating to see how the General Court engages with it in the judgment. Lewis did mention that the burden of proof came up (which was predictable, as it is a crucial step when establishing the actual or potential effects of a practice).

As far as I can gather, the discussions about the meaning of anticompetitive effects have also been interesting. And I look forward to the discussions around the AFA aspects of the case (by far the most interesting in my view, if only due to the absence of obvious precedents). Hopefully I will be able to write about both. To end on a predictable note: nothing to disclose.

Written by Pablo Ibanez Colomo

28 September 2021 at 5:27 pm

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NEW PAPER | Product design and business models in EU antitrust law

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I have uploaded on ssrn (see here) a new paper on product design and business models in EU antistrust law (that is, Articles 101 and 102 TFEU). I will have to review the piece when the first instance ruling in Google Shopping comes out later this year, but I would very much welcome, in the meantime, your comments on it (if there was any doubt: nothing to disclose).

I have been thinking about these topics for a long time (as I suspect regular readers, and certainly my students, know). The key point I make in the paper is that there are fundamental differences between product design and business model cases, on the one hand, and more traditional competition law ones, on the other. It is difficult to argue that forcing a firm to redesign its product and/or to develop an alternative monetisation strategy is just enforcement as usual and that is has no implications from a legal standpoint.

Why product design and business model cases are different

The paper addresses the various ways in which product design and business model cases are different, including the following factors:

  • Intervention is more intrusive and far-reaching, as already pointed out above (banning a contractual tie-in is not the same as asking the firm to redesign its products; it seems difficult to pretend otherwise). For the same reasons, the conception, implementation and monitoring of remedies is also far more complex (the experience of the past few years is there for all to see).
  • The design of a product or a monetisation strategy can give rise to pro-competitive gains that are not manifested in more traditional cases: the integration of a camera in a smartphone allows it to interact at a deeper level with the rest of the phone’s functionalities, and this in ways that contractual tie-ins cannot (and never will).
  • The assessment of the counterfactual is more complex: because the pro- and anticompetitive aspects of a product design or a business model are so closely intertwined (the very restraints that appear to restrict competition also create it), the evaluation of the effects is also more complex (as I explained here by reference to the Apple App Store case).

How the case law accounts for the specificities of product design and business model cases

The case law does not ignore the specificities of product design and business model cases. These are and/or can be taken into account in a number of ways, in particular the following:

  • Where intervention amounts to forcing a firm to deal with third parties with which it has chosen not to deal, a finding of infringement demands evidence of indispensability and elimination of all competition: Slovak Telekom (in line with the relevant precedents) clarified this fundamental point.
  • A practice that is objectively necessary and/or a clause that is ancillary to a pro-competitive transaction is not restrictive of competition. This principle, which flows from the need to establish a restriction against the relevant counterfactual, is manifested, inter alia, in two ways:
    • Sometimes, it is embedded in the legal test: Metro I and Pronuptia are the go-to examples in this regard.
    • Sometimes, objective necessity/ancillarity is evaluated on a case-by-case basis. The lesson to draw from Intel and similar cases is that any arguments in this sense are to be carefully pondered by an authority when invoked by a firm.

The tension between the case law and common carrier antitrust

It seems difficult to dispute that there is, in some respects, tension between the case law and the most recent administrative practice (some examples of which I review in the paper). The Commission’s practice is an expression of what I have called ‘common carrier antitrust’, which is characterised by the following features:

  • The tendency to equate anticompetitive effects with a competitive disadvantage: I have discussed this point extensively on the blog (see for instance, here and here) as well as on a paper published earlier this year (see here). The Commission, in its most recent practice, seems to be embracing a very low threshold of anticompetitive effects, which would not be immediately obvious to reconcile with the case law (or indeed with the analytical framework laid down in the Guidance Paper).
  • The blurring of lines between exploitation and exclusion: are the Apple App Store and Amazon cases about exclusion? Are they about exploitation? Both? These cases may be marking a comeback to the days of Michelin I and British Airways, where exploitation and exclusion were conflated in individual decisions.
  • The formalistic approach to the ‘exceptional circumstances’ test: as explained elsewhere on the blog (see here), the Commission has advanced the view that the applicability of the indispensability and elimination of all competition conditions depends on what the decision formally demands (as opposed to what it involves in effect). A practical consequence of this interpretation of the case law is that any agency would be able to circumvent the ‘exceptional circumstances’ test by avoiding the specification of the remedy.

It remains to be seen how the tension between the case law and common carrier antitrust will be resolved and, by extension, what the relationship between competition law and sector-specific regimes (in particular the Digital Markets Act) will be. I very much look forward to hearing from you. Bon week-end a tous!

Written by Pablo Ibanez Colomo

17 September 2021 at 11:37 am

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Sustainability agreements and antitrust: none of the above (by Maarten Pieter Schinkel)

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[There is a great deal of (passionate) discussion around sustainability agreements in antitrust these days. Last week, the Commission issued a brief which touched upon this matter, among others relating to Europe’s green agenda. Coincidentally, we featured a guest contribution by Maurits Dolmans (see here). Maarten Pieter Schinkel, Professor of Economics at the University of Amsterdam, has prepared a respose, which we are delighted to publish and which you will find below]

In a recent blog on Chillin’Competition, Maurits Dolmans names me as one of “a few economists” who warn against the perverse incentives of permitting competitors to make agreements in exemption of the cartel prohibition. But all economists know as first principle that incentives matter! See, for example, Cowen & Tabarrok (2021), chapter 1, page 1. Maurits Dolmans is right that its assumptions make a model, and also that their reasonableness for the model’s message should be scrutinized. However, he misrepresents our argument. In fact, none of the assumptions that Maurits Dolmans says we make – and then criticizes – we actually do make. Our latest academic paper – to which he refers, and I appreciate that – speaks for itself. We laid out our argumentation accessible in a chapter in the Concurrences book on sustainability and competition law and in a ProMarket article. Nevertheless, I feel compelled to reply here briefly, following the order of his bullet points.

Just to be clear, I think we all agree that the central question in this debate is whether allowing competitors to make sustainability agreements induces them to take greater effort to produce more sustainably than when they wouldn’t be able to make such agreements and remain in competition without. After all, more sustainable production is the end (which we share), and allowing anticompetitive sustainability agreement is the proposed means (which is on the table). Only if the answer to this central question is reasonably “yes” does it make sense to see how sustainability agreements may be exempted from cartel law and permitted – which is where the exemption requirements come into play.

We arrive at “no, likely not”, on the basis of a solid analysis – and not in the way Maurits Dolmans seems to understand it:

  • Maurits Dolmans writes: “Consumers are assumed to be willing to pay as much as is needed to avoid climate damage” This is not true. We need no conditions on WTP: for either positive, zero or negative WTP, firms invest (weakly) more in green when in competition than when they would be allowed to coordinate their green investments. If WTP is not positive, then firms will not invest in green, whether they compete or coordinate on it – period. Yet whenever there is the smallest WTP for more sustainable products, green is promoted more in competition than cooperation. So the answer to the central question is “no” – i.e. not “yes”. The intuition is not that hard: coordination kills the companies’ drive to steal business from each other by offering a greener product.

He continues: “ … and it is always profitable for firms to meet that demand” This is hardly a heroic assumption: firms choose their investments in greener production methods optimally, by weighing the benefits from being able to charge a higher price – resulting from consumers’ willingness to pay more for the greener product – against their green investment costs. This is no different from normal business decisions.

Maybe Maurits Dolmans has some threshold fixed costs for transition in mind, that couldn’t be overcome in competition. But why would firms coordinating their efforts – and not also their prices, mind you, because that is explicitly not allow under the proposed policy – make such loss-making investments?! Hence, green investments are larger in competition than when competitors coordinate their green investments.;

  • Maurits Dolmans states: “Regulation is assumed to offer a fully effective solution” This is not true. Our comparison is between competition and (private) coordination – to see if the latter can improve upon a situation in which regulation is suboptimal, for otherwise there is no need. Our point is that allowing competitors to coordinate on doing less green than they would do in competition will make matters worse, not better. So allowing agreements on sustainability is not a fix of government failure to regulate properly.;
  • He writes that: “Firms are assumed to benefit only from (and to seek only) short-term profit maximization,” This is not true. We show that also when firms are driven by intrinsic motivation to invest in green (which may be related to long-run business interests), does coordination erode the incentives to invest in greener production methods.

We would also assume that firms: “always collude to minimize green investment or greenwash if they can get away with it”. Yet this is not an assumption, but a finding.

Maybe Maurits Dolmans means to say that companies should be trusted to invest in green collectively against their own commercial interests. But given what is at stake, shouldn’t we have some commitments at least that this is warranted before we do that?! It is perfectly reasonable to take companies’ business interests as the main driver of their corporate behaviors.

  • His final bullet point reads: “It is assumed that consumers must be fully compensated for any price increase. Out-of-market benefits or improved access to non-market goods (say, clean air or a safe environment) supposedly do not count as compensation.” – after which he goes on to discuss these (legal) issues at length. Yet this is not true. Our argument does not rely on full (or any) consumer compensation at all. At the end of our paper, we do have a quick look at out-of-market benefits towards satisfying the compensation requirement and suggest a way to assess them – only to conclude that those too are less under coordination of green investments.

Maurits Dolmans concludes his blog with his title promise to offer three criteria to distinguish ‘beneficial cooperation from greenwashing’. Again I am featuring: “Prof. Schinkel has shown that where consumers are willing to pay for green products, firms may have an incentive to collude on greenwashing.” Well, properly understood what we show is that if investments in more sustainable production methods are costly – which no one denies is the case – firms that are allowed to coordinate those investments have incentives to reduce them below their levels in competition, in order to save on those costs. Collaborators will find it optimal to do a binding minimum needed for the exemption – i.e. wherever consumer compensation is required. The policy that Maurits Dolmans advocates, in other words, sets the firms up for greenwashing.

Our advice: drop the policy. But Maurits Dolmans want to keep pursuing it, and somehow curtail its perverse incentive effects: “So, how to distinguish a legitimate sustainability agreement from a cartel?” Alas, his first criterion is no more than “there should be a market failure” – and subsequently the same false logic just debunked. His second criterion is a loose reference to legal conditions for exemption that have nothing to do with our warning for perverse incentives – as said also. The third criterion has some substance. Reference is made to a forthcoming Oxera paper, which constructs some theoretical examples of conditions under which collaboration can increase sustainability investments. The core idea behind those examples is that firms would gain privately, through ‘spillover benefits’ from their rivals’ investments in more sustainable production. That is, firm A would see its profits increase (and/or intrinsically like it a lot) if firm B offered consumers a more sustainable product. If such positive spillovers are large enough to overcome the negative effect on sustainability investments from eliminating business-stealing by offering the greener product, they may lead to higher sustainability levels in collaboration than in competition.

But what would such sizeable spillovers be? Of course we had thought of this possibility too – which is standard in the related R&D literature. In the present matter, however, it is not obvious that there are any such spillovers. Because how exactly would it benefit Procter & Gamble if Unilever reduced its emissions from transportation by offering compressed deodorants first? And would E.ON really accept a profit hit for the warm glow of knowing that Vattenfall poaches its customers by offering green electricity? Rather the opposite is the case: one firm cleaning up its act makes the other firms only look dirtier. They are in product quality competition: consumers increasingly prefer more sustainable products.

Spillover benefits from R&D are that one firm’s inventions give others free ideas on how to improve themselves as well. Yet the green antitrust debate is about transitioning to known cleaner or fairer production methods. That is a private cost-benefit analysis. Few spillovers there. The examples so far presented of green cartels that might work are rather constructed therefore. For claiming sufficiently large spillover effects to justify collaboration, it certainly does not suffice to remark that firms also suffer from the cost of climate change, nor to loosely refer, as Maurits Dolmans does, to corporates supposedly believing today “that it is worthwhile to pursue longer-term survival of our environment and, therefore, themselves, our economy, and society as a whole.” Again, the corporate incentives involved need to be well understood, before proceeding to such drastic measures as permitting the elimination of competition.

There is a lot at stake in this debate. There is a real risk of cartel greenwashing attached to what Maurits Dolmans and other proponents advocate. I share their grave concerns about climate change. Yet if we get this wrong, we risk to worsen, instead of curbing it. I submit that we should be wary of corporate incentives to weaken the cartel prohibition. We contribute: Competition is likely a stronger driver of sustainability investments than cooperation. The assumptions and logic in our analyses are valid and transparent. Maurits Dolmans and I have discussed and corresponded about them extensively. Still I need to correct him here on what we actually say. I am open to further discussion – certainly about spill-overs, which is where Oxera’s Agenda is contributing some fringe examples in which coordination may sometimes work. But a prerequisite to a(ny) fruitful discussion is representing the other’s arguments properly. Only then can we advance our knowledge on these important issues. For now, our findings stand: Green collaboration reduces green efforts under the circumstances at hand.

Written by Pablo Ibanez Colomo

15 September 2021 at 12:54 pm

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2nd Edition of the Rubén Perea Award | DEADLINE TOMORROW!

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The deadline to submit your papers for the 2nd edition of the Rubén Perea Award is TOMORROW (15 September, 23.59 Brussels time). If you are under 30, we would very much welcome your contribution (of up to 15,000 words, inclusive of footnotes).

Remember that submissions are to be uploaded via https://mc.manuscriptcentral.com/jeclap (AND do not forget to mention that the article is for a special issue in Step 5 of the process).

More information on the award and on how to participate (and, in particular, on the house style rules with which to comply for the paper to be considered) can be found on the original post (see here).

Written by Pablo Ibanez Colomo

14 September 2021 at 1:41 pm

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