Chillin'Competition

In its recent Tele2 Polska ruling, the Court deprived the National Competition Authorities “NCAs” of the ability to take “negative decisions” (C-375/09, Prezes Urzędu Ochrony Konkurencji i Konsumentów contre Tele2 Polska sp. z o.o., 3 May 2011).

Negative decisions – until now, I used to call them positive decisions… – acknowledge in their operative part that there is no infringement of the competition rules, and provide reasons for this. Under Article 10 of Regulation 1/2003, for instance, the Commission can take “inapplicability” decisions (to date, the Commission never adopted any).  To take a hypothetical example, in a positive negative decision, a NCA would conclude that firm X conduct does not constitute an abuse of dominance, absent an abusive course of action.

Now, in Tele2 Polska, the Court was asked to determine whether NCAs can take such decisions. For wholly disputable reasons I believe – flawed understanding of the concept of effectiveness of EU competition law, dubious literal reading of Article 5, inconsistency with VEBIC, long-term legal uncertainty effects, etc. – the Court held that NCAs were deprived of this decisional prerogative. As observed by my assistant, Charlotte Lousberg, this suggests that a number of NCAs have lived in a state of illegality for the past 7 years.

But this is not the primary point of this post. Rather, I would like to stress here a number of perverse effects which the ruling may have on the way NCAs conduct their decisional business.

As explained by Wouter Wils in a great paper (Wils, W. P. J. (2004), The Combination of the Investigative and Prosecutorial Function and the Adjudicative Function in EC Antitrust Enforcement: A Legal and Economic Analysis, World Competition, 27 (2), pp. 201 – 224), officials can be subject to a variety of biases, including hindsight bias, i.e., the need to justify past efforts. More generally, officials are rational individuals who seek to maximize the returns of their professional activities (for legitimate career advancement purposes, etc.).

Now, in the real life, it cannot be excluded that following a lengthy, costly investigation, officials will eventually come to the view that a case has no merit (after all, bright competition lawyers might, for once, convince the NCA that the case is worthless). However, with Tele2 Polska, the officials’ investigative efforts can no longer translate into some sort of observable decisional output.

I believe that this may alter officials’ incentives structures, now unable to craft negative decisions, and justify past activities, in meritless cases.

This is first true at the very outset of competition procedures (e.g., when the NCA receives a complaint). Officials might now be increasingly reluctant to “take” complex, difficult cases, including cases which raise novel questions of law, whose outcome is uncertain. NCAs might in turn prioritize their enforcement resources on “easy” cases, regardless of the public interest.

But this is also true during the procedure, if officials realize that the case is going nowhere. In such a setting, officials (who can no longer push for a negative decision) might nonetheless seek to “get something out” of the case, and resort, to this end to other enforcement instrument, which generate some decisional output, but require little proof and reasoning => think of Article 9, commitments’ decisions.

Just random Friday ruminations. There will be more to come on this in July.