Chillin'Competition

It’s quite frequent in our line of business to hear accusations against the Commission for acting as investigator, prosecutor, judge and executor at the same time.

Well, in a case decided the day before yesterday by a Brussels Commercial Court, the Commission acted as all those, and also as a complainant…. and lost.

You read well

As some of you may remember, after fining the companies involved in the elevator cartel with 992 million back in 2007, the Commission tried to show the world that it is feasible to go before a national Court and ask for damages, so it went to a Belgian Court to ask for compensation for the damages allegedly suffered by the Institution (estimated at 6 million), given that it had to pay a cartelized price for the elevators installed in its buildings.

[Btw, I remember hearing Richard Whish saying once that if the Commission really wanted to pick the case that had caused the greatest harm to its officials, then it should have targeted the beer cartel (I confess I’ve used this joke a couple of times…)].

The Belgian Court has ruled that “on sait pas faire ça” and that “ici c’est pas l’ Europe, c’ est la Belgique” rejected the Commission’s contention that there is a legal presumption that every cartel causes damage, and held that the Institution had failed to prove the overcharging and the causality link.

No comment.

Actually, I have one: unlike their EU counterparts, national Courts lately seem to be getting increasingly less deferential to the Commission, and to EU Law for that matter (a topic interesting enough to deserve an ad hoc post)

P.S. A due acknowledgement: I became aware of this development thanks to a Lewis Crofts’ piece for MLEX, not the greatest Lewis in the UK, but close (like in the case of Prof. Whish above, I’m also copying this joke from another big guy in the competition world).

P.S. 2: The pics above are actually of the engraving that decorates my living room, A Caucus Tale and a Long Race, by Salvador Dali, inspired by the work of another famous brit named Lewis. The back of the painting reads as follows:  “Fury said to a mouse, That he met in the house, “Let us both go to law: I will prosecute you. –Come, I’ll take no denial; We must have a trial: For really this morning I’ve nothing to do.” Said the mouse to the cur, “Such a trial, dear Sir, With no jury or judge, would be wasting our breath.” “I’ll be judge, I’ll be jury,” Said cunning old Fury: “I’ll try the whole cause, and condemn you to death.”‘

The Competition Law Course that Luis Ortiz Blanco and I direct at the IEB in Madrid is turning 18 this year.

It’s not the first time that we say this here, but the line-up of more than 50 high-profile guest speakers who come every year from all over Europe to enjoy Madrid lecture in Madrid is a true Who’s Who of EU competition law experts. Moreover, the 115 hours of scheduled classes allow for a more detailed coverage than that offered by many other competition law courses on the market. About half of the course is lectured in English. Price wise the course is unbeatable: full registration is available for 3,000 euros.

The final program for each module and seminar has yet to be confirmed, but the overall structure and dates have been set, so I’ve included the info below.

The 2015 program will be structured as follows:

– An inaugural/introductory session by the former-blogger-now-full-time-Professor-Monsieur-Nicolas-Petit will take place on January 9.

– A module on cartels (coordinated by Luis Ortiz Blanco, Garrigues) will be held on 12-14 January.

– A module on other restrictive agreements and practices (coordinated by Juan Andrés García Alonso; Peugeot) will take place on 19-21 January

– On 30 January there will be a seminar on recent developments in relation to Art. 101 (coordinated by Fernando Castillo de la Torre and Eric Gippini Fournier, both from the Legal Service of the European Commission).

– A module on abuse of dominance (coordinated by myself) will take place on 3-5 February.

– A module on merger control (coordinated by Jerónimo Maíllo; San Pablo CEU University) will be held on 10-12 February.

– A seminar on recent developments in abuse of dominance and merger control coordinated by Cecilio Madero (Deputy Director General, DG Comp), Nicholas Banasevic (Head of Unit at DG COMP) and Milan Kristof (Référendaire at the ECJ) will be held on 20 February.

– A module on competition law and regulation in network industries (coordinated by my co-blogger Pablo Ibañez Colomo, LSE) will be held on 2-4 March.

– A module on the application of competition and state aid rules to public entities (coordinated by José Luis Buendía -Garrigues- and Jorge Piernas -Universidad de Murcia-) will take place on 5-6 March. State aid seminar: Seminario Ayudas de Estado

– A seminar on Competition Law in the Technology Sector (coordinated by Alvaro Ramos -Cisco Systems- and myself) on 13 March.

– A seminar on competition law in non-adversarial scenarions  (coordinated by Juan Andrés García Alonso; Peugeot) to be held on 27 March.

Anyone interested can register both for the full program or just for specific module/s or seminar/s. If you’re interested, feel free to drop me a line at alfonso.lamadrid@garrigues.com

For more info, click here: competencia2015.

P.S. Thanks go to Araoz y Rueda, Clifford Chance, Compass Lexecon, Cuatrecasas Gonçalves Pereira, Garrigues, Gómez-Acebo y Pombo, MLAB, NERA and Uría Menéndez for agreeing to sponsor the course.

Ofcom announced earlier this week the opening of an investigation into the licensing by FA Premier League of its live TV rights. This is an area where competition and regulatory authorities have been very active over the past decade. The way in which football associations offer their rights is now subject to tight conditions, which prescribe the TV operators to which the content is to be sold or the appropriate length of the agreements. The same can be said of the licensees who acquire these rights to exploit them. The fact that the regulatory apparatus is growing across the value chain does not mean that intervention was needed in the first place and/or that it has improved the functioning of markets. And it does not mean, to be sure, that the sort of intervention at which Ofcom hints in its press release will achieve anything meaningful.

In 2006, the Commission adopted a decision requiring the FA Premier League to license its TV rights in several packages, as it had done in previous cases like UEFA Champions League. The twist in Premier League is that the Commission sought to ensure that consumers would be made worse off following intervention. The football association was not allowed to sell all of its live TV rights to a single operator (which was assumed to be Sky, as it had successfully bid for them in previous auctions). After the decision, sports fans were required to subscribe to two different Pay TV services to have access to all games (some Commission officials have been candid with me about the angry letters they received from some of these fans).

Then came Ofcom’s pay TV investigation. In 2010, the sectoral regulator required Sky (the licensee of the TV rights offered by the FA Premier League) to offer its premium sports channels to its downstream rivals on regulated terms and conditions. Ofcom’s officials issued hundreds of pages during the investigation but never claimed that Sky’s premium sports channels were an ‘essential facility’ for competing pay TV operators or that they were indispensable within the meaning of IMS Health (most probably because they are a far cry from being one or the other). What is certain, on the other hand is that BT (which, in case younger readers do not know, is the incumbent telecommunications operator in the UK) is clearly better off in the aftermath of the investigation (and even better off when its effects are combined with those resulting from the Premier League decision). This was not, I believe, what the regulator intended.

Now Ofcom seems to suggest that the FA Premier League may not be licensing enough games to TV operators. Virgin Media, the complainant, claims that only 41% of Premier League games are offered on TV, which is apparently a low figure when compared to practices in other EU Member States. At first blush, this looks like a convincing case. It is a horizontal agreement whereby football teams taking part in the Premier League restrict output in a coordinated manner. This is it. A plain-vanilla cartel.

Well, reality is much more complex than that. The joint licensing of TV rights in this context has absolutely nothing to do with the restriction of output that one observes in the context of a cartel, for the simple reason that football teams are not really rivals offering the same product and limiting competition between them. Co-operation between football teams allows them to create a new, complex product, which is the league as a whole and which the teams individually would have been unable to offer. An agreement of this kind is similar in its nature to other pro-competitive horizontal ventures, including the one examined by the ECJ in Groupement des Cartes Bancaires or by the US Supreme Court in BMI v CBS.

If ‘output restriction’ in this context is not comparable to a cartel arrangement (I remember a wonderful piece by Bill Bishop and Alison Oldale explaining this point clearly and concisely), then it is necessary to understand why the FA Premier League does not license all of its games. The most plausible explanation, in my view, is that it is all about creating a certain brand image, that is, about making sure that fans are not flooded with football games. Is creating relative scarcity bad per se? And again, scarcity relative to what? I struggle to see why it would be an issue in itself. Is it not precisely what Apple or luxury firms do, and what explains in part their success? Is the Premier League itself not an excellent example of successful global brand positioning? Is the task of a regulator exercising its powers under the Competition Act to decide about brand positioning on behalf of right holders?

[about the pic: there is always an excuse to include one of the best magazine covers of all time!]

Pablo

Champagne tastes great. A resounding victory against the European Commission probably tastes better. Yay! As the academic one in the duo (read: as someone who does not know how it feels to win a tough case after years of hard work), however, I cannot help spoiling the party with a geeky and anti-climactic counterpoint to Alfonso’s last post.

Last year, I published a statistical analysis of State aid litigation before EU courts. I was curious about the factors influencing the outcome of challenges against Commission decisions. I had of course some intuitions, but I was genuinely surprised with the results. It is interesting to compare some of the findings with the cases on selectivity that Alfonso discussed in his post.

• The single most remarkable finding is that the chances of success of an annulment action against a Commission decision increase dramatically when the Member State becomes involved in the proceedings (either as an applicant or in support of the recipient’s application). Close to one in two (44%) decisions were annulled with Member State involvement. Without the support of the central government, recipient firms did less well: only in in four decisions were annulled (26%).
• Many factors may account for this substantial divergence in outcome (I discuss some of them in the article). What matters for this post is that both Autogrill and Santander challenged the Commission decision without the support of the State, yet they won. One may interpret this outcome as meaning that their case was very strong on substance, or that they hired excellent lawyers. Or both, as they are not mutually incompatible. The latter is true here. Clearly. No doubt.
• What if the Commission decides to appeal the rulings before the ECJ? Interesting one. My study shows that the Court does not set aside GC rulings very often, except when the case revolves around selectivity… which is precisely the issue at stake in Autogrill and Sandander. If one examines the case law of the past few years, it seems clear that the ECJ tends to favour a broader notion of selectivity and the GC a narrower one (think of NOx, Gibraltar or British Aggregates).
• Against this background, the interdisciplinary scholar in me would say that the Commission would have a fair chance of winning the case on appeal. The black letter lawyer that I still am, on the other hand, would say that these cases will prove the limits of statistical studies. It is indeed difficult to believe that the ECJ will uphold the analysis of the Commission. Rendez-vous in a couple of years!

The slides on the Android investigation Alfonso uploaded a few weeks ago got me thinking. In many ways, this is a dream case for an academic. As in Macondo, everything is so recent that many things lack names. Fertile ground for categorisation, which is what I enjoy doing and, more important, what I happen to do for a living. On a related note, and since it has become de rigueur, allow me to disclose that I have absolutely nothing to disclose.

As I see it, the Android investigation is guided by two main themes: modularity and competition for bundles.

Modularity – I see in the case a value chain composed of three main layers: mobile handsets, operating systems and, on top of them, a set of core applications. Interestingly, not all firms follow the same business model. The different strategies relate to the different degrees of modularity each of the firms is willing to accommodate. By modularity I mean the extent to which the three layers are integrated with one another. At one extreme, there is Apple, which does not seem to allow for modularity (its handsets, and only its handsets, feature iOS, which comes with its own set of core applications). At the other extreme, there is Google, which allows for maximum modularity, at least in relative terms (Alfonso tells me that this point was not disputed at the conference). Android is offered to third-party manufacturers and made available – at the very least in theory – with or without Google’s core applications.

It is important to bear in mind this issue when trying to make sense of potential competition concerns. Because different degrees of modularity lead to different business models, one may fall into the trap of comparing apples (unintended) and oranges. In other words, one cannot simply cry ‘predatory pricing’ in relation to the distribution of Android to mobile handset manufacturers without taking into consideration that Google’s business model differs from Microsoft’s. It would be like claiming that Metro and the Evening Standard engage in predatory pricing simply because – unlike The Guardian or The Times – their papers are given away for free to tube users.

At the same time, the fact that Apple, Microsoft and Google allow for different degrees of modularity may make us lose sight of the fact that they are rivals and put competitive pressure on one another. ‘Thank you, Captain Obvious’, more than one reader must have thought, ‘otherwise there would be no complainants and no investigation on Google’s practices’. To which I answer: ‘Sure. But before we jump into any conclusions about bundling claims we need to understand how these firms compete with one another’. Which brings me to the second theme.

Competition for Bundles – Competition in the industry very much reminds me of rivalry in pay TV among cable, satellite and broadband operators. These operators try to attract subscribers by offering a combination of channels to viewers. It would be really awkward to claim that bundling in this context is anticompetitive. This is how competition is organised in the industry, and there is a compelling logic behind it. The fact that it would be awkward to bring such a claim does not mean that nobody has tried to do so. The argument was given a shot in California (there must be something in the water) and of course failed miserably before the US Court of Appeals for the Ninth Circuit.

Apple, Google and Microsoft also compete by offering a bundle of core applications. Several important conclusions follow from this fact, in my view. Dominance (that is, the extent to which Google is subject to effective competitive pressure) should be assessed at the level of the bundle, not at the level of individual applications. In other words, the alleged practices should be understood in a context in which players compete by offering a set of applications, not by offering them à la carte. Requiring Google to offer its applications à la carte ignoring industry dynamics would be as awkward as requiring cable operators to offer TV channels à la carte. Wondering if somebody has given this one a shot? Yes, and no other than Senator John McCain.

Pablo

Some of you will recall that a while ago, in this post, I announced that I’d be speaking about the Android investigation (which I did already, as explained here) and that I would welcome any views anyone could send my way. Geoffrey Manne then sent us the post he’d publish on this topic in Truth on the Market and asked whether it’d be possible for us to republish it for it to have a greater EU audience. We did re-publish it because we thought it was topical and provocative even if it could be seen as one sided, and because it saved us from thinking about what to write for one day.

The post seems to have had more impact than expected. The piece was first subject to criticism by Trevor Soames (Microsoft’s lawyer in the case) in the course of the panel in which I participated (this, by the way, led one of my new associates to comment that he had been surprised at how people actually read what is published on this blog…). And yesterday, ICOMP also published its own equally harsh rebuttal to Manne’s post, purporting to provide information on issues that “many of the ChillinCompetition readers may not be aware” of.

Against this background, in the light of ICOMPs previous legal actions, and in order to preempt any claim that we’re dominant on a competition law blogging market (which we’re not according to revenue-based shares, we can assure you) and should hence be subject to a blogging neutrality principle, we are also linking to ICOMP’s piece and giving it a level of visibility comparable to the one we gave to Manne’s post.

We only have three additional puns comments on this story:

• We are grateful to ICOMP for sending us increased traffic and take no issue with any scraping from content published in Chillin’Competition;

• We frankly have no interest whatsoever in the who-pays-who debate (unless anyone paid us, which very unfortunately isn’t the case) and only regret that academic writing on economically relevant issues these days is suspect (with reason or not) of being paid for. Since we are rather interested in the substance of things, my co-blogger Pablo –who should be free from all suspicion- has committed to writing about some legal issues relevant to the Android investigation before the end of the week (in what seems like a déjà vu, I agreed with this proposed commitment but I may change my mind if a substantial number of you disagree…) [By the way: I’m sure that post will have more readership than his most recent one on two intricate issues such as State aid and string theory J; forgive him, he’s new to this… 🙂 ]

• ICOMP’s piece states the following: “If Manne doesn’t have a basic understanding of European competition rules, why should he be featured on the ChillingCompetition blog?”.                                                  Well, just to clarify a possible misunderstanding: it should be apparent to any usual readers that having a basic knowledge of EU Competition rules was never really a requisite for writing on this blog; we’re the living example.