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Archive for October 2015

The legal status of rebates after Post Danmark II: my presentation

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I was delighted to give a presentation on Post Danmark II in the Lunch Talk organised by the GCLC in Brussels earlier today. My slides can be found here. I am really grateful to the organisers and to Denis Waelbroeck, who chaired the session, for the invitation. The discussion with Nicholas Khan (European Commission) was really interesting.

Several participants in the Lunch Talk were of the view that some passages in Post Danmark II are not clear. In my presentation, I chose to avoid discussing individual paragraphs and focused instead on the aspects of the ruling that I find to be clearer and less subject to interpretation. The key points I made can be summarised as follows:

  • The days of Michelin II and British Airways are over:
    • A two-step test: The single most important contribution of Post Danmark II relates to the factors to consider when establishing the abusive nature of rebate schemes that are not conditional upon exclusivity. In Michelin II and British Airways, the assessment of ‘all the circumstances’ revolved around whether the practices had a ‘loyalty-inducing’ (or ‘fidelity-building’) effect. In the world of Post Danmark II, this is no longer enough (at least as far as standardised rebate schemes are concerned). The ruling sets out a two-step test that makes it necessary to consider both (i) the nature and the operation of the rebate scheme and (ii) the features of the relevant market, the regulatory context and the extent of the dominant position (paras 29-30).
    • ‘Loyalty-inducing’ rebates are not abusive by object: In Michelin II, the GC took the view that ‘loyalty-inducing’ rebates are abusive by object (para 241). Similarly, in British Airways, the GC held that the scheme at stake in the case served an exclusionary purpose (para 288). After Post Danmark II it is clear that these schemes are only caught by Article 102 TFEU insofar as they are likely to have an exclusionary effect on competition. Thus, they do not fall within the ‘by object’ category.
  • Towards the analysis of effects: Michelin II and British Airways were controversial cases because the impact of the practices on competition was not considered in the analysis. The exclusionary effects of the schemes were simply assumed to derive from their ‘loyalty-inducing’ nature. By contrast, the analysis of effects is an integral element of the legal test set out in Post Danmark II. The factors considered by the Court include the (i) extent of the dominant position; (ii) the coverage of the practice; (iii) the regulatory context and (iv) whether the dominant firm is an unavoidable trading partner. I pointed out that there are clear similarities between these factors and those sketched by the Commission in its Guidance. The threshold of effects (i.e. likelihood) is also the same.
  • Open questions: The most obvious question raised by Post Danmark II is whether the same analytical framework applies to target rebate schemes. It is difficult for me to think of a reason why it should not. The second question is whether the ‘by object’ category is appropriate for exclusive dealing and loyalty rebates. The exclusionary potential of these practices, when implemented by dominant firms, is undeniable. The issue is instead whether it is appropriate to simply assume the exclusionary effects of these practices if this is not sufficient under the test set out in Post Danmark II. After all, rebates (including standardised schemes) are problematic from a competition law perspective when they come close in their nature and operation to exclusivity obligations. Why, then, should they be treated differently?

Written by Pablo Ibanez Colomo

30 October 2015 at 8:37 pm

Posted in Uncategorized

ECJ Judgment in AC-Treuhand (C-194/14 P) – On the scope of Art. 101 (1) TFEU

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by Alfonso Lamadrid and Sam Villiers

You may remember that earlier this year we commented on AG Wahl’s Opinion in AC-Treuhand (C-194/14 P) (see here) and anticipated that, in spite of its thought provoking reasoning, it was likely not to be followed by the Court. Well, the ECJ’s Judgment was released on Thursday, and, as expected, the General Court’s Judgment was upheld.

To briefly recap, the case involved a Zurich-based consultancy (AC-Treuhand) which was hired by cartelists to arrange and participate in meetings, gather and circulate data, moderate tensions and foster commitments, in exchange for remuneration [Note: If any other facilitator reads this post, please remember our hotel offer]

The General Court held that the company infringed Art. 101(1) TFEU for its role as a cartel “facilitator”, despite not being active in the affected markets (tin stabilisers and ESBO/esters sectors). [Parental advisory: We thought about using this image to illustrate what a facilitator does, but then chickened out; if you access it, it’s under your own responsibility]

The first—and most important—ground of appeal (of four) asserted by AC-Treuhand in its appeal was that the General Court was wrong to hold that (i) the conduct of a consultancy firm which provides services to a cartel falls within the ambit of Art. 101(1), and (ii) that that interpretation was reasonably foreseeable at the time of the infringement.

On this first point, departing from the approach of AG Wahl (summarised in our previous post; see hyperlink above) the ECJ embraced an expansive notion of Art. 101(1). The Court stated that there is nothing in the wording of Art. 101 indicating that the prohibition is only directed at parties active in the affected markets (para. 27), and that it is well-established that even passive participation may be caught by Art. 101 (para. 31). The Court went on to state, at para. 35, that “it is apparent from the Court’s well established case-law that the text of Article 81(1) EC refers generally to all agreements and concerted practices which, in either horizontal or vertical relationships, distort competition on the common market, irrespective of the market on which the parties operate, and that only the commercial conduct of one of the parties need be affected by the terms of the arrangements in question…”

The Court also unsurprisingly relied upon the overarching aims of Article 101 to justify its stance, underlining, in para. 36, that “[t]he interpretation of that provision advocated by ACTreuhand would be liable to negate the full effectiveness of the prohibition laid down by that provision, in so far as such an interpretation would mean that it would not be possible to put a stop to the active contribution of an undertaking to a restriction of competition simply because that contribution does not relate to an economic activity forming part of the relevant market on which that restriction comes about or is intended to come about.”

As you may recall, Wahl, in recommending the ECJ to annul the GC judgment, stated that “in order to be a party to a cartel (“the undertaking in question must also be under normal market conditions, a competitive constraint for the other cartel members. It is only where the undertaking in question represents a competitive pressure worth constraining that it is capable of constituting such a constraint”) (para. 51). In his view, since AC-Treuhand was not active in the market, it could not have represented a competitive constraint, and could therefore not have restricted competition in the sense of Art. 101.

Wahl’s arguments—which are set out in more detail in the previous post—concerning this first ground of appeal make sense, and would probably have been endorsed if EU competition law were a discipline like any other.

The reason why we anticipated that his Opinion would not be followed is that EU Competition law has often not been treated like other areas of the law. Be it because of its economic roots, be it because of the width of its main provisions, or be it because of it forming part of the similarly peculiar system that is EU law, EU competition law has been treated as a different animal. It is a sphere where full effectiveness, effet utile, is the main concern, and where wide interpretations prevail. Indeed, the vague wording of the provision never prevented it from encompassing not explicitly typified conduct (starting with vertical agreements).

Indeed, as we observed in a previous post (with some steamy drafting…) EU Courts have made it clear thatin the nebulous field of competition law the principle of legality has more vaporous contours”. That previous post focused on a GC statement that said that “(…) the use of imprecise legal concepts within a provision does not prevent liability being established as against a person who contravenes it. As the Commission points out, if it were otherwise, an infringement of Article 101 or 102 TFEU – which are themselves drawn up using imprecise legal concepts, such as distortion of competition or ‘abuse’ of a dominant position – could not give rise to a fine without the prior adoption of a decision establishing the infringement“. 

Although it is highly unlikely that the Treaty drafters had an AC-Treuhand type situation in mind when drafting the competition provisions, and even if the legal logic underlying AG Wahl’s Opinion is hardly disputable, we can also agree with the ECJ that there also seems to be no reason, under either the precise wording of Article 101(1) or taking into consideration the ‘spirit’ of the competition rules, why the actions of AC-Treuhand should not be caught within the embrace of Article 101(1).  After all, it participated in an agreement which met all the requirements to fall under 101. A different interpretation would seem to preclude, for instance, the liability of associations of undertakings when not directly active in the market.

As for the second limb of its first ground of appeal, AC-Treuhand argued that it was not ‘reasonably foreseeable’ that its conduct would fall within the Art. 101(1) prohibition, infringing the principle that offenses and penalties must be defined by law. In response, the Court makes clear that foreseeability depends on many factors (“content of the text in issue, the field it covers and the number and status of those to whom it is addressed”), but also that a law may be foreseeable even if legal advice is required to assess potential consequences of the given conduct, particularly in the area of professional services where the Court suggests that an elevated standard of care in evaluating legal risk applies (para. 42). That raises interesting issues that deserve a post of their own. To be continued…

Written by Alfonso Lamadrid

26 October 2015 at 12:47 pm

Posted in Uncategorized

On the Commission’s powers to request information (II)- Opinion of AG Wahl in case C-247/14 P, Heidelberg Cement.

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On Thursday last week AG Wahl delivered his Opinions (in this post we will only discuss one) in the appeals against the General Court’s Judgments endorsing a Commission’s decision requesting information to a number of cement producers. The case is one of maximum importance on the procedural front, and the ECJ’s Judgment is set to clarify what the Commission can and cannot do with regard to information requests.

As you might recall, I (who –disclosure- acted as a lawyer for one of the companies appealing in first instance) already commented on the General Court’s Judgments here.

The Opinion proposes to annul the GC’s Judgments and the Decision. As para. 173 states, in AG Wahl’s view the decision was unlawful because “it contained an insufficient statement of reasons regarding the purpose of the request, it did not fulfill the requirement of necessity, and it misinterpreted the notion of “information” within the meaning of Article 18 of Regulation No 1/2003”. In the AG’s view, “each of these legal errors is, by itself, sufficient for the annulment of the whole decision”.

At first sight, anyone not having read the Opinion in detail may be tempted to think he arrives to this conclusion on a basis of a too strict or rigorous test. Not at all. I’m happy to offer a beer (an AB InBev one, since they are a conference sponsor) to anyone who can point to a single paragraph in the Opinion that does not strike the right balance between the powers that the Commission needs to have to carry out its job properly and the rights of investigated companies. What is extreme in this case is not the Opinion, but rather the challenged decision.

In addressing the specific situation of the case, AG Wahl also addresses the underlying general issues related to the broad question he says the case poses in para. 1 of the Opinion ( “What are the conditions for, and limits to, the Commission’s power to require, by way of decision, undertakings to supply information in the context of investigation relating to possible breaches of EU competition rules?”)

The Opinion starts off with a background introduction to the legal regulation of requests for information under Regulation 1 (para. 22 to 28). It refers to established case-law and reads in a way that reminds one of the underlying idea in Deutshe Bahn: the Commission enjoys great powers for good reasons, but it is precisely because of that that EU Courts must be careful to police any improper use thereof.

Paras. 31 to 55 of the Opinion deal with the issue of whether the statement of reasons in the RFI was sufficient or not. Para. 33 makes it clear that in the AG’s view the case-law on inspections applies mutatis mutandi, which to me is pretty uncontroversial. In para. 36 it recalls that the General Court itself said that the statement of reasons in the decision had been drafted in “very general terms which would have benefitted from greater detail and [warrant] criticism in that regard” (at the oral hearings I attended the General Court had been quite critical on this point, more than the judgments show). The AG demonstrates some fair flexibility towards the Commission in paras. 41 to 45, where he admits that the statement of reasons could also, in theory, be found in the decision opening proceedings (43) or even “indirectly or implicitly” in the questions asked. In this case, however, he observes that the questions were “extraordinarily numerous and cover very diverse types of information” and made it “extremely difficult to identify a connecting thread”. I would suggest you read para. 46 of the Opinion to see some examples of the questions we had been asked; you’ll be amazed. Quite rightly, and in one of the key recitals of the Opinion (47), AG Wahl states that if the connecting thread was “a complete mapping of the undertakings’s revenue and cost structure to enable the Commission to analyse it by econometric methods (comparing it with those of other companies active in the cement industry), [which is exactly what this exercise was about!] it could be questioned whether such a broad and all-encompassing request for information is at all appropriate under Article 18”, noting that perhaps a sector investigation would have been more appropriate. Amen.

Para. 50 is also interesting in as much as it says that a different, stricter, lever of precision should be required from statements of reasons in advanced stages of the investigation. In 51 he finds it “unexcusable” that in spite of all the info provided to the Commission over years the companies were “left in the dark” regarding the precise scope of the investigation, and in 52 he observes that the scarcity of information on the suspected infringements also makes judicial review more difficult.

Paras. 56 to 66 are also perfectly sensible, to the extent that they are even not so interesting. In them he says that the GC was right in holding that the Commission did not need to justify why it sent the RFI by decision instead of by simple request or why it was setting the time-limits it set.

Paras. 70 to 95 of the Opinion, dealing with the “necessity” of the information are in my view the key and most interesting ones:

Read the rest of this entry »

Written by Alfonso Lamadrid

23 October 2015 at 4:12 pm

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A first reaction on the Starbucks and Fiat State aid decisions

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I’m typing as I listen to Commissioner Vestager live at the press conference announcing the decisions considering the tax rulings granted by the Netherlands and Luxembourg to Starbucks and Fiat as illegal State aid.

I have just read the press release and, whereas it might not seem to be saying much on the legal issues, it actually does trigger a few thoughts; for now let me just address one:

Does selectivity have anything to do with ideal economic reality?

According to the press release, the rulings at issue are considered “selective” (a necessary requirement for State aid to exist) because they endorsed “artificial and complex methods” and “do not reflect economic reality”.

Under EU law, at least until now, selectivity was assessed by comparing whether a public measure treats some companies differently than others by deviating from the ordinary way of doing things.

Never before -and we have done quite a lot of tax State aid cases- have I seen a measure considered selective on the basis of a comparison not with how things are normally done , but with an ideal reconstructed method of how things should have been done.

To be continued…

Written by Alfonso Lamadrid

21 October 2015 at 10:59 am

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Since you are in the mood….

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Yesterday not only did we, a bit surprisingly, fill the Chillin’Competition conference in less than an hour (there is now a decent waiting list that we will try to satisfy somehow), we also (or rather you) broke the record for number of visits to the blog in a day, with 2,044. Many thanks once again…

Since you seem to be in the mood for conference announcements (and given that the next few days will be packed with interesting stuff on which to comment) I’ll take advantage to advertise some pending courses and events in which we are involved:

  • We have now closed the dates for the XIX edition of the EU and Spanish Competition Law Course that I co-direct with Luis Ortiz Blanco in Madrid and that also features Pablo and Nicolas among many others. It will run from 8 January until 11 March and, aside from the annual introduction by Nicolas Petit on 8 January will also include modules on cartels (11-13 January), horizontal and vertical agreements (18-20 January), abuse of dominance (1-3 February), merger control (8-10 February), sector Regulation and Competition (22-24 February) and State aid (29 February-2 March), as well as seminars on recent developments in 101 (29 January),102 and mergers (19 February) and competition law and technology (11 March). More  info is available here: XIX Curso de Derecho de la Competencia Europeo y Español IEB 2016
  • In the coming weeks, and going against all promises I made to myself about saying no to speaking proposals,  I will be speaking about the legal challenges brought by the sharing economy (on 4 November, see here;) and about “online platform regulation” (on 17 November, see here).  Any suggested reads you might have on any of these would be much appreciated, particularly by the colleagues at my firm who will otherwise have to help me compile materials 😉
  • Today I attended an interesting breakfast organized by our friends (and sponsors) CCIA and by EPICENTER on business investment, legal certainty and taxation the pending investigations on tax rulings (the two first decisions will apparently be out tomorrow). The main takeaway from the event is that it confirms the worrying trend of organizing events at in this town. For the first time in a long time I woke up earlier than my son, and that’s just unacceptable!
  • On 29 October our friend Kevin Coates (who will, btw, make a much appreciated effort to speak at our conference) will participate in a Brussels Matters talk dealing with one of the topics that we have recently paid attention to on the blog: the notion of single and continuous infringements in cartel cases (Connor Maguire has quite a good eye for topics). For more info, click here.
  • And on 30 October your favorite blogger, Pablo Ibañez Colomo, will come to Brussels to speak at the GCLC’s lunch talk on Post Danmark II. For more info, see here.

Written by Alfonso Lamadrid

20 October 2015 at 6:56 pm

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Register now for the Chillin’Competition Conference

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It is now possible to register for the Chillin’Competition conference (apparently it was also possible before, as some people have somehow managed to find our registration site before we made it public!)

If you are interested in joining us, you can register here.

Places are limited, so we would ask you to please register only if you really plan to attend. And if you register and something comes up later, please let us know so that someone else can make it.

Look forward to seeing you there!

Written by Alfonso Lamadrid

19 October 2015 at 8:53 am

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On the State aid investigations into tax rulings

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JLB State aid_Rulings

My plan for today was to discuss AG Wahl’s very sensible Opinions in the cement cases concerning the Commission’s powers to request information (something very close to my heart, as explained in my comment on the Judgments of the General Court) as well as the Judgment in AC Treuhand, due today (we already commented on AG Wahls Opinion in that case; see here). However, since I have a busy morning (I rarely sometimes work, you know) and need to catch a plane later, we’ll leave that for next week.

In the meantime, I’ll leave you with something equally interesting: the detailed and self-explanatory slides used this morning at the Brussels School of Competition by Garrigues’ partner and state-aid specialist, José Luis Buendía in a talk together with Karl Soukup (Director at DG Comp supervising the investigations into tax rulings, aside from being an impressive runner).

The event was quite a success, which is impressive considering that it started at 8 a.m, which is indecent.

The presentation puts the current investigations (the decisions were expected last Wednesday) into context, and identifies some novelties and apparent flaws  debatable issues. You won’t see it in the slides, but he also suggested that someone read beyond Article 102 of the Treaty and get to 116

Presentation Rulings JLB 

P.S. Btw, both AG Wahl and José Luis will be among the speakers at our upcoming Chillin’Competition conference. 

Written by Alfonso Lamadrid

16 October 2015 at 12:16 pm

Posted in Uncategorized