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Archive for November 26th, 2012

Ménage à trois (part III; Makis Komninos): Case T-169/08 PPC v Commission

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This third part of our inaugural ménage à trois discussion on the Greek lignite Judgment features  (see part I and part II ) another good friend of this blog: Assimakis Komninos. Makis is a great guy, a partner at White & Case, and was a successful co-counsel in the case we’re they are discussing, so he was an obvious candidate for our triad of guests. As you will see, Makis sides with Marixenia Davilla in praising the Judgment. In doing so, he replies to José Luis Buendía’s more critical views.

To illustrate Makis’ post we have chosen the image of another famous lignite-related (look at gift in the middle) ménage à trois.  🙂

First of all, it is such a great pleasure to be invited to comment on the Greek lignites case. I should disclose at the outset that I represented, as co-counsel, the Hellenic Republic in its intervention in support of PPC during the written proceedings stage.

My personal view is that the General Court did the right thing and annulled a decision that was going a step too far. There is no doubt also, in my view, that the Commission was using this as a kind of “test case” against a carefully selected target.

The intellectual starting point is, I think, the very nature of Article 106 TFEU. This is a rather curious provision and I certainly agree with José Luis that it is essentially about State measures, but the sure thing is that the Treaty fathers wanted to give it a carefully circumscribed scope. A systematic interpretation of the Treaty does not support that there is general prohibition of all State measures that may – even indirectly – impact on competition and business activities. Article 106 TFEU restricts the behaviour of Member States only by reference to the scope of some other Treaty provisions, such as Article 102 TFEU. This is the provision that the Commission chose to rely on by reference.

Then, if one reads the Commission’s decision, one fails to see how Article 102 TFEU would come into play here, albeit by reference. Would the theory of harm refer to a leveraging abuse, to a refusal to supply, to a failure to satisfy demand (exploitation), to discriminatory treatment on the part of PPC? Not clear at all. The Commission thought that it did not have to specify this. By the way, I am not suggesting that in Article 106 TFEU cases, the Commission need to show anti-competitive effects etc. This is not what I argue. Instead, I submit that the Commission should be able to demonstrate with a sufficient degree of intellectual clarity that the State measures are connected with a specific kind of actual or potential abusive behaviour by the undertaking in question. This is all the Court says and I fully agree with Marixenia.

With respect, I do not agree that the previous case law gave the Commission leeway in not being obliged to identify a specific kind of actual or potential abusive behaviour. On the contrary, if we look at RTT and even Connect Austria, while we see references to “equality of opportunity” and to RTT’s “obvious advantage over its competitors”, that by no means leads to the conclusion that the mere existence of inequality of opportunity is sufficient for an Article 106 TFEU violation. In both cases, the Court spoke about specific anti-competitive phenomena. In Connect Austria, the problem was that the undertaking in question was allowed (through the inequality of opportunity) to expand its dominant position onto a related market and, in RTT, the Court is very clear and explicit as to the kind of abuse of dominance that was at stake: “an abuse within the meaning of Article [102] is committed where, without any objective necessity, an undertaking holding a dominant position on a particular market reserves to itself an ancillary activity which might be carried out by another undertaking as part of its activities on a neighbouring but separate market, with the possibility of eliminating all competition from such undertaking”.

In the PPC case, the Commission seemed to build its case on the grounds that PPC’s lignite rights are not sufficiently counter-balanced by significant deposits of its competitors, even though lignite is not an essential input to compete downstream. I am actually being kind to the Commission, when I say this, because this theory is not clearly articulated within the txt of the decision. The Commission then identified a remedy: PPC’s competitors needed to gain access to 40% of the total exploitable lignite reserves. In a nutshell, the Commission was seeking to use competition law to unbundle the Greek electricity generation market. However, this instrumentalisation of the law, in order to redesign a market structure, lacked both a legal and a sound economic basis. Moreover, it would lead to a dangerous precedent by permitting the Commission to attack market structures it dislikes by invoking the vague concept of “inequality of opportunity”.

The Commission misinterpreted the case law and its decision deserved to be annulled. I do not think this is the end of Commission enforcement under Article 106 TFEU, as some commentators have argued. It will only have to do a better job next time and articulate also a clear theory of harm that refers to an actual or potential abuse of dominance by a public undertaking or an undertaking with special or exclusive rights, as a result of certain State measures.

Written by Alfonso Lamadrid

26 November 2012 at 11:00 pm

Ménage à trois (part II; José Luis Buendía): Case T-169/08 PPC v Commission (… and Jules v Jim)

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For this second part of our first ménage à trois discussion we are proud to present you with José Luis Buendía’s view of the Greek Lignite  Judgment in response to Marixenia Davilla’s earlier post. Aside from being the head of Garrigues’ Brussels office -where I happen to work-, José Luis is widely regarded as “Mr Article 106”.  He also masters the art of illustrating all hiw views with metaphores and parables. Continue reading and you’ll see what we mean…. 

[For a contrarian view of José Luis’ arguments check our Makis Komninos post (which we will publish here tomorrow)].

It is a real pleasure to be invited to contribute to this blog. This is even more the case given the topic, the format, and the identity of my nice and learned counterparts – Marixenia and Assimakis. Even if I don’t share their enthusiasm about this judgment, it is clear that they have done an excellent job as lawyers. So, congratulations to them and to their colleagues who worked om the case.

Contrary to them, despite having been in the past an EC official, I have not had any involvement in this particular case. I am nevertheless very interested in it, since I am working on a new edition of my book on Article 106. Moreover as I have explained in a recent article, unfortunately there are not so many Article 106 cases to comment.  So I am glad to have this opportunity.

This case made me think of François Truffaut’s film Jules et Jim about a genuine ménage à trois. The Catherine of the movie (Jeanne Moureau) had – simultaneously – a husband and a lover. As Marixenia rightly implies in her interesting comment, Article 106 also has simultaneous links with State aid on the one hand and with antitrust on the other hand. In my view the problem with the judgment is to assume that Article 106 is only married with antitrust and faithful to it. It is not. Article 106 is about State measures and is therefore essentially different from antitrust.

It is for this reason that, in my opinion, this judgment is not really consistent with the previous case law that it claims to be following. Indeed, previous judgments, like RTT, considered that the mere granting of an exclusive right to a public undertaking previously enjoying a dominant position was in itself contrary to Article 106 combined with Article 102 TFEU. This conclusion was based on the effects of the State measure creating the extension of a dominant position from one market to another one (effects that were similar to those of an abuse). The said conclusion did not require any actual abusive behavior.

In today’s judgment the General Court reads the previous case law in a different manner and finds that it does require the existence of an abusive behavior, at least a potential one. Since the EC decision did allegedly not established the abuse but relied only on the effects, it was according to the Court in breach of the Treaty. This reasoning seems to me clearly contradictory with the case law.

This reasoning seems also a little bit abstract. Indeed, the judgment itself concedes that the mere possibility of a future potential abuse would have been enough to satisfy the legal test. However, since according with the judgment, the decision did not explore this issue in an explicit manner, it had to annul it. It seems however obvious to me that a State measure extending the dominant position from one market to a neighbor one has, at the very least, the potential to lead to abusive behaviors. So, the Court seems to say that it is only the lack of an explicit reference to this obvious consequence that leads to the annulment.

I assume that the Commission may appeal the judgment before the Court of Justice in order to clarify the application of Article 106 with regard to special or exclusive rights. I also think that in the future the Commission should be more active and more coherent in the application of this provision.

In any event, I also know that my Greek friends would have a view different from mine, so I really look forward to the continuation of the debate.

Written by Alfonso Lamadrid

26 November 2012 at 6:28 pm