Archive for 2011
A Competition Law Quiz
In the past few days both Nicolas and I have commented on the Tomra and General Química Judgments. Both cases can be useful starting points for a quizz (we´ve got a special prize for anyone who replies all 5 questions correctly):
1) When was the last time that the European Courts annulled a Commission´s decision on abuse of dominance?
2) When was the last time that the Europen Courts reduced a fine imposed by the Commission on an abuse of dominance case?
3) When was the last time that US agencies successfully litigated an abuse of dominance (Section 2) case before the courts?
4) When was the last time that a company was able to rebut the presumption on the exercise of decisive influence applicable to 100% owned subsidiaries?
5) Which one of the Judges at the General Court directed and starred a movie on competition law (also starred by other well known competition lawyers and officials), and what was the title of the movie?
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Unrelated: the companies sanctioned in the air cargo cartel case have lodged their appeals before the General Court, including Lufthansa, who received full inmunity in application of the leniency notice (very probably with the aim of reducing its exposure to damage claims). By the way, the registrar at the General Court has numbered Air Canada´s appeal as Case 9/11…
Zombie Law?
Remember §3 of the Guidance Communication on exclusionary abuses under Article 102 TFEU (“This document is not intended to constitute a statement of the law”)?
For a while now, I had been fearing that the Communication was a born dead document.
In reading last week the GC’s ruling in Tomra v. Commission, I got even more troubled. Would the Guidance Communication be the first “zombie” legal instrument ever released by the Commission? A zombie legal instrument is a document that is dead (i.e. overruled), but that does not know it’s dead (i.e. still presented as the law as it stands). For more on zombies in the field of economics, see here.
Clearly, there are a slew of killing statements in the GC’s judgment. Look closely:
- §206 suggests – at least implicitly – that consumer harm is one of the several goals pursued by Article 102 TFEU in parallel to the protection of competitors. According to the GC, protecting competitors would constitute a sufficient ground to enforce Article 102 TFEU. This is at odds with the Guidance Communication which suggests that protecting competitors is not, in and of itself, a stand-alone goal of Article 102 TFEU. In the Guidance Communication, Article 102 only protects competitors to the extent that consumers might be harmed;
- §241 says that there can be an abuse as long as a rival is deprived of the ability to compete “for the entire market and not just for part of it”. In other words, even de minimis foreclosure is arguably caught under the concept of abuse. No matter what, a dominant company cannot tie a single customer on the market. This not only inconsistent with the Guidance effects-based ethos, but also with the Discussion paper of 2005 which had elevated the concept of the “tied market share” as a key decisional criterion. It is also at odds with the Commission’s decisional practice notably in Distrigas;
- §258 weakens the relevance of the so-called “suction effect” test, in saying that “the fact that the retroactive rebate schemes oblige competitors to ask negative prices from the applicants’ customers benefiting from rebates cannot be regarded as one of the fundamental bases of the contested decision in showing that retroactive rebate schemes are capable of having anti-competitive effects“.
With this in mind, I was a little reassured by Miguel de la Mano‘s (DG COMP) presentation at our last GCLC lunch talk on Friday. In essence, Miguel considers that the GC’s ruling is fully congruent with the Guidance Communication. In contrast, Alan Ryan (Freshfields) finds a number of flaws in the judgment (and has appealed it before the ECJ). See slides below for more.
My take: a dominant firm does not necessarily foreclose the entire market through loyalty-inducing practices. It all boils down to assessing the share of the dominant firm’s customers that is subject to the impugned practice (e.g., a dominant firm may apply a single branding commitment to only 10% of the relevant market). Against this background, foreclosure should only be presumed when the dominant firm applies the loyalty-inducing practice to its entire customer base.
And a proposal: not unlike under Article 101 TFEU, the Court and the Commission should recognize that dominant firms can benefit from safe harbours. In light of the rules on vertical agreements, as long as the tied market share < 30%, Article 102 TFEU should be deemed inapplicable.
Case T 155 06 Tomra v Commission
(Image possibly subject to copyrights: source here)
Chillingleaks: European Commission investigates Telefónica and PT
It appears that DG Comp has initiated a formal investigation in relation to a possible non-compete agreement between Telefónica and Portugal Telecom. The two companies have now unofficially confirmed this news, which could become public in the next few hours.
People involved in the case have indicated that the agreement could have been entered into last July, at the time Telefónica bought PT´s shares in Vivo (a reminder: the Portuguese government had opposed this acquisition by virtue of its “golden share” in PT. Although the ECJ recently declared that the existence of such “shares” infringes the Treaty provisions on freedom of establishement, the golden share on PT is still there). The agreement is suspected to have consisted of a commitment not to compete in each other´s “home” market until December 2011.
Similar “ancillary restrictions” have also been subject to recent investigations by the Commission.
The ECJ rules on parenthood (General Química v Commission)
The ECJ issued a Judgment yesterday in the General Química-Repsol case in which it partly upheld and partly annulled the General Court´s judgment dismissing the appeals against the Commission decision in the rubber chemicals cartel.
In its Judgment the Court provides some guidance on the operation of the iuris tantum presumption pursuant to which the exercise of decisive influence of a parent company over the conduct of its subsidiaries (and, accordingly, the responsibility of the parent for the wrongdoing of its subsidiary) can be presumed, always subject to rebuttal, in case of 100% ownership.
The Commission and the General Court had held that the infringement commmited by General Química (GQ) could be attributed to the owner of the totality of its shares: Repsol Química (RQ), and -climbing one additional step up the ladder- to Repsol YPF, who, in turn, was the owner of the totality of RQ´s shares.
Leaving aside some of the details and specificities of the case, and focusing on the general application of this Judgment to future cases, the ECJ has ruled that :
(i) The operation of the presumption shall not be dependent upon the existence of additional evidence on the exercise of decisive influence over the conduct of the subsidiary; on the contrary, it will be triggered automatically in cases of 100% ownership (paragraphs 41 and 42);
(ii) The General Court did not adequately motivate some of its conclusions (recitals 58-63) and failed to examine in detail the evidence submitted by the appellants to demonstrate the commercial and operational independence of GQ in relation to RQ (recitals 75 and 76), this being precisely one of the relevant factors with which the presumption could have been rebutted (recital 77). Consequently, the Judgment holds that “the General Court committed an error of law in affirming, in paragraph 74 of the judgment under appeal, that the arguments raised in order to establish such independence could not succeed ‘in the light of the case-law cited’, without carrying out a concrete examination of the factors raised by the appellants” (recital 79).
After having set aside part of the General Court´Judgment, the ECJ itself undertakes the task of giving final Judgment on the matter, and rules that:
a ) the mere fact, first, that RQ was made aware of the infringement only after an inspection of GQ´s premises and, second, that it did not participate directly in that infringement or encourage it to be committed is not such as to show that those two companies do not constitute a single economic unit. Such a fact is not sufficient to rebut the presumption that RQ actually exercised decisive influence over GQ’s conduct
b) Although it was true that certain documents submitted by the appellants show that many of GQ’s management and administrative competencies had been delegated to the executives of that company, other evidence in the file showed, by contrast, the existence of significant interference on the part of RQ in several aspects of GQ’s strategy and commercial policy.
The Judgment attributes particular importance to several facts: Firstly, it notes that RQ’s board of directors intervened significantly in matters concerning the sale of real estate and shareholding in other companies. Secondly, it underlines that GQ’s sole director designated by RQ constituted a link between those two companies, by which the information concerning sales, production and financial results were communicated to RQ. Thirdly, the ECJ explains that the fact that information was provided on the implementation stage of strategic and commercial plans constitutes an additional indication that RQ exercised control over the decisions drawn up and executed by GQ’s executives.
At the end of the day, the ECJ has reminded the General Court of its obligation to assess and motivate with greater care its conclusions on the elements put forward by companies attempting to rebut the presumption on the exercise of decisive influence. But at the same time it has validated the Commission´s decision on the basis of a reasoning that, in the face of conflicting evidence, seems inclined to favor the Commission´s discretion.
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Also, and totally unrelated, I leave you a link to an article discussing whether lawyering can be compatible with work/life balance (it´s also interesting to check the first comment, positing that quality of life in accounting firms is due to the oligopolistic nature of that market). As I´ve said before, unless law firms become more progressive on the quality-of-life front they risk disencouraging the brightest people (their only asset) to choose this job or to continue working at it.
Have a great weekend!
ChillinLeaks (or kind of)
There’s been a bunch of significant antitrust news in recent days.
Since they have already been revealed on other websites, they are not genuine ChillinLeaks.
- We learned today that the august Trevor Soames had left Howrey Brussels. We wish him luck for his new ventures. We do also wish luck to our good friend Miguel Rato who, in addition to being one of the brightest young competition lawyers in the market, was recently made partner there (and to other friends who have left/stay with the firm).
- Very many thanks also Geoffroy Van de Walle de Ghelcke who informed us that the European Google Antitrust Questionnaire had been posted on the Internet (and on the excellent antitrust review).
- Finally, I have been interviewed yesterday on Apple’s threats to remove free newpapers’ applications from AppStore . Apple apparently wants to push newspapers to sell (read in exchange for a price) online subscriptions for iPads exclusively through iTunes (and not for free through other platforms or in connection with paper subscriptions). The Belgian Minister for economic affairs – yes, there is a government in Belgium, though it is well beyond use-by date – has requested the Competition Directorate General to open an investigation for abuse of dominance. According to the Minister, this issue, which seems to arise in other Member States, should be dealt with at the European level. Until recently, Apple has enjoyed a relative degree of immunity in so far as EU competition law is concerned.
Linkedln: A new book, a new case, and an “innovative” ground for exploitation claims
The new book: Lorenzo Pace is the editor of a forthcoming book on The Impact of the Commission Guidance Paper on Article 102 which features contributions by a bunch of truly outstanding academics, namely Pace himself, Valentine Korah, Ernst-Joachim Mestmäcker, Catherine Prieto, Richard Whish, and Luis Ortiz Blanco together with Pablo Ibañez Colomo. I´ve had the chance to read some of the contributions, and they are frankly excellent. Keep an eye open for its publication.
The new case: L. Ortiz and P. Ibañez´s contribution in that new book emphasizes that a significant difference exists between the enforcement of the almost identical provisions on abuse of dominance at the EU and Spanish levels. In particular, they show that, in remarkable contrast to the record of the European Commission, as much as half of the total number of prohibition decisions adopted by the Spanish authority were of a “regulatory nature”, in the sense that they concerned exploitative practices put in place by undertakings enjoying or having enjoyed exclusive rights or operating in regulated network industries.
An investigation formally initiated yesterday by the Spanish authority seems to prove their observations right, and not only retrospectively: Telefónica Móviles, Vodafone and Orange are being investigated for having allegedly set excessive prices for wholesale origination and termination services for short SMS and MMS messages on their mobile telephone networks.
As reported on this blog, Telefónica was also recently sanctioned for having abused the collective dominant position that it enjoyed together with Vodafone and Orange in the retail mobile telephone market. I am wondering whether the CNC will be attempting to bring this new case on the basis of a finding of collective dominance on the wholesale market (seems unlikely, but remember the Irish case where ComReg decared O2 and Vodafone collectively dominant in the whosale market; that decision recently commented and criticized in the August 2010 issue of European Competition Journal), or will rather act the “Magill way”, holding that each operator is dominant with regards to its respective network.
An innovative ground for complaint: As harsh as the CNC´s attitude in relation to claims of excessive pricing may seem, things can always be worse:
The Bolivian government has announced the initiation of a probe on the rise of 50 cents in the price of Coca Cola. The reason why the government is reacting as if the price of a 1st need product had skyrocketed and might even order CocaCola´s bottler to cease its activities is simple: last year the government launched its own drink with the aim of competing against Coca Cola. They named their product: Coca Colla. Subtle, isn´t it? .
Despite its appealing brand name the government-sponsored drink wasn´t a success, so Evo Morales´administration is now following an alternative path; i.e. investigating their direct competitor for having increased its prices (even if it only did so in response to the 23% increase in the price of sugar approved by the government..). Aside from the fact that forcing a producer to stop production seems an interesting remedy to excessive pricing (aka restricting output), this is a genuinely innovative ground for competitors to take action. Who would have guessed it? Bolivia at the avant-garde of antitrust..
Are Cartels Trendy?
I took the above picture last week in the centre of Brussels. This shop sells modern design furniture.
More importantly, this picture shows why competition agencies will never fully eradicate cartels. The very fact that design shops, political parties, and even modern rock bands deliberately use the world “cartel” as a marketing device brings proof that most people do not view cartels as a bad things. Much to the contrary, to many citizens, the word “cartel” relates to a range of positive things, such as solidarity, strength, etc.
Now, contrast this with Monti’s “cancer of the market economy” or Scalia’s “supreme evil of antitrust” (thanks to Alfonso for reminding me of those quotes)… The rift between antitrust specialists and society at large seems alarmingly wide.
To date, antitrust specialists have failed to explain the detrimental effects of cartels to society. Often, if not systematically, they have used complex language and obscure micro-economics concepts (e.g., deadweight loss, allocative inefficiency, etc).
There is an easy fix a long term remedy to this unfortunate state of affairs: competition authorities, academics, economists and lawyers should seek to quantify the harmful macro-economic impacts of cartels on growth, GDP, employment, productivity, etc. A number of interesting studies have been published on this issue in recent years (see here and here), but I believe that there is still scope for further research.
GCLC Lunch Talk this Friday – Rebates after Tomra v. Commission
We still have a few seats available for our upcoming lunch talk on Michelin III Tomra v. Commission.
This lunch talk features Alan Ryan (Freshfields) and Miguel de la Mano (DG COMP) as speakers.
Registration form can be found below.
Catching up
Because you missed us, here’s a brief summary of what happened in the past two weeks:
- Last weds, my students in Liege took their competition law exam. It was a funny exam, with references to F. Beigbeder’s famous book “99 francs”, electric guitars, etc.
- The latest monthly magazine of the Federation of Enterprises in Belgium (FEB, the organization that hosts the Brussels School of Competition) is devoted EU competition law. A very nice issue. See here.
- I have presented a paper on “Free riding under EU competition law” at a conference at the EDHEC Business School in Lille. A link to my ppt. presentation can be found at the end of this post. A working paper that I am drafting with my assistant N. Neyrinck will follow shortly.
- In a case involving gas distribution, the French competition authority found that the leniency applicant had sought to request immunity on the basis of falsified documents (just wonder what happened to the lawyers/in house who provided the advice)… and dismissed concerns of abuse of collective dominance with words/concepts close to those used in my Phd (thanks to Elise Provost and Joseph Vogel for the pointer).
Le droit de la concurrence face aux free-riders
Blogging from Madrid today, for the first class of the IEB programme in EU and Spanish competition law. Thanks again to Luis Ortiz and Alfonso for their kind invitation.
New Year Resolutions
Dear readers,
Best wishes for a happy and prosperous 2011. Our holidays away from blogging have extended a little more than what we´d initially announced. Sorry about that. The good news is: we´ve received plently of emails in which readers were wondering when we would open the shop again. Thanks so much for the interest!
Alfonso and I have agreed on a range of resolutions for 2011:
- Expand our readership and foster the interaction amongst readers. The fact that we are no longer boycotted by CPI’s Blog o’ Blogs (last week they recommended one post of ours for the first time) may help.
- Boost our Chillin’Leaks section
- Publish two substantive posts a week. Hopefully the Court and the Commission will give us timely “food for thought” (and draft concise, yet comprehensive opinions)
- Publish a monthly review of State Aid issues that antitrust lawyers should be aware of
- Organize more surveys
- Start doing some interviews (suggestions on names would be very welcome)
- Open Chillin’Competition to guest bloggers (as we did a few weeks ago with Pablo Ibanez)
- Ensure a timely and original coverage of the various Google investigations
- Keep our head cold and try to take things not too seriously
- Have our friends in China, Latin America and Russia inform us on what´s hot in their jurisdictions
The bottom line: This blog is yours. Please do not hesitate to send us suggestions and comments on what you would like to read here.
Now let’s chill competition again in 2011.
Chillin'Competition 
