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Archive for April 16th, 2015

Impossible is nothing (or some thoughts on the statement of objections in Google)

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Impossible is nothing

Today, just a few hours after the Commission sent a statement of objections to Google, I have received a book I ordered a couple of weeks ago, called Do Great Cases Make Bad Law? What a wonderful coincidence. The author addresses the question, profound and fascinating, in light of 22 landmark US Supreme Court rulings. This is definitely a research exercise one could replicate by examining Article 102 TFEU case law and administrative practice.

The statement of objections in Google has just been sent, but the case has already secured its place in the hall of fame. After more than four years speculating about the legal aspects of the case, the documents issued yesterday by the Commission (see here and here) finally give a more accurate idea of the reasons why the authority has taken the preliminary view that Google has breached EU competition law. The memo is remarkable in many respects. As Alfonso explained earlier this week, it makes little sense to take a guess at this stage, but, from what I can read, the case could transform the way we think about Article 102 TFEU. The underlying issues are so fundamental, and some of the tentative theories of harm so unprecedented, that its consequences are, at least potentially, far-reaching.

What is particularly interesting is that the underlying issue is a basic one. It is in fact strange that it has not been addressed many times already. The case seems to revolve around whether, and if so, under what circumstances, a dominant firm is entitled to discriminate in favour of its own services. The Commission memo seems to take the view that, indeed, such behaviour may violate Article 102 TFEU, but it is not very clear about the conditions under which this may be the case (which is not surprising; after all, it is just a memo). In any event, one can think of three possible legal approaches to the question:

Discrimination is prima facie prohibited absent an objective justification: At times, the memo suggests that favouring one’s services is abusive by its very nature. This would make Google a by-object case. Absent an objective justification, discriminating in favour of an affiliate would be prohibited under Article 102 TFEU. According to the Commission, the prominence and growth of Google’s service since 2008 do not reflect its relative quality or its relative relevance for end-users. The document suggests, in other words, that it is not the outcome of competition on the merits.

I have explained elsewhere that it is controversial to state that dominant firms are under a general duty not to discriminate against rivals. Discrimination of the kind outlined in the memo is ubiquitous (supermarkets may give more prominence to their brands, media groups favour their own outlets and electronic equipment is often designed in a way that it only works with affiliated products). More importantly, such discrimination is more often than not pro-competitive. Trying to thrive in the marketplace by exploiting one’s advantages is what competition is all about. Similarly, it is a banality to state that markets sometimes work better when different activities are integrated. I do not know whether the Commission intends to follow a by-object line of reasoning, but it is easy to think of the far-reaching consequences for the future of Article 102 TFEU if it does. The scope of the provision would expand very significantly. Just think of the many practices that could be labelled (or re-labelled) as exclusionary discrimination.

Discrimination is abusive if it leads to anticompetitive foreclosure: The Non-Horizontal Merger Guidelines are based on an idea that contradicts the above approach. Following a vertical merger, the new entity may have an incentive to favour its own services. This is not problematic in and of itself, even when one of the merging parties holds a dominant position (and Alfonso knows a thing or two about this). Favouring an affiliate by restricting access to inputs or outlets is only an issue if it leads to ‘anticompetitive foreclosure’. This is an approach that could also be followed in Google. It would not be entirely uncontroversial – I spare you the details of why I am not entirely convinced – but it would have the advantage of consistency. Like issues would be treated alike across competition law provisions. Arguably, it would also be the logical approach for the Commission to endorse. After all, the Guidance is a pre-commitment device intended to confine administrative action to instances where anticompetitive foreclosure is likely. In this sense, it is remarkable that the word ‘foreclosure’ is not used in the memo. Not even once. The rhetoric of foreclosure is equally difficult to find in the document. This conspicuous absence raises a number of questions. Does the Commission believe that the Guidance is not relevant in Google? Is the Guidance no longer a reliable indicator of the Commission’s approach to the enforcement of Article 102 TFEU?

Discrimination is abusive if it harms consumers and innovation: The memo suggests that foreclosure is not the only source of anticompetitive effects that can trigger the application of Article 102 TFEU. The Commission seems to imply that, even in the absence of anticompetitive foreclosure, administrative action could be justified if it can be shown that discrimination harms consumers and competitors’ incentives to innovate. If the Commission chooses to follow this third approach, it would be venturing into unchartered territory. Instead of inferring harm to consumers and innovation (these effects are typically assumed to result from the exclusion of rivals), harm would be established in a direct way. I can think of several reasons why, in theory, it would make sense to do so. The questions I have in this regard are more practical than theoretical, however. For instance, I wonder whether it would be possible for the Commission to provide cogent and convincing evidence of harm to innovation (as opposed to discussing the plausible mechanisms through which innovation could be negatively affected). Similarly, I am not sure whether a dominant company would be able to challenge or disprove claims that a practice is harmful to innovation.

As usual, we very much welcome your views on the above.

Written by Pablo Ibanez Colomo

16 April 2015 at 8:33 pm

Posted in Uncategorized