Archive for December 2012
7th Junior Competition Conference – Private Actions
Our friends David Bailey (Brick Court Chambers), Christopher Brown (Matrix) and Sarah Long (Allen&Overy) are throwing a nice antitrust conference in London on 25 January 2013. We repost hereafter the cover email they sent us:
The 7th Junior Competition Conference
Reforming private actions in competition law
at the Competition Appeal Tribunal
on Friday 25 January 2013 at 2:00 pm
This conference is open to all those involved in UK competition law, economics and policy, whether in practice, in public service or in academia. Admission to the conference is free. The conference programme can be found here
As in previous years we anticipate that demand will be very high. Places will be given on a ‘first come, first served’ basis: for those interesting in coming, please contact us as soon as possible at operations@catribunal.org.uk.
Due to the popularity of the event and capacity constraints, please note that the following conditions apply:
- Attendees should be “junior” in the sense that we do not anticipate attendance by partners of law firms or economics consultancies, senior barristers, senior officials in public service or senior academics.
- To ensure that there is a good cross-section of the junior ‘competition community’, we may have to limit the numbers of attendees from any one organisation.
- If you are given a place and subsequently discover that you are unable to take it up, please could you notify the organisers as soon as possible, so that we may give your place to someone else.
Breaking news – Chillin’ leaks
Following the political turmoil caused by Mario Monti’s announced resignation, and in order to achieve a compromise solution to Italy’s political deadlock, Silvio Berlusconi has been nominated as the new Italian Judge before the European Court of Justice.
In a press release issued a few minutes ago, the Italian Government states that:
“Berlusconi is the ideal candidate for the job: there is no other Italian citizen with more experience in Court proceedings, and his contribution to European criminal law is beyond question“.
Chillin’Competition has learnt that Mr. Berlusconi has already initiated the recruiting process for his new clerks. We have had exclusive access to a picture taken outside the villa where the interviews are being held; the picture conveys the sense of excitement and urgency prevalent among candidates to the job (see here).
The content of the tests remains confidential, but our sources tell us that there will be no written part.
Chillin’Competition’s Christmas contest
This is obviously a joke, but it’s also the opening post for a new game. Some of you certainly are (or should) be familiar with sites such as The Onion (Spaniards woud rather follow Elmundotoday). We want to play after them. That’s why we are setting up a contest for the funniest competition law fake news 😉
We are giving out a special pack of Christmas delicacies from my family’s bakery to the person who sends us the funniest fake news. We donñt care about length: they can be one page, one line, even just a headline could do the trick.
We’ll hold a public vote next Friday.
You can get some inspiration from some of our previous fake news, such as: Reactions to the endives cartel; The post of a fresh summer day; or An Antitrust Challenge to God.
Antitrust Clone? Or Why the Google case is Stronger than the Microsoft Case…
Despite intense media coverage, little has filtered on the content of the EU Google investigation.
That said, the fragments that leaked in the press led me to draw a puzzling analogy: would the ongoing EU Google case be a rerun of the Microsoft tying cases (2004 and 2009)?
Take a look: in Microsoft, the Redmond giant was accused of using its dominant facility – Windows OS for PC – to preferentially distribute related softwares – WMP and IE – and exclude rivals from those later markets. And this strategy could work effectively because consumers are lazy animals often satisfied with default or automatic settings. For various reasons – which included barriers to searching, choosing, and installing a competing software which could stem from a lack of technical skills or simply because of hassle costs – the Commission explained that users only rarely looked for better alternatives. This phenonemon had been labelled “end-users’ inertia“. For more on this, see my paper with my assistant N. Neyrinck.
Now, the search discrimination allegations levied against Google look strikingly similar. To frame them simply: Google seems accused of using its dominant facility – its well-known search engine – to preferentially display links to related services – Google maps, Google News, Gmail, Google Finance, Youtube, etc. – and exclude rivals from those markets. Interestingly, a key aspect of the theory of harm seems based on the fact that users disproportionately click on the first links displayed by Google’s search engine, and only rarely click on links that rank lower (see chart below). In other words, search users are also lazy creatures who fail to compare the full range of alternatives displayed on the screen. A study found on the web suggests that 94% of users click on a first page result and less than 6% actually click to the second page and selecting a result displayed there.
But, there’s a key, critical difference between the two cases. In so far as the Microsoft case is concerned, offering pre-installed related softwares was a natural business strategy for MSFT. After all, the OS and related sofwares – which came for free BTW – are complements. The pre-installation of such softwares enriched the functionality of the OS, which was in the consumers’ best interest. This argument, which has been made time and time again ties in with the traditional shoe&laces/car&radio metaphors. But what is more is that in the browser case, the pre-installation was a necessary evil. Absent a readily available Internet browser, consumers indeed could not access the Internet and in turn download competing software. Now, some may counterargue that the problem stemmed from the fact that the pre-installed softwares were Microsoft’s own products. But how could it be any different? Given the number of complementary softwares running on an OS, and the myriad of alternatives for each software, it would be all to weird, and possibly unworkable, to enjoin dominant software companies to pre-install competing products on their own motion: how to select them? in what range? on what terms?
In the Google case, however, the preferential ranking of Google’s related services is NO natural business strategy. Rather, the allegation concocted by the complainants, and possibly endorsed by the Commission, is that Google artificially fiddles with its algorithm to display links to its own related services on top of search results pages. In the “but for” search engine world – i.e. absent algorithm manipulation – Google’s related services would not systematically over-rank competing services (yet consumers would still enjoy links to complementary services). Contrary to Microsoft, there is here no clear objective, natural justification to what Google is allegedly doing. This, in my opinion, makes the Google case different from, and possibly a tad bit stronger than, the Microsoft case.
PS: With this background, I feel a sense of compassion for Microsoft’s lawyers. Since 2004 and 2009, they must be in real trouble, trying to understand how, and to what extent, complementary softwares can be pre-installed on Windows.
On Beer and Competition
There’s competition policy everywhere (Alfonso was there before BTW).
Last Saturday, at the Grain d’Orge – in passing, the best blues music bar of Brussels – I was confronted with a real-life example of a deadweight loss.
Orval, the famous brewery that produces the eponym Trappist beer is currently reducing, and in some cases has stopped, supplying domestic Belgian retailers (i.e. bars and other retail channels).
The explainer: Trappist beers are a very trendy export product. They now sell at comparatively higher prices in big metropolis like New York, Hong Kong, etc. Orval, which is reported to have fixed short-term capacity, has therefore decided to prioritize supplies towards high price, export markets, and to limit quantities sold in Belgium. Belgian bars and restaurants, whose reservation price still remains superior to Orval’s costs, are thus excluded from consumption as in the textbook model of monopoly pricing.
Interestingly, it seems that some quantities of Orval can be sourced on a secondary market, where bars with surplus resell to other bars.
Is this refusal to supply akin to unlawful abuse? Undeniably, a funny question, which could be an exam topic for my LL.M students. Market definition on such a highly differentiated product market is not straigthforward. And whilst this type of refusal to supply does not seem to fall within the good old ‘essential facilities‘ doctrine, it has exploitative effects which in theory are caught under Article 102 TFEU.
Career advice
No gym in 3 weeks; no free weekends in a few months (a bit of an exaggeration, but whining goes with the profession); quite few after-work beers, and then Mark English and Sarah Ashall send me this….thanks for the advice!
Btw, if you have 5 free minutes I would very very much recommend you to read this: How will you measure your life?
ECJ’s Judgment in Case C-457/10 P Astra Zeneca
[There are too many things going on this week on which we would like to comment (not least yesterday’s record fine in the CRT cartel) and we hear that next week may be even more interesting… We had another post planned for today, but current news rule, and we wanted to provide you with the first comment of today’s Judgment in AstraZeneca. So, here’s a subjective and hastily written summary + comments. It might be a living-post, meaning that it might be updated as further thoughts come to mind. Anyone who might want to use this to draft client alerts: please consider this as a Sint Nicholas gift 😉 ]
It could make sense to hold a ménage à trois discussion on this Judgment; candidates are welcome…
Today the European Court of Justice (“ECJ”) issued its long-awaited Judgment in the AstraZeneca (“AZ”) case. The ECJ has upheld the 2010 Judgment from the General Court, which in turn had endorsed the Commission’s 2005 infringement decision.
Background
As most of you know, the Commission had found that AZ abused its dominant position by (a) making misleading representations to patent offices of several Member States with a view to extending the period of patent protection for its product Losec (an omeprazole-based medicinal product used in the treatment of gastrointestinal conditions); and (b) requestintg the deregistration of market authorisations for Losec capsules in Denmark, Norway and Sweden. These conducts were ultimately aimed at keeping manufacturers of generic products at bay, as well as at preventing parallel trade.
In 2010 the General Court dismissed most of AZ’s arguments, but reduced the fine from € 40.25 million to € 12.25 million on the grounds that the Commission had not proved that AZ’s conduct had prevented parallel imports of Losec in Norway and Denmark. AZ appealed this Judgment, and in doing so brought before the ECJ some issues which are of crucial relevance to the very notion of abusive conduct.
Today’s Judgment
– Market definition is discussed in paras. 31-60. I had started to summarize it, but it would take too long. Unless you represent AZ you can skip (lots of factual stuff, there’s nothing that will rock your world)
– The first abuse
The logic in the GC’s Judgment was that AZ deliberate (intention plays a key role here) submission of misleading information to public authorities with a view to obtaining the grant of an exclusive right to which it was not entitled falls outside the scope of competition on the merits, and therefore within the category of abusive conduct.
AZ and EFPIA argued that AZ had simply failed to disclose to patent offices its bona fides and allegedly reasonable interpretation of the patent rules, and that this could not be equated with “objective misleading”. In their view, even if AZ’s interpretation ultimately proved wrong, it was not aimed at misleading. The applicants claimed that pursuant to the GC’s standard, dominant companies would have to be infallible in their dealings with regulatory authorities, which, in turn, would impede and delay patent applications in the EU. [i.e. the basic trick of trying to scare the Court alleging that hell will break loose; as if it had since the Decision was issued in 2005….]
The ECJ’s Judgment -like the GC’s- is solidly grounded on Hoffman la Roche’s rather unhelpful definition of abuse as conduct different from “competition on the merits”. It does not require the abusive conduct to flow directly from the exercise of the undertaking’s dominanat position; on the contrary, it assumes that the presence of a dominant company already implies that the degree of competition in a market is hindered (the clearest formulation of this idea appears in para. 150, with respect to another ground of appeal), and that therefore it has a special responsibility to ensure that competition is nor further undermined.
The ECJ does a good job in setting out the objective reasons why AZ’s conduct was consciously motivated by the desire to mislead public authorities in order to maintain its dominant position (see paras. 79-93). The Court notes in paras. 94-100 that if AZ’s interpretation had been reasonable (as AZ claimed), then it should have disclosed the relevant information informing its interpretation (the Judgment doesn’t put it this way, but the idea seems to be that the intentional failure to disclose that info provides a valuable indication of the merits that AZ seemed to attribute to its own reasoning). Para 98 makes it clear that even if you have a “legally defensible interpretation” this is not excuse resorting to highly misleading representations with the aim of leading public authorities into error.
In para 99 the Court responds to the “hell will break loose argument” (see my second word crossing above) stating that the GC did not require infallibility in patent applications (“it thus cannot be inferred from that Judgment that any patent application made by such an undertaking which is rejected on the grounds that it does not satisfy the patentability criteria automatically gives rise to liability under Article 102“), and that the Judgment is confined to the specific circumstances of the case. There’s a difference between requiring infalibility and reprehending someone who obviously and intentionally fails to act right.
The Court then deals with the argument that AZ’s conduct (its apliccation for SPCs) was labelled as abusive regardless of its lack of effects. It states that the “examination by the General Court is not in any way based on the assumption that the practice in question constitutes an abuse in itself regardless of anticompetitive effects” (para. 106). The ECJ confirms that AZs misleading interpretations were liable to lead the public authorities to grant it a right to which it was not entitled, and that this in fact happened in several Member States (paras. 107 and 108). In para. 110 the Court makes it clear that even if the effects of the abuse were also felt at a period in which AZ was not dominant anymore, this is irrelevant for the assessment of the legallity of a practice carried out while AZ was dominant. The Court also upholds the GC’s conclusion that AZ did not achieve its goal in some Member States its conduct was “very likely to result in the unlawful SPCs” (para. 111).
The ECJ makes it cleat that in Art 102 cases there is no “requirement that current and certain anticompetitive effects be shown“. Citing para. 64 of TeliaSonera the ECJ states that “although the practice of an undertaking in a dominant position cannot be characterised as abusive in the absence of any anti-competitive effects on the market, such an effect does not necessarily have to be concrete, and it is sufficient to demonstrate that there is a potential anti-competitive effect” (para. 112) (unlike in TeliaSonera, there is no reference to the exclusion of “as efficient competitors”, but this is probably due to the different factual settings in the two cases).
Happy!
Until recently, I ignored that the Court was turning 60.
A book was published on this occasion. I had the great honour of being invited to write a paper in it.
There was also a formal lunch yesterday in Luxemburg. And I must say I have been quite lucky in terms of seat placement. My immediate left neighbor was Rafael Garcia Valdecasas y Fernandez, who was the ‘juge rapporteur’ in Airtours. And just on my right, Advocate General Juliane Kokott, who writes most opinions in competition cases…
For a competiton geek of my kind, this was clearly the best lunch I could think of.
Live Coverage of Conference on Fines (Fourth Panel)
We move on with a last panel on the relationship between EU and National enforcement in relation to sanctions.
Christophe Lemaire (Paris I and Ashurst) gave a comprehensive presentation on the process of convergence in terms of sanctions and, more generally, on procedural and institutional settings in the EU. And the list is impressive, as Member States seem to informally or through the ECN be working on how to streamline their approaches to sanctions. A working group related to sanctions was apparently created a short while ago in the ECN, but the timeline for the deliverables remains uncertain.
Eddy de Smijter (DG COMP, EU Commission) talks of the interplay between public and private enforcement. Eddy made the funny remark that it is currently “sales period” at the Commission, with rebates for leniency, for settlements, etc. Some want additional presents, such as reductions for compliance programmes and for voluntary compensation. But a key concern is that this is likely to reduce the gap between the n°1 and n°2 leniency applicants, and this is no option for the Commission. Moreover, if the Commission is ever to extend such rebates, this is likely to further decrease fines for everyone, on grounds of non discrimination. Then Eddy mentions in passing the theoretical debate, that exists in the US, that compensation could be a condition for leniency. He then moves to the question of what can be adjusted in leniency programmes to promote compensation. The idea of a “civil mirror” looks attractive to would be applicants: you get immunity at the administrative stage, you get it in the context of civil litigation for damages; you get fines reductions at the administrative stage, you get similar reductions in terms of damages at a later stage. Or another option is to state in the law that leniency applicants are to be the last resort defendants in claims for damages. A third option is that if you go after the immunity recipient in civil damages, then the immunity applicant should not be jointly and severably liable for the damages with the other cartel participants.
Eric Morgan de Rivery covers the Menarini case. His presentation speaks for itself. There should be, after Menarini and KME-Chalkor, full review. But he doubts the EU Courts are willing to move beyond words on this, and he argues that if the Court state that full review is actually discharged, a close examination of the facts reveals that it is not.
Christophe Lemaire – Interplay between EU and National Enforcement [Mode de compatibilité]
Eddy de Smitjer – Impact of the public-private interplay on fines [Mode de compatibilité]
Eric Morgan de Rivery – Commission’s Fining Policy and the ECHR [Mode de compatibilité]
Live Coverage of Conference on Fines (Third Panel)
A nice lunch, and we are back on track.
We start with Cédric Argenton‘s (TILEC) presentation. Cédric seeks to identify a system of penalties that achieves optimal deterrence considering that firms are akin to black boxes, in other words that the management board has little control over what managers actually do. But they can design compensation schemes that seek to incentivize managers ex ante. With this background, Argenton and Van Damme build an economic model that tries to assess how individual managers will behave, considering that they know that the management board has imperfect information over what they actually do. They explain that manager have three options: do nothing, achieve high profits by cutting costs, achieve high profits with collusion. The conclusions they reach in their paper are that individual sanctions are a very good way to increase the optimality of the current sanctioning mix. They are actually a “help” to firms that attempt to comply with the law. But individual sanctions should not come alone. They should also be accompanied by corporate sanctions. Cédric and Eric’s economic model is currently undergoing experimental testing at Tilburg university. Looking forward to read their empirical results.
The following speaker is Stefan Thomas (Tubingen University). His speech is essentially about the “single economic entity” doctrine. According to Stefan, this doctrine is in plain contradiction with the principle of personal liability, as protected by several constitutional rules and international instruments. The German supreme court actually recognized this. Moreover, this doctrine is also injurious of another fundamental principle, i.e. “nulla poena sine culpa“. Stefan also takes a shot at the inconsistency of not entitling the companies to rebutt the parental liability presumption, simply by showing that they have not known or that they have not participated to the infringement. Stefan says that the Commission should assess if the parent firm has done everything possible to avoid infringement. If this is the case, this should exculpate it from liability, or mitigate it, under the competition rules.
The third speaker is Anny Tubbs (Unilever). To her, no one is perfect and a fortiori, no company is perfect. Agencies should recognize this rather than using sabre-rattling words to talk of competition infringements. Anny then goes on to explain what she views as necessary components of an effective compliance programme. In this context, I advise the reading of the slides, where there is a nice one on the 5 Cs of a good compliance programme. She also explains the internal hurddles within companies to establish competition compliance programmes. Competition law is not the sole area of law where compliance matters. Money laudering, corruption, personal data, etc. are all areas where compliance is critical. In house lawyers from the same company, but representing distinct disciplines thus often compete to convince management to allocate compliance resources towards them. Anny also indicates that lawyers are often their worst ennemies when it comes to compliance, because when they talk to salesmen, they use words that are so complex that no one ever wants to listen to them. This makes it important for in house lawyers involved in compliance to develop clear and simple messages at the attention of businesses.
A recurring issue in the presentations was the parental liability doctrine.
Very fortunately, a Commission official who was sitting in the room accepted to make some remarks (in personal capacity).He first vindicated that compliance programmes are, at any rate, a good thing, and that there is no need for additional discounts because those programmes (i) diminish the risk of infringement in the first place; and (ii) decrease the duration of infringements with efficient self reporting mechanisms.
He also gave some thoughts on parental liability, being supportive of AG Kokott’s opinion in the Gosselin case. To him, parental liability is not a problem, because the mother company, even if it is very remote from the subsidiary, derives some profit from the cartel at any rate. In reaction to this, S. Thomas counter-argued that we had spent decades to build fundamental principles such as “nulla poena sine culpa“. Those are great progresses of the rule of law. They should not been thrown away, simply for the sake of designing an optimal sanctioning programme.
This led me to a puzzling analogy: to me the Gosselin’s Kokott doctrine is akin to sanctioning with criminal fines the heirs of criminals, simply because they have given birth to a delinquant, and that they may have profited from it through presents and other gifts. Unless those persons are actual accomplices (they have instructed or assisted to illicit activities), there should be no ground to blame them.
Cedric Argenton – Optimal Deterrence of Collusion in the Presence of Agency Problems within Firms
Anny Tubbs – Compliance Programmes Codes of Conduct and Social Responsibility
Live Coverage of Conference on Fines (First Panel)
Judge Ginsburg ( United States Court of Appeals for the District of Columbia Circuit) opens this session. In his view, the main flaw of current deterrence policy is to only seek to make cartels unprofitable for companies. But as long that it is not unprofitable for individuals to craft cartels, there will be cartels. What must be understood is that individuals profit from price fixing in ways different from corporations. The fact that individuals are compensated for divisional profits, regardless of firm’s performance when faced with cartel proceedings is for instance one of the things that keeps cartels creeping the economy. Moreover, there are many ways sanctions on individuals are mitigated by firms, thereby nullifying their potential deterrence (compensation schemes, etc.). Judge Ginsburg mentions for instance that some Korean firms re-hired businessmen involved in cartels, after jailtime in the US, and had taken care of family, etc.
His bottom line is that to do nothing against individuals involved in cartels makes no sense. Individual fines (monetary) are not a necessarily a good deterrent because they find a limitation in individual’s wealth. Jail sentences are probably the most deterrent penalty. Debarment is possibly a good thing, but it has no teeth against persons at the end of their career. It can also be wasteful to take away this human capital from society (but the same is true with jail). The focus of attention should thus be, in his view (i) on individuals (in particular on compensation scheme); and (ii) on what is the most efficient mix of sanctions. Finally, judge Ginsburg draws an analogy between firms and a whipping boy. Leave it to you to understand the parallel.
Andreas Stephan (East Anglia) opens with a note of disagreement with Judge Ginsburg, but promises to come back to this. He moves on explaining that the current “fines-only” approach of agencies is not the right one. Fines are not deterrent, plain and simple. And the debate on how to improve fines is dead in the water, given it is proven that optimal fining would lead most firms to bankrupcy.
Andreas’ second concern has to do with the protracted nature of antitrust investigation. All too often, this gives rise to the odd situation where the victims of corporate fines are the current shareholders, employees and consumers (through fines being passed on) of a company, whilst employees responsible of cartels are often no longer in business, and immune from any penalty. Andreas also makes an interesting point on economic studies that show that share valuation decreases when investigation are announced, but increase when investigation are closed with an infringement decision. According to him, this means that capital markets worry more about uncertainty than about sanction.
Andreas also points out that most supporters of criminal sanctions cite the US as an example of an efficient system. But what people ignore is that most such cases in the US are settled and not brought to an end. In fact, if the US have been so successful at running criminal antitrust cases, it is because they have a system of plea bargaining. We dont have any such thing in the EU, and if we had, it may not pass the bar before the ECHR.
Finally, Andreas mentions Director Disqualification Orders, which although in existence in UK law have never been enforced. And one of the problems with the UK regime, is that it only applies to Directors, and to Directors registered in the UK. Now, with the EU internal market, this can be easily circumvented, with UK firms appointing Directors in Belgium or elsewhere. Andreas concludes on the Commission’s reluctance to even initiate discussion on individual criminal sanctions. But this evolution is already taking place in the MS. In his view, the Commission should use the ECN to start this dialogue.
Tom Barnett‘s (Covington and Burling) speech’s is about differences between US and EU antitrust enforcement. He explains generally that what agencies try to do is to bring change in business culture. He talks about the growing awareness that cartel participation is risky. The main difference with the US, however, is that this evolution has taken place earlier there. In the EU, the evolution of business culture has been way slower. In the remaining of his speech, Tom focuses on more specific points. On compliance programmes, he recalls the audience that enforcers face the problem of separating wheat from chaff, i.e. what is a genuine compliance effort from a sham compliance policy. That said, Tom finds a genuine merit in compliance programmes (even sham ones it seems), which is to help educating business to antitrust risk. Rewarding them with some discounts on fines many thus not necessarily be a bad idea. His other important point is that the timing sanctions are imposed is important. Sanctions are adopted more quickly in the US than in the EU. In his view, it is important to speed up the fining process. First because, the closer to the facts the penalty, the more certain its deterrent effect. Second, because corporations need to move on and return to business quickly.
The final speaking slot goes to our good friend Luis Ortiz Blanco. Luis draws an analogy between antitrust fines and Rubens’ massacre of the innocent. This point, which ties in with Andreas’ Stephan presentation, is that the current fining policy harms many innocents, i.e. current employees and shareholders, whilst leaving managers unscathed. In turn, his presentation explores alternative ways to deter competition infringements. Luis makes a good point on The ECtHR in Menarini. The EU judicial review system may well pass the Menarini standard. But should we aim for a bare pass, or should we aim for the best possible, Nobel prize winning, system of judicial review. This point will be further elaborated in a forthcoming paper with Mark English. Luis then goes on to elaborate on a possible asymetrical administrative procedure in competition cases, with several types of proceedings available in distinct types of cases. His presentation, which was both hilarious and creative, is available below.
Andreas Stephan – Should Individual Sanctions be Part of Deterrence Efforts [Mode de compatibilité]
Ortiz Blanco – Ways in Which the System of Sanctions can be changed
Chillin'Competition 
