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Archive for April 2011

Competition Law and Sport (VII) Belgian Competition Authority investigates Pro League rules

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Back in November we devoted another of our posts on competition law and sport to a couple of cases on which I have been/am imvolved. The core issue in one of those cases -currently pending before the Court of Arbitration for Sport-  relates to whether, or under which circumstances, a total or partial closure of a league, the decision to eliminate some of its members, or a modification of the promotion/relegation rules governing the functioning of a given league (in that case, the basketball Euroleague)  might constitute a restriction of competition attributable to the league itself or to those of its members having voted for the new rules. 

Some of our readers have contacted us to inquire about our thoughts on a new belgian case that contradicts the idea (apparently shared by some officials within DG COMP) that such decisions cannot give rise to any competition concerns. Indeed, some weeks ago the Belgian Competition Authority formally expressed its concerns with the modification of the relegation rules of the Belgian football league (Pro League). (See here for the Press Release).

I won´t enter fully into the debate given that I´m not aware of the specificities of the case, and because my objectivity and freedom to express an opinion are somehow compromised. Nonetheless, I think  it´s interesting to remark that this is not the first time that competition rules have affected similar decisions. There is an interesting precedent in relation to rugby leagues in Australia , and in the US it has been taken for granted that, absent antitrust exemptions, decisions on the shrinking of a league or even on the relocation of clubs/franchises would fall under the scope of the antitrust laws (a clear illustration of this was the 1991 proposal for a Fairness in Antitrast in National Sports (FANS)  Act.  (I often wonder if they hire someone specifically to come up with “original” acronyms over there…)

It´s clear to me that decisions of the sort of those outlined above fall in principle under the scope of Art. 101(1). Accordingly, any assessment on their legality should maily focus on the application of the criteria laid down by the ECJ in para. 42 of the Meca Medina Judgment and on whether the four Art. 101(3) conditions are satisfied.

We´ll keep you posted on any developments.

Written by Alfonso Lamadrid

29 April 2011 at 3:33 pm

Posted in Uncategorized

Competition Law and Sport (VI) The NFL Lockout

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Our “competition law and sport” series (see posts I, II, III, IV, and V) was born out of our belief that the application of competition law to the world of sports has a tremendous potential that still today remains to a great extent unexplored in the EU. As I´ve said before, not only are sports-related cases some of the most visible ones at the EU level (for the general public Bosman is very likely the best known ECJ Judgment of all times), but given the peculiar features of the activities and markets at stake they also raise particularly interesting issues that push competition law outside of its comfort area, some of which we´ve previously discussed here.

In the US they were much quicker than us to realize that. In fact, the application of the antitrust laws has shaped much of the current organization of professional sport.  A good and very hot illustration of this influence is the controversy surrounding the NFL lock out, which was recently challenged on antitrust grounds by several NFL players, including superstars Tom Brady, Peyton Manning and Drew Brees (Read their complaint here). The players also asked for an injunction to freeze the lock out that was finally granted last Monday.

Background and issues in a nutshell: the activities of all major leagues have enjoyed until now some degree of inmunity to the application of antitrust laws. The clearest example is baseball, which enjoys a controverted antitrust exemption that was ratified by the Supreme Court in Flood v Kuhn (1972) on the basis of a really absurd reasoning that put a curious interpretation of stare decisis before sound legal reasoning and common sense. Other sports have not been treated with so much deference, and so they have resorted to collective bargaining so as to escape the application of the Sherman Act. That was the case of the NFL, which, until now, had always negotiated all sorts of issues with the players union (NFLPA).

On March 11th, and in light of the unlikelihood of reaching a satisfactory deal on how to divvy up the $ 9.3 billion that the NFL makes, franchise owners  announced a lock out (which, amongst others, implies no salary, no hiring, and no access to training facilities) (btw, it seems that the NFL´s tactics are somehow similar, and coincidental in time, to those of the Republican party..) and players decided to decertify their union and cease the collective bargaining process in order to deactivate the non-statutory exemption and lodge an antitrust complaint (see the link above for the content of the complaint).

The complaint challenges the compatibility with Section 1 of the Sherman Act some of the NFL´s basic arrangements, namely those related to salary caps, drafting of new players and free agent restraints, as well as of the lock out itself.

On Monday, Judge Nelson (District Court for the District of Minnesota)  issued an order granting an injunction which freezes the lock out (finding that players/plaintiffs have a fair chance of prevailing and that absent the injuction they would suffer irreparable harm). The order, however, does not deal with the merits of most of the players´claims, and rather states that “[r]esolution of the issue of whether the exemption precludes relief on the NFL’s various Player restraints must await another day”.  (Click here to read the order).

If the litigation were to reach an outcome in the form of an Opinion on the merits (which is not so obvious in light of the White v NFL precedent and of the ongoing court-ordered mediation talks) that would mean that a court would undertake a competitive assessment of several practices that have never carefully scrutinized so far. This could most certainly have an impact on the debate surrounding the possible implementation of salary caps and other similar arrangements in European sports and particularly on their assessment under EU competition rules. We´ll deal with those in future posts.

Written by Alfonso Lamadrid

28 April 2011 at 10:29 pm

Jonathan Levin wins John Bates Clark Medal

One of our friends/readers -and former Stanford affiliate- has pointed us to some other news that we missed in the past few days:

The John Bates Clark medal -a sort of Nobel Prize for economists under 40 (in fact, a significant majority of its awardees have later received the Nobel)- has been awarded to Jonathan Levin

For those who don´t know him, Levin is a Stanford Professor who has written extensively on industrial organization and whose research interests are now mainly focused on the internet and online markets. For a list of his publications and ongoing research check out his impressive CV.

Other curious facts: Levin is the son of Yale University President Richard Levin, and earned his PhD at the MIT, where he belonged to the same PhD class as the two other most recent awardees of the Bates Clark medal: Emmanuel Saez and Esther Duflo.

Written by Alfonso Lamadrid

27 April 2011 at 6:44 pm

We´re back. And a few things happened while we were away

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We´re back on track. Since, strangely enough, the world didn´t stop turning in our absence, there have been a number of interesting developments worth noting. Some of them will be the object of specific posts in the coming days, but, for the moment, here´s a choice of three: one from the EU, one from the US, and one from a third jurisdiction (Mexico), which are related to matters that have recently been/will soon be discussed on this blog:

Europe: Last Tuesday Commissioner Almunia delivered a speech at the GCLC´s Fifth Evening Policy Talk  (by the way, the director of the host institution, who happens to be my co-blogger, Monsieur Petit, was absent; how rude is that??  😉

Commissioner Almunia spoke about the “resilience and adaptability” of the competitition rules; he highlighted the four commitment decisions adopted by the Commission in the energy sector, pointed out that competition enforcement can achieve objectives other than the efficiency of markets (resorting to the example of facilitating generic entry into pharma markets), and insisted on the necessary complementarity of regulation and competition (with his eyes set on financial markets).

In addition, and very interestingly, Mr. Almunia announced plans to aim for a “better targetting” of State aid control, noting that the Commission´s services currently have too much on their plate. It will be most interesting to see the practicalities of how the Commission intends to “refocus” its resources on the State aid field. In the coming days one of the greatest experts on State aid matters will express his views on these plans on Chillin´Competition.

United States: More Google News (and this time we’re far from being the first ones commenting on them…). On earlier posts we referred to the controversy surrounding the Google/ ITA software deal.  Some days ago the parties entered into a consent decree which imposes a set of detailed “regulatory” conditions upon Google’s future operation of ITA that would resolve all of the DOJ’s competitive concerns. Those concerns essentially related to the possibility of other flight search companies being foreclosed from access to QPX (ITA’s airfare pricing and shopping software). A press release from the DOJ  briefly describes the conditions imposed by the consent decree in the following terms:

Under the proposed settlement, Google will be required to continue to license ITA’s QPX software to airfare websites on commercially reasonable terms.  QPX conducts searches for air travel fares, schedules and availability.  Google will also be required to continue to fund research and development of that product at least at similar levels to what ITA has invested in recent years.  Google will also be required to further develop and offer ITA’s next generation InstaSearch product to travel websites, which will provide near instantaneous results to certain types of flexible airfare search queries.  InstaSearch is currently not commercially available, but is in development by ITA. 

To prevent abuse of commercially sensitive information, Google will be required to implement firewall restrictions within the company that prevent unauthorized use of competitively sensitive information and data gathered from ITA’s customers.  The proposed settlement delineates when and for what purpose that data may be used by Google.  Google is also prohibited from entering into agreements with airlines that would inappropriately restrict the airlines’ right to share seat and booking class information with Google’s competitors.  Finally, the proposed settlement provides for a formal reporting mechanism for complainants if Google acts in an unfair manner.

(For a more detailed explanation on these conditions read the Proposed Final Judgment. Other documentation related to the case can be found here).

The consent decree is subject to the US District Court for the District of Columbia’s approval, and must now go through a 60 day comment period. As all Google-related stuff, the consent decree has instantly spurred different sorts of enthusiastic reactions. Google is excited because the deal is now “cleared for take off”, and rivals are happy too because one of the conditions imposed by the consent decree effectively creates a mechanism for the continued scrutiny of a narrow part of Google’s activities. Any reactions from our readers?

International antitrust: The impact of competition law is becoming increasingly more noticeable in Latin America. The Mexican Federal Competition Commission (COFECO) imposed a record MXN12 billion (USD 1 billion= 865 million euros) penalty on Telcel (a subsidiary of America Movil, owned by Carlos Slim). The sanction was announced some days ago, but it was only yesterday that COFECO gave details about its decision, explaining that Telcel had charged interconnection fees to terminate calls on the Telcel network that were above the implied charges for calls made within its own network, or even above the final charges Telcel makes to its own customers. The fact that Telcel was a repeat offender motivated the levying of the maximum possible sanction (i.e. 10% of Telcel´s turnover in the preceeding year). We don´t have much more info on this, but since I´ve been asked to write about it in the Mexican press, it´s quite likely that we´ll discuss the case more in depth in the near future.

Welcome back!

Written by Alfonso Lamadrid

26 April 2011 at 11:59 pm

Time out

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Chillin´Competition is asking for a time out. After some hectic weeks (during which we´re satisfied to have managed to keep the blog updated daily) we´ve decided to take some days off.  Nicolas is currently missing in action somewhere in Indochina, and I should also be flying off to Spain in the coming days.

We´ll resume business as usual on April 25th.

Cheers!

Written by Alfonso Lamadrid

12 April 2011 at 8:49 pm

Posted in Uncategorized

The ECJ rules the ECJ Rules

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(Note by Nicolas: We have received a funny and interesting competition-related post from the Blogbuster (who is also a good friend of ours). In this guest post, the blogbuster makes a number of original points on IP and competition, a possible exclusionary abuse committed by the Court of Justice of the EU, and judicial review under Article 102 TFEU).

Remember 28 November 2008?  On that day, the European Commission published the preliminary report on its inquiry into the pharmaceutical sector.  The preliminary report found pretty much everything to be wrong in the sector.  There was still some time before the Commission would release the final report. Yet, all seemed to indicate that the Commission would adopt far-reaching measures to bring back life to the life sciences sector.  But things eventually turned out differently.[1] In the end the final report was pretty tame, if not lame, compared to the preliminary report.  One of its main recommendations was, however, that the EU should create a EU-wide patent –at the moment, there are only national patents, even though the EPO provides for common procedures and recognition across Europe.

Draft rules for a EU patent have floated around Brussels for some time and on 8 March Luxembourg had a word to say, too.  Upon request by the Council, the European Court of Justice examined whether the proposed establishment of a European patent court was compatible with EU law.  The background was that the new patent court would (technically speaking) be an international, not EU, tribunal because – oh, horrors! – non-EU members such as Croatia, Norway or Switzerland would also be subject to the patent court’s jurisdiction.

The question was a tough one for the ECJ, which had in the past objected to making the EU and member states subject to an international tribunal –that’s clear from the Laying-up Fund and EFTA decisions.  What made the new case difficult was that, unlike the Laying-up Fund and EFTA cases, the EU acquis was not directly affected.  Precisely, the main problem with the patent law saga is that this is not an EU, but member state, competence.  In addition, the draft patent court treaty lays out a few rules to address some of the concerns the ECJ had in those previous cases –for example, the requirement upon the patent court to apply EU law, and the possibility for the patent court to refer a case to the ECJ, being bound by the ECJ’s ruling in that scenario.

Still, the ECJ killed the patent court initiative.  It did so on the basis of a line of reasoning reminiscent of the US Supreme Court’s decision in the case of The U.S. Supreme Court v. Everyone Else.[2] The ECJ found the establishment of the patent court to be unlawful as a matter of EU law because, well, it ruled itself:

“80. While it is true that the Court [ECJ] has no jurisdiction to rule on direct actions between individuals in the field of patents, since that jurisdiction is held by the courts of the Member States, nonetheless the Member States cannot confer the jurisdiction to resolve such disputes on a court created by an international agreement which would deprive those courts of their task, as ‘ordinary’ courts within the European Union legal order, to implement European Union law and, thereby, of the power provided for in Article 267 TFEU, or, as the case may be, the obligation, to refer questions for a preliminary ruling in the field concerned.”

In a separate but related development, Nicholas Forwood[3], judge at the ECJ’s subordinate court –the General Court– spoke out in favor of a specialist competition court at the EU level.  At first sight, this proposal may be surprising, as one of the main reasons for creating the GC, despite its name, was to have a court more specialized in competition cases than the ECJ.

The proposal is also surprising because the GC’s track record in some types of competition cases is remarkably good.  In cartel cases, the GC subjects Commission decisions to scrupulous scrutiny; around half of all cartel decisions that are appealed are at least partially annulled.  In the merger arena, too, the GC puts the Commission under intense oversight.  You will surely remember the Sony/BMG and Schneider/Legrand sagas where the Commission’s merger decisions were annulled by the GC.  So the only area ‘under construction’ is abuse of dominance (for more, see the recent paper of one my host bloggers).  An ‘under construction’ might even be an understatement.  Just take a read at the latest ‘margin-squeeze’ judgment in TeliaSonera (an ECJ ruling though):

“54 TeliaSonera maintains, in that regard, that, in order specifically to protect the economic initiative of dominant undertakings, they should remain free to fix their terms of trade, unless those terms are so disadvantageous for those entering into contracts with them that those terms may be regarded, in the light of the relevant criteria set out in Case C‑7/97Bronner [1998] ECR I‑7791, as entailing a refusal to supply.

55 Such an interpretation is based on a misunderstanding of that judgment. In particular, it cannot be inferred from paragraphs 48 and 49 of that judgment that the conditions to be met in order to establish that a refusal to supply is abusive must necessarily also apply when assessing the abusive nature of conduct which consists in supplying services or selling goods on conditions which are disadvantageous or on which there might be no purchaser.

56 Such conduct may, in itself, constitute an independent form of abuse distinct from that of refusal to supply.”

Compare this to the US Supreme Court’s finding in linkLine, in very similar circumstances (ie, local loop access for telecom services):

“[A] firm with no duty to deal in the wholesale market has no obligation to deal under terms and conditions favorable to its competitors. If AT&T had simply stopped providing DSL transport service to the plaintiffs, it would not have run afoul of the Sherman Act. Under these circumstances, AT&T was not required to offer this service at the wholesale prices the plaintiffs would have preferred.”

Which of these two statements makes more sense?

The TeliaSonera decision is not an isolated case, of course.  In British Airways, the ECJ (in)famously found exclusionary conduct to exist, even though the rivals supposedly being foreclosed gained market share during the relevant period.  And, in Deutsche Telekom, the GC’s and ECJ’s rulings effectively ‘ordered’ DT to raise retail prices –although there was no claim that they were below cost– and the German telecoms regulator had actually signed off on DT’s pricing structure.

The ECJ’s failure to grasp the basics of abuse of dominance cases is all the more striking as, by eliminating its rival in the market for court adjudication –the patent court–, it showed it knows very well what exclusionary conduct is all about!

In this light, therefore, let’s take up Judge Forwood’s proposal but establish a specialized “abuse of dominance court”, not a competition court.  Still– it’s a pity that the patent court deal was killed.  Otherwise, transferring jurisdiction over abuse of dominance cases to an international tribunal might also have been a –perhaps safer– option!

The Blogbuster


Written by Nicolas Petit

11 April 2011 at 7:27 am

Posted in Guest bloggers

A strong candidate

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In the past few days we’ve learnt that President Obama will run for re-election in 2012 and that Zapatero won’t. But unfortunately not all candidate-related news could be so positive: we have a strong candidate for the 2011 worst antitrust development prize.

The Spanish CNC announced on Tuesday its decision to initiate a formal investigation concerning the Tourism Committee of the Confederation of Spanish Industries (CEOE) as well as one of its executives (well known in Spain as a former president of FC Barcelona) on the basis of allegations that the latter had stated at a tourism fair held in Madrid last January that it would be necessary to increase hotel rates for 2011.

I was completely puzzled when I read the CNC’s press release (and many of you will recall that this is the second time that this has happened lately with a press release from the CNC).

I don’t see how such a general non-developed statement could potentially have the effect of giving rise to a raise of prices (although in view of the prevailing trends, it’s likely that the CNC won’t discuss this and will rather consider that in addition to info exchanges or collective bargaining agreements, public speeches such as this one constitute a restriction by their object..) in view of the number of hotels operating in Spain, of the hundreds of relevant markets with different competitive conditions on which they operate, and given the absence of any reference to what the recommended raise was or of any other alternative focal point. According to economic theory it’s simply absurd to pretend that an statement such as the controverted one can, without more,  generate any collusion at all.

What’s more shocking here is that almost no one within the sector was until now aware of the existence of such statement on the need of raising prices, and so the main effect of the CNC’s intervention has been to expand the reach of what it sees as an invitation to collude. A cynic could even argue that the CNC is mediating in an info exchange amongst competitors…

Looking at the positive side of it, the “good” news is that for as long as some competition authorities continue to measure theis success in terms of volume/number of cases dealt with, there’ll be plenty of competition..for the worst antitrust development prize.

Written by Alfonso Lamadrid

8 April 2011 at 3:27 pm

Posted in Uncategorized