Archive for March 2011
A New Theory of Harm
I attach below a presentation I delivered yesterday at the Amsterdam Center for Law & Economics (UvA). This presentation summarizes and updates my PhD work.
In substance, It shows that Article 102 TFEU may provide a workable ex post remedy against certain types of oligopolistic conducts. The concept of abuse of joint dominance may be applied to the artificial tactics which oligopolists adopt to protect an observed collusive equilibrium from the natural, disruptive effect caused by an external shock (entry, natural disaster, change in tax rate, etc.). In this sense, it is different from the proposals of Prof Whish re. excessive prices and Korah, Monti & Stroux re. facilitating practices.
A related aspect of my work challenges the over-optimistic, and naive view that the merger regulation is the ultimate preventive instrument against tacit collusion.
The good news is: my hosts in Amsterdam – very bright economists and lawyers – were quite attracted by the idea. They advised me to send it to officials within competition authorities.
A paper will shortly follow.
Presentation ACLE – 14 March 2011 – N Petit
A big thank you to Maarten Pieter Schinkel, Carmine Guerriero and all the other ACLE nice guys I met yesterday.
PS: With yesterday’s post on the Dutch competition authority, Alfonso’s taste for dirty stories is now public. Unlike him, I have decided to spare our readers from stories on coffee shops and other infamous districts of Amsterdam.
A sexy case
A good friend who has asked us to keep his identity confidential informs us of a possible new case in the Netherlands.
An online retailer (willie.nl) has asked the Dutch Competition Authority (NMa) to investigate the conduct of two wholesalers which would have ceased supplying it with erotic toys and costumes. willie.nl attributes this decision to the fact that it deviated from recommended sales prices. Apparently, the NMa has replied that more hard evidence is needed
The news has also appeared in the Dutch business press.
Nicolas is in Amsterdam today carrying out a field investigation.
(After an intense fight with my inner self I´ve decided to omit links and pictures this time).
The US Senate´s Antitrust Agenda (and a false debate)
Herb Kohl, the Democratic Senator chairing the US Senate Subcommittee on Antitrust, Competition Policy, and Consumer Rights announced yesterday the Subcommittee´s agenda for the next session of Congress.
The leitmotiv of the agenda is the idea that vigorous antitrust enforcement plays a vital role in ensuring consumer welfare. In particular, it appears that the Senate has its eyes set on the freight railroad industry; prescription drugs; gasoline, natural gas and oil markets; agriculture; media/Cable/satellite; airline competition; the broadband industry; and health care organizations.
In addition to those, some of the items in this agenda might affect EU competition law:
First, Kohl insists on the necessity of a statutory prohibition of resale price maintenance, arguing that the Supreme Court´s decision in Leegin “has the potential to seriously harm discount pricing and retail competition“.
Second, there is a specific mention to online markets and internet search issues. The Senate appears to be ready to conduct hearings on Google´s allegedly discriminatory practices in parallel to the investigation conducted by the European Commission (which we´ve covered here, here, or here), and, in clear reference to the Google/ITA Software controversy, also asserts its willingness to “closely examine the impact of further acquisitions in this sector“. It could be interesting to see how these two investigations overlap and affect each other.
Thirdly, and somehow related to the last point, is the Senate´s committment to “continue to examine closely how U.S. multinational companies have been affected by different antitrust regimes in various countries“. This is also a debate with which we´ve dealt before and that, to be frank, still perplexes me. I will explain why in a second.
But first, let´s make clear that, to be sure, Kohl´s agenda appears to be fair in referring to the varios viewpoints that have been expressed on this issue. The document reads as follows:
“Complying with the antitrust laws of different countries, which often have differing substantive and procedural rules, is increasingly becoming a burden on U.S. businesses. Over the past several years, foreign and in particular European regulators have been aggressive in their review of American companies’ business practices. Some have argued that these same foreign regulators have unfairly used their power to discriminate and hinder American corporations. On the other hand, many times those bringing complaints regarding the business practices of American companies to foreign antitrust enforcement agencies have been other American companies. Further, advocates of aggressive international enforcement argue that this enforcement is warranted. Exploring the validity of these claims will be an important priority for the Subcommittee”.
It´s shocking to see how widespread this idea that the Commission only targets US firms is, and how little factual support it has. Here are some reasons why I think that this whole debate should be a non-issue:
– It is a fact that in recent years the European Commission´s stance in some areas, particularly on abuse of dominance cases, has been tougher than that of US agencies (especially under the Bush administration). You may or may not agree with the Commission´s viewpoints ( I, for one, certainly don´t share a lot of the reasoning behind the Microsoft cases and the Google investigation), but it´s clear to me that if US firms are the main targets of such investigations it´s mainly because in most cases US firms are the dominant players worldwide. In fact, I wish more European firms were in a position to be subject to similar investigations in the US…
– European companies have to live with the precedents set by the Commission and the EU Courts and shape their strategy according to it. Consequently, if the law were really irrational or established excessively low thresholds for competition law intervention, as some claim, that would mainly be to the detriment of the competitiveness of EU companies.
– In spite of what the record fines on abuse of dominance cases may suggest, the reality is that fines on foreign companies, and US companies for that matter, represent a very small percentage of the total fines imposed by the Commission.
– In contrast to the above, fines on non-US firms represent nowadays the lion´s share of the the total fines imposed by US agencies. An illustration: it has been reported that in the past few years 80% of the fines above $ 10 million have been imposed on foreign firms.
– On the merger side, everyone recalls all the fuzz related to the prohibition decision in GE/Honeywell. But has anyone checked how many other acquisitions by US companies have been prohibited by the European Commission?
– Lastly, if many US antitrust lawyers believe that the Commission only goes after US companies that may be due to the fact that they only mostly pay attention to cases concerning US companies. One should remember, for instance, that the Commission has not only sanctioned Microsoft and Intel for abusive conduct, but also Tomra, Astra Zeneca, Deutsche Telekom, Telefónica, British Airways, to name only a handful of the most recent ones.
I made it
The above picture is proof that I eventually attended the expensive conference which triggered a post on price discrimination two days ago
And guess what: I made it for free :)… I belong to the happy few who got a free pass from a very important institutional player in the field (not a law firm).
More seriously, I understand my benefactor shares my concerns on (i) the pricing of such conferences; and (ii) on the necessity to entitle the little number of academics active in the field to participate to such events.
Now a teaser: the next big issue in the merger area relates to minority shareholdings. Is there a gap in the EUMR, and should it be closed? Commissioner Almunia referred to this issue in his speech, and I trust the Commission will start to do some thinking on this in coming months.
Many thanks again to my colleagues who helped me get a free ticket.
Information exchange=cartel?
Many have praised the inclusion of some guidance on exchanges of information within the new EU Guidelines on horizontal agreements. Personally, I agree with those arguing that guidance from the Commission was necessary, and I acknowledge that there are some useful (although arguably insufficient) orientations in the new guidelines. There is nonetheless an issue which may have not been adequately dealt with, and that I believe has very far-reaching implications. I´m referring to the idea of equating information exchanges with cartels (the title of the post probably gave you a hint):
Section 59 of the Guidelines states that “communication of information among competitors may constitute an agreement, a concerted practice, or a decision by an association of undertakings with the object of fixing, in particular, prices or quantities. Those types of information exchanges will normally be considered and fined as cartels“. No qualifications.
Sections 72-74 develop the idea: “Information exchanges betweeen competitors of individualised data regarding intended future prices or quantities should therefore be considered a restriction of competition by object. In addition, private exchanges between competitors of their individualised intentions regarding future prices or quantities would normally be considered and fined as cartels because they generally have the object of fixing prices or quantities”
– Where did this come from??
To my best knowledge (and please correct me if I´m wrong), information exchanges have only been treated by the EU Courts as cartels, or even as restrictions by their object, in two scenarios: (i) either they were an instrument intended to monitor or enforce a “proper” cartel; or (ii) they were conflated into a single and continuous infringement composed of various agreements and/or concerted practices pursuing a common goal (and, in practice, this situation generally arises where evidence is scarce and not enough to prove that the practice at stake was in its own right a cartel, or at least part of one).
That is, either they were purely ancillary to a cartel (first scenario), or they interacted with a wider agreement in the framework of a global plan having a single objective (second scenario). In other words, the European Courts have not validated the idea that stand-alone information exchanges shall be “considered and fined” as cartels.
In fact, it is significant to note that, unlike what happens in the rest of the document, no case-law is quoted in the Guidelines in support of these propositions (there is one cosmetic reference to the ECJ´s ruling in Glaxo, but it has nothing to do with the substance of what´s being discussed -it is cited as the source of the expression on the “legal and economic context”).
– Implications
Against this background, it is pretty clear that the legal approach towards exchanges of information has changed, and become wider and tougher. We´ve always lived with the idea that a thorough assessment of any information exchange was necessary prior to reaching any conclusion about its potential impact on competition, but apparently this isn´t so anymore.
The joint application of the ECJ´s Judgment in T-Mobile (which also enlarged the notion of concerted practices in an unprecedented and yet unclear way) with a wide interpretation of the statements contained in the Guidelines will certainly make it easier to label many things as a “cartel”. An example: if a company receives individual information on the future prices of its competitors it could be held liable for its participation in a cartel, even if it never used that information or even if the prices circulated amongst the competitors had priorly been given to their respective customers.
In practice, this opens the door for leniency applicants to come forward with evidence of information exchanges, and for the Commission to settle those cases under the procedure envisaged for cartels. With regards to sanctions, it means that companies that until now were participating in information exchange schemes have suddenly become members of a cartel, and are therefore subject to the huge fines, personal sanctions, and, in some jurisdictions, even criminal prosecution that is reserved for cartel cases.
– He who sows the wind will reap the whirlwind
The perils arising from such statement are not confined to the future decisional practice of the European Commission. After all, the European Commission is generally a very reasonable enforcer subject to the review of very reasonable Courts.
My main concern lies on the spill-over effects of the content of the Guidelines. The European Commission has a role as primus inter pares that carries with it a special responsibility. In this sense, it may not have been prudent to include this rather novel and ample statements because they run the risk of being overstretched by other enforcers. I fear that the Commission may be providing an “alibi” to enforcers willing to avoid the burden of undertaking sophisticated analyses. Hasn´t the Commission noticed that enforcement at the national level tends nowadays to automatically resort to the object category?
Justice Cardozo once warned about the dangers linked to legal principles expanding beyond the limits of their logic. This tendency not only applies to principles, but also to rules and, as acknowledged by Hovenkamp in his great book The Antitrust Enterprise , “in the short run rules weigh much more heavily than principles“. Considering that in the context of European competition enforcement system the statements included in the Commission´s guidelines automatically become quasi-rules for national competition authorities and courts, the risk of those statements expanding beyond the limits of their logic is blatant.
But the risk is not hypothetical. The Spanish Competition Authority adopted a decision last week in which it imposed a fine of 51 million euros on 8 companies active in the sale of hairdressing products for their participation on a stand-alone information exchange labeled as a “cartel” (even if the Spanish Competition Act contains a definition of the concept of cartel that is narrow enough to exclude many conducts that pursuant to an original interpretation of the Guidelines would consitute one).
Although I am unaware of the specificities of the case (my firm is not involved in it and the text of the decision has not yet been published) and it may well be that the exchange was a restriction of competition which deserved such a sanction, the press release already reveals that the risks to which I referred above are a reality.
Hold tight:
“It is established doctrine of the national and Community competition authorities that the exchange of information between competitors in relation to future information on prices and quantities amounts to a cartel and must be sanctioned as such”.
Let´s at least hope that the Commission becomes aware of these risks and decides to closely monitor the way in which other enforcers will interpret its guidelines.
Price Discrimination (and the Brussels Conference Market)
A thought on something that lawyers – including myself – often have a hard time to understand.
Conventional economic theory posits that price discrimination by a monopolist is conducive to allocative efficiency.
This is because price discrimination entails a welcome departure from uniform monopoly pricing. With price discrimination, the monopolist undercuts its own uniform price to the benefit of certain customers (or to categories of customers as shown in the above picture). With price discrimination, customers that could not initially take the uniform monopoly price now get a chance to be served.
Furthermore, the monopolist increases output and, assuming fixed costs, achieves economies of scale. Price discrimination is thus also conducive to productive efficiency.
With this background, I was last week confronted with an odd price discrimination scheme which, in my opinion, brings little – if no – improvements in terms of allocative efficiency. A famous conference organizer has the following price menu for a forthcoming competition law event:
On cursory examination, this conference organizer has designed the above price menu to attract academics, judges and young lawyers. However, I doubt this price scheme will attract many of them, simply because those fees are well beyond the average reservation price of such customers. Saving appearances?
An additional remark: given that this conference is sponsored (law firms essentially) and that most speakers are brussels-based (means no transport/accomodation costs), I do not see the cost basis for such rates. Although I am not a huge fan of excessive pricing cases, the Brussels competition conferences market could make an interesting candidate for Article 102 TFEU proceedings. Still to see whether there is a dominant player on this market. Food for thought.
Forthcoming GCLC Lunch Talk on the Energy Sector
The 51th Lunch Talk of the GCLC will be devoted to recent enforcement trends in the energy sector.
The speaker are Céline Gauer (DG Competition) and John Ratliff (WilmerHale ).
It will take place on 18 March 2011 at The Hotel (formerly the Hilton), 38 Boulevard de Waterloo, 1000 Brussels.
See link below for registration form.
51th GCLC Lunch Talk – 18 March 2011
Upcoming competition law seminars in Madrid
The level of the Annual EU and Spanish Competition Law course directed by Luis Ortiz in Madrid keeps getting better each year (and it´s now on its 14th edition..). It really is hard to find a program with so many excellent speakers participating on it. Let me give you an example:
The seminar which took place last week was coordinated by Cecilio Madero (Director General at DG COMP), and focused on novelties in the areas of mergers and abusive conduct. Amongst the speakers were Per Helmström (Head of Unit at DG COMP), Nicholas Banasevic (Deputy Head of Unit), Milan Kristof (Référendaire at the ECJ), Ainhoa Veiga (Partner, Araoz y Rueda), Antonio Guerra (Counsel, Uría Menéndez), Juan Jiménez-Laiglesia (Partner, DLA Piper) and Miguel Odriozola (Partner, Clifford Chance).
Yesterday and today another bunch of top-notch speakers such as José Luis Buendía (Partner, Garrigues), Piet Jan Slot (Professor, Leiden University), Jerónimo Maillo (San Pablo CEU University), Carlos Urraca (Legal Service, European Commission), Joaquín Fernández (Head of Unit, DG COMP) or Jorge Piernas (EUI), amongst others, have been dealing with state aids and other public interventions.
Here comes the advertising: If you´re sorry you missed those, and fancy the idea of spending a spring weekend in Madrid you can still register for the last two seminars:
– On the 18th of March I will be coordinating a seminar on the application of competition law to network industries. It will feature:
Jarleth Burke (Partner at Jones Day, London) who will be speaking about the regulation and competition law in the telecoms sector;
Júlia Samsó (Latham&Watkins, London), who will deal with the specificities of the energy sector;
Jasper Sluijs (Tilburg Law and Economics Centre), an expert on network neutrality issues;
Myself, for an overview of the challenges posed by network effects and network industries.
– On the 25th of March there will be another seminar on IP and Competition law coordinated by Alvaro Ramos (Senior corporate counsel at Cisco). Its three sessions will deal with
“Excessive pricing and copyrights” with Daniel Escoda (Telefónica), and Pablo Hernández (SGAE);
“Standards and Competition Law” with Jennifer Vasta (Senior Legal Counsel, Qualcomm); Miguel Rato (Partner, Shearman&Sterling) and Álvaro Ramos;
“Competition Law in Cloud Computing“, with Jean Yves Art (General Counsel EMEA Microsoft), Tero Louko (Antitrust Counsel, Google), and Luis Ortiz Blanco (Partner, Garrigues).
There are very few seats left, but if anyone´s interested in registering (half prize for those coming outside of Spain) or obtaining more info, you can write here competencia@ieb.es
My slides
Am in Paris with limited access to the Internet.
I attach the slides I used today in support of a presentation on EU and French competition law at the Association Française d’Etude de la Concurrence (AFEC). Nothing groundbreaking.
Actualité du droit matériel des pratiques anticoncurrentielles – AFEC
Conflicting views on the Google/ITA Software deal
Last week I mentioned here the White Paper issued by the American Antitrust Institute on Google´s proposed acquisition of ITA Software. As you will recall, the AAI concluded that the deal would give rise to competitive concerns that made antitrust intervention necessary. As practically all Google-related debates, this one is fast getting huge, and extremely interesting.
On the one hand, the anti-Google “Fair Search” coalition has created a web page stating all the reasons why the deal would harm consumers in every conceivable way. You may or may not agree with it, but one must admit that they´re doing a pretty good job in speading their message around (this is a consequence of what I meant when I said here that Google has tough and very powerful competitors, who have the incentives and the means to present a fierce battle in as many fronts as possible).
We´ve given you the link to the AAI´s White Paper and to the Fair Search web page, both of which favor close scrutiny of this transaction. The picture would not be complete if we didn´t direct you to some of the arguments explaining why the acquisition of ITA by Google would actually be procompetitive. Daniel Crane, a Professor at Michigan Law School, has just written a guest post on the blog Techcrunch.com in which he does that exactly; he also sends a very clear message: “Let´s calm down on the Google-ITA deal” (thanks go to George Pedakakis for pointing us to it).
Crane´s main point is that “Google’s competitors naturally fear Google’s emergence as a formidable rival in travel search, but that is hardly a reason to block the transaction. Indeed, it’s a reason to approve the deal. The most likely scenario is that Google’s acquisition of ITA would allow Google a quick and efficient entry point into travel search that would expand consumer options and increase rather than decrease competition“. His post also responds to the main allegations put forward by those opposing the deal.
Now that you´ve a complete picture of the main positions in this debate we´d be happy to know about any thoughts our readers may have on this matter. Anyone?
Unrelated: We are also reporting more and important moves in the Brussels legal market: a bunch of great associates have also left Howrey to join Shearman&Sterling. Amongst them are some of the brightest young lawyers around (some of whom are also very good friends of ours), such as Mark English, Elvira Aliende, Louise Rabeux, or Marixenia Davilla.
And a chillin´leak: Julian Joshua is apparently headed to Steptoe & Johnson
It´s shocking to see how what until very recently was a top-notch practice at Howrey´s has disintegrated so quickly. Looking at the positive side: there will be more empty tables at L´arte di, which is were we constantly ran into each other at lunchtime..
Chillin'Competition 
