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Archive for January 2011

GCLC Event on Horizontal Cooperation Agreements

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On 16 February, the GCLC will hold a half-day conference on the new framework for horizontal cooperation agreements.

The mastermind behind the programme is the esteemed José Rivas. Besides his carreer as a top notch competition practitioner, José teaches at the College in Natolin and joined the GCLC executive committee 6 months ago.

The programme and registration form can be downloaded here.

Written by Nicolas Petit

31 January 2011 at 7:00 am

Everything antitrust lawyers should know about State aids (but were afraid of asking)

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Note by Alfonso: We are inaugurating our new section on “Everything Competition Lawyers should know about State aids” with a contribution by Napoleón Ruiz, a great friend and a great State aid specialist at Garrigues´  Brussels office. We asked him to write about a sexy topic and, well, this is what we got.. 

Everything antitrust lawyers should know about sex State aids (but were afraid of asking)

Thanks to Nicolas and Alfonso for giving me the opportunity -and the honor- of inaugurating this new section of their blog (which actually reminds me of the title of a well-known movie of Woody Allen…).

I believe that creating a new section devoted to State aid issues is indeed a good idea. Firstly because despite the fact that they target member States –and not companies- State aid rules play a fundamental role in addressing restraints of competition. Secondly, because State aid control  has lately become the “rising star” of the Commission’ competition policy. Since the beginning of the crisis, State aid practice has boomed within DG Comp in the attempt to control that the fabulous amount of money (around 4 trillion euros mainly in the financial sector) poured by member States into their economies does not distort -too much- competition. Quite a herculean task, I’d dare to say… 

One of the first things that antitrust lawyers should know is that, perhaps even more than antitrust or merger control, State aids is an incredibly dynamic practice, given that some of its main legal concepts have not yet been completely fixed. Many State aid lawyers would agree that one of the most (probably the most) raging debates amongst scholars, practitioners and enforcers, which has been going on for years now, concerns the notion of selectivity:

According to article 107 TFEU, a measure is deemed to constitute a State aid if it favours “certain undertakings or the production of certain goods”; in other words, whether the measure constitutes an exception deviating from the general rule.

Even though the concept appears to be conceptually clear -in theory-, in practice it has proven to be diabolically difficult and so far its boundaries remain unclear. In general (but not always), while member States and companies seek to clarify and restrict the application of selectivity, the Commission tries to expand its scope. Obviously, the larger the concept of selectivity, the easier it would be for the Commission to qualify as State aid virtually any State measure.

We, antitrust lawyers, are used  to expansive, non-determined, concepts, but this one is, in my experience, the most nebulous one of those with which I´ve worked.

Actually, one of the current cases regarding selectivity that may lead to a clearer definition of the concept is one in which I have the  fortune of being involved. The case, currently pending before the General Court (the Commission´s decision was appealed by a significant number of Spain´s flagship companies), concerns a provision in Spanish corporate tax law laying down the amortization of financial goodwill for the acquisition of significant shareholdings in foreign targets (a.k.a 12.5 TRLIS). Although the subject sounds like ancient Sanskrit for many non-tax lawyers, I believe it has the ingredients to become a landmark case, for instance:

 The case concerns the very substance of selectivity, since the appeal challenges not only the methodology used by the Commission to define the general rule and its exception, but also the interface drawn by the Commission between selectivity de iure and de facto; and

Since tax provisions are selective by nature, the judgement to be delivered by the Court will likely determine how much room for intervention the Commission has regarding member States’ tax systems. Taxation has been -and remains- one of the few fields where unanimity between member States is required in order to legislate. Therefore, many think that in case the ECJ “expands” the notion of selectivity, it will be difficult for the Commission to resist the temptation of using its broad powers as competition watchdog in order to intervene in member States taxation (especially now when voices requesting deeper tax harmonization in the EU are growing).

In any event, it would be desirable that the European Courts –be it in this one or in another case- shed some light into the debate, so that I don’t find myself quoting –again- the great Allen in the above said movie to [sadly] declare that: “When it comes to sex State aids there are certain things that should always be left unknown, and with my luck, they probably will be”.

Written by Alfonso Lamadrid

28 January 2011 at 12:01 am

Shot Down in Flames

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Yesterday, Commissioner Almunia shot down its first merger since in office. The Commission vetoed the proposed merger between Aegean Airlines and Olympic Air, considering it would result in a quasi-monopoly on the Greek air transport market.

In its press release, the Commission seeks to assuage concerns of over-enforcement. Here are some excerpts:

 “The Commission has examined 11 mergers and many alliances in this sector since 2004 and this is only the second negative prohibition“.

This is the first merger prohibition since the Ryanair/Aer Lingus case in 2007. In total 20 cases have been prohibited out of a total of more than 4,500 mergers reviewed“.

Such statements are the tree hiding the forest. With the GC’s confirmation of the Commission decision in Ryan Air/Aer Lingus and the very many decisions where the Commission requested heavy remedies, merger policy in the airlines sector is all but a soft one (possibly for good reasons).

Written by Nicolas Petit

27 January 2011 at 7:32 am

A Competition Law Quiz

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In the past few days both Nicolas and I have commented on the Tomra and General Química Judgments. Both cases can be useful starting points for a quizz (we´ve got a special prize for anyone who replies all 5 questions correctly):

1) When was the last time that the European Courts annulled a Commission´s decision on abuse of dominance?

2) When was the last time that the Europen Courts reduced a fine imposed by the Commission on an abuse of dominance case?

3) When was the last time that US agencies successfully litigated an abuse of dominance (Section 2) case before the courts?

4) When was the last time that a company was able to rebut the presumption on the exercise of decisive influence applicable to 100% owned subsidiaries?

5) Which one of the Judges at the General Court directed and starred a movie on competition law (also starred by other well known competition lawyers and officials), and what was the title of the movie?

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Unrelated: the companies sanctioned in the air cargo cartel case have lodged their appeals before the General Court, including Lufthansa, who received full inmunity in application of the leniency notice (very probably with the aim of reducing its exposure to damage claims). By the way, the registrar at the General Court has numbered Air Canada´s appeal as Case 9/11…

Written by Alfonso Lamadrid

26 January 2011 at 6:27 pm

Posted in Polls and quizzes

Zombie Law?

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Remember §3 of the Guidance Communication on exclusionary abuses under Article 102 TFEU  (“This document is not intended to constitute a statement of the law”)?

For a while now, I had been fearing that the Communication was a born dead document.

In reading last week the GC’s ruling in Tomra v. Commission, I got even more troubled. Would the Guidance Communication be the first “zombie” legal instrument ever released by the Commission? A zombie legal instrument is a document that is dead (i.e. overruled), but that does not know it’s dead (i.e. still presented as the law as it stands). For more on zombies in the field of economics, see here.

Clearly, there are a slew of killing statements in the GC’s judgment. Look closely:

  • §206 suggests – at least implicitly – that consumer harm is one of the several goals pursued by Article 102 TFEU in parallel to the protection of competitors. According to the GC, protecting competitors would constitute a sufficient ground to enforce Article 102 TFEU. This is at odds with the Guidance Communication which suggests that protecting competitors is not, in and of itself, a stand-alone goal of Article 102 TFEU. In the Guidance Communication, Article 102 only protects competitors to the extent that consumers might be harmed;
  • §241 says that there can be an abuse as long as a rival is deprived of the ability to compete “for the entire market and not just for part of it”. In other words, even de minimis foreclosure is arguably caught under the concept of abuse. No matter what, a dominant company cannot tie a single customer on the market. This not only inconsistent with the Guidance effects-based ethos, but also with the Discussion paper of 2005 which had elevated the concept of the “tied market share” as a key decisional criterion. It is also at odds with the Commission’s decisional practice notably in Distrigas;
  • §258 weakens the relevance of the so-called “suction effect” test, in saying that “the fact that the retroactive rebate schemes oblige competitors to ask negative prices from the applicants’ customers benefiting from rebates cannot be regarded as one of the fundamental bases of the contested decision in showing that retroactive rebate schemes are capable of having anti-competitive effects“.

With this in mind, I was a little reassured by Miguel de la Mano‘s (DG COMP) presentation at our last GCLC lunch talk on Friday. In essence, Miguel considers that the GC’s ruling is fully congruent with the Guidance Communication. In contrast, Alan Ryan (Freshfields) finds a number of flaws in the judgment (and has appealed it before the ECJ). See slides below for more.

My take: a dominant firm does not necessarily foreclose the entire market through loyalty-inducing practices. It all boils down to assessing the share of the dominant firm’s customers that is subject to the impugned practice (e.g., a dominant firm may apply a single branding commitment to only 10% of the relevant market). Against this background, foreclosure should only be presumed when the dominant firm applies the loyalty-inducing practice to its entire customer base.

And a proposal: not unlike under Article 101 TFEU, the Court and the Commission should recognize that dominant firms can benefit from safe harbours. In light of the rules on vertical agreements, as long as the tied market share < 30%, Article 102 TFEU should be deemed inapplicable.

01 Miguel de la Mano

Case T 155 06 Tomra v Commission

(Image possibly subject to copyrights: source here)

Written by Nicolas Petit

25 January 2011 at 10:12 pm

Chillingleaks: European Commission investigates Telefónica and PT

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It appears that DG Comp has initiated a formal investigation in relation to a possible non-compete agreement between Telefónica and Portugal Telecom. The two companies have now unofficially confirmed this news, which could become public in the next few hours.

People involved in the case have  indicated that the agreement could have been entered into last July, at the time Telefónica bought PT´s shares in Vivo (a reminder: the Portuguese government had opposed this acquisition by virtue of its “golden share” in PT. Although the ECJ recently declared that the existence of such “shares” infringes the Treaty provisions on freedom of establishement, the golden share on PT  is still there).  The agreement  is suspected to have consisted of a commitment not to compete in each other´s “home” market  until December 2011.

Similar “ancillary restrictions” have also been subject to recent investigations by the Commission.

Written by Alfonso Lamadrid

24 January 2011 at 9:51 am

The ECJ rules on parenthood (General Química v Commission)

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The ECJ issued a Judgment yesterday in the General Química-Repsol case in which it partly upheld and partly annulled  the General Court´s judgment dismissing the appeals against the Commission decision in the rubber chemicals cartel.

In its Judgment the Court provides some guidance on the operation of the iuris tantum presumption pursuant to which the exercise of decisive influence of a parent company over the conduct of its subsidiaries (and, accordingly, the responsibility of the parent for the wrongdoing of its subsidiary) can be presumed, always subject to rebuttal,  in case of 100% ownership.

The Commission and the General Court had held that the infringement commmited by General Química (GQ) could be attributed to the owner of the totality of its shares: Repsol Química (RQ), and -climbing one additional step up the ladder- to Repsol YPF, who, in turn,  was the owner of the totality of RQ´s shares.

Leaving aside some of the details and specificities of the case, and focusing on the general application of this Judgment to future cases,  the ECJ has ruled that :

(i) The operation of the presumption shall not be dependent upon the existence of additional evidence on the exercise of decisive influence over the conduct of the subsidiary; on the contrary, it will be triggered automatically in cases of 100% ownership (paragraphs 41 and 42);

(ii) The General Court did not adequately motivate some of its conclusions (recitals 58-63) and failed to examine in detail the evidence submitted by the appellants to demonstrate the commercial and operational independence of GQ in relation to RQ (recitals 75 and 76), this being precisely one of the relevant factors with which the presumption could have been rebutted (recital 77). Consequently, the Judgment holds that “the General Court committed an error of law in affirming, in paragraph 74 of the judgment under appeal, that the arguments raised in order to establish such independence could not succeed ‘in the light of the case-law cited’, without carrying out a concrete examination of the factors raised by the appellants” (recital 79).

After having set aside part of the General Court´Judgment, the ECJ itself undertakes the task of giving final Judgment on the matter, and rules that:

a )  the mere fact, first, that RQ was made aware of the infringement only after an inspection of GQ´s premises and, second, that it did not participate directly in that infringement or encourage it to be committed is not such as to show that those two companies do not constitute a single economic unit. Such a fact is not sufficient to rebut the presumption that RQ actually exercised decisive influence over GQ’s conduct

b)  Although it was true that certain documents submitted by the appellants show that many of GQ’s management and administrative competencies had been delegated to the executives of that company, other evidence in the file showed, by contrast, the existence of significant interference on the part of RQ in several aspects of GQ’s strategy and commercial policy.

The Judgment attributes particular importance to several facts:  Firstly, it notes that RQ’s board of directors intervened significantly in matters concerning the sale of real estate and shareholding in other companies.  Secondly, it underlines that GQ’s sole director designated by RQ constituted a link between those two companies, by which the information concerning sales, production and financial results were communicated to RQ.  Thirdly, the ECJ explains that the fact that information was provided on the implementation stage of strategic and commercial plans constitutes an additional indication that RQ exercised control over the decisions drawn up and executed by GQ’s executives.

At the end of the day, the ECJ has reminded the General Court of its obligation to assess and motivate with greater care its conclusions on the elements put forward by companies attempting to rebut the presumption on the exercise of decisive influence. But at the same time it has validated the Commission´s decision on the basis of a reasoning that, in the face of conflicting evidence, seems inclined to favor the Commission´s discretion. 

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Also, and totally unrelated, I leave you a link to an article discussing whether lawyering can be compatible with work/life balance (it´s also interesting to check the first comment, positing that quality of life in accounting firms is due to the oligopolistic nature of that market). As I´ve said before, unless law firms become more progressive on the quality-of-life front they risk disencouraging the brightest people (their only asset) to choose this job or to continue working at it. 

Have a great weekend!

Written by Alfonso Lamadrid

21 January 2011 at 7:14 pm

Posted in Uncategorized