Archive for 2011
The ECJ rules the ECJ Rules
(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
A strong candidate
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.
Microsoft v. Google – Karate Competition Law?
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.
Information Exchange and Cartels – Dangerous Liaisons?
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.
Anti-doping and Antitrust
(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)
ABA 2010 Antitrust Year in Review
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.
Microsoft v. Google – Clash of the Titans
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.
Microsoft´s complaint against Google
It´s been reported today that Microsoft has lodged a formal complaint with the Commission. So far the news have basically reported what was said in a blog post published last night by Microsoft´s General Counsel, so we´re going to try to be the first ones going a little beyond.
I´ve already stated my views on many of the issues which the complaint presumably deals with, but I will add here some ideas (and insist on others). As usual, a disclaimer is in order: my views are those of an outsider with no access to information other than that which is public.
This will, once again, be a bit lengthy, so, if interested, you can click here to keep reading.
ULg – New Full English Version of the LL.M. in EU Competition and IP Law
To many people, Liege is an old industrial city which has little to offer.
But Liège has a great geographical position. It is just a 100 kms away from Brussels. Thanks to this, it is close from many brainy competition (and IP) professionals. This is what prompted my predecessor Prof. Geradin to create a bilingual LLM in EU Competition and IP law.
Now that we have a 8 years track record, I think I can modestly pretend – pardon the bias – that we have the best, and most likely the cheapest – several hundred € – LL.M in competition (and IP) law of Europe :).
Obviously there’s a downside with cheap tuition fees: little money for my research centre. But there’s a big upside: in Liege, we are not bound to award degrees to poor LL.M students that should be failed. Put differently, our evaluation process is not influenced by the risk of losing money out of a decrease in prospective applications [on second thoughts, it may not be good advertisement to say publicly that we fail students: we do not fail that many].
Now, our LL.M has been increasingly successful in the past years, attracting students from everywhere in Europe and outside (Peru, China, Russia, etc.). I trust the many conferences we organize in Brussels and the opportunities for publication in e-competitions are interesting for prospective students.
This year, we’ll open a full-english version of the LL.M programme. It will be opened to students from far-away countries, who have no background and no professional interest in the French language. The programme of this English-based LL.M can be found hereafter.
RE: Information exchange=cartel?
Some days ago I wrote a post on the change of approach towards exchanges of information set out in the new EU horizontal guidelines, in which I challenged the assertion that this practices should (or could) be equated to cartels (an assertion which, as I see it, has come out of the blue) and expressed my concern over the possibility that the statements made by the Commission in that document could be interpreted in a excessively wild wide manner by overzealous enforcers.
Since then, I have received various comments on that post. Since we´ve always liked the idea of fostering as much interaction as possible on this blog and most of those comments are not visible here, I´ve decided to provide an overview of what some of them said (other must be kept confidential) and, where necessary, to reply to some of the questions they raise. I have checked with their authors and have only mentioned their names where theu have given their express consent.
This will be lengthy, so, if interested, click here to keep reading.
Chillin'Competition 