Chillin'Competition

The revived interest in exclusive dealing and rebates forces us to come back to some of the concepts around which debates revolved in the mid-2000s. I had not anticipated that there would still be some confusion about the meaning of some of these concepts. In particular, I thought it was clear what lawyers and economists meant when they referred to the ‘form-based’ approach to Article 102 TFEU. I now realise that a post on the matter is not only appropriate but even necessary to help the ongoing discussions (which I hope will remain as lively as they have been in the past few months).

The prohibitions set out in Articles 101 and 102 TFEU may be triggered (i) by the practice itself; or (ii) by the effects of the said practice. Under the first approach, the practice, if established by an authority or a private claimant, will be prohibited unless the dominant firm is able to put forward an objective justification or unless the parties to the agreement are able to show that the conditions set out in Article 101(3) TFEU are fulfilled. Under the second approach, it would be necessary to show that the practice under consideration has, or is likely to have, anticompetitive effects. To be sure, it would still be possible to justify the conduct even under this second approach.

The expression ‘form-based’ is used (and, as far as I understand, has always been used) to refer to the first of these two approaches. A ‘form-based’ approach to some practices seems wholly uncontroversial. Cartels, for instance, are prima facie prohibited regardless of their effects (and irrespective of whether they have actually been implemented). Thus, any claims that the cartel is on the whole pro-competitive (as in BIDS) would have to be considered under Article 101(3) TFEU. The same is true of agreements aimed at restricting parallel trade, as confirmed by the ECJ in Glaxo Spain (more about parallel trade restrictions soon).

Some practices, including exclusive dealing and loyalty rebates, are treated like cartels under Article 102 TFEU (but not under Article 101 TFEU). In other words, their legality is established in accordance with a ‘form-based’ approach. If some aspects of the case law have been criticised, this is because exclusive dealing and loyalty rebates differ significantly in their purpose and effects from cartels. As I explain in my paper, experience and economic analysis show that it is appropriate to presume an anticompetitive intent in the case of a cartel, but not in relation to exclusive dealing and loyalty rebates. Similarly, one can safely assume that, if implemented, a cartel will have anticompetitive effects. As cases like Michelin II and British Airways show, the same cannot be said of exclusive dealing and rebates.

As can be seen, references to the ‘form-based’ approach sometimes followed by EU courts in Article 102 TFEU cases have nothing to do with the fact that legal analysis involves by definition the use of categories and bright-lines, nor are they a plea for the unstructured balancing, on a case-by-case basis, of the pro- and anticompetitive effects of a practice. These references are simply used to convey the idea, enshrined in the Commission Guidance, that a ‘form-based’ approach to enforcement is not appropriate for the most common categories of potentially abusive conduct.

[I took the above picture this morning on my way to the LSE. Londoners should be able to guess where!]

A great initiative right before the weekend. Professor Alison Jones and her colleagues at King’s College London have launched a Competition Law Moot. We are convinced it will be a great success. I hope LSE will send a team. Alfonso, in turn, is hoping to set up Chillin’ Competition Team with postgraduate students from all over Europe. Do not hesitate to contact him. Please see below for details (about the moot, not about Alfonso’s idea):

The Dickson Poon School of Law, King’s College London is very proud to offer students from across the world the opportunity to participate in the Herbert Smith Freehills Competition Law Moot, the first international competition law mooting competition to be held at King’s. The competition is generously sponsored by Herbert Smith Freehills, one of the world’s leading law firms.

In 2015, we will invite 12 teams to compete in a moot competition in the home of The Dickson Poon School of Law, Somerset House East Wing, London. The competition will provide an excellent opportunity for students to practise and improve advocacy skills in front of a judging panel, drawn from international competition law specialists.

Problem question.

Rules.

Timeline.

The amount of commentary to which the Intel ruling has given rise in less than six months is quite extraordinary. There is every reason to welcome the debate and exchange of views. Given the interest in the topic, I thought it would make sense to develop the ideas I sketched in a post published back in June. Click here to download the paper. Your comments would be most welcome (e-mail: P.Ibanez-Colomo@lse.ac.uk).

I started my LLM in Bruges in September 2003. A couple weeks into the programme, Michelin II came out. I remember vividly the discussions we had in class about it. Even for a postgraduate student with no experience it was easy to understand the significance of the judgment and its implications. 11 years have passed, I am now the one teaching LLM students, and the relevant case law continues to generate considerable controversy. It seems clear that the debate touches upon some fundamental questions in EU competition law.

The lack of clarity – in spite of the frequent and lively discussions – about the issues that are really at stake is what prompted me to write the paper. I argue that the controversy, while being of major importance, is far more limited in its nature and scope than commonly assumed. Upon closer scrutiny, it seems to me that the case law on exclusive dealing and rebates is criticised not so much because there is a disagreement about the objectives of EU competition law, but due to the tensions (or ‘frictions’, as I call them in the paper) that have arisen in the case law.

What the controversy is NOT about: This endless controversy has nothing to do with the so-called ‘more economic approach’ or ‘more economics-based approach’. I never liked these expressions. They suggest that economic analysis has been introduced by the European Commission from the top down in an attempt to change EU competition law. Nothing could be further from the truth. As I show in the paper. EU courts have always relied upon mainstream economic analysis to shape EU competition law (just think, among the many examples, of Woodpulp II or AKZO) and have frequently taken the lead in this sense. Tetra Laval and Airtours, both of which unambiguously embraced mainstream positions, are indispensable to make sense of the policy shifts observed in the course of the past decade.

Similarly, this debate is NOT about the objectives of EU competition law. As I explain at length in the paper, the current approach to exclusive dealing and rebates is not the only conceivable one under the Treaty. The prohibition, absent an objective justification, of exclusive dealing and loyalty rebates does not follow logically from the fact that the objective of EU competition law is to create a system of undistorted competition. Likewise, there is nothing in the said objective that is inimical to the use of efficiency considerations to shape the law, as rulings like AKZO, Deutsche Telekom, TeliaSonera and Post Danmark show.

How I see this controversy: EU competition law evolves and is shaped from the bottom up in an incremental manner. As a result, tensions in the case law are inevitably bound to arise. Some rulings may hint at a particular logic, while others at a different one. There is nothing wrong with that. Quite to the contrary, it is the very reason why law is fascinating as a scholarly discipline. Over time, doctrines are refined, and contradictions between cases addressed, through the interaction between (and disagreement between) judges, officials, lawyers and scholars. Nothing else is going on in relation to Intel. As I see it, the real (and only) issue at stake is that the case law on exclusive dealing and rebates is difficult to reconcile with Article 101 TFEU and Article 102 TFEU case law applying to the same or comparable practices.  Read the rest of this entry »

A few days ago the Chinese government announced that it will put an end to what is perhaps the oldest monopoly in the world, that of salt, which has been in force for well over 2,000 years (see here).

As of 2016 salt prices will be liberalized in China, and in 2017 the government will commence to grant new licences to operate in the market. Many citizens have expressed their reluctance to see the salt monopoly go (see here).

The salt monopoly was adopted in China by the Han dynasty in 119 B.C. with a view to funding the largest expansion in the history of China.  Over the years, salt came to be the origin of 80-90% of the public revenues in certain Chinese states. The role that the salt monopoly has had in Chinese history, at all economic and even philosophical or religious levels is determinant, having been at the roots of major debates on foreign relations, wealth and inequality and the role of the State in the organization of the market. Or that’s at least what I’ve read…

Interestingly, salt monopolies also played a key role in other parts of the world, as, btw, did salt taxes (with the British salt tax in India eventually leading to Gandhi’s Salt March or Salt Satyagraha in 1930 and the French “Gabelle” contributing to the uprise that became the French Revolution). Salt is not the only monopoly that has had a transforming impact in history; think of the East India Company or the Casa de Contratacion (among many others).

I started reading about all this stuff almost by accident, and then spent part of Sunday evening reading a bit more with the idea to write a post on the role of monopolies in history.

On a second thought, that’s too ambitious a goal, but the subject is -I think- fascinating.

If any of you knows of any books or studies that touch on the role of monopolies in history, please send them my way and we’ll give them due publicity here.

I tried (hard) to write something about the European Parliament’s non-legislative resolution on various aspects of the digital economy, including search engines (in plural). But I could not. I kept thinking about foreclosure. My fixation with the concept is most probably due to the fact that I am slowly becoming an old curmudgeon. The self-serving answer with which I fool myself (quite successfully for the time being, may I add) is that all the fuss about the EP’s resolution (largely irrelevant) is a distraction from the crucial aspect of the Google case.

In the Guidance, the Commission committed to give priority to cases leading to anticompetitive foreclosure. This is a very sensible position. The experience accumulated over the years (just think of Michelin II, British Airways or the Microsoft saga) shows that potentially abusive practices do not always harm the competitive process. As a result, it makes sense to ensure that the limited resources of the Commission are devoted to cases where negative effects are likely. Equally sensibly, it is explained in the Guidance that ‘if the conduct has been in place for a sufficient period of time’ the authority would consider ‘evidence of actual foreclosure’.

After 4 years (I know because the investigation is about as old as my tenure at LSE), I am ready to guess that, if Google’s alleged discriminatory conduct were really exclusionary, there would already be overwhelming evidence in this sense. If there is not, that fact alone should be a sufficient reason to close the investigation. Surprisingly, foreclosure has so far been mentioned only very sparingly in the context of the case. As an academic, I would want debates in future months to address this question.

In particular, it would be desirable if the Commission clarified whether the investigation is really driven by foreclosure concerns. The statements made by the former Vice-President suggest that evidence of exclusionary effects is not a precondition for intervention. Concerns with innovation as such or with choice as such (that is, not resulting from rival foreclosure) could, it would seem, trigger administrative action under Article 102 TFEU. In other words, intervention would be justified not so much because the alleged discriminatory strategies are likely to harm the ability and the incentive of Google’s rivals to compete but because they would limit choice for consumers or reduce companies’ incentives to innovate.

Relying on innovation and/or choice alone in Google would entail a paradigm shift in enforcement. This is not necessarily bad per se. After all, ideas and priorities evolve. Flux is competition law’s second name. However, if the case is no longer about foreclosure as such, the Commission should be crystal clear about the matter and acknowledge it openly. The consequences of a paradigm shift cannot be ignored and should not be taken lightly. In spite of the growing popularity of the concept (more about it in the coming weeks), I have not seen anything close to a fully-fledged and internally coherent analytical framework based on choice. Very much the same could be said in relation to innovation. Relying on a standard that lacks clear boundaries would harm legal certainty and would make it difficult for firms to anticipate the outcome of administrative action. These are, let us not forget it, the reasons why the Guidance was adopted in the first place and why it was made to revolve around foreclosure.

And now from foreclosure to disclosure, which is quickly becoming as popular as choice and innovation: nothing to disclose.

Pablo