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Archive for October 21st, 2009

The “Last Hundred Days” Strategy – Is the Qualcomm Case Over?

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Milton Friedman and his wife Rose Friedman are known for having theorized that recently elected governments generally enjoy a period of political immunity following elections, which allows them to push reforms, including tough ones, relatively easily (see Tyranny of the Status Quo, New York: Harcourt Brace Jovanovich, 1984). This theory is often related to the “first hundred days” honeymoon period enjoyed by political leaders.

My intuition is that this theory also applies to administrations reaching the term of their mandate and, in particular, the current European Commission. In this regard, Neelie Kroes, the Commissioner for competition, certainly enjoys  an unprecedented ability to increase output in the last months of her mandate in deciding/closing cases. This is partly due to the fact that the repeated game of political interaction – where disgruntled colleagues, rivals, parties, etc.  might retaliate in the future (and kill proposed decisions/legislative proposals) – comes to an end. At this stage, Neelie Kroes, who most likely will not be reappointed as Commissioner for competition (and, if I understand correctly, whose domestic carreer is largely over), has thus a relatively large margin of enforcement manoeuvre. In addition, ending  administrations face lower exposure than newly appointed administrations:   (i) other Commissioners might also be busy cleaning their desk, and in turn unable to scrutinize competition enforcement initiatives; (ii) journalists, medias, citizens, MEPs, etc. primarily care for the yet to be appointed Commission and its programme, and no longer pay much attention to what the present Commission is doing.

In this context, the Commissioner has given indirect signs that she may soon close the long-standing, high-profile, Qualcomm case (full disclosure: my former law firm, Howrey LLP has been working intensively on this case over the past years). In a nutshell, this case is about the amount of royalties charged by the US firm Qualcomm for its 3G WCDMA technologies, deemed to be excessive by a number of complainants, some of which are big EU telcos manufacturers. The case exhibited a number of interesting, controversial, features. To name only a few: should the cryptic, unpractical, case-law on exploitative abuses be applied to dynamic, R&D-driven markets?; does an ex ante FRAND commitment go beyond a mere commitment to negotiate licensing terms in good faith?; should the Commission get involved in a case that exhibits a strong revenue distribution (or “revenue sharing”) dimension, as well as industrial policy features (the classic US v. EU trade war story)?

In a speech entitled “On ex ante standards setting and new horizontal agreement guidelines ” delivered last week, Neelie Kroes unusually emphasized the difficulties encountered by enforcers in bringing forward excessive pricing cases:

In my view, there are a number of ways to assess whether there has been an excessive pricing abuse under Article 82 EC and the methodologies used will depend on the factual matrix. One method is to compare the (ex-ante) market value of the relevant IPR with the ex post royalty rate, if the evidence clearly permits such a comparison. If the ex post royalty is significantly and unjustifiably higher than the ex ante price, then we may have an excessive pricing case. In practice, such assessments may be much more complex than this brief description of the issues implies, and any antitrust enforcer has to be careful about overturning commercial agreements without a clear and coherent evidence base.

Matthew Newman, a Bloomberg journalist further reported:

When asked whether there’s enough evidence to pursue the Qualcomm case, Kroes said that “as a commissioner for competition policy, it’s always good to recognize if it’s well thought over, if it’s proven. If it’s not really proven, we should be careful — you can read between the lines.”  Kroes added that the case has been “fascinating” and that she used a panel, known as a devil’s advocate, to weigh the nearly 4-year-old investigation.

Now, let’s try to interpret the smoke signals: just as other cases like Rambus and Microsoft II, which the Commission is likely to settle, the Qualcomm case may soon be over, this time for lack of evidence.  Of course, some may think this is not the most glorious exit scenario for the Commission, in particular, after a 4-years investigation.   Yet, I actually tend to think that it is courageous plain normal for a competition enforcer to publicly recognize that is shall not pursue unproven cases, rather than pushing weak cases by virtue of path-dependence dynamics, or because it feels it must recoup its enforcement costs through decisional output.
Neelie Kroes – On ex ante standards setting and new horizontal agreement guidelines

In supporting negotiated solutions that are allegedly in the interest of both consumers and business, and dismissing unproven cases, the current Commissioner may also seek to raise her profile in the history of EC competition enforcement, in particular in defusing criticism that her enforcement record is only about harsh, tough, negative competition enforcement (read hefty fines), sometimes at the expense of the rights of defense.

(Image possibly subject to copyrights. Source here)

Written by Nicolas Petit

21 October 2009 at 8:28 am