Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Case C-228/18, Budapest Bank: all the pieces are now in place (and we know what a restriction is)

with 3 comments

Putting the pieces together | SmartBrief

The Court has just delivered another key ruling on restrictions of competition (see here for the French version). The judgment, just like AG Bobek’s Opinion in the case, is valuable in that it clarifies all the remaining controversies around the notion. The principles of the case law have been confirmed in an explicit way that does not seem to leave much scope for ambiguity. In addition, the judgment provides a template of how the analysis is to be conducted in practice.

The fundamental contributions of the judgment are the following (some of the points are explained at length below):

  • The analysis of the counterfactual is relevant at the ‘by object’ stage (and the ‘by effect’ stage too): This question has been widely discussed (including in this blog) in recent years. While the case law was sufficiently clear already, Budapest Bank is valuable in that it provides a concrete example of how the counterfactual may be relevant to rule out that an agreement is restrictive by object or effect (and thus not caught by Article 101(1) TFEU). Paras 82 and 83 deserve particular attention in this regard (and they probably raise the single most relevant points of the judgment).
  • The ‘by object’ category is only appropriate where there is sufficient experience about a practice: Budapest Bank fleshes out the contribution made in Cartes Bancaires. If there is no consensus about a practice (its nature, its pro- and anticompetitive effects), the Court explains, the ‘by object’ category is not appropriate.
  • The analysis of the object of the agreement is a case-by-case, context-specific inquiry: It is not unusual to hear that the ‘by object’ category is a ‘shortcut’ aimed to make it easier and/or faster to establish restrictions. Budapest Bank shows that this characterisation does not reflect the reality of the case law. The inquiry is context-specific and makes it necessary to consider the peculiarities of the economic and legal context, and this in light of a series of indicators (including the counterfactual, the pro-competitive effects that the agreement is capable of achieving and the regulatory context).
  • The objective purpose of the agreement needs to be effectively established: The judgment gives a clear answer to a key question: what if the agreement pursues two or more objectives simultaneously? What is the object of the agreement? What counts, the Court explains, are the objectives that are effectively established, not the objectives that are invoked (para 69). This is in line with Paroxetine.

Establishing the object of an agreement is a case-by-case, context-specific inquiry

It has become commonplace to characterise the ‘by object’ category as a ‘shortcut’. According to this view, it is sufficient to check whether the agreement is on the ‘list’ of ‘by object’ infringements to establish a restriction. Thus, it would be enough to take a ‘quick look’ to conclude that it is prima facie prohibited.

Budapest Bank shows that this characterisation of the case law (that seems to apply the logic of the US system to the EU legal order) has little to do with the way in which the ECJ conducts (and has always conducted) its analysis. The evaluation of the object of an agreement can be very detailed (the analysis of the question covers no fewer than 35 paragraphs) and can be as complex as showing that the same agreement has anticompetitive effects.

Accordingly, it is not sufficient to show that some clauses are suspicious (or that they are ‘on the list’). For instance, the Court explains that even an agreement that eliminates competition on a large fraction of the costs of two undertakings (or that sets a ceiling on the level of commissions to be paid) is not necessarily restrictive by object (paras 77 and 78).

Once again, the Court points out that the analysis is not complete without an evaluation of the relevant economic and legal context. The context is taken so seriously that, at several stages of the analysis, it explains that, without all the relevant information, it cannot come to a conclusion about whether the agreement has, as its object, the restriction of competition.

What sort of evidence is relevant at the ‘by object’ stage?

Unlike some judgments delivered in the context of a preliminary reference, Budapest Bank sets out in detail how the analysis is to be conducted in practice. The analysis complements Paroxetine very effectively.

In Paroxetine, the Court outlined what an authority needs to show to discharge its legal burden of proof: that the agreement has no plausible purpose other than the restriction of competition. Budapest Bank, in turn, is explicit about the sort of evidence that the parties may put forward to show that the agreement does not amount to a ‘by object’ infringement. The relevant factors in this regard are:

  • Economic analysis: The parties may show, in light of formal economic analysis, that the object of the agreement is not anticompetitive. In this regard, Budapest Bank builds on Cartes Bancaires (which acknowledged that the two-sided nature of a market can shed light on the rationale of a practice).
  • Experience (or, rather, the lack of experience): In Budapest Bank, the Court holds that the ‘by object’ category is only appropriate where there is robust and reliable (‘solide et fiable’) experience about the nature of the agreement (para 76). In this sense, the Court suggests that there should be a consensus about the status of the practice (see also para 79). Absent a consensus, the analysis of its effects becomes necessary.
  • The pro-competitive effects of the agreeement: Paroxetine (in line with AG Bobek and Kokott) made it clear that the pro-competitive effects of an agreement are relevant as part of the evaluation of the economic and legal context. Budapest Bank confirms this point. Thus, the idea that these effects can only be considered under Article 101(3) TFEU can finally be put to rest. The pro-competitive dimension is also a factor when ascertaining whether there is a restriction in the first place (para 82).
  • The counterfactual: Even if it was implicit in the preceding case law, it is useful to see the Court explain how the counterfactual (that is, the conditions of competition that would have existed in the absence of the agreement) can be considered. The parties claimed that the agreement was not restrictive by object because, in its absence, the conditions of competition would have been worse. The Court clarifies that evidence in this sense is acceptable (paras 82-83). It makes sense to copy these two paragraphs below[1] (in French for the moment). If there was any doubt, the Court also points out that the counterfactual is also relevant at the ‘by effect’ stage (see, in addition to para 82, paras 55 and 75).

Paragraphs 82 and 83 also show that the applicable threshold is one of plausibility (as suggested in Paroxetine too). It would be enough for the parties to establish that there are, a priori, serious indications that the agreement is capable of improving the conditions of competition that would otherwise have existed. If the evidence meets this threshold, the agreement is not restrictive by object and an analysis of effects is necessary.

Read the rest of this entry »

Written by Pablo Ibanez Colomo

2 April 2020 at 7:16 pm

Posted in Uncategorized

A Moment of Truth for the EU: A Proposal for a State Aid Solidarity Fund

with 10 comments

EU Solidarity (@EUSolidarity) | Twitter

(By Alfonso Lamadrid de Pablo and José Luis Buendía)

The Covid-19 outbreak is putting societies, institutions, companies, families and individuals to the test. Like all major crises, it is exposing our strengths and weaknesses, our contradictions and limitations. A common threat of unprecedented scale has revealed, once again, that our societies are capable of the very best and the very worst. Over the past few days, we have witnessed inspiring examples of empathy and solidarity, but also prejudice, frustration and tension. We have the chance to show we are up to the task. How we collectively choose to react to this crisis will define our future.

Like all major crises, the Covid-19 outbreak is also straining the European Union, bringing once again unresolved tensions between Member States to the surface, and awakening dangerous currents of misunderstanding among citizens. Critics of EU integration have jumped on the occasion, failing to realize that the problem calls for more, not less EU. At the current stage of European integration, absent a fiscal union and with limited EU competences on public health, decisions remain mainly in the hands of national governments controlled by national Parliaments. Disagreements among EU Member States within the European Council are sometimes desirable, and sometimes not so much, but they are perhaps inevitable. It is not only a matter of attitude and prejudice, but also of institutional and political constraints. While we wait for consensus among national governments on a comprehensive political response, other constructive and complementary solutions must be explored.

The European Commission can be the driving force in the pursuit of EU solidarity. Unlike national governments, the Commission is entrusted with safeguarding the general interests of the Union as a whole. President von der Leyen has committed to exploring any options available within the limits of the Treaties. The Commission has both the responsibility and the power to take decisive action, and to shape the reactions of Member States to the crisis in line with the general interest. The Commission cannot require Member States to ignore or work around existing constraints, but it can impose proportionate ones.

Indeed, while the Commission’s powers may be limited in certain areas, they are strong and decisive in others. Notably, the Commission enjoys the exclusive competence to control, under State aid rules, the measures adopted by Member States to support economic operators. Over the past few days, the Commission has made a significant effort to exercise these powers swiftly and responsibly, adopting a Temporary Framework and authorizing a considerable number of national measures to support the economy in the context of the pandemic. As we write, the Commission has announced an imminent amendment to the Temporary Framework aimed at enlarging the categories of permitted aid.

The unquestionable necessity of allowing the speedy authorization of Covid-19-related national measures should, however, not blind us to their inevitable negative side-effects. The “full flexibility” recognized by the Temporary Framework applies in theory to all Member States. In practice, however, it mostly benefits deeper-pocketed Member States with the means and the budget to spend the greatest resources. Note that the Member States that benefit disproportionately from this policy are also the champions of austerity Member States that, rightly or wrongly, oppose other solidarity instruments like corona bonds. Under the current Temporary Framework, all Member States enjoy the same freedom to unleash their economic arsenal, but some may end up using bazookas, while others are stuck using slingshots.

Massive capital injections by only certain Member States might lead to massive distortions of competition. Companies and sectors from wealthy Member States may enjoy much more support to weather the crisis than their competitors established elsewhere in the EU, regardless of where the ongoing crisis happens to hit harder. Under the current circumstances, this could trigger the market exit of companies that would have normally survived, and vice versa. Competitive asymmetries deriving from State aid would moreover be exacerbated should national governments fail to reach an agreement on mutualizing budget risks.

This scenario is not inevitable. It is within the power of the European Commission to ensure sure that State aid is awarded in a way that minimizes any distortions of competition and, by the same token, fosters EU solidarity. The Commission itself recognizes in the Temporary Framework that a coordinated effort will make the measures adopted more effective and may even foster a quicker recovery. The Framework also emphasizes that this is not the time for a harmful subsidies race.

Our proposal is that the Commission amend the Temporary Framework in order to make the compatibility of State aid conditional on the provision of compensation for the competitive distortions that they necessarily create. This compensation would take the form of a contribution to the support of companies established in other Member States. The contribution could be equivalent to a percentage (for example, 15%) of the public resources involved in the measures at issue. Each Member State would be able to propose specific ways to channel these contributions in a way that minimizes competitive distortions. The Commission would assess their sufficiency prior to authorizing the aid, and it would also ensure that most of the compensation is received by those who need it the most.

In order to speed up the approval process, the Commission could also predetermine ex ante that contributions to a “European Solidarity Fund” would be presumed an acceptable compensation in this regard. The Fund could be initially established by some Member States as a vehicle allowing financial solidarity among them, but would be open all  Member States. The Fund itself should also be notified under State aid rules and could obtain Commission approval as an “Important Project of Common European Interest” (IPCEI).

We see no EU law impediment to implementing this proposal. Making the compatibility of State aid measures subject to compensatory conditions would not in itself entail any deviation from the Commission’s standard assessment. The rules adopted by the Commission to manage the support to financial institutions in the context of the past crisis were accompanied by strict conditions aimed at minimizing distortions of trade and competition. To be sure, while requiring direct compensation from the State which granted the aid would constitute a novelty, this innovation would be justified. Indeed, the current circumstances do not permit the use of traditional safeguards, based on limiting the amounts of aid granted.

Several national measures have already been authorized, but it is not too late to take action. Public support measures are here to stay and are likely to materialize in unprecedented volumes of aid. Failure to prevent further asymmetries would only make matters worse. Under this proposal, Member States would retain the ability to support their national economies, subject only to the condition that they contribute, proportionately to their means and to their measures, to minimizing distortions to the internal market. This way, State aid policy could better contribute to the solution, rather than the problem.

Important details should be ironed out following an urgent consultation with Member States. Some version of this formula would not only be sensible and feasible, but also indispensable. It would mitigate serious distortions and contribute to levelling the playing field. In the absence of a political agreement between Member States, it would create a proportionate legal obligation to prevent harm to companies established in other EU countries, easing ‘rich’ Member States’ task of justifying their solidarity efforts to their citizens and parliaments. It would show precisely what the European Union is for and would restore citizens’ trust in the ideals of European integration. Let us not forget that, as empathically stated in Article 3 of the TEU, one of the main tasks of the EU is to promote ‘economic, social and territorial cohesion, and solidarity among Member States’.

This proposal is not a silver-bullet, but it is an important step towards solidarity based on legal mechanisms. As proclaimed in the Schuman declaration, the EU “will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity.” The European Commission has now the opportunity, the unique ability, and the historical responsibility to fulfill its mission.

Written by Alfonso Lamadrid

31 March 2020 at 3:13 pm

Posted in Uncategorized

From a distance, literally and figuratively

with 4 comments

Message in a bottle

It has been a week already since I decided to self-isolate, in London. The worrying news keep coming, virtually by the minute, on all fronts. Knowing one is safe is barely a relief: it becomes inevitable to think about people suffering and people making sacrifices, to worry about loved ones, about there being no end in sight, about the world that will emerge once we get to leave our homes.

The routine that shaped our lives until a week or two ago feels like the memory of a past life (impressive what a few days of trepidation can do). Little by little, we get used to a new reality (and our mind stops racing or at least does not race so much). However, when we think about the stuff that inspired us and kept us going, we do so from a distance, reminding us we are no longer in the same place.

The advantage of seeing things from a distance is that one gets to see the big picture: the grand themes guiding our work, whether consciously or unconsciously. But the current crisis feels so overwhelming, it raises so many fundamental questions, that no other topic seems important enough at present.

The one issue that particularly resonates these days is the importance of experts and expertise. Irrespective of the context, we all lose when expertise gets instrumentalised to achieve other objectives and/or weaponised to serve special interests. It has been distressing to see, over the past few years, how the cacophony of polarisation makes it often impossible to listen to experts.

There are major challenges ahead (climate change dominating all others), and I can only hope that the ongoing tragedy makes it abundantly clear that not everything is a matter of opinion and that we do not get to choose what is true.

Public policy, always and everywhere, should be informed by facts and expertise, not by the pre-determined outcomes that we happen to favour.

For the time being, we wish all the best to all of you and your loved ones in these difficult times. We will be back very soon.

Written by Pablo Ibanez Colomo

25 March 2020 at 3:12 pm

Posted in Uncategorized

Indispensability and Article 102 TFEU: it is not about Bronner (and refusals), but about Van den Bergh Foods (and remedies)

with 4 comments

Image result for van den bergh foods

As you know, the hearing in the Google Shopping case took place last month – speaking of which: huge thanks to Lewis Crofts for his quasi-live tweeting of what was going on (all that follows is what I gathered from his reporting).

The question of the applicable legal test was always going to be central in Google Shopping. Lewis’s tweets confirm this view. A lot of time was spent, it seems, on whether the Commission should have established that non-discriminatory display on the Google platform was indispensable within the meaning of Bronner (and, I would presume, IMS Health, which provides the most precise definition of the concept in the case law).

When I read about these matters, I am always surprised about two aspects of the discussions. One is that they are dominated by Bronner. A second one is the fixation with categorising conduct as a ‘refusal’ (as if it were the relevant factor to determine whether indispensability is an element of the legal test). I explored some of the themes in a recent paper, and tell myself it could be useful to revisit them in a post.

Bronner is just one of many cases on indispensability: it is not even the most important or relevant

Let me start with the first point. Bronner is just one of many cases addressing the indispensability condition: it was not the first and it will not be the last. It is not the most important either.

In the context of Google Shopping, it is not even the most relevant precedent: I have repeated many times (on the blog, at conferences and elsewhere) that the case is pretty much a re-run of Commercial Solvents and CBEM-Telemarketing.

As much as Commercial Solvents and CBEM-Telemarketing, the case is about a company changing its commercial practices to favour an affiliate at the expense of rivals. Indispensability was an element of the legal test in the two precedents (the latter judgment made an explicit reference to an ‘indispensable’ service).

Against this background, the fundamental question one should be asking, in my view, is why indispensability would not be an element of the legal test in Google Shopping, given that the self-preferencing has the same object and effect as the conduct considered in Commercial Solvents and CBEM-Telemarketing.

In other words: is there a good reason to depart from the legal test set out in the two closest precedents? Intriguingly, Lewis’s tweets suggest that this is not how the discussion took place.

It does not matter whether there is a refusal: what matters is the nature of the remedy

I have been able to gather from reporting-via-Twitter that a great deal of the discussion revolved around whether there had been a refusal to deal. I get the impression that this was perceived to be a crucial matter. As far as I can tell, the underlying idea is that, absent a refusal of some kind, indispensability is not an element of the legal test.

There is nothing in the case law that suggests this conclusion.

This is so, first and foremost, because there are cases where indispensability was required (including the two mentioned above) and which did not concern a Bronner-style refusal. Second, the question of whether there is a refusal can easily turn into a semantic discussion. Was the behaviour in CBEM-Telemarketing a refusal to deal? Maybe, or maybe not, depending on what one calls a refusal. How about Slovak Telekom? Is that a refusal or a strategy aimed at degrading the conditions of access? Finally, there are cases that involve a refusal and where indispensability is not required (including Slovak Telekom itself).

The criterion to determine whether indispensability is an element of the legal test was defined in Van den Bergh Foods. This criterion distils the essence of previous cases. According to this ruling, indispensability is required when intervention would require a firm to transfer an asset or enter into agreements with persons with whom it has not chosen to contract.

It is easy to illustrate this criterion by reference to Bronner. In that case, the defendant could have brought the infringement to an end in two main ways: (i) by giving access to its delivery network (that is, enter into an agreement with a firm with which it has not chosen to contract) or (ii) by transferring its assets to a third party (that is, a structural divestiture). To be sure, it could also have (iii) closed down its delivery division.

Accordingly, indispensability was found to be an element of the legal test (and the condition was found not to be fulfilled).

Apply the Van den Bergh Foods criterion to any Article 102 TFEU case and you will realise that, when intervention in a case necessitates one the three options mentioned above (enter into agreements with third parties, sell the firm’s upstream or downstream assets or close down its upstream or downstream activities), indispensability is a condition to establish an abuse.

This criterion helps one understand why indispensability is an element of the legal test in Commercial Solvents (the firm was asked to enter into an agreement with a third party on terms and conditions determined by the authority), Magill and IMS Health (in the last two, intervention forced the firms to change their business model and start licensing its intellectual property to third parties).

Conversely, the criterion is helpful to understand why indispensability is not required in ‘margin squeeze’ cases or in other constructive refusal scenarios. A mere cease-and-desist order was enough to bring the infringement to an end in cases like TeliaSonera and Slovak Telekom.

Whether or not there is a ‘refusal’ (however this tenuous concept is defined) does not come across as a relevant or decisive factor.

How Van den Bergh Foods is interpreted in Google Shopping, and why it is controversial

Interestingly (and reasonably), the Commission concludes in Google Shopping that the question of indispensability should be considered in light of the Van den Bergh Foods criterion.

The application of the criterion is even more interesting (and also controversial). Since the decision merely requires the firm to bring the infringement to an end (without specifying how), the Commission claimed, indispensability is not an element of the legal test.

As explained in my paper, I am not sure this comes across as the most reasonable interpretation of the Van den Bergh Foods criterion. It makes sense I go briefly over the reasons why.

In essence, this interpretation would give the Commission the discretion to decide when indispensability is an element of the legal test. The authority would have the freedom to choose when it imposes this threshold upon itself.

To illustrate the Commission’s approach and its implications, just consider Bronner (where indispensability was both required and not met).

According to the interpretation of the Van den Bergh Foods criterion advanced in Google Shopping, the Commission would be able circumvent the indispensability condition merely by requiring the defendant to bring its infringement to an end.

In other words: if, in a case identical to Bronner (same facts, same economic and legal context) the Commission left it for the firm to figure out how to comply with the decision, indispensability would disappear as an element of the legal test.

Since competition policy is implemented through law, not discretion, I struggle with this interpretation of Van den Bergh Foods .

The relevant question, as I understand the underlying principles, is not so much what the decision formally requires but what it entails in substance. What options does the firm have to comply with the decision? Are these options the same as in Bronner? If so, the Van den Bergh Foods criterion means indispensability is an element of the legal test. If there are other options (namely a negative obligation administered on a one-off basis), it is not.

Those who have read my paper knew I have nothing to disclose. Those who have not (no hard feelings) now do. I look forward to your comments!

_______________________________________________________________________

UPDATE: A few among you have reached out to explain that, in the hearing, some importance was given to whether there had been a ‘request’ for access, as if this factor had an impact on the applicable legal test (and whether indispensability is part of it).

I fail to see how the existence of a ‘request’ is a relevant factor. Just take a look at the facts of CBEM-Telemarketing (para 5 of the judgment). As soon as CBEM learnt about a firm’s decision to cease dealing with third parties, it brought an action before a court (and note that, because there was no ‘request’, there was no ‘refusal’ either). Still, indispensability was deemed to be an element of the legal test (para 26).

Thanks again for all the comments!

Written by Pablo Ibanez Colomo

6 March 2020 at 10:29 am

Posted in Uncategorized

Case C-307/18 Generics (UK) and others v CMA (Paroxetine), a major landmark in the case law (II): pay-for-delay

leave a comment »

Generics

The first instalment of this series discussed the issues of principle addressed by the Court in Generics. The judgment is equally important in what is says about pay-for-delay. It is possible to infer a fully-fledged framework for the assessment of these agreements. Crucially, this framework is wholly in line with the relevant precedents on  Article 101(1) TFEU (a question we have regularly discussed on the blog and elsewhere, for instance here).

The distinction between genuine and non-genuine intellectual property settlements

It was already possible to distinguish from the case law – in particular from BAT (Toltecs-Dorcet) – that the question of whether a settlement relates to a genuine intellectual property dispute is relevant and important in practice.

Where a supposed settlement does not relate to a genuine dispute (in the sense that the parties – or at least one of them – seek to achieve something they would not be able to achieve via the exercise of their intellectual property rights), the assessment can be relatively straightforward. Such agreements conceal a ‘naked’ market-sharing arrangement that is known to be restrictive by object.

Where the agreement relates to a genuine dispute (in the sense that the settlement replaces intellectual property litigation before the courts), on the other hand, the assessment may need to be more detailed. In this sense, Generics provide a valuable template, as I do not believe there were examples in the Court’s case law.

This difference between genuine and non-genuine disputes will be relevant for the upcoming cases on pay-for-delay. As I have written elsewhere, any moderately attentive reader of the Lundbeck decision cannot avoid the impression that the settlements in the case were a sham. You should not take my word for it: read the very representations made by the firm in the context of the proceedings and reproduced in the decision.

The status of pay-for-delay: an illustration of the Court’s default approach to ‘by object’ infringements

The Court’s approach to the assessment of restrictions by object has long been clear. An agreement amounts to a ‘by object’ infringement where it has no plausible purpose other than the restriction of competition. We also know since T-Mobile that an agreement is not caught by Article 101(1) TFEU – whether by object or effect – if it is incapable of having a restrictive impact (this is something that AG Kokott emphasised in her Opinion).

What is the added value of Generics, against this background? The judgment makes explicit some points that were implicit in the case law (it is the first time some expressions are used).

The relevant test is formulated in paras 89-90. An agreement amounts to a ‘by object’ infringement where the only ‘plausible’ explanation for it is the restriction of competition. It follows logically that such categorisation is excluded where the parties can advance an alternative explanation casting a ‘reasonable doubt’ (para 107) about the status of the practice as caught, by its very nature, by Article 101(1) TFEU.

The Court has consistently held since Cartes Bancaires that the ‘by object’ category must be interpreted restrictively. Thanks to Generics, we know what this statement means in concrete terms. It means that (leaving market integration aside) the category encompasses agreements the only plausible explanation for which is the restriction of competition.

We also know that the bar to rule out that an agreement amounts to a ‘by object’ infringement is low (‘plausibility’ and ‘reasonable doubts’ do not come across as particularly cumbersome).

Another crucial contribution of Generics relates to the legal status of a ‘reverse’ payment. In line with the case law, the Court clarifies that a payment from an originator to a generic producer does not mean, in and of itself, that the agreement is restrictive by object (paras 84-85).

As already held, the objective purpose of such payments must be considered in the relevant economic and legal context. The Court even identifies the instances in which a ‘reverse’ payment would be objectively justified and thus would fall outside the scope of Article 101(1) TFEU (para 85).

The assessment of potential competition and the role of circumstantial evidence

The assessment of potential competition in pay-for-delay cases is a fascinating puzzle. On the one hand, patents are presumed valid; on the other hand, there is not such thing as a presumption of infringement of a patent by a new entrant (such as a generic producers).

How is it possible to tell whether a generic producer has real, concrete possibilities to enter the market where there is genuine uncertainty about its ability to do so? Is it possible to rule on potential competition prior to a final court ruling on validity and/or infringement?

The Court answers in the affirmative to the latter question. Crucially, it does so without questioning the presumption of validity of intellectual property rights in EU law, and without revisiting the principle whereby EU law does not question the existence of such rights.

How? One crucial step is that ‘a patent which protects the manufacturing process of an active ingredient that is in the public domain’ is not deemed to constitute an ‘insurmountable barrier’. In this sense, the Court is careful to clarify that it is examining the status of potential competition in a very specific context (see para 51 for a description of that context).

A second crucial step in the analysis is the role given to circumstantial evidence. In a context of uncertainty, indicators such as the very fact that they conclude an agreement (para 55) or the very fact that there is a ‘reverse’ payment (para 56) can lead to the conclusion that the parties are, indeed, potential competitors.

According to the Court, the fact that the agreement relates to a genuine dispute does not rule out the finding that they are potential competitors.

What is the takeaway from the above? The key conclusion, in my view, is that potential competition exists whenever an authority can show that market entry is plausible. The threshold coincides with the threshold that applies when assessing whether the agreement restricts competition by object.

The eagle-eyed among you may remember that I wrote in my article on pay-for-delay that the threshold for potential competition is one of likelihood (that is, that market entry is ‘more likely than not’ to occur). The judgment clarifies that the bar is lower – plausibility of entry is enough.

If you ask me: what I wrote at the time made sense in my head (a potential competitor worthy of the name must exercise a constraint on existing players). Thinking about it, however, I believe it is more reasonable to align the threshold with the assessment of ‘by object’ conduct, as the Court does.

As a side note: if you were wondering whether there is a discrepancy between the judgment and my prior writings, it all boils down to this threshold.

On proof

If you read the above, you may get the impression that, after Generics, it is all about proof. Has the authority (or claimant) established, to the requisite legal standard, that the parties are competitors? Has the defendant managed to cast reasonable doubts about the characterisation of the agreement as restrictive by object?

I agree, which is why there will be a third part addressing issues of proof. Thanks in advance for your comments!

Written by Pablo Ibanez Colomo

28 February 2020 at 12:30 pm

Posted in Uncategorized

NEW PAPER | Competition law and policy in the digital economy (with Marino García, CNMC) – FIDE Congress (The Hague, 20-23 May)

leave a comment »

Image result for the hague

The venerable FIDE Congress will take place this year in The Hague on 20-23 May 2020 (speaking of which: you can still get the early bird rate until the end of the month here).

One of the three topics is ‘EU Competition Law and the Digital Economy‘. I am proud and grateful to have been invited to work on the report for Spain, which I have prepared with Marino García, a chief case handler at the Spanish Competition Authority (CNMC). A draft can be found here.

The UK Report was prepared by our friends Andriani Kalintiri (King’s College London) and Ryan Stones (City, University of London) and can be found here. And the general rapporteurs will be Nicolas Petit (European University Institute) and Pieter van Cleynenbreugel (University of Liege).

You may want to take a look at the Report that I prepared with Marino. It was fascinating to look systematically at all the digital economy cases examined by the CNMC. The impression one gets is that competition authorities have so far effectively addressed the challenges raised in these markets, and that usual remedies can be powerful.

I am tempted to draw your attention to two key cases. One is a merger case, Just Eat/La Nevera Roja, which deals with exclusivity and tipping in two-sided markets; and the second is an abuse case, Estudios de Mercado Industria Farmacéutica, which deals with access to data (and an old friend that goes by the name of IMS Health).

Marino and I would very much welcome your comments. We look forward to seeing many of you in The Hague!

Written by Pablo Ibanez Colomo

13 February 2020 at 5:52 pm

Posted in Uncategorized

Case C-307/18 Generics (UK) and others v CMA (Paroxetine), a major landmark in the case law (I): principles

with 10 comments

Generics

It is safe to predict that last week’s judgment in Paroxetine will be remembered as a major landmark in EU competition law. It is unusual due to the depth and the breadth of the contributions it makes to our understanding of some fundamental principles. We have had many judgments clarifying a discrete point of law. Unlike these, Paroxetine engages with several notions at the same time (the notions of competition, restriction by a object, effects and abuse), which is uncommon in the case law, and this, in depth.

A bit over a year ago I explained why the pay-for-delay saga would test the fundamental principles (see here) underpinning Articles 101 and 102 TFEU. I do not believe it was an exaggeration: it is sufficient to take a look at the questions raised by the national court in Paroxetine. The CAT asked whether the likelihood of a patent being declared invalid should be considered when evaluating the effects of an agreement. From a system that does not question the existence of intellectual property rights, I explained, we could be moving to one treating them as probabilistic titles.

Eventually, the case law has proved to be resilient. The judgment is in line with AG Kokott’s Opinion (see here for my take on it). The notions of competition and potential competition have not changed (they are still based on objective considerations), and the relationship between competition law and intellectual property is the same it has been since Consten-Grundig. It is not because nothing has changed that the judgment is not interesting. On the contrary.

I would not do justice to such a major landmark in a single post. This one is on principles. One will follow on pay-for-delay and the final one on issues of proof, where, now that the law is clear, the attention will move.

On restrictions by object

The law has been consistent from the very early days, but we have heard claims until not so long ago (including in Budapest Bank), that the pro-competitive aspects of an agreement are not relevant under Article 101(1) TFEU. Now we can definitely say that such claims did not reflect the reality of the case law. In paragraph 103 of the judgment, the Court clarifies that the pro-competitive effects of an agreement ‘must, as elements of the context of that agreement, be duly taken into account for the purpose of its characterisation as a “restriction by object”’.

The Court is prudent to state that such pro-competitive effects must be ‘demonstrated, relevant and specifically related to the agreement concerned’. In other words, claims about the pro-competitive effects must not be merely pretextual (as they were in cases like BIDS, which concerned a plain-vanilla crisis cartel).

What is the threshold to rule out that the agreement is a ‘by object’ infringement? I had suggested in the past that the threshold is one of plausibility. Paroxetine seems to confirm this interpretation of the case law. There is an express reference to plausibility in the assessment of the reverse payment (para 89). In addition, the Court explains that the pro-competitive effects of the agreement must cast a ‘reasonable doubt’ about the object of the agreement. This position is also in line with AG Bobek’s Opinion in Budapest Bank.

On competition, potential competition and the counterfactual

Prior to the release of Paroxetine, I explained that the notion of competition in the Treaty is best understood as meaning ‘actual or potential lawful competition which would have existed in the absence of the practices under consideration’.

The judgment confirms this definition. In paragraph 40 of the judgment, the Court makes it clear that, when considering whether a firm is a potential competitor, it is necessary to consider the ‘regulatory constraints that are characteristic of the medicine sector’, thereby confirming that only lawful entry counts as competition within the meaning of Articles 101 and 102 TFEU.

Second, it is necessary to consider the counterfactual in light of the relevant legal and economic context, and more precisely the market conditions in the absence of the practice under consideration. This position puts an end to the idea that the counterfactual is not relevant at the ‘by object’ stage. As AG Kokott explained, if the market conditions would not have been affected by the agreement, the practice does not restrict competition, whether by object or by effect.

Reasonably (para 38), the Court holds that potential entry must not be a ‘purely hypothetical possibility’. By the same token, it need not be shown that entry is certain or that the potential entrant ‘will be capable, thereafter, of retaining its place’ on the market.

Third, subjective considerations may be a factor, but the notion of competition is an objective notion. In this regard, the judgment confirms the case law. I understand it as meaning that subjective considerations are relevant insofar as they shed light on the objective ability of a firm to enter the market.

On the notion of effects

There has been no shortage of posts on this blog on the notion of effect under Articles 101 and 102 TFEU. One of the points that has always been emphasised is that not every competitive disadvantage and not every limitation of a firm’s freedom of action amounts to an anticompetitive effect within the meaning of the abovementioned provisions (Post Danmark I and II, as well as MEO, insist on this point).

Crucially, Paroxetine leaves no doubt. According to the Court (para 172), in order to establish an exclusionary effect under Article 102 TFEU it is necessary to show more than just the impact of the practice on the parties involved in the transaction. The analysis must ‘[go] beyond’ such effects and consider, the market as a whole (in past cases, the Court has already had the chance to identify the relevant factors to consider in this assessment).

On the notion of abuse

The bit on whether the practice amounts to an abuse deserves to be read closely. Interestingly, it refers to the object and effect to the conduct, thereby indicating that there can indeed be abuses by object.

Second, and more importantly, the Court points out that, whether the practice has as its object or effect the restriction of competition, the application of Article 102 TFEU ‘presupposes that that conduct was capable of restricting competition and, in particular, producing the alleged exclusionary effects’ (para 154).

Whether the impact on competition needs to be shown (as in Post Danmark II) or is implicit (as in Intel), a practice is not abusive within the meaning of Article 102 TFEU if it is incapable of having restrictive effects. This clarification also means that the panoply of arguments discussed above – relating to the counterfactual, or to the fact that the impact of the practice does not go beyond the relationship between the parties – would be relevant too.

Hopefully I will address the pay-for-delay aspects next week. As ever, your comments would be most welcome.

Written by Pablo Ibanez Colomo

7 February 2020 at 7:12 am

Posted in Uncategorized