Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for April 2011

Microsoft v. Google – Karate Competition Law?

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The blog post that announced MSFT’s complaint identifies a half dozen of allegedly problematic practices, but keeps off from characterizing any of those practices as an abuse of dominance, under the qualifications of EU competition law. Rather MSFT seems to portray Google’s strategy as a bunch, collection, network of tactics which altogether have an unlawful, anticompetitive foreclosure effect. Read Brad Smith’s own words: “Google has engaged in a broadening pattern of walling off access to content and data that competitors need to provide search results to consumers and to attract advertisers”.

Based on my own, little experience of competition cases, this is not unprecedented in Article 102 TFEU complaints.

That said, there’s a beautiful legal question behind this. Assume that none of the allegations meets, in and of itself,  the conditions for an unlawful abuse. Can the Commission still find an infringement of Article 102 TFEU out of the “cumulative effect” of a string of practices, which as a whole foreclose rival market players? In the language of Kyokushin Kaikan, should Article 102 TFEU apply only to headkick knockouts, or also – as is the case in many martial arts – cover knockouts achieved through a series of side and low kicks.

Take for instance allegations 1 (impediments to proper Youtube indexing on rival search engines), 2 (hurdles to the display of Youtube content on rival smartphones) and 3 (unavailability of orphan books for rival search engines). None of those allegations seems to involve an indispensable input, as explained previously on this blog. Hence, none of them should give rise to a stand-alone finding of unlawful abuse.

However, can the refusal to provide access to a bundle of important – yet not indispensable – inputs be tantamount to an abuse of a dominant position?

From an economic perspective, the answer ought to be affirmative if it is proven that this “multi-input” refusal to deal has foreclosure effects of the same magnitude as a “single input” refusal to deal (involving indispensable content). From a legal standpoint, one may nevertheless criticize a dangerous lowering of the threshold for intervention in Article 102 TFEU cases.

At any rate, some inspiration on this may be drawn from karate the case-law on Article 101 TFEU, which accomodates a reasoning of this kind through concepts such as “cumulative effects” or the “complex infringement” doctrine.

Written by Nicolas Petit

7 April 2011 at 2:38 pm

Information Exchange and Cartels – Dangerous Liaisons?

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Are information exchanges really = cartels under EU competition law?

The issue has triggered many discussions on the blog lately. I just thought I’d post my own ruminations on this.

The  Guidelines do not really say that information exchanges are cartels. Let’s take a close look. There are four references to cartels in the guidelines that concern information exchanges. The first one, which is general in scope, can be found at §9  and expressly says the contrary: “Although these guidelines contain certain references to cartels, they are not intended to give any guidance as to what does and does not constitute a cartel as defined by the decisional practice of the Commission and the case-law of the Court of Justice of the European Union”. The three other references, which can be found at §§59 and 74, do not quite say that information exchanges are cartels. It is stated there that exchange of information, in particular on future prices, “with the object of fixing, in particular, prices or quantities” will be “considered and fined as cartels”, which is quite different from saying that they are cartels (and which is in line with the existing case-law on “concerted practices”). Moreover, in so doing, the Guidelines accurately indicate that only a subset of information exchanges may be treated as cartels (am a “glass half-full”, optimistic person) . Those are information exchanges that have the object of fixing prices or quantities. It is thus incumbent on the Commission – or on the complainant, applicant, whatever – to prove that the information exchange has an anticompetitive object, which I understand here as purpose (or intention). Not all information exchanges are thus treated as cartels.

From an economic perspective, what the Guidelines say is not illegitimate. Moving beyond the possibly unfortunate semantics of the Guidelines (why not stick to the good old concept of a “hardcore restriction”), exchanges of information on future prices in the market place are, from an economic standpoint, quite a bad thing. First, such practices are known to facilitate tacit collusion on tight oligopolistic markets. Second, in many cases, exchanges of information on future prices are just the tip of the iceberg: they serve as the adjustment mechanism of an otherwise unproven, but explicit collusion.

Are the Guidelines really tougher on information exchange? On this blog and elsewhere, it has been argued that the reference to cartels could signal a tougher regime for information exchanges. On this, a counterintuitive reflection springs to mind: from a defense counsel perspective, equating information exchange on future prices with cartels may actually mark a relaxation of the legal regime applicable to such hardcore restrictions. Think about it: the culprits now can benefit from leniency and enjoy the penalty discounts afforded under the settlement notice. To me, this does not really sound like an aggravation of the legal regime applicable to exchange of future information (which as I said were treated in the case-law as egregious restrictions of competition).

Where the concerns really are. Don’t get me wrong: I am not a fan of the Guidelines’ infuriated semantics. But I think there are other, more important areas of concern in relation to information exchange. I regret in particular that the Guidelines espouse a checklist (or “laundry list”) approach to information exchanges, which provides little, if no, legal certainty to firms willing to self assess proposed agreements. To assess such agreements, firms must review a long range of factors of seemingly equal importance, and the calibration of pro v. anti-collusive factors is notoriously daunting. Given that the theory of harm ascribed to information exchange is tacit or overt collusion, the Guidelines should have subordinated a finding of incompatibility under Article 101(1)TFEU to proof of the 3 cumulative Airtours condition (there’s a discrete reference to Airtours at fn61). This would have been sensible from both a legal certainty and an economic standpoint. Moreover, this solution would have ensured legal consistency across the various areas of EU competition law.

Written by Nicolas Petit

6 April 2011 at 11:51 am

Posted in Case-Law, Uncategorized

Anti-doping and Antitrust

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(Note by Alfonso:Pablo Ibañez Colomo is once contributing to our blog, and, as usual, he provides us with his original views. This time he resorts to a recent high profile doping case to highlight the common features between anti-doping and antitrust law. By the way: cycling is a very sensitive issue for me nowadays since the brand new bike that my friends recently got me for my birthday was stolen during the weekend..)

I have always been a cycling fan (and I am now the proud owner of a proper road bike, happy to report that London is a bike-friendly city—and not only because it does not rain that much). After this introduction you will not be surprised to learn that I have been closely following the doping case involving Alberto Contador, three-time winner of the Tour de France.

For those of you who are not familiar with the case, let me give a brief introduction. Two months after last year’s Tour de France, it was made public that Alberto Contador had tested positive for clenbuterol in the race. This looked like a borderline case from the beginning (it has been reported that the case was made public only because the information was leaked to a German journalist). Apparently, the amount of clenbuterol detected was really really small, and the possibility that the cyclist had ingested contaminated beef could not be ruled out at the outset (at the very least, it did not seem to be one of these improbable excuses advanced by athletes in similar circumstances). Against this background, the Spanish Cycling Federation cleared the cyclist. This decision has recently been appealed by the UCI (Union Cycliste Internationale) and the WADA (World Anti-Doping Agency) before the TAS (Tribunal Arbitral du Sport).

The more I read about this case, the more I thought about the analogies between anti-doping and antitrust in many respects. These are relatively young legal disciplines that are at the crossroads of administrative and criminal law, of private and public law and in which authorities still have a long way to go in many respects. Let me mention two aspects in which the analogy between the two fields is particularly marked:

(click here to continue reading)

Read the rest of this entry »

Written by Alfonso Lamadrid

5 April 2011 at 1:50 am

Posted in Uncategorized

ABA 2010 Antitrust Year in Review

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The very active International Antitrust Law Committee of the American Bar Association (ABA) will present tomorrow, at the ABA’s Section of International Law Spring Meeting, a most interesting report that analyses and summarises the key antitrust developments that took place during 2010 in 49 jurisdictions around the world.

Check it out here: ABA 2010 Antitrust Year in Review.

The report (which has been coordinated by Susana Cabrera, Konstantin Jörgens and Álvaro González, friends and colleagues at Garrigues) really is an excellent tool for anyone interested in a quick but thorough update on international antitrust.

Written by Alfonso Lamadrid

4 April 2011 at 11:59 pm

Posted in Uncategorized

Microsoft v. Google – Clash of the Titans

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On Behalf of the Antitrust Community, A Big Thank You – Antitrust law professors should be grateful to Microsoft (hereafter, “MSFT”). As a repeat offender of the competition laws, MSFT has provided scholars with loads of research and educational material for the past 20 years. Now, since yesterday, MFST is trying to turn the tables. In its complaint against Google, MSFT seeks to endorse the role of the victim of anticompetitive conduct. Food for thought in upcoming lectures, articles, and so on.

My Initial Reaction, and the Timing of MSFT’s Complaint – I have on several occasions criticized the Commission’s MSFT decisions (and some might have thought that I had a tiny bias for the Redmond giant). Given that I try to be am consistent with myself – and that I do not, or no longer, work in a law-firm advising one of those firms – I’ll be blunt: from a legal perspective, yesterday’s complaint against Google looks fragile. Its chief, and maybe sole merit is to throw some mud at Google in the press, at a moment when (i) Google has been reported to be close to a settlement with the Commission; and (ii) Google has suffered a major setback last week, when its settlement with US publishers and authors was annulled by a NY judge.

The Essential Facility Allegations – For this first post on the MSFT complaint, let’s focus on two of the new allegations described in MSFT’s General Counsel’s post. The first couple of allegations involve a conventional refusal to supply case, with input foreclosure effects. Google is a vertically integrated operator with upstream activities (media content) and downstream interests (search, mobile phones, etc.). The complaint focuses on the media content which Google provides through Youtube. Through a range of technical measures (e.g., refusal to disclose the site map of Youtube which prevents indexing), Google would allegedly restrict rival search engines and mobile phones’ access to Youtube content (e.g. indexing of Youtube links on Bing would not be satisfactory). Since Youtube content is an essential input for rival firms downstream, Google’s conduct would lead to foreclosure effects. This scenario has been described in the December 2010 Opinion of the French Competition Council at §313.

Smartphones and Search Engines are Multifunctional Products – I have my doubts on those allegations. Remember: three cumulative conditions must in principle be met to prove an unlawful refusal to deal under Article 102 TFEU. The first of them involves proving that the input is “indispensable for rival firms to operate in the downstream market. On cursory examination, this condition is unlikely to be met in the present case. This is because Youtube content represents (i) only a tiny share of what end-users look for on the web; and (ii) one of the very many parameters which buyers consider when they purchase smartphones. Rival search engines/phone manufacturers foreclosed from access to Youtube may still compete with Google out of search efficiency on other types of data (news, blogs, whatever). Similarly, rival smartphone manufacturers may still compete with Google’s Android phones on other types of apps, on genuine technical performance (screen, battery, etc.), and so on. Search engines/smartphones are multifunctional products. As such, they can operate viably around the content function – as premium as it may be – provided by Youtube.

Replicability? – In addition, the indispensability condition is not met where the firm requesting access can replicate the alleged essential facility, or start its own production of the alleged essential input (e.g, through investments or upwards vertical integration, for instance). Here again, one should not forget that the financial costs required to create a database similar to Youtube are not that significant. This is because content is posted primarily by users, and those do not have to pay for this. The crux of the matter for a new entrant thus lies in attracting users to the media platform and incentivizing them to upload their content. And to do this, the only thing needed is an ergonomic platform and, first and foremost a nice and original idea. Back in the day, Youtube had it, Microsoft not. Tough luck.

Magnitude of the Alleged Unlawful Conduct – To prove an abuse, one must also establish that the conduct has anticompetitive foreclosure effects. On this, it must be stressed that Youtube belongs to the list of websites which most workers cannot visit during day-time. Hence, access to Youtube content is irrelevant to many of the Internet searches made across the world during working hours. Rival search engines that do not index any Youtube content can thus perfectly provide adequate search functionalities to worker, and have thus a lot of space to expand on the market. If there’s a foreclosure effect, it is likely to be limited to a fraction of the searches made on a daily basis.

Caveat – Of course, all of this remains subject to further discussion, but those are a few preliminary ideas that sprung to mind yesterday in reading the press release. I will try to post more on the other allegations in upcoming weeks.

A Wish – To conclude, let’s just pray that MSFT stays in business for the next years. Should MSFT be forced off the market through anticompetitive tactics, many antitrust scholars would face dramatic input foreclosure issues.

A Weird Coincidence – The MSFT complaint comes timely. A day after I published with my assistant a paper entitled “Back to Microsoft I and II – The Art of Secret Magic”. See here for a link to the paper (http://jeclap.oxfordjournals.org/cgi/content/abstract/lpq080?
ijkey=dJNPpOPfKQ5FcGd&keytype=ref
)

Press Coverage – I am quoted in a Bloomberg report yesterday. See here.

Written by Nicolas Petit

1 April 2011 at 4:57 pm