Archive for 2011
Microsoft/Skype- On how to unconditionally clear a monopoly in Phase I
My “learned” co-blogger (and NY-Times interviewee of the week) initiated a very interesting debate yesterday with regard to the Microsoft/Skype clearance decision. I must confess that I read the decision last evening on the plane back fromFlorence (more on that tomorrow) and, to be frank, I was astonished. Let me briefly, and not exhaustively, explain to you why:
As our usual readers know, I’ve a particular interest in looking at how competition authorities appraise network effects in competition cases (it was the topic of my LL.M dissertation and it’s also supposed to be the topic of a pending PhD project). Since the Microsoft/Skype merger involves two entities benefitting from huge network effects I regarded this decision as a must read.
Well, I was wrong; the decision is a must RE-READ: I had to read certain paragraphs several times in order to make sure that it wasn’t just that I was tired and couldn’t make sense out of it. After several re-reads, I reached the conclusion that, actually, parts of it don’t make any sense.
Nicolas said yesterday that “the decision clearly shows that a merger involving a large monopoly can get Phase I clearance”. I was not involved in this case and therefore I may be missing something but, if you ask me, the decision reads as if the Commission already knew that it wanted to clear the decision in Phase I and then tried to construct an assessment that would fit its pre-determined conclusion. Arguing in a convincing manner that the creation of a “large monopoly” such as the one at issue does not raise competitive concerns and is suitable for Phase I clearance is practically impossible. Nonetheless, that is what the decision has tried to do. And, inevitably, that leads to serious logical problems.
Even from the perspective of an outsider [PS. see note at the end of the post] it’s easy to detect many defects, but for the sake of brevity (notably because I have only allocated one hour of today’s afternoon to write down my notes about this) let’s focus just on one of the Commission’s errors. I have chosen to present you with an error concerning the market for consumer communications because it involves network effects (which is what initially got me interested) and horizontal effects, and because all of us as consumers are able to understand it better. The decision is equally, perhaps even more, questionable with respect to the assessment of vertical and conglomerate effects in the market for enterprise communications, but that part is harder to explain in a brief post; I might develop my views on this in a later post.
In what follows I´ll explain what the decision says in this regards and I will provide you with my very personal views on the Commission´s reasoning. I might be right, but I certainly may as well be wrong. If interested in taking a look at the substantive stuff in other to arrive to your own conclusions, click here:
Google, Microsoft, Skype, et cætera
Confessing a lack of inspiration tonight, I paste hereafter a link to an interesting NYTimes paper on the ongoing Commission investigation against Google. Thanks to James Kanter for the opportunity to be interviewed.
The topic of this paper also gives me a nice pretext to remind our readers that the merger clearance decision in Microsoft/Skype was published a month ago. This decision is well worth reading. It makes a bunch of interesting points on several counts. Here’s a taste of them. First, the decision clearly shows that a merger involving a large monopoly can get Phase I clearance.
Second, it suggests that the tide has turned in so far as the Commission’s appraisal of ICT markets is concerned. On several occasions, the decision unambiguously depicts Microsoft as a vacillating player, in a sector (communications services) where the Facebook, Google and Apple of this world are poised to become – or are already – the market leaders.
Third, the §§ on the tying of Skype with Windows OS are not wholly consistent with the 2004 and 2009 decisions, where pre-installation was deemed problematic in itself, because of the lack of subsequent (switching) user behavior. Remember, those decisions relied on this theory that lazy users were often stuck with WMP and IE, for behavioral biases (the so-called “end-users’ inertia” at §870 of the 2004 decision). Here, the Commission stresses that pre-installation is unproblematic at any rate because consumers do not use whatever communication service found on Windows + there are many alternative means for rivals to reach out to consumers + Skype is already pre-installed on >50% of Windows PCs, but only a small share of Skype are registered and connected users.
Finally, the decision contains some nice wording on the flaws of standard antitrust analysis in dynamic markets. See for instance, §78, which calls for caution in applying conventional market share analysis to such sectors: “consumer communications services are a nascent and dynamic sector and market shares can change quickly within a short period of time. Furthermore, almost all communications services are offered free of charge”. See also §122: “Consumers are very sensitive to innovative services or products in consumer communications services. Providers of consumer communications services lose traction quickly if they are unable to offer users new and innovative functionality”.
Last Call – GCLC Lunch Talk on Menarini
On Thursday 8 December, the Global Competition Law Centre (GCLC) will hold its 55th Lunch Talk on the Judgment of the ECHR in Menarini Diagnostics SRL v. Italy.
Sir Christopher Bellamy QC (Linklaters) and Marco C.E.J. Bronckers (Leiden University and VVGBlaw) will share the stage.
Online registration at http://gclc.coleurope.eu/LunchTalk
The Friday Slot (1) – Ian Forrester
At Chillin’Competition, we have decide to emulate an unpopular practice of DG COMP. From now onwards, we will be launching Friday requests for informations (“RFIs”).
In line with the spirit of this blog, our RFIs will be a bit different from those of DG COMP. Our targets will be big names in the antitrust world who, in addition, are interesting people with a good sense of humor. Just like this blog, our questions will be partly professional and partly personal.
To start this new venture – in principle, the Friday slot will be opened twice a month – we have sent our first RFI to no other antitrust superstar than Mr. Ian Forrester (White and Case, full biography available at the end at this post)!
And guess what: Ian has accepted to address our questions very swiftly, and has provided remarkable, insightful, thought-provoking answers. Again, we are immensely grateful to Ian for the time he took to answers our questions. In exchange for his time, we offered him to baptise this new series of posts, and he offered the title “The Friday Slot” that appears on top of this post.
Question 1: “Oscar” of the best competition law book? And of the best non-competition law book?
The shortest and simplest book is by David Edward and Bob Lane: “European Community Law: An Introduction”. Competition law is not complex, though it can be made sophisticated. Proper analysis of the realities of the marketplace is where everything should start.
The items of competition law literature which I most regularly use are the reviews of competition law in the Oxford Yearbook of European Law since the first volume in 1981. Francis Jacobs was the first editor and for about fifteen years Chris Norall and I squeezed the juice from every development. We tried to avoid accepting the official propaganda and to enjoy advancing our particular theories. Then the reviews went through a period of being too comprehensive and too lengthily thorough, but now we are back on a good rhythm. The reviews are lively and opinionated, and you can disagree with them, but they ought not to be boring. Writing them has been hugely instructive for my colleagues (jacquelyn Anthony , Makis and a platoon of other talents) and me, a great way of learning, digesting and explaining. I often use the OYEL review as a way of reminding myself of what was important in a case. Sometimes that matches conventional wisdom and sometimes it doesn’t.
Question 2: “Oscar” of the best case-law development in the past year? “Oscar” of the worst case-law development?
The Oscar to the best case-law development could go to the Swiss watch parts case, where the Court overturned a Commission refusal of a complaint and took us back to simpler times when small folk could look to the protection of the competition rules. It is very rare for such challenges to succeed and the Court did a really careful job in writing its judgement.
Question 3: Let’s do it like economists => assume that you could change 3 rules, principles, judgments, institutions in the current EU competition system. What would you do?
Criminal liability; proof beyond a reasonable doubt; and judicial review as ferocious as the House of Lords.
Question 4: Average working time/week?
Excessive! I travel a lot, and when I am away the e-mails multiply, as do the messages from editors wanting manuscripts. But I am not complaining. It is fun to do interesting work in interesting places.
Question 5: Why do you work in competition law? How did you first get into it?
By accident. I was a customs specialist, then made a complaint for a friend’s uncle against a whisky producer (differential pricing): Bulloch/Distillers Co. Ltd. That was my first case in Luxembourg. Lord Bethell was the next, about the rights of complainants. Others followed. I never studied competition law, or indeed EEC law, at university, an educational void which is unlikely to be remedied. Read the rest of this entry »
Slides Evening Policy Talk – Bill Kovacic
Bill Kovacic was our guest yesterday at the GCLC.
He gave a superb presentation on the measurement of competition authorities’ performance. In so doing, he confirmed that he is the n°1 speaker on the conference circuit. A great speaker + a pure entertainer.
I attach his slides below.
A quote: in response to a question on why the CAs were so ineffective at communicating that they work in the public interest “we are in the business of instability”
Random News
Oops, the General Court did it again… Last week in EFIM v. Commission, the Court confirmed the Laurent Piau case-law: a collective dominant position under Article 102 TFEU covers situations of tacit collusion (here labelled, “tacit coordination“) and hinges on proof of (i) detection opportunities; (ii) retaliation mechanisms; and (iii) absence of countervailing power of actual and potential rivals. Interestingly, the Court made no reference to the notions of “collective entity“, “correlation factors” or “economic links“, used in previous cases. A welcome ruling. Yet, much remains to be done in relation to the concept of abuse of collective dominance.
A great hire by Compass Lexecon: Prof. Jonathan Baker just joined them as Senior Consultant. Prof. Baker has been the Chief Economist of the FCC and the FTC. But to me, J. Baker is one of the first economists who articulated a workable theory of unilateral effects in merger cases. For more, see his article with Timothy F. Bresnahan entitled, ” The Gains from Merger or Collusion in ProductDifferentiated Industries”, 33 J. INDUS. ECON. 427 (1985) and see link here (and in particular footnote 15).
On 12 December, the Brussels School of Competition will host a half-day conference on the proposed reform of Belgian Competition Law. See here for the programme. My assistant Norman Neyrinck and my friend Laurent de Muyter will speak at the conference. I cannot wait to listen to them.
An unconvenient truth: it is technically wrong to say that the default of a Eurozone State would trigger the end of the € as a currency. On this, journalists tend to oversimplify. Unless all failed States opt out of the Eurozone, the € will stay in business. And by the way, a defaulting State does not necessarily need to exit the Eurozone. True though, defaulting States may be tempted to exit so as to engage into competitive devaluation, and regain growth in the mid-term.
Finally, because I love self promotion, and also for my fan club – Alfonso, pls forward this asap to your colleague – a picture of me with a Chinese official who attended a lecture on EU competition law in Brussels 15 days ago.
Do economists do it with models?
Things are busy at work, and I just remembered that I told Nicolas I would take care of posting something today. When such things happen we generally resort to either (a) announcing a conference; or (b) posting a quick joke.
In this case, if I had chosen a) the post would´ve looked too short; but if I´d chosen b) I would be missing an opportunity for self promotion to announce an interesting event. Solution: let´s do both:
(a) Conference announcement: As anticipated last week, Giorgio Monti has put together a most interesting workshop that will be held next Tuesday (6 December) at the European University Institute. The program -which features Giorgio Monti (EUI), Saskia King (LSE), Luis Ortiz Blanco (Garrigues), Eric Gippini-Fournier (European Commission´s Legal Service) and myself- is available here: What is happening to Article 101 TFEU?
(b) Joke of the day: Economists don´t do it with models. The picture above (which I first saw in a ppp by Fréderic Jenny at Fordham last September) stands for the proposition that economists do it with models “because there´s no shortage of demand for the curves that they supply“.
Nonetheless, as you all know, economic theory can be used to defend one thing and its contrary. That is why there´s an alternative economic theory that explains why economists don´t do it with models. If you want to know about it, click here.
Antitrust Compliance
The European Commission has just released a brochure entitled Compliance matters: What companies can do better to respect EU competition rules.
The foreword says that companies should “[l]ook at this brochure as a road safety brochure ahead of the holiday period“. Many of the companies reading this will be certainly comforted by the irony positive thinking underlying the reference to the holiday period ahead.
In essence, the Commission´s document contains the following messages: (i) breaching competition law isn´t cool and naughty companies can be punished; and (ii) companies should have tailor-made compliance programs.
When I received the brochure this morning I was curious to read the Commission´s advice on how firms could stay out of trouble. After a quick skim, I see that the closest to constructive advice on substantive matters is this profound passage:
“DON´T fix purchase or selling prices or other trading conditions; DON´T limit poduction, markets, technical development or investment; DON´T share markets or sources of supply; DON´T exchange individualised information on intended future prices or quantities or other strategic information.”
I have the feeling that most of the readers of the brochure already had some kind of intuition that they couldn´t do such things. Moreover, some of that advise is rather hard to put in practice (e.g. “limiting investment” : could bank’s refusal to grant credit be considered a breach of competition law?; “limiting production”: shall a company make some more of this product that isn’t selling too well?; “limiting a market”: how does one limit a market? ).
In any case, and leaving easy jokes aside, the Commission must be applauded for its attempt to foster a compliance culture. Other competition authorities such as the OFT and the Autorité de la Concurrence should also be commended for their efforts on this area. Moreover, the Commission has provided much general guidance elsewhere and it cannot be expected to do so on a brochure like this.
In fact, the message about the need for companies to have an effective and tailor made compliance program is welcome and important. The brochure basically sets out the fundamentals of compliance program design, and whereas it does not say anything groundbreaking it does a good job in explaining the basic stuff.
The Commission doesn´t seem to contemplate further incentives such as fine reductions for companies with established and appropriate compliance programs. The French competition authority has proposed fine reductions, but on an ex post basis and only in the framework of settlement proceedings. But why not take a bolder step? I tend to understand those who argue that it doesn´t make much sense to reward firms that have breached the law ignoring such programs, but what about those cases where the company has a clear policy and intention of complying with the law, but one or a few “rogue” executives act on their own? (we all know many instances where this has been the case). It all would come down to assessing what standard the firm had set and whether it complied, as a firm, with that standard. This point was also made by D. Geradin (with the support of J.Wileur and D. Malamataris ) on an interesting recent paper. Companies should not be rewarded for breaching the law, but it would be fair to limit the damage when it can be shown that a given company has done everything it could.
At the end of the day, the content of the Commission´s document is ok given what can be expected from a non-specialist brochure from the Commission. What is more worrysome is that I have seen (more than once) very similar “brochures” which had been sold to companies prêt à porter (not tailor made; i.e copy/paste jobs) and at ridiculous prices. I´m currently working on a couple of compliance programs, and, to be frank, general and vague programs aren´t useful for the companies nor for lawyers (unless billing is considered to be the sole parameter). On the contrary, ad hoc programs adapted to particular firms and markets are extremely useful for firms as well as extremely interesting for lawyers, since we get to be in touch with a wide array of strategies and practices in many different markets. A subversive thought springs to mind, shouldn´t clients also draft some compliance programs on professional service standards for some law firms?
From theory to practice
In the antitrust field, Prof. Barry Nalebuff will remain to posterity for being the one guy who challenged the caricatural Chicago view that there can be no exclusionary bundling (the “single monopoly profit” theorem).
But beyond this, he may also remain to posterity as being one of the founders of Honest Tea.
Turning business theory to practice, Barry Nalebuff co-founded a company that “creates and promotes delicious, truly healthy, organic beverages” (sic!).
Apparently, the idea came out of “a class discussion that involved a Coke vs. Pepsi case study“. And since then, they have achieved a truly impressive penetration on a market usually depicted as a fortress, given high barriers to entry.
With this background, Alfonso and I are currently contemplating a potential move on a less healthy, but equally delicious market segment of the drinks industry.
Very many thanks to my LLM student Stéphanie de Smedt for the pointer.
Antitrust litigation over the .XXX domain
An interesting piece of news was left out yesterday: an adult website company owner has filed an antitrust lawsuit against the International Corporation for Assigned Names & Numbers (ICANN) contending that website owners are “forced to pay excessive fees for .XXX defensive registrations” that may have little or no value.
We suppose you may not be aware of this, but the landrush period for the .xxx domain has been running since 8 November and until 25 November. General availability will commence on 6 December. This means that many companies are right now engaging in defensive registration in order to preserve their image by avoiding third parties from, for instance, registering a web with their brand name under the .XXX domain. As you know, that also happens often with regard to less problematic domains such as .com .net or .org. Why? One example: if you click on www.whitehouse.gov then you´re directed to where you want to go, but check out what happens if you click on www.whitehouse.net .
Antitrust concerns in relation to the ICANN aren´t new. Back in 2003 Professors Frookin and Lemley argued that the ICANN and its policies were contrary to antitrust law (Click here for their interesting paper ICANN and Antitrust).
The full case docket and legal filings are available here.
Chillin'Competition 