Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Institutions and Regulations for the Fourth Industrial Revolution (Brussels, 3 May)

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Our blogger emeritus Nicolas Petit has put together a conference to address a core public policy question: What institutions, policies, rules, and regulations will maximize individual benefits and economic surplus in the Fourth Industrial Revolution? The topics discussed wil include Royalty Setting and Patent Policy, Autonomous Vehicles, Digital Platforms: Antitrust and Regulation and Globalization, Industrial Champions and 21st Century Protectionism.

The event is jointly organized by the LCII, Hoover IP² (Stanford University) and the Center for Intellectual Property (University of Gothenburg). It will take place at the Sofitel Hotel Le Louise, in Brussels on 3 May 2019.

Here you can find the conference programme featuring a number of excellent speakers. The registration link is available here.

 

 

 

Written by Alfonso Lamadrid

16 April 2019 at 10:10 am

Posted in Uncategorized

SAVE THE DATE: 14 June – Chillin’ event on State aid (@ Fondation Universitaire, Brussels)

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save-the-date

A Chillin’ event at the Fondation Universitaire (Rue d’Egmont 11, Brussels) will take place on 14 June.

The event will be devoted to State aid. There is a great deal going on in this field (procedurally and substantively, within and outside the EU) and we are convinced it makes sense to have three panels (two in the morning, one in the afternoon) to take stock of these developments.

The event will be possible thanks to the support of my amazing institution, LSE.

We are still finalising some bits of the programme, but we can already confirm the attendance of the following leading experts (to whom we are really grateful for the enthusiastic reaction):

José Luis Buendía Sierra (Partner, Garrigues)
Jacques Derenne (Partner, SheppardMullin)
Juliette Enser (Senior Director, Competition and Markets Authority)
Natura Gracia (Partner, Linklaters)
Christian Jordal (Deputy Director, EFTA Surveillance Authority)
Christina Siaterli (Head of Unit, European Commission)

As we usually do, registrations will open a month or so ahead of the event. Stay tuned! And please come back to us for any questions you may have!

 

Written by Pablo Ibanez Colomo

12 April 2019 at 9:21 am

Posted in Uncategorized

The report on ‘Competition policy for the digital era’ is out: why change the law if there is no evidence? And how?

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Image result for shaping competition policy for the digital era

The much-awaited report on ‘Competition policy for the digital era’, jointly authored by Jacques Crémer, Yves-Alexandre de Montjoye and Heike Schweitzer (the latter my PhD supervisor and mentor for a lifetime) is finally out. It is a (most readable) 130-page long piece that, as expected, proposes some major changes to the system.

The title of the report refers to policy, which is a bit of a misnomer as the proposals relate to the law (and as such they do not depend on the Commission alone). The most significant of these changes are the following:

As a general rule, the authors seem to advocate making it easier for the European Commission to discharge its burden of proof, by lowering the requisite threshold of effects. The premise underlying this proposal is that the analysis of effects may be uncertain, and the ‘stickiness’ of market power too great to rely on existing principles and approaches.

There are instances in which the authors propose reversing the burden of proof altogether. Some practices, in certain circumstances (in particular, when they are implemented by a vertically-integrated dominant platform) will be deemed anticompetitive. It will thus be for the firm to show that their conduct is on the whole pro-competitive. This is, in other words, a proposal to enlarge the ‘by object’ category in digital markets – the ‘by object’ category would perhaps also reach merger control.

In this regard, the authors, for instance, refer in several passages to a ‘presumption in favour of a duty to ensure interoperability’. Remember Microsoft, where the Commission had to show indispensability? As I understand the report, there would be a duty to ensure interoperability upon a finding of dominance alone.

There is nothing new, no consensus and no evidence that there is something specific about digital markets. Why then, the changes?

The authors justify their proposals in light of three economic features of digital markets:

  • Extreme returns to scale
  • Network externalities
  • The role of data

It is not immediately obvious to see how these features justify a departure from the law and the existing principles underlying the law. This is a point I already made in my submission to the Commission.

And the report and the conference that preceded it do not change my view in this regard. In fact, the report appears to be based on the premise that there is something unique about digital markets, but this idea is not explained or developed. I went several times over Chapter 2 (which is meant provide the basis) without finding any references to evidence supporting this underlying premise.

For instance, the report claims that there are ‘extreme’ returns to scale in digital markets. But the authors do not explain why these returns to scale are more extreme than those that exist, for instance, in network industries with natural monopoly features like telecoms or energy (see page 20).

And competition law has played a key role in ensuring the success of the liberalisation in the said industries without ever suggesting changing the law (in fact, the Court of Justice moved in the opposite direction in key cases like Deutsche Telekom).

Similarly, the report discusses at length network effects. I remember my days as an LLM student in Bruges (15 years ago, no less), reading with fascination Shapiro’s and Varian’s Information Rules (which the authors cite) and Oz Shy’s The Economics of Network Industries. Again: we have known about this phenomenon for a long time (as evidenced by the peer-reviewed literature cited in the report).

Since I graduated from Bruges, a body of case law addressing the issue of network effects and on two-sided markets has developed. Importantly, we have learnt from this case law that anti-competitive effects are not inevitable even when networks effects are strong (think of Microsoft/Skype), and that two-sidedness in an industry may lead to the conclusion that a practice is not restrictive by object (think of Cartes Bancaires).

If these are well-known phenomena and do not inevitably lead to the conclusion that anticompetitive effects are more likely, why would they justify departing from the relevant case law? I looked carefully in the report for any evidence, but I struggled to find answers. To the credit of the authors, they acknowledge that these phenomena are not yet fully understood (see for instance pp. 52 and 126), and also make it clear that their report is by no means intended to provide the last word.

There is no good reason to change law and policy absent evidence and expert consensus

One could argue, as many commentators have suggested in the past years, that if we wait for consensus to develop some dominant positions will become entrenched and it will be too late. Is it not reasonable, in the name of precaution, to take action before it is too late? Are the stakes not too important?

I am not persuaded by this view. First, we simply do not know (yet) whether ‘this time it’s different’. As someone who has studied competition law for a while, I have heard, over the years, many (unpersuasive) stories of why a particular sector was special and required ad hoc rules. I am no more inclined to believe these stories now, which stakeholders tend to use to justify bending the law to their advantage.

Second, I have seen fascinating stuff happen to the sectors which I have followed closely since my days as an LLM student. I have witnessed the decline of Windows as a major gateway, the development of mobile Internet, the launch of smartphones and the transformation of the audiovisual industry (with the rise of Netflix and the progressive demise of the once mighty pay-TV operators). And all of this in industries with natural monopoly features and/or subject to strong network effects (and arguably less dynamic than online markets).

Third, and perhaps more importantly, if we allow a competition authority to choose what to believe, we enter the realm of arbitrariness. There can be no effective judicial review, and no effective protection of the individual vis-à-vis the administration, if expert consensus becomes optional and policy is not based on the best available evidence.

This is something that the EU courts understand well: these insights are at the heart of the Airtours case, where the General Court reminded the Commission that it cannot make up the expertise underlying legal analysis, and ignore the knowledge incrementally developed over the years.

Finally (and in line with the first point), an authority that feels can disregard the expert consensus is more easily captured by stakeholders, who will always try to present a plausible or semi-plausible case favouring their interests.

Changing the law is not the Commission’s prerogative and the report does not say much on how to proceed

I mentioned above that the reference to policy in the report is misleading, as the authors propose to change the law in several fundamental respects (alter the analysis of effects, re-categorise some practices as ‘by object’ infringements, refine the conditions under which information is licensed).

In addition, they propose an error-cost framework that is not easy to reconcile with the approach followed by the EU courts to distinguish between ‘by object’ and ‘by effect’ infringements. Similarly, the authors discuss the possibility of applying restorative remedies, which appear to be at odds with the logic of remedial action followed, so far, under Articles 101 and 102 TFEU (and enshrined in Regulation 1/2003).

Interestingly, there is little in the report about how to implement the changes proposed. And it may not be obvious to do so. Here and there, one gets the impression that the authors envision the emergence of a parallel, industry-specific, competition law. There are all sorts of problems with this idea – as mentioned above, valuable information, network effects and natural monopolies exist elsewhere in the economy.

In any event (and this is perhaps the crucial point), the changes suggested – whether introduced case-by-case or via new sets of Guidelines – cannot be implemented by the Commission alone, in the sense that they would have to be validated, ultimately, by the Court of Justice. And this is not a foregone outcome. In fact, on issues of proof, evidence and effects (let alone the issue of expert consensus mentioned above), the case law has markedly moved in the very opposite direction. Would the EU courts change course now?

What does the report tell us about the current landscape?

The report comes at a time when competition law debates have become increasingly polarised. There were certainly differences of views ten years ago, but there was a broad agreement among authorities and stakeholders that enforcement had to rely on the best available evidence and could not ignore consensus views among experts.

Things are not so clear now. With increased polarisation, it would seem that some consider that it is enough to please the like-minded crowd. If Team Enforcement (or Team Anti-Enforcement) agrees with one’s views, then the job is done.

Against this background, the report is most refreshing in its humility and open-mindedness. Authors expressly encourage an exchange of views and acknowledge that there are many things that we do not know about these markets.

In these circumstances, the Commissioner (and DG Comp) will have to make a choice. They may choose to test the ideas proposed in the report and determine whether the views advanced by the authors reflect expert consensus and are supported by evidence. Or they may instead move forward with the proposals irrespective of whether there is a consensus.

Recent developments suggest that they may follow the second route, which for an academic is fascinating on many levels (if only because it would mark a break from the approach the Commission has pursued since the mid-1990s). We will wait and see.

And since we talk academia, I am happy to clarify (as I did in my submission) that, in accordance with the ASCOLA declaration of ethics, I have nothing to disclose.

Written by Pablo Ibanez Colomo

5 April 2019 at 9:47 am

Posted in Uncategorized

EU Competition Law and Multi-Sided Platforms: Lessons from the case law

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case law

There is much noise and too little law in many of the ongoing debates about multi-sided platforms (digital or not). For quite a while now I have been hoping to have the time to finish an article developing my view of the relevant EU case law, but I’m now coming to terms with the fact that this moment may not come in the short term.

In the meantime, here are a few slides I have used at a couple of recent events, where you will see some ideas sketched: EU Competition Law and Multi-Sided Platforms (Lamadrid)

Proposals to reform the system and create new rules are now common, and they often criticize the case law for offering unsatisfactory solutions. Until recently EU case law was criticized for being to harsh on dominant companies; more recently, it has been criticized for being too lenient. To reach these conclusions, commentators often mischaracterize the Court’s reasoning, resorting to flawed statistics or to isolated dicta.

In my view, EU case law offers a balanced approach and a sensible and prudent analytical framework to deal with the competitive ambiguity of these business models. In some cases the lessons could not be clearer. In other cases one simply has to connect the dots. Whether one wants to follow, ignore or throw away the case law, it would make sense to understand it first.

[Disclaimer and Recommendation: Since one could always legitimately claim I am one-sided, I suggest you go directly to the sources and read the case law cited in the slides, don’t take my word for granted and come to your own view. Any comments that I might (one day…) use for my piece would be most welcome!)

Written by Alfonso Lamadrid

1 April 2019 at 4:14 pm

Posted in Uncategorized

GCR Awards- Thank you!

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Last night in Washington DC Pablo and I received, respectively, the Global Competition Review “Academic Excellence” and “Lawyer of the Year (under 40)” awards.

Thanks so much to GCR for selecting us and to all those of you who, ignoring your conscience and against your best judgment, took a moment to vote for us 😉

Pablo’s award, following two previous nominations, is objectively and unquestionably deserved. It’s a recognition to his unique intelligence, hard and public work, honesty and influence in competition law globally. I was honoured to receive the award on his behalf and couldn’t be more proud of my co-blogger and friend.

My award is more subjective, as good lawyering involves many dimensions that are often not public, almost always attributable to a larger team and, in any event, impossible to objectively assess. But I don’t really mind that the awards isn’t necessarily about great lawyering. What matters to me is that so many people cared enough to give their support. Thanks to all of them and to my clients, colleagues, my firm and, above all, family, for permitting me to do what I like.

I’m also very proud of all my colleagues at Garrigues for being among the four shortlisted candidates to the EU Regional Firm of the Year Award.

Congrats to all other nominees and winners and, once again, thank you!!

Written by Alfonso Lamadrid

27 March 2019 at 7:49 am

Posted in Uncategorized

Unilateral Digital Service Taxes and EU State Aid Rules: the elephant in the room

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tax

We have always cautioned against the application of different rules and standards only to certain companies. That is a trend that appears to be in vogue these days. In some cases, this approach may threaten the consistency of the law and breach general principles. In other cases, the application of ad hoc rules would be in direct breach of EU Law itself.

Here is a perfect example that affects two areas that are of particular interest to the European Commission and to myself: tech and fiscal state aid. [Disclosure: I have examined these issues following a request from our friends at CCIA, who will also post this piece on their own blog. Below is my reasoning, you can make your own conclusion]

You have probably read on the news about the Commission plans to create a “digital service tax” (“DST”). This is a plan that was reportedly abandoned recently due to the opposition of some Member States (see here). Absent a harmonized EU DST, some Member States (namely France, Italy and Spain) have adopted or announced the adoption of their own unilateral DSTs. The declared objective of these taxes is to ensure that the provision of digital services is taxed in the jurisdictions where users contribute significantly to the process of value creation.

This is not the place to discuss the political opportunity or possible consequences of these initiatives nor to challenge wider proposals to reform tax systems (which may make sense), so let’s assume that these are legitimate policy initiatives. We will focus not on the idea, but on its execution.

As currently designed, it is obvious to me that the different national DST proposals would involve the granting of State aid (which doesn’t necessarily mean they are illegal, only that they need to be notified by the Commission for clearance).  Think about it:

First, the case law makes clear that a specific tax addressed only to certain undertakings may imply a selective advantage to other companies not subject to the tax. The key question is whether all the companies in the same legal and factual situation, having regard to the objective of the system, are treated in the same way. [See e.g. the Court’s recent Judgment in ANGED, where the CJEU considered that regional environmental taxes that applied to supermarkets but exempted commercial malls despite having a similar negative impact on the environment constituted a selective advantage to malls].

This means that one needs to verify whether the scope of the tax at issue is consistent with its declared objective or whether, on the contrary, it exempts other companies that should have been subject to the tax.

In the case of the DSTs, the current proposals do not target all activities where users create value, but only some, namely online advertising services, online intermediation services and data transfer services. This excludes any other services where users may also create value.

Second, the scope of the proposals is further delineated in the light of a high worldwide revenue threshold (both the French, Spanish and Italian proposals set a 750 million worldwide revenue threshold). But the case law also makes clear that crafting objective thresholds in such a way that de facto exempts domestic companies from the application of a tax can also amount to State aid.

The clearest examples are the recent Commission decisions regarding Hungarian and Polish turnover taxes on certain activities, now before the CJEU. In three separate decisions (here, here and here), the Commission considered that these taxes constituted State aid as they were based on particularly high turnover thresholds and were effectively designed to tax almost exclusively large companies (usually foreign companies) and not smaller ones (almost always domestic companies), in a way that was unrelated to the objectives sought by the Member States. [Evidently, the State aid nature of a measure does not depend on whether it is granted by Hungary and Poland or by France, Spain and Italy…]

Third, revenue-based taxes do not appear to be consistent with the declared objective of taxing digital services in the place where users contribute to the process of value creation. This is because users can create value in many ways regardless of the company’s turnover. Actually, this is precisely the reason why many people would like to see a change in merger notification thresholds only based on turnover.

Public statements from national politicians saying that SMEs and national companies have nothing to fear (see e.g. here, here –the French Government actually calls this the “GAFA tax” – or here) would appear to confirm that these initiatives have been crafted with addressees in mind, not just to tax digital services where users contribute to the process of value creation (a tax with a company nickname sounds a tiny bit selective…). This is a sort of Marxist (I mean Groucho) view of fiscal policy: “these are my principles, but to some companies we’ll apply others”. This is not just me saying it: the Danish, Swedish and Finish governments (not known for being soft on taxes) have also spotted the problem and opposed even the EU proposal (see here).

By treating differently companies that are in a comparable situation, unilateral measures such as the French, Italian or Spanish DSTs would, in my view, constitute clear State aid. It’s therefore surprising that none of these pro-European Member States have notified the projects so that the Commission can assess their compatibility.

In the light of the Polish and Hungarian precedents, one could anticipate that –regardless of its political views- the Commission will in any event ultimately intervene, or be forced to intervene.

Written by Alfonso Lamadrid

22 March 2019 at 11:15 am

Posted in Uncategorized

EU Judicial Review: Major Antitrust Implications of Recent State Aid Cases

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Blinkers

We competition lawyers often wrongly approach our discipline in isolation from the wider context in which it is applied. This is also true when it comes to judicial review. We tend to forget that antitrust is only a fraction of what the EU Courts and EU judges do, and that what they do in other areas might also have major implications in ours.

A perfect illustration of what I’m saying lies in two State aid judgments: C‑300/16 P, Frucona Kosice, and the very recent T-865/16, Fútbol Club Barcelona v Commission.

Both cases relate to how the Court approaches judicial review of complex economic assessments when the burden of proof is on the Commission. This, as you know, is an issue common to antitrust, mergers and State aid, and also to other areas of EU law. As you also know, in these cases the EU Courts apply a “manifest error of assessment” standard. Pursuant to the Tetra Laval formulation (which GC President Jaeger has called “the forgotten paragraph”), in these cases “the Court must establish “not only whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it”.

The first case is Frucona Košice.  Here, the CJEU clarified that “the information ‘available’ to the Commission includes that which seemed relevant to the assessment to be carried out in accordance with the case-law (…) and which could have been obtained, upon request by the Commission, during the administrative procedure” (71). The CJEU then observed that the Commission had “failed to obtain” (80) “all the relevant information” (81) and confirmed the annulment of the Decision.

I had already briefly discussed this case on the blog some time ago, in relation to how the Commission intended to apply the lessons from the Intel Judgment (see here). As I said then, the Frucona Judgment confirmed that the Commission cannot just sit and wait for the dominant company to bring all the necessary evidence to establish a point at a stage where the burden remains on the Commission (for competition law purposes, that would be at the state of identifyinga prima facie restriction under 101(1) or at the stage of ascertaining “intrinsic capability” to restrict competition within 102). Remember the difference between the burden of proof and the evidential burden? If not, click here.

All this was confirmed and expanded on just a few days ago in the FC Barcelona v Commission case, where the Court annulled a decision declaring that certain Spanish fiscal rules granted State aid to some football clubs (the Court’s press release available here). The Judgment (not yet available in English, can be found here).

Specifically, the GC ruled that when the Commission is confronted, during the administrative proceedings, with evidence capable of leading to “doubt” as to a relevant aspect of the case, it is then obliged to undertake measures of enquiry. Failure to do this can result in the Commission not meeting its burden of proof, which in turn might lead to the annulment of the Decision. This Judgment is based on…the Frucona Košice precedent.

In a nutshell:

-FC Barcelona argued that the Commission’s decision had not properly assessed one aspect of the case (the idea was that it had assessed a tax scheme looking only at the nominal tax rate and not to other constituent elements that cannot be dissociated from the tax scheme), and that, had it done so, it would have come to a different conclusion. FC Barcelona invoked the Commission’s duty to conduct its investigation actively, fully and impartially, seeking to gather, by means such as RFIs, any information available to it, including both inculpatory and exculpatory evidence (para. 38).

-The Commission argued that it had based the decision on the information submitted to it by the Spanish authorities and that no additional measures of enquiry were necessary. It contended that the applicant’s arguments were “simplistic and possibly erroneous” and that in any event they had not been put forward by the applicant during the administrative proceedings (para. 41);

-The Court observed, however, that “the Commission, who bears the burden of proof (…) enjoyed the possibility of requesting, within the limits of its investigatory obligations within the administrative proceedings, any information necessary to conduct its assessment” (para. 59, citing in turn para. 71 of Frucona Košice). The Court notes that the information contained in the decision did not exclude the possibility that the applicants’ argument may have been well founded (paragraph 60 in fine). In paragraphs 66 and 67 the Court finds that at the time of adopting the contested decision it had at its disposal elements that “should have led it to doubt” its approach, and that since these elements were not addressed the EC failed to meet its burden of proof. This means that the evidence to be put forward by the company must not be sufficient to prove a point, but simply to lead to doubt.

-The Court also addresses the Commission’s point that the applicant had not raised the necessary arguments during the administrative proceedings, noting that they had been raised by another party (Real Madrid; ironically, in a way Real has won the case for Barcelona…), and that therefore the Commission failed to establish its case having regard to the data at its disposal at the time of adopting the Decision.

-The GC dismissed a parallel application by another applicant in exactly the same situation, but which failed to raise this legal argument (Athletic Bilbao, in case T-679/16).

The bottomline(s):

  • The Courts recognizes the Commission’s ample powers and will often defer to its assessment on substance, but for this trust to exist the Commission will at the very least need to show that it has not avoided any relevant issues, and that it has pursued all relevant leads.
  • Some key members of the EU Courts had also signalled some of this. As noted by Vice-President Van der Woude, cases like Cartes Bancaires or Intel raise questions for which answers “can be found in the burden of proof that rests upon the Commission pursuant to Article 2 of Regulation 1/2003”. Read that in the context of the Judgments discussed above and connect the dots.
  • These developments are here so stay. It won’t be difficult for the Commission to continue to win cases if it incorporates this logic into its day-to-day. If that does not happen, we are likely to witness a series of annulments based on this logic. This, of course, is assuming that lawyers understand the underlying logic, make sure to submit the relevant info during the administrative proceedings and raise the issue in Court. [My bet is that I will be making a few future cross references back to this prediction]

 

Written by Alfonso Lamadrid

18 March 2019 at 6:31 pm

Posted in Uncategorized