Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for December 2010

New paper on ssrn

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Here’s a link to a new paper which I just finalized with my good friend David Henry (Howrey). The paper will appear in the book on vertical restraints that I am currently editing with Charles Gheur, as a follow up to our conference last year. 

Its main added value is, I believe, to offer a stepwise method to self-assess vertical agreements. Beyond this, the paper offers a few critical perspectives on selected issues. It contends in particular that (i) the double market share threshold is certainly a nice idea on paper, but that it does not pass the practicability test, especially for small firms involved in vertical agreeements; (ii) the new framework marks a clear extension of the scope of EU competition law, in particular because it turns buyer power upside down (from a pro-competitive factor to an anticompetitive one).

Finally, I cannot resist to share a moment of happiness with you. I learned today that Anne Perrot and Jean-François Bellis will use my paper on the effects based approach under Article 102 TFEU as suggested reading for their forthcoming BSC module.

Written by Nicolas Petit

13 December 2010 at 11:56 pm

European Commission vs Google

with 12 comments

 

As anticipated, we will be devoting a series of posts to the investigation initiated by the Commission following allegations that Google discriminates against vertical search pages to the benefit of its own content.

The Commission’s announcement that it was formally initiating an investigation spurred all sorts of reactions. See here for Google´s reaction on its own blog and here for Microsoft´s.

I´m unfortunately not involved in the case, so I will express myself with no constraints. It will nevertheless be extremely interesting to hear from someone in the opposite situation: hopefully some of our colleagues in the blogosphere who are involved in it will eventually comment on the case.

Here are some general impressions which introduce various topics that we´ll be discussing in the coming weeks:

The inevitability of competition law: It was probably inevitable that Google would be facing such legal threats given its position as the de facto gatekeeper of the Internet, even if it has achieved its position via “superior product, business acumen or historic accident” or how we, more laconically, say here “competition on the merits”. A company certainly does something right when its name becomes a verb.

It was indeed predictable that antitrust authorities wouldn’t resist the temptation to act against them (in antitrust law, as in the laws of gravity, mass increases attraction).  In fact, in a short period of time Google has faced investigations regarding its advertising agreement with Yahoo!  (which could not be implemented precisely as a consequence of the antitrust concerns); the existence of interlocking directorates with Apple, and the GoogleBooks project. For my comments on the last two see here and here   

In a sense, the investigation might even be good news for Google, since it affords it the chance to prove once and for all that it does not engage in unlawful behavior. Moreover, and in the case that Google did discriminate, the competition community would be provided with a great opportunity to shed light on the status of discriminatory practices under EU competition law and to make clear that not all discrimination is illegal. However, I´m also afraid of the truth that may lie in the aphorism “big cases make bad law”.

An attack against U.S. companies? Some have, once again, argued that this investigation is another illustration of the fact that U.S. firms constitute the Commission’s favorite target. Against such contention, one should note that also the complainants in this case have rather strong links with the US… If anything, what the investigation confirms (once more) is that the European Commission has certainly taken the lead, and a much harder stance,  in the prosecution of unilateral conducts.

An anti-Google alliance?-. I was told this summer that several law firms in Brussels were closely working together with the aim of putting pressure on Google on as many angles as possible. If true, is this their first success?

If you can´t beat them..sue them! What this case does illustrate is that the resort to antitrust/competition law has certainly become one of the preeminent competitive tools at the service of competitors willing to obtain on a “court” what they weren’t able to do on the marketplace. Surely Microsoft learned this through its own suffering.

Market definition-. Last week we were discussing market definition teasers: what about online search advertising vs online advertising? what about online search vs a much wider content search market?

Is Google really dominant? The relevance of scale/network effects-. As in most major case of the past few years, allegations on the existence of network effects  seems to instantly turn on competition watchdogs. Once again, a positive externality is viewed as a negative market failure justifying antitrust intervention and the instrumentalization of remedies in order to pursue regulatory goals  Furthermore, can there be a dominant position as a result of network effects when, as often reminded by Google, “competition is just one click away”? To what extent is antitrust intervention in network/two-sided markets driven by old reflexes and insufficient understanding?  This stuff (which is of particular interest to me) will also be covered on an specific post.

Should/ can we require neutrality from dominant companies? The conditions under which a dominant company is required to grant non-discriminatory access to its competitors under EU competition law are extremely narrow. There´s much to be said on this, but we leave the floor to Pablo Ibañez, a very good friend and one of the most brilliant and promising competition scholars, currently at LSE.

How can discrimination be proved/ remedied? Proving that Google´s algorithm is discriminatory appears to me like a herculean task. Not everyone sees this way, though (see here). As Nicolas mentioned on his post below, it is most likely that the Commission will be aiming for commitments on the part of Google, in which case it will be freed from this task. However, how could a commitment resolve the Commission’s doubts as to the existence of discrimination? Could we end up with another “must carry” remedy pursuant to which Google should advertise and link competitor search portals on a prominent part of its results page? Come on.

In sum, and in my view, the investigation implies departing from the Commission´s stated priorities when, moreover, there is no clear dominant position; there is no abusive conduct; how Google harms consumer welfare is certainly hard to see; and there does not seem to be an adequate remedy (which in itself should be an indication of the lack of a problem).  A prediction: the Commission will most likely shelve the proceedings, the decision will be appealed by the complainants -who have the incentives and the means to go forward with this-, and we´ll find ourselves before another long legal battle before EU Courts…

*Sources: Every comment  used for writing this post -both in favor of and againts Google- was  found through Google.  Something tells me that the Commission´s staff and, I would bet, the complainants too will resort to Google in order to obtain much of the information they will use in the course of the case (and eventually so would the Judges).

(Image possibly subject to copyright).

Written by Alfonso Lamadrid

10 December 2010 at 7:13 pm

ChillinLeaks

with 2 comments

We were the firsts to report on the replacement of N. Calvino and on the whole reshuffling of DG COMP a while ago.

We got a fresh hand on the draft horizontal guidelines, and provided some hints on their contents.

10 days ago, we were the ones to announce that the Commission is attempting to cook a cartel case on the exclusive basis of economic evidence.

Given our proven ability to chill competition on the market for breaking antitrust news, Alfonso and I have decided to formally start a ChillinLeaks column. We simply hope not to be accused of serious criminal offenses in Sweden.

Should you wish to contribute to the free flow of AT-related information, and send us revelations and stories for disclosure on this blog, please note that we apply the highest standard of confidentiality to our sources. You may also reach us by phone, should you prefer this communications means.

To inaugurate this new column, here’s the big news (still unofficial):

Kai-Uwe Kühn (University of Michigan) will be the next Chief Economist of DG COMP, and will replace D. Neven who’s supposed to step down shortly. Kühn is a specialist of collusion, collective dominance and hi-tech industries (read Microsoft and interoperability issues). He has consulted, if our information is correct, for CRA International. He holds a Phd in economics from Oxford University. Congrats to him.

 Alfonso and Nicolas

(PS: Image possibly subject to copyrights. Source here)

Written by Nicolas Petit

9 December 2010 at 3:52 pm

Effet Utile 1 – 0 Procedural Autonomy

with 2 comments

This is a big one and, I believe, a satisfactory judgment.

The VEBIC ruling, handed down today by the ECJ (Plenary Session) promotes an extensive interpretation of how far Member States must go to ensure the effet utile of Regulation 1 (although the principle was not quoted). The Court’s ruling might trigger a legislative change in Belgium or simply prompt the review courts to open proceedings to the Belgian competition council (the judgment says “precluding national rules“).

The case concerned the Belgian competition statute. This piece of legislation institutes a Belgian Competition Council as the NCA. Yet, it does not explicitly entrust the Council with the ability to appear before the competent review court when its decisions are challenged.

In the context of national litigation against a decision of the Belgian Competition Council (under national competition rules!), it was argued that the NCAs could possibly rely on Article 15 of Regulation 1/2003 to submit ex officio observations before national courts. Yet,  some doubts existed as to whether  (i) this applied to review courts ; (ii) this was a sufficient mechanism (oral observations must be authorized by the court).

More generally, this triggered a debate on wether the loophole in the Belgian legislation was compatible with Regulation 1/2003, and in particular Articles 2, 15(3) and 35(1).  The review court referred four questions to the ECJ.

In its judgment, the ECJ quickly excludes that Articles 2 and 15 enshrine any obligation, let alone  prerogative, on the part of the NCA, to participate in review proceedings against its decisions.

In contrast, Article 35  requests MS to appoint effective NCAs (§56). This provision reflects the underlying purpose of  Regulation 1, which is to ensure that Articles 101 TFEU and 102 TFEU are applied effectively by NCAs.

The practical uphsot of this is to entrust NCAs with the ability to appear in review courts when their decisions are challenged. Otherwise, “there is a risk that the court before which the proceedings have been brought might be wholly ‘captive’ to the pleas in law and arguments put forward by the undertaking(s) bringing the proceedings” (§58).

Hence,  Regulation 1 requires Member States to entitle their NCA to participate to review proceedings (§59). In addition, whilst NCAs are under no obligation to use this prerogative sytematically, “if a NCA consistently fails to enter an appearance in such judicial proceedings, the effectiveness of Articles 101 TFEU and 102 TFEU is jeopardised“.

Here’s the full quote:

Article 35 of the Regulation must be interpreted as precluding national rules which do not allow a national competition authority to participate, as a defendant or respondent, in judicial proceedings brought against a decision that the authority itself has taken. It is for the national competition authorities to gauge the extent to which their intervention is necessary and useful having regard to the effective application of EU competition law. However, if the national competition authority consistently fails to enter an appearance in such judicial proceedings, the effectiveness of Articles 101 TFEU and 102 TFEU is jeopardised. In the absence of EU rules, the Member States remain competent, in accordance with the principle of procedural autonomy, to designate the body or bodies of the national competition authority which may participate, as a defendant or respondent, in proceedings brought before a national court against a decision that the authority itself has taken, while at the same time ensuring that fundamental rights are observed and that EU competition law is fully effective.

Written by Nicolas Petit

7 December 2010 at 6:59 pm

Posted in Case-Law

Crystal Ball Gazing

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I must have been over-optimistic when talking, a few days ago, of “the end of an enforcement paradigm”:

Last week, the Commission

1. opened a formal investigation against Google against what looks like a classic “secondary line injury” abusive discrimination case.

2. raided a bunch of pharma companies, as in the good old days of the Kroes mandate.

Now, Google has already made clear it was willing to cooperate. The case will most likely follow the Article 9 road, which may confirm my point.

Written by Nicolas Petit

6 December 2010 at 11:43 pm

Market Definition Teasers

with 3 comments

Following Alberto Alemano’s comment a few days ago, I’d like to ask our readers to share possible ” market definition teasers“.

The concept covers funny AND intricate market definition examples. In other words, market definition illustrations which can be used with students approaching the issue for the first time.

Here are mine, centered on products placed on relevant markets with possibly fluctuating borders :

  • Coca-Cola & Pepsi & other drinks
  • Eurostar & Ferry & Airlines
  • Personal computers & Macs
  • Branded fragances v. non branded fragances
  • iPhones & other mobile phones
  • Inux & Windows
  • Theatrical movie distribution & DVD rental distribution
  • CD-recorded music & digital music files
  • Low costs carriers & flag carriers

PS: The picture above is taken from Puggy’s latest album. This LP – which includes a song entitled teaser – is terrific.

Written by Nicolas Petit

3 December 2010 at 1:37 pm

How are we doing?

with one comment

For the first time ever, DG COMP  has posed this question to stakeholders and citizens by carrying out a comprehensive survey about the perception of its activities.

In the framework of this exercise, two independent companies have undertaken  both a qualitative survey targetted to professional stakeholders and a quantitative survey of EU citizens from all Member States.

The aggregate stakeholder report is available here, and the individual reports for the various collectives interviewed are available in the following links (companies, lawyers, economic consultancies, consumer associations, national ministries, and national competition authorities). All of these reports cover issues such as legal and economic  soundness of decisions, integrity, economic effectiveness, and external communication. There are tons of interesting comments on DG COMP´s activities, too many to be summed up here. I very much recommend taking a look at these  if you find time.

The survey on citizen´s perceptions about competition policy can be consulted in its full version, as well as in an abbreviated one.  The results, once again, are also extremely interesting (and sometimes shocking; e.g: did you know that 29% of the Spaniards interviewed doubted that price agreements should be prohibited?).  

Some curious data: in practically all Member States the percentage of citizens who believe they are sufficiently informed about competition policy is below 5%;   more than 25% of Bulgarian, Slovak, Polish and Estonian citizens have no whish whatsoever in becoming more informed about this stuff;  the proportion of citizens who gave a “don´t know answer or who did not consider  themselves qualified to reply was highest in…Belgium!). When asked in what sector the lack of competition was causing problems for consumers, citizens pointed out at energy (44%), pharmaceutical products (25%), telecommunications and internet (21%), transport (19%), financial services (18%), and food distribution (16%).

PS. We´re not ignoring the elephant in the room (the opening of a formal investigation about Google´s allegedly abusive practices); there´ll be plenty to come on this case.

Written by Alfonso Lamadrid

2 December 2010 at 2:34 am