Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Registration for the 3rd Chillin’Competition Conference (+ other interesting events)

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As announced back in July, our next Chillin’Competition conference will take place on 25 October in Brussels. We are quite satisfied with our previous events, but this time we want to do something even more interesting, dynamic and even fun. As always, it will be free for attendees. On Friday we will publish the program together with an explanation of some of the novelties envisaged for this new edition of the conference. 

The registration window will then open via a link that we will publish here on Monday 25 September at 10 a.m. Last year all availabe tickets were gone in 6 minutes, so you better be quick! Unfortunately we have had to keep the maximum number of attendees at 275.

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Since it may be problematic for a blog (an online platform after all) to advertise only its own conference, and because we want to prove that organizing our own conference was intended to address a market failure that causes an insufficiency of competition law events, see below some other very interesting events that will take place in the course of next month:

-On 4 October Queen Mary University will be holding a conference on “Cross-border challenges in competition enforcement in innovative markets” in London. The aim is to showcase areas of convergence and divergence in competition enforcement, in markets where innovation plays an essential role. The conference will present different perspectives from EU, US as well as China. More information is available here.

-On 13-14 October the UniSA School of Law will hold the 15th edition of its Competition Law and Economics Workshop (CLEC) in Adelaide, Australia, with the participation of Nicolas Petit. The programme is available here. The workshop will be held in partnership with the Australian Competition and Consumer Commission (“ACCC”). Click here for further info.

-On 18 October antitrustitalia will host its 40th lunch talk at the auditorium of DG Comp in the Madou Tower. Chief Economist Tommaso Valletti will deliver a presentation assessing the role of the Chief Economist and clarifying the methodological issues of economics and econometrics that can be crucial in determining which competition law enforcement to pursue, if any. It will offer a survey of previous cases where the economic analysis “made a difference” as well as other cases where the economic defences put forward by the parties were “out of focus”. For more info, click here.

-On 20 October the GCLC and UCL will be holding a joint event in London on “Transformations of Competition Law” with a superb list of speakers. More info is available here.

-On 26 October our friends at ERA will host a workshop on “Anticompetitive Practices in the Online World: Hot Issues”. It will also be streamed live. You can access the program and register via this link.

-On 25 October, unfortunately on the same day as our conference, GCR, Baker Botts and E.CA will hold a seminar on innovation, IP and antitrust. More info is available here.

 

Written by Alfonso Lamadrid

19 September 2017 at 5:19 pm

Posted in Uncategorized

The Serbian Menarini

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[The global Human Rights Logo, above, was created by Predrag Stakić from Serbia]

Some in the EU claim that EU Courts are permissive of the alleged flaws of the institutional/procedural system for the enforcement of the competition rules. The prosecutor-and-judge debate is one of the most longstanding in contemporary competition law. Whereas the Menarini Judgment from the European Court of Human Rights seemed to indirectly endorse the EU system, some continue to question whether the ECHR’s requirements are complied with by a system where the Courts do not always exercise “full review”. In anticipation of possible future challenges, you will in fact have noted that, following Menarini, the expression “marginal review” has disappeared from EU competition law Judgments. The extent to which there was a problem, or to which there may have been a change, in this regard is further discussed here.

Now, what happens when the EU mode is exported to/imported by other jurisdictions with allegedly different checks and balances? Well, here’s a story that is currently making the headlines in the Balkans and that has triggered some unprecedented developments, including a common constitutional challenge on the part of the national Bar, Human Rights Organizations and criminal law academics, public accusations on the part of the competition authority against individual lawyers, alleged breaches of private correspondence and other black-novel-like developments. Who said competition law couldn’t be adventurous…

A quick recap follows:

Read the rest of this entry »

Written by Alfonso Lamadrid

18 September 2017 at 10:27 pm

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More on Intel: some thoughts after the IBA Conference in Florence

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Santa Maria Novella

Last Friday I took part in an (ideally timed) panel on Intel at the IBA Conference in Florence. The panel was chaired by Thomas Janssens and Timur Bondaryev (thanks a lot to both, and the rest of the panellists!). I learnt a great deal.

Inevitably, I spent some time re-reading some decisions and judgments ahead of the event. In the process, I shaped my thoughts on Intel and its implications.

These are some key takeaways that I did not develop at any length in my first post, and which I believe are key:

The AEC test is a (valuable) proxy; it is not the only factor

One of the issues that came up in the conference (no surprise) is whether the AEC test can rule out, in and of itself, the existence of an abuse. As I understand the judgment, the AEC test is better understood as a proxy or filter, not as the end of the inquiry.

If the test suggests that an equally efficient competitor would not be forced to sell below cost (read: below ATC or LRAIC), the onus is on the Commission to show why the rebate scheme is capable of foreclosing equally efficient rivals. Anticompetitive harm is possible in such an instance, but it cannot simply be presumed. It has to be substantiated in light of the factors identified by the Court in Intel.

Post Danmark II is an exception; Post Danmark I is the rule

When Post Danmark II came out, some commentators claimed that the judgment made efficiency considerations irrelevant in practice. Intel suggests that an alternative reading of the judgment is probably more reasonable: as a matter of principle, Article 102 TFEU is concerned with the ability and incentive of equally efficient rivals to compete. This makes Post Danmark I the rule, and Post Danmark II the exception.

Post Danmark II is in fact a wonderful example of the sort of special circumstances that may justify a departure from the rule. In that case, Post Danmark’s position came close to a monopoly; this position was, moreover, protected by exclusive rights.

A victory for consistency and legal certainty

A strict stance towards exclusivity agreements and loyalty rebates has often been defended in the name of legal certainty. Is there something better for legal certainty, the argument goes, than a clear rule that states that X is unlawful?

I have never been persuaded by this claim. Those advancing the argument only pay attention to one side of the rule (the outcome) and lose perspective of the other side (the scope of the rule, or trigger).

And the scope of the rule in Hoffmann-La Roche (and Michelin I, and British Airways) has never been clear. Look no further than Intel: it is far from uncontroversial to say that all schemes in the case are truly conditional on customers obtaining ‘all or most’ of their requirements from the dominant supplier.

For a rule to provide legal certainty, both the scope and the outcome need to be clear and predictable: make the first vague and the only certainty is that an undefined but potentially very vast range of practices is caught by the prohibition.

The Court’s clarification in Intel (and I believe it is a clarification) is a valuable step towards legal certainty.

Why? Intel provides a uniform benchmark: companies know that a cost-based test can be confidently relied upon as a proxy across the board. They also know that the cost-based test will be, in practice, the starting point of any inquiry.

Intel also makes it clear that the legal characterisation of a rebate scheme no longer has fatal consequences: it does not really matter (or not that much) whether a scheme is qualified as a loyalty or a ‘third category’ rebate. The methodology and approach will be roughly the same in practice.

Capability = Plausibility

As I understand the law, the threshold of capability is a relatively low one (on this one, I understand I agree with the Commission’s submission). In a ‘by object’ case (both under Articles 101 and 102 TFEU), it is sufficient that anticompetitive harm is plausible.

By the same token, what a firm would need to show to rebut the presumption of harm is that anticompetitive effects are implausible.

The good thing about rebates and predatory pricing is that we know where the threshold of capability lies: if a practice does not force an equally efficient rival to sell below cost (again: ATC or LRAIC), anticompetitive effects are in principle implausible: absent other factors, an equally efficient rival would be in a position to match the prices offered by the dominant firm. Its ability and incentive to compete would not be affected.

Exclusive dealing and loyalty rebates are not hardcore cartels

A hardcore cartel worthy of the name is capable, always and everywhere, of having restrictive effects on competition – otherwise, the cartel would have no point. As Toshiba suggests, arguing that a genuine hardcore cartel is incapable of restricting competition is hopeless in the vast majority of, if not all, cases.

But exclusivity agreements and loyalty rebate schemes are not hardcore cartels. These practices are implemented even when anticompetitive harm is implausible – which is also the reason why small market players with little or no market power resort to them.

The acknowledgement of this reality in Intel is valuable: the Court makes explicit that not all restrictions by object are created equal and that the law should take this factor into account. What is true of exclusive dealing is also true, inter alia, of tying and RPM.

What about de minimis?

The Court held in Intel (para 139) that a dominant firm may challenge the capability of harm on the basis, inter alia, of the limited market coverage of the practice. Is there a contradiction between this principle and Post Danmark II, where the Court held that there is no de minimis threshold in Article 102?

I do not believe there is a contradiction. Once again, it is worth taking a look at how things work in the context of Article 101 TFEU.

We know from Expedia that a ‘by object’ infringement that affects trade between Member States is not de minimis. But we also know from Murphy that the parties to a prima facie ‘by object’ infringement can show that the practice is not capable of restricting competition. I have never heard anyone argue that there is a contradiction between the two.

The same system would operate in the context of exclusivity agreements and loyalty rebates under Article 102 TFEU. A claimant or a competition authority can build a prima facie case without showing that the practice is capable of having appreciable effects. This is the point the Court made in Post Danmark II. On the other hand, Intel clarifies that dominant firm(s) can show that the practice is incapable of having effects. The former does not preclude the latter (it should not).

Applications of Intel: intellectual property-related cases are the obvious candidates

Intellectual property rights may prevent actual or potential competition between firms. Competition between these firms, in other words, may be implausible due to the existence of intellectual property rights.

Cases involving the exploitation of these rights are thus an ideal arena in which firms are likely to rebut with success the presumption that a practice is capable of restricting competition.

Examples? Think of the disputes in pay-for-delay cases (Servier, Lundbeck), in which the disputes revolve essentially around whether patent protection made market entry by generic producers implausible .

Written by Pablo Ibanez Colomo

12 September 2017 at 2:26 pm

Posted in Uncategorized

More questions (and some answers) on, and beyond, Intel (C-413/14 P)

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m4nrehat

The best, and quickest, Intel comment by the most preeminent academic of his generation –who also happens to be my co-blogger- already contains the keys to understand and make sense out of the very essence of today’s CJEU (Grand Chamber) Judgment in Intel (see the preceding post). In what follows I add my two cents on another set of issues raised by the Judgment. Read the rest of this entry »

Written by Alfonso Lamadrid

6 September 2017 at 5:43 pm

Posted in Uncategorized

Comments on Case C‑413/14 P, Intel: presumptions, effects-based analysis and open questions

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Intel Reports Quarterly Earnings

There was a lot of hype about the appeal judgment in Intel. It proved to be justified. The Court of Justice has set aside the ruling of the GC, and it has done so on the issues that have proved to be more controversial in the past few years: the question of whether, and to what extent, it is necessary to evaluate the effects of a system of loyalty rebates on competition.

Other grounds of appeal, including the territoriality question and the rights of defence, were rejected by the Court.

I will focus on the meaty stuff – Alfonso will jump in later and add his thoughts.

Does the judgment change the law?

Not really. The principle whereby exclusive dealing and loyalty rebates are prima facie abusive (or ‘by object’) stands (see para 137). What is new(ish) then? Well, the Court now clarifies that it is possible for a dominant firm to rebut the presumption that the rebate scheme is ‘capable’ of restricting competition. See para. 138: ‘that case-law [Hoffmann-La Roche and others] must be further clarified in the case where the undertaking concerned submits, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects’.

The Court makes explicit that anticompetitive harm is simply presumed in exclusive dealing and loyalty rebate cases. Accordingly, where supporting evidence is produced, the Commission must take seriously any arguments showing that the practice is not capable of having effects on competition.

Revolution? No. More of a desirable clarification, which makes a lot of sense.

Think of restrictions by object under Article 101(1) TFEU. In that context, the parties can also show that an agreement is not capable of having restrictive effects on competition, and therefore escape the prohibition (see for instance Murphy, paras 140 and 143). Does it mean that the Commission needs to show that the agreement has effects? No, it means that the parties can show that the practice cannot have effects. We now know that the same principle applies in Article 102 TFEU.

The Court’s clarification is welcome. A good legal system applies the same basic principles across the board. In EU competition law, it is now clear beyond doubt that ‘by object’ practices (read: those practices that are prima facie prohibited without the need to show effects) are treated in the same way under Articles 101 and 102 TFEU.

Efficiency counts in Article 102 TFEU, also in rebate cases: a welcome end to a controversy

We already knew from the Post Danmark saga – well, even from AKZO – that Article 102 TFEU is not inimical to efficiency considerations. On the contrary. The Court had already declared that the exclusion of less efficient rivals is a natural consequence of the competitive process, and therefore not attributable to the behaviour of the dominant firm.

The Intel judgment reiterates these principles and, by doing so, it gives them an aura of generality that is welcome for our understanding of Article 102 TFEU. In para 133, the Court holds that ‘it must be borne in mind that it is in no way the purpose of Article 102 TFEU to prevent an undertaking from acquiring, on its own merits, the dominant position on a market. Nor does that provision seek to ensure that competitors less efficient than the undertaking with the dominant position should remain on the market’.

It goes on in para 134, where the Court holds that ‘not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation’.

However, the most important bit comes in para 139. Post Danmark I and AKZO were about aggressive pricing. Do efficiency considerations count in rebate cases, where the concern is about distribution and access to outlets? They do. The judgment is crystal clear in this regard: when assessing the capability of harm, the Commission is ‘also acquired [sic, I assume it means required] to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market’.

This declaration was very important: I read it with relief. Saying that efficiency considerations are relevant only in one area of Article 102 TFEU but not in other areas seemed indefensible.

One important implication of the judgment: it is clear from AKZO and Post Danmark I that a practice is not capable of having exclusionary effects if it does not require equally efficient rivals to sell below cost. It follows, I would say, that a rebate scheme that does not force equally efficient rivals to sell below cost is prima facie compatible with Article 102 TFEU.

Open question: what is capability? How is the threshold of capability met?

The crucial part of the judgment (paras 129-147) is carefully crafted. Every word counts and is in the right place.

One aspect that I note is that the Court only uses the word ‘capability’. The open question then is: what is capability? Is it the same as likelihood? Is the meaning a different one? If the Commission needs to assess the capability of harm, does it mean that the tripartite division between loyalty, quantity and ‘third category’ rebates will disappear in practice?

We do not seem to have clear answers in the judgment. This said, it is not necessarily bad that the Court leaves the issue open.

On this point (capability vs likelihood), I happen to agree with the Commission submission in the case: capability and likelihood are not synonymous. They mean different things, and it would make little sense to give the same meaning to the two. The line between ‘by object’ and ‘by effect’ infringements (or between loyalty and ‘third category’ rebates) would otherwise become completely blurred. And this is not what the Court is declaring. Para 137 suggests that the tripartite division stands as a matter of principle.

The threshold of capability applies to ‘by object’ infringements, where harm is presumed (this is true of both Articles 101 and 102 TFEU). The threshold of likelihood, which is higher, applies to ‘by effect’ cases, where harm needs to be established on a case-by-case basis. To distinguish between the two: think of T-Mobile (by object, capability), and Delimitis (by effect, likelihood).

My views on the question: the assessment of capability is not and cannot be as detailed as the analysis found in ‘by effect’ cases. But capability plays a role! Just think of Post Danmark I. I discussed the difference between the two thresholds in Oxford back in June. Check my PPT here.

I am sure there will be a lot of commentary on this question in the coming months. All I can say for the time being is that, if I understand it correctly, what the Court has done makes a lot of sense. And that I will try to tease out its meaning and implications. Stay tuned, and let me know your thoughts!

 

Written by Pablo Ibanez Colomo

6 September 2017 at 10:52 am

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Impulse Ice Cream: while we wait for Intel, the CMA shows the way

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Impulse Ice Cream

The CMA found the ideal timing for the publication of its decision in the Impulse Ice Cream case: it came out when ice cream consumption peaks (mid-August) and right before the Intel judgment (when, incidentally and among other things, ice cream consumption starts to decline and coffee consumption starts to go up).

Following its investigation of the question, the CMA concluded that there were no grounds for action against Unilever under Article 102 TFEU and its national equivalent. When I write that the CMA shows the way with this decision, it is not because of the outcome (I have already explained that the outcome of individual cases does not matter to me).

What I find interesting is how the authority approached a potential infringement both from a policy and a substantive perspective. There are many lessons to draw from both:

  • From a policy-making standpoint, the decision is a valuable reminder that ‘no infringement’ decisions and ‘no grounds for action’ decisions are essential in any competition law system. What an authority does not do is as important as what it does.
  • From a substantive standpoint, the CMA shows that an effect-based approach can be conducted effectively and that it is a valuable means to make the best use of (and not to drain, as some like to claim) an authority’s resources.

Allow me to discuss them in more detail.

The importance of ‘no infringement’ and ‘no grounds for action’ decisions in policy-making: we should have many more of them

We live in strange times. Some people like to believe that competition law (like rock ‘n’ roll) can save the world. Some people think that every concern justifies intervention.

Competition law is valuable for society at large because of the lessons learned over decades of enforcement. Experience shows that, while competition law is indispensable in a social market economy, it cannot save the world (this is also true of rock ‘n’ roll, by the way). Experience also shows that sometimes intervention may not achieve anything meaningful and can sometimes be counterproductive (in the sense that it may harm the competitive process and ultimately consumers).

It is very important that competition authorities regularly convey these two messages to the business community and the wider public. Explaining why not everything is a competition law concern, and that intervention is sometimes counterproductive is likely to reduce the appetite for sweeping (and typically unreflective) regulation. My sense is that it will also protect competition authorities against demands for tailor-made action (which sometimes requires a fresh, untested and/or incoherent theory of harm).

The best instruments to show the world that competition law cannot and should not try to get to El Dorado are ‘no infringement’ and/or ‘no grounds for action’ decisions. In this regard, Impulse Ice Cream is a model: it is succinct yet sufficiently detailed to understand why, in light of the case law and administrative practice of the European Commission, Unilever’s practices were unlikely to have exclusionary effects.

The effects-based approach is administrable and can save resources to an authority

Those who oppose the effects-based approach like to claim that it is unmanageable: their hyperbolic stories describe armies of economists engaged in impossibly complex calculations and unable to come to meaningful conclusions. It would no longer be possible, the argument goes, to know whether something is lawful or unlawful, and dominant companies would be able to exploit this uncertainty to avoid intervention. And, if there was any doubt, courts would be overwhelmed with numbers and welfare estimations.

The CMA’s decision shows that these claims do not stand up to serious scrutiny (to tell the truth, I suspect that many commentators do not even take the claims seriously; it is just an irresistible rhetorical point). In about 4 pages, the authority applies the framework laid down in Post Danmark II and concludes that there was no point in keeping the case open and thus devoting some of its limited resources to it.

I will take just one of the practices examined by the authority to show how the effects-based approach works in the real world (spoiler: it does not involve infinite rows of sleepless econometricians). The CMA raised concerns, inter alia, about some ‘large’ package deals offered by Unilever to supermarkets (the decision refers to ‘buy 8 [packages] get 4 free’ or ‘buy 12 get 6 free’).

Unilever is probably dominant on the relevant market, and some of its products are must-haves. In spite of these factors, the CMA concluded that exclusionary effects were unlikely to result from the large package offers. As explained in the decision, the firm gave these offers in February or March, where ice cream consumption is typically low, and were available for just one month. In addition, the purchasing decisions made during winter and early spring were deemed unlikely to affect purchasing decisions during the summer months; instead, such decisions were found to be determined by other considerations.

These conclusions are not only sensible, but also in line with the case law. Needless to say, nothing of what the CMA does is out of the reach of a generalist court. Far from that. A court applying Delimitis or Maxima Latvija to a dispute is more than able to consider the same factors in an Article 102 TFEU case. There seems to be no reason why what is considered acceptable and administrable in the context of Article 101 TFEU is not acceptable and administrable in abuse cases. This is something that is implicit in some of the most recent rulings of the Court.

Any lessons for Intel?

Before I forget: Impulse Ice Cream is relevant for the (never-ending) discussions around Intel in one important respect. The case provides yet another example that the tripartite division between quantity rebates, loyalty rebates and ‘third category’ rebates is, insofar as it exists, neither meaningful nor workable.

Why do I say that? As I started reading the decision, I thought ‘it looks to me like a set of quantity rebates, as the discounts are given with respect to each of the orders; this would make them prima facie lawful’. The officials at the CMA (who obviously have more information) characterised it instead as a ‘third category’ rebate scheme. As sensibly explained in the decision, the characterisation of the practices, in any event, matters less than their impact on the competitive process. This point is buried in a footnote, but it is key.

I will say more: the boundaries of each category are so blurred, and all rebate practices are so similar in their nature and potential effects, that I fail to see what the tripartite division achieves, other than creating confusion and opening the door to arbitrary decision-making. We need legal categories, that is out of the question, but legal categories need to make sense. We will get to know next week whether the Court agrees with me on this one!

Written by Pablo Ibanez Colomo

28 August 2017 at 9:28 pm

Posted in Uncategorized

Upcoming events

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Although with a bit of a delay, here are some events organized by friend of this blog in the coming weeks and that might be of your interest:

On 8 September the 11th Junior Competition Conference will take place at the Competition Appeal Tribunal in London. This is an event organized by the editors of the Competition Law Journal and that we have always supported. For details on how to register, click here.

On 15 September the University of  Leeds will be hosting a conference titled Competition Law in a Global Context: Analysing the Trans-Atlantic Divide with a very promising program. The conference will be preceded by Pinar Akman’s inaugural the day before (see here).

On 25 September LeadershIP will put together a conference in Brussels to discuss  recent international developments having to do with IP issues. More information is available here.

Written by Alfonso Lamadrid

18 August 2017 at 11:20 am

Posted in Uncategorized