Archive for September 2013
The Case for some Formalism in Rules of Competition Law
Our economist friends often believe that legal formalism is useless.
I have personally complained about the bad influence that formalistic lawyers had in competition proceedings.
Now, “assume” an economist had written the Treaty rules on Competition. This would give something like:
- Article 101 TFEU: Anticompetitive coordination is unlawful.
- Article 102 TFEU: Anticompetitive foreclosure is unlawful.
With such loose rules, the economic cost of enforcing the law would skyrocket. And so would the economic cost of complying with the law.
The sole saving achieved would be the ink saved in printing and reprinting the Treaty.
Or why too little legal formalism is economically inefficient.
Twilight of the Idols
The Van den Bergh Foods case, aka the Ice Cream case, if often cited as one of the best Article 101 TFEU judgments ever handed down by the General Court.
Many praise its modern, unformalistic approach of vertical ties.
They like its focus on the economic magnitude of the foreclosure yielded by the freezer exclusivity clause.
I too have rallied this optimistic interpretation. In a case note published 10 years ago, I had laudated the General Court for its analysis.
As with novels, I should have applied the rule never read again.
Despite economic improvements in judicial reasoning, the Ice Cream judgment is fraught by several unfortunate logical shortcuts.
A quick reminder: the crux of the case was that Unilever, the largest player in the market (and the incumbent) had given freezer cabinets for free to retailers and forbidden them to store non-Unilever ice creams in those cabinets.
This, in the Commission’s view, yielded anticompetitive foreclosure, in particular in those shops where only one freezer cabinet could be stored because of space constraints.
Interestingly, the typical contract with retailers could be terminated flexibly, under a 2 months notice. Unilever thus made the rather convincing counter argument that as efficient rivals – those who could too offer cabinets for free – were not foreclosed from the market.
The GC and the Commission nonetheless based their case on the fact that despite open termination opportunities, there was a “reluctance” from retailers equipped with Unilever cabinets to terminate their contract. As a result of retailers’ reluctance, rival ice cream producers were harmed.
On cursory analysis, the “reluctance” story was reasonably plausible. But the problem is that the evidence adduced by the Commission and the GC to prove reluctance was quite weak.
Let’s take a look: the reluctance argument seems wholly based on the unproven assumption that retailers who would terminate their Unilever contract would no longer be able to procure Unilever products. Hence, retailers just decided to stay with the contract, as Unilever products were “must store” goods.
But on the facts, the decision and judgment did not exclude that retailers remained free to use a rival freezer and still procure from Unilever without terminating the contract in the first place. This, to me, is a major flaw of the decisions. Retailers could just have trashed the Unilever freezer or tell Unilever to recover it.
An alternative is that the Commission and the GC may have assumed that Unilever would have de facto stopped supplying it products to retailers using a rival freezer cabinet. But this would have been a stand-alone, separate infringement which would have deserved proof under the Brönner standard.
Surely, it may be that the Commission and the GC had in mind a “behavioral” reluctance theory, similar to those used in the Microsoft Media Player and Browser cases or in the ongoing Google investigation.
The idea would have been that retailers were content with their Unilever cabinet, and because of some statu quo bias or of hassle costs, they just reclined on changing freezers.
Again, however, no corroborating evidence of biases and retailers’ ineria appears in the decision and judgment.
A bit disappointing, for a judgment that has been elevated to the hall of fame of competition case-law. But overall, a good ruling.
Hiring
I am looking for a full or (or 2 half time) academic assistant(s), starting on 17 October 2013 at the University of Liege.
This position is for a period of one year.
If things go well, the contract may be turned into a PhD student position.
It offers teaching and publication opportunities.
If you are interested, please send me your CV at nicolas.petit@ulg.ac.be
The ultimate competition law quiz
It’s been quite a while since our last quizz (see here, here or here for some of them).
In a recent book review I wrote: “Ask most competition specialists about what a “restriction of competition” is and you will get a surprising variety of theories, and most likely some striking silences“.
So this is an empirical test. The question should be simple for anyone geek enough to read this blog:
WHAT IS A RESTRICTION OF COMPETITION?
The best one paragraph response wins. You can write your definitions as comments to this post. The one who gets the most “likes”/”thumbs up” by October 1st wins (and this includes both the blog’s homepage and the LinkedIn group.
This time we’re raising the stakes: instead of a round of beers, we offer to invite the winner of this quiz (+ a guest) to either lunch, dinner or an open tap of beers.
Low participation confirms my point (that’s a smartass way of turning this into a win-win situation) 😉
Android, Google and bundling: some follow-up thoughts
[By Pablo Ibañez Colomo (LSE)]
The following thoughts were inspired by Alfonso’s recent post on bundling allegations against Google. As usual, it is tightly argued and persuasive. I wish competition authorities took such points into consideration when assessing tying and bundling claims. My objections are of a different nature. The fact that I agree with most, if not all, of what he writes does not mean that his points would be conclusive or even relevant in practice after the Microsoft saga. More than anything, Alfonso’s post reminds one (or at least me) of the uncertainties that remain in the field of Article 102 TFEU even after the adoption of the Guidance Paper.
Alfonso starts by wondering whether the complaint brought by Google’s rivals involves a bundle in the first place. Following the GC judgment in the first Microsoft decision, I would be tempted to reply by saying that anything under the sun can be constructed as a bundle or, put differently, that the legal construction around third party claims need not make sense for Article 102 TFEU to apply. If a tying claim is valid even when nobody wants an operating system without a media player or a web browser, it probably follows that the plausibility of the bundling claim would not be – unfortunately, may I add – a conclusive aspect in the hypotheticals he discusses.
He goes on to argue that Google Play is not the only means through which one can download applications. I am sure more than a reader reacted to this argument in the same way I did. Could not one also claim that it is possible to download web browsers or media player and that the tying of these applications with an operating system are unproblematic as a result? Well, of course, but this fact did not prevent the Commission from taking action against Microsoft not once but twice. All that remedial action would require is an analysis of consumer behaviour allegedly inspired in behavioural economics (the flavour-of-the-month that I fear most, by the way).
If the above arguments are not decisive, we are left with the issue of foreclosure (the ‘everybody does it’ and the ‘business rationale’ arguments would not be relevant even before the wisest of competition authorities, as what matters in contemporary competition law, or so I want to believe, is not the motivation behind the behaviour, but its effects on the market). Besides the fact that foreclosure is plain irrelevant in tying cases according to the General Court, I will mention that, according to what I read the other day, Android’s market share is approaching 80%. This does not mean in any way that Android is dominant, let alone superdominant (and, again, very sensible arguments can be developed to show why this is not the case). But we all know strange things happen to law and policy when firms reach such market share levels.
What conclusions do I draw from the above? It seems to me that self-restraint is the only limit to the ability of the Commission to interfere with product design in high-technology industries. The second reflection relates to the behaviour of complainants. They cannot be blamed for taking advantage of the confusion created by the Microsoft saga around tying and bundling (i.e. for behaving opportunistically). One could even go as far as to claim that this saga created the expectation that the Commission will intervene when a firm’s market share approaches or exceeds 80%.
A true Belgian story
When did the new Belgian competition Act enter into force?
If you run a Google search most results (notably a few dozen law firm’s newsletters saying exactly the same things) will tell you that it did on September 1st, 2013.
Wrong answer.
You can’t blame them, though. On August 30th The Belgian official journal (Moniteur Belge) published a Royal decree providing that the new Act would enter into force on the first working day following the said publication (that is, on September 1st).
However, it seems that the Royal decree wasn’t really Royal, because no one realized that the King had not yet signed it (apparently he was on holidays, elephant hunting, or doing whatever it is that Belgian Kings do), and that therefore it was devoid of legal effects.
That’s why on September 4th a new Royal decree was published on the official journal stating that the publication of the previous Royal decree (actually there were two of them) shall be considered null and void (“il y a lieu de considérer la publication des deux arrêtés royaux susmentionnés comme nulle et non avenue. Ces arrêtés ont été retirés avant leur signature”).
And then, on September 6th, yet another Royal decree was published providing that the Act would enter into force on that very same day.
So, between September 1st and September 4th people thought that the Act had entered into force, when in reality that wasn’t the case.
We hear there were hearings held in those days in which lawyers were pleading on the basis of the new Act, but were told that they were misinformed.
True story.
Convergence Rule – A Spanish Example
The convergence rule of Regulation 1/2003 (Article 3(2) sets that:
“The application of national competition law may not lead to the prohibition of agreements, decisions by associations of undertakings or concerted practices which may affect trade between Member States but which do not restrict competition within the meaning of Article 81(1) of the Treaty, or which fulfil the conditions of Article 81(3) of the Treaty or which are covered by a Regulation for the application of Article 81(3) of the Treaty“.
Often, I have struggled to find concrete examples of such situations.
Our friend Miguel Troncoso Ferrer (Gomez Acebo Pombo) has offered us a very good illustration of this.
A recent amendment to the Spanish Hydrocarbons Act sets out a blanket prohibition of non-binding price recommendations in distribution agreements in the hydrocarbons industry.
This prohibition covers agreements below the 30% market share threshold.
It thus prohibits conduct which is covered by “a Regulation for the application of Article 81(3) of the Treaty“.
And this amendment purports to regulate competition (according to the Preamble of the new statute).
It thus violates EU law. The full analysis is available here: Analysis_On the compatibility with Eu Law of the new Section 43 A
In light of the Italian Matches case-law, publics authorities, national courts and firms can disregard this legislative provision.
@Alfonso: an apology. I did not mean to promote of a rival shop.
New job (2)
Nico just got a new job, as an advisor of the Belgian Competition Authority. Other good friends of this blog, like Laurent de Muyter and Charles Gheur, have also been appointed as advisors to the new authority:
This means that every once in a while Nico will now get to decide over real cases. 
!!
Now that he belongs to the authority I guess he won’t be able to comment academically about their cases, for there could be a conflic of interest… 🙂
Now seriously, congrats to Nico, Charles, Laurent and all other newly appointed advisors.
P.S. And yes, he did get a new car as well, but he doesn’t want to post the pic (I guess he’s afraid that his students will want to scratch it…)
Some thoughts on the new anti-Google (Android) complaint (Post 3/3): Bundling allegations
[This is the third post in a series; click here for Post 1 (on background + market definition), and here for Post 2 (on predatory pricing claims)]
Even though the allegations over the free distribution of Android have predominantly caught the public’s eye, the complaint also appears to argue that Android is a “Trojan Horse” (a non-innovative yet effective metaphor…) used to pre-load Google apps. According to FairSearch’s press release, “Android phone makers who want to include must-have Google apps such as Maps, YouTube or Play are required to pre-load an entire suite of Google mobile services and to give them prominent default placement on the phone”.
This is, at least at first sight, more interesting than the allegations about predatory pricing. Tying/bundling issues in the smartphone industry have so far received some attention from enforcers -remember the investigation involving Apple and Flash?- and academics, but not so much. And yet they raise antitrust questions that take the discipline outside of its comfort zone.
One of the problems with this leg of the complaint is that publicly available info is scarce and that some issues are fairly technical. So don’t take what we say for granted. This is no more than an exercise for me to brag about Enrique’s industry/technical knowledge to discuss a case in detail on the basis of knowledge that not everybody has (at least I didn’t), and that I thought was worth publishing here. At the very least it has helped me learn about the industry (for some odd reason I only reflect properly about things when I write about them…). As always, happy to discuss. Btw, the post is again lenghty because I haven’t had time to write a shorter one.
1) In search of the bundle
Our understanding is that Google does not preload its apps in Android (like Microsoft actually does, for instance, with Skype and SkyDrive in Windows). This means that OEMs are free to take the Android OS without having to pre-install any of Google’s Apps (for example, Amazon has done so with the Kindle, and so has Barnes&Noble with Nook; a number of other examples are mentioned here). Android’s code is publicly available here and all OEMs can do what they please with it.
If our understanding is correct, it’s only when OEMs wish to pre-load the Google Mobile Services suite (“GMS”) that they need to pre-install its “core-apps”. In sum, if OEMs want a non-Google Android experience they can have that. If they want a sort-of-Google experience on Android (i.e. if they want the GMS) then Google asks them to preload (on a non-exclusive basis: they can preload any others) a minimum set of apps. Accordingly, it’s difficult to argue that there is a bundle of Android+Apps; at most there could be only a bundle of apps.
[Intermission 1: It’s not easy to find out exactly what’s included in the GMS/ “core apps”. The references that we’ve found (page 12) seem outdated as, for instance, they refer to Android Market (now Google Play), Google Talk (now Hangouts) and call “apps” things that we understand are rather non-user facing services (like the service that synchronizes contacts or the calendar with the cloud)].
But is there really a bundle of apps? In order for “pure bundling” to exist it would be required that the components of the bundle are not also available outside of the bundle, but that doesn’t seem to be the case either. Most of the apps in the GMS can be obtained separately from the bundle and for free (that’s the case of Youtube or Google Maps).We may be wrong here, but we think that Google Play may be the only exception, or at least the only relevant one (on this, see our point number 2 below).
Finally, since OEMs’ decision will not be affected by any financial incentive on the part of Google (because the “core apps” in the GMS are all free of charge apps), there’s no mixed-bundling either.
[Intermission 2: in my view, and in contrast to this case, mixed bundling of proprietary non-free software by certain dominant firms can actually pose serious competition problems (due to the existence of market power, the ability to toy with monopoly prices, resale prohibitions, switching costs and higher barriers to entry) and nevertheless remains mostly unaddressed by enforcers, but that’s another story].
That said, the complainants may have a point in that most OEMs will in practice want to have the GMS (see below).
2) It’s all about Play
If any of the complainants were to read the reasoning above, they would probably respond: “sure, the choice for OEMs is theoretically there, but OEMs that choose Android would always want to have the GMS, because otherwise they wouldn’t have Google Play, which means that they’d be renouncing to the very large number of apps written for Android (indirect network effects, etc)”
[A bit of background: Google Play is an application clearinghouse, an Appstore or app marketplace. These apps are a repository of other apps that you can download with a simple click. This avoids users having to obtain software from every developer; instead, there’s an intermediary that facilitates finding/acquiring/installing software. The intermediary (Google in the case of Play, Apple in the case of Appstore, etc) obtains a percentage of sales of non-free apps and facilitates the sale of free ones].
We don’t know whether the complainants have focused on that point of not. If not, they should hire us to give them more ideas 😉 . If they have –as we’d assume- then that’s a fair point.
And so what? On the other hand, however:
Chillin'Competition 