Chillin'Competition

Continuing the “inter-platform dialogue” on platforms started by my post last week, we are very pleased to post a guest contribution from Jakob Kucharczyk, Director of Public Policy at CCIA‘s Brussels office, that will also go up on the DisCo blog. I hope you the reader enjoy this exchange of views.

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As a trade association representing many of the most popular online platforms, CCIA obviously has some strong views as regards the many elements of the debate on platforms, as well as its roots which Alfonso adequately described in his post. While Alfonso tackled the debate from a competition law perspective, I will look into this debate from a regulatory perspective. As an immediate reaction to Alfonso’s points I have to say that regulation should have one key commonality with competition law enforcement: it should be a fact- and evidence-intensive exercise. However, very often there is a difficulty in Brussels to frame the regulatory debate against actual market dynamics and facts. While regulation is somehow bound to be subject to greater political influence than competition law enforcement because of the legislative process, good regulation should at the minimum be based on the concrete identification of economic or societal problems that merit regulatory intervention.

As the initiator of legislative proposals at European level, the Commission has extraordinary responsibility to base proposals on solid evidence in tune with its recently announced better regulation package. I guess in competition law terms one can say that in light of the Commission’s quasi monopoly on legislative initiatives is carries a special responsibility.

So let me start this dialogue with some good news and insights into Europe’s digital economy which I think are worthwhile to keep in mind when discussing online platforms.

Investment into European E-Commerce Ventures is Booming

Alfonso mentioned how political frustration with competition law enforcement in digital markets led to increased regulatory pressure on platforms. The mythical ineffectiveness of competition law, however, is often accompanied by a political belief that European online players are unable to compete in a market ‘dominated’ by mostly American players. This might explain why European policymakers seem quite willing to explore the regulatory path since intervention would not primarily hit European interests. I will discuss this argument later but for now let’s shed some light on the market. At CCIA we wanted to have insights from investors, people who are detached from Brussels and who invest ‘real’ money into e-commerce ventures. What do they think about the chances of European e-commerce companies?

Well, here is the good news — they seem to be very optimistic. Investments into European e-commerce ventures are booming. Our friends from ‘The Analyst’, an independent equity research house based in London, found investments into their study’s sample group of 25 publicly traded, pure e-commerce companies have increased by 27 times over the last three years. Capital inflows into the sample group of 500 private e-commerce companies, many in the startup/early development phase, increased by 4.5 times in the same period. In aggregate numbers, since 2012 the group of 25 publicly listed e-commerce companies raised €12 billion and the group of 500 private companies raised over €5 billion. Yes, money is essentially pouring in and the report illustrates several success stories in fashion, real-estate, and food delivery, whose range shows how the e-commerce market is becoming more diverse. (You can see Mark Hiley, CEO of The Analyst, speaking about the report here).

While these findings are a snapshot of the e-commerce sector, they confirm the one of the main characteristics of digital markets: very low barriers to entry (see e.g. here for our previous discussion of this theme). European e-commerce ventures are vibrant and in the process of greater diversification. Investors continue to bet on this positive development. All of this is indicative of healthy market dynamics and should send a clear signal to policymakers. European businesses are competing and platform regulation as a tool of industrial policy would be misplaced. In fact, increasing regulatory barriers might go the other way and stifle this development because it benefits today’s ‘incumbents’. In all likelihood they will be able to deal with more regulation which will shield them from more agile competitors. Policymakers need to keep this potentially disproportionate impact of regulation in mind when weighing the pros and cons of intervention.

Definition of ‘Platform’ – The Never Ending Debate  

Let me give you examples of Europe’s e-commerce success stories: in only eight years, Germany’s Zalando became Europe’s largest mass-market fashion e-tailer. Rightmove has become the UK’s leading residential property portal, providing services to estate agents. Italian-Swiss Yoox/Net-a-Porter operates the leading online, luxury apparel portal in Europe and after only four years the online food ordering platform Delivery Hero operates in 34 markets across five continents.

Apart from being successful and growing businesses, what else do these companies have in common? Of course, they are all platforms. But is that true? Alfonso rightly suggested that the answer to this question may not be easy as we currently witness a lot of blind men trying to describe the elephant — hence definitions are quite subjective. Therefore, let’s have a look at the definition provided by the Commission in its consultation on platforms. Interestingly, it does make sense but it seems that the consultation is inconsistent in the application of that definition. The consultation states that an online platform is “an undertaking operating in two (or multi)-sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users”. However, it is not clear why a company like Netflix, which is explicitly mentioned as an example, would fall under that definition because it essentially functions as a retailer for audiovisual content. While there might be network effects, there is no direct interaction between content rights owners and consumers. Netflix negotiates with rights owners, ‘stocks’ the content at own risk and offers it to its subscribers. Amazon as such, for example, does also not fit neatly under the definition. Amazon’s online retail business is a one-sided market while its open marketplace does indeed bring together two distinct but interdependent groups: sellers and consumers. Today Zalando operates an online retail business in a one-sided market. Should it change its business model and open its site to third party sellers, just like Amazon did, it would suddenly fall under the Commission’s definition of an online platform.

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Last week we posted here Wouter Wil’s summary of the main procedural developments in recent times (it has already been downloaded quite a few hundred times…).

Today we are publishing the transcript (thanks to Carlos Bobillo) of Luis Ortiz Blanco’s intervention at the Chilling’Competition conference (pictured above).

I will do the same unnecessary introduction I did at the conference: Luis is a partner at Garrigues, a Visiting professor on competition procedure at the College of Europe, and the single reason why I decided to work in competition law (not sure that’s something he deserves credit for…)

His provoking intervention is available here: Chillin Competition Conference – Intervention by Luis Ortiz Blanco – 19.11.2015

A few days ago I spoke at CEPS about the debate concerning online platform regulation that is attracting some interest these days as DG Connect’s and the House of Lords’ consultations are ongoing (my presentation and a video interview are available here). This is a most interesting issue although, admittedly, one that not so long ago I would not have expected to be an issue at all.

In the wake of this event we thought that perhaps it would be useful to contribute a bit more to the debate, so here you will find a summary of what I said at that conference. In order to complement it, we have decided to engage in an “inter-platform” dialogue with our friends at CCIA and their DisCo (Disruptive Competition) Project blog. This post will also be published there, and we will soon be posting a guest contribution from them. Any comments you might have will certainly enrich the debate.

Not being an expert in regulation, my views on the subject are eminently related to competition law and to its application to multi-sided markets which, as you know, is one of the fields in which I have recently done some work, advising platforms, non-platforms competing with platforms or simply reflecting on wider policy issues (e.g. here or here). The competition law perspective is a particularly useful one because competition law seems to be the elephant in the room, much at the root of these discussions.

Indeed, many of you will recall that ex ante “platform” regulation went from being a non-issue to being very much an issue when a number of Member States (notably Germany and France) expressed frustration at how competition law would not be enough to tackle some problems (not clear which) caused by “some” (apparently not all) platforms (some examples of such statements are available here, here and here). [This concern about the possible shortcomings of competition law coincidentally emerged at a time when some thought that the ongoing Google investigation would fail to establish a “neutrality” obligation incumbent upon Google’s search activities] And since competition law was seen as insufficient (read: did not lead to the outcome that some expected), some thought that it would be idea to either change competition law or to bypass it by adopting specific regulation.

What kind of animal is a platform?

In this context, the word “platform” seems to have been chosen to encompass those “some platforms” that people had in mind. However, as explained in previous posts written on the DisCo Project blog (here or here), it may not be the best term to identify a category of companies subject to specific regulation.

Some of you may have heard of the expression “The Law of the Horse”. This is a term coined by American judge and antitrust expert Frank Easterbrook in a now famous conference in the US. In this conference he explained that there is no “law of the internet” more than there is a “law of the horse”; that there are laws of contracts that apply when horses are sold, of animal husbandry that apply when they need care, of laws of gambling that regulate when they race, but there is no law of the horse. Nowadays some partisans of regulation are trying to create some sort of “Law of the horse platform”. But then of course we come back to the somehow relevant question of what a platform is…

I don’t know if you are familiar with the Indian story of “The Blind Men and the Elephant”. This is a story in which several blind men are asked to describe what an elephant looks like by touching different parts of its body. The one touching the leg says the elephant is like a pillar; the one touching the belly says it must be like a wall; the one feeling the trunk believes it must look like a tree branch; the one touching the ear is convinced an elephant resembles a hand fan, and so on.. This story illustrates the fallacy that one’s subjective experience can be true but at the same time it is inherently limited and cannot account for the totality of the truth.

We see something similar regarding “platforms”: some appear to extrapolate certain features or problems from a limited number of companies to a whole business model, but those problems are neither exclusive nor common to “platforms” (as defined in the Commission’s consultation). Before doing such a thing, one should perhaps understand how markets work and why companies do what they do.

Having this complete view would certainly be necessary, for, as stated by Easterbrook in his talk The Law of the Horse, “the blind do not make good trailblazers”.

The wrong question

As already noted, the question many are asking is whether competition law is sufficient to address the challenges raised by platforms or whether we need a new framework; does competition law need to adapt?

In my view, and whereas enforcement may need some refinements (e.g. merger notification thresholds may not be well suited for some mergers—see here—and we do not have good economic tools to assess demand-side efficiencies–see here), there is no other branch of law that, over more than a hundred years, has proved similarly flexible, adaptable and accommodating of the evolution of markets and economic thinking than competition law.

In my view, the questions that are being posed now are the wrong ones, so I would suggest that instead of looking at supposed flaws in competition law, perhaps we should look to competition law to extract some lessons.

The above includes understanding why competition authorities are sometimes reluctant to intervene, or why issues that are perceived to be problematic by the lay public are not understood as such by experts in the field. Also, it would be worth reflecting on whether there may be a possibility that if competition law has not done more regarding “platforms” it might be due to the fact that there may indeed be very good reasons for it not to do more.

Why competition law can teach us?

Some may wonder whether competition law can really teach us something about platforms and about how to deal with them. If you ask me, it sure can.

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Many of you have been asking for the document used by Wouter Wils yesterday during his presentation at the Chillin’Competition conference (we’ll tell you more about how it went soon; we also have plenty of photos).

In the coming days we hope to be posting other materials (and even guest posts from speakers who may be interested); for the time being we leave you with Wouter’s paper, which will come in handy to many (including myself, given that it greatly facilitates the updates for the courses I teach on procedure…).

Here it is: antitrust procedure developments November 2015 final

We have just been made aware that the following text was published in todays’s Playbook by Politico. We are very grateful, but sexy?? 😉 

Only one clarification: it’s Nicolas, not me, who deserves credit for founding the blog!

BRINGING SEXY TO COMPETITION POLICY: The Who’s Who of Brussels’ competition world will congregate today at a conference organized by the blog Chillin’Competition. In a barren landscape dotted by multiple dry competition law journals, Chillin’Competition has attracted a fervent readership with its sometimes irreverent, sometimes serious look at European antitrust.
The blog was founded by Alfonso Lamadrid, an associate at law firm Garrigues, and Nicolas Petit, a law professor at Liège University, in 2009. It is now run by Lamadrid and Pablo Ibáñez Colomo, an associate professor at the LSE. Its long-running “The Friday Slot” puts a series of offbeat personal and professional questions to eminent practitioners, judges and officials, including competition commissioner Margrethe Vestager, Google outside counsel Maurits Dolmans and General Court Judge Ian Forrester.

As we are getting ready for the Chillin’Competition conference tomorrow we feel we should express our gratitude once again.

Thanks to you for following the blog and for the  interest in this event, which has exceeded our expectations and flooded my email , and apologies once again to the more than 200 people in the waiting list (we owe you one!)

We will report on how the conference goes, but for the time being we would also like to thank the conference sponsors and speakers; they have made it possible (and free) and they have our gratitude.

We are very much looking forward to it

I spoke yesterday in Brussels at an event organized by CEPS (Centre for European Policy Studies) under the title “What is a platform and should they be regulated?”.

I will not develop my views here now because (i) I don’t have the time, and, most importantly, (ii) we will very soon be engaging in an “inter-platform dialogue” on this subject with the blog run by our friends (and conference sponsors) at CCIA.

In the meantime, and as a teaser, my presentation is available here: CEPS_Regulating Platforms_Lamadrid , and a short video interview is available here [Youtube, as an “evil platform” seems to have altered the content of the video, as I’m clearly way better looking live 😉  ]

For quite some time now readers of this blog have asked us to write some posts explaining the legal market to those wishing to work in it, and even to offer career advice to young lawyers. We haven’t done that because we, obviously, are not really in a position to give career advice to anyone (much less are we capable of making sense out of the legal market !).

But then we thought we know someone who could do just that. So we have asked Steve Meier, quite possibly the best headhunter  recruiter you’ve never heard of (considering his trade, the fact that you may not have heard of him reveals a level of discretion that is an excellent sign). In a series of four guest posts Steve will be sharing his views on how young (and not so young) lawyers can successfully navigate the Brussels legal market. We leave you with him. Please feel free to post your own views or questions as comments to these posts.

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Hi everyone, and thanks to Chillin’Competition for this opportunity.

We consider that lawyers can be grouped into four (admittedly broad) bands:

• newly qualified (“NQ”) to about two years of post-qualification experience (“PQE”)
• 2PQE to 5PQE;
• 5PQE to 8PQE; and
• more than 8PQE.

Let me take a moment to mention that some firms are moving away from rigid banding to more merit-based systems where top-performing attorneys are rewarded with higher compensation and/or greater responsibilities.  Nonetheless, the majority of firms still use banding, and reference to it can provide useful guidance to help you benchmark yourself to your contemporaries. You might have a look at the overview of Brussels lawyer profiles located on the “Working with Us” page of our website by clicking here.

In this post we will focus on the first band and on recruiting issues affecting the most junior lawyers.

Avoid working with recruiters.

First and foremost, anyone with less than about two years of post-qualification experience should generally not work with recruiters – even us!

Other recruiters will never tell you this; I just did.

Working with recruiters before you have a couple of years of post-qualification experience can be detrimental to your career, not least because it can actually keep you from getting your all-important first job.  Some recruiters (see “Introducing  .  .  .  Shotgun Sam“) will promise you everything, but they ultimately deliver much less than promised.  They will tell you that you cannot possibly find work without their “help” or that they have direct access to key decision-makers at every law firm.  Be wary!

The truth is that Brussels is a highly competitive market, with many more talented and smart young lawyers than there are roles to fill.  You might think that it does no harm to work with a recruiter or that working with one may give you the inside track or provide some other advantage.  There are at least two reasons why that is untrue:  i) most firms are loathe to pay a recruiter’s fee for a very junior and generally unproven candidate; and ii) a recruiter can do nothing that you cannot do for yourself.  Indeed, a partner of a large firm, one of the big “names” in the Brussels competition market, told me years ago, “If young lawyers don’t have the initiative to apply to us directly, they’ll never succeed here.”

As a practical illustration, you might consider the following scenario: imagine that a recruiter submits your details to virtually every firm in the market; imagine further that, for whatever reason, your application gets no traction.  After a few frustrating months you decide to take matters into your own hands.  You may be unaware of this, but the recruiter is deemed to “own” your candidacy for a period of up to twelve months, and consequently the opportunity to look for a job yourself during that time is severely limited.  Even if one or another of those firms might be inclined to give you a try on the basis of a direct application, the previous involvement of the recruiter will make them think twice.  As a young lawyer looking to get your foot in the door and to prove yourself, in this scenario it would have been much better for you to have made direct applications in the first place.  Things evolve at firms:  although there may be no suitable role today, there may be one in six months, and nothing keeps you from reapplying as circumstances change; however, a recruiter’s previous involvement will almost always keep you out of the running.

Do not fear trainee contracts.

Until you have proven yourself in practice with a couple of years of experience under your belt, firms will want an opportunity to determine whether you are right for a career in private practice (let’s face it, not everyone is).  The interview process can reveal only so much about you and your suitability for the job.  The fact is that more and more firms are hiring young attorneys on a “look-see” basis, deciding only after six or twelve months of working together on a fixed-term or trainee basis whether they want to hire the attorney permanently; even firms that hire permanent associates do so subject to at least a six- or twelve-month probation period.  That being so, you should give consideration to job offers even if they are trainee contracts.  If you do a great job, trainee contracts can lead to great permanent positions!

Seek honest career advice and guidance.

Even though we believe that young attorneys should not work with recruiters, reputable recruiters can be a source of career advice and guidance.  For our part, we are always happy to give advice to promising young lawyers.  We can give you our view of market opportunities, point you in the right direction, or even help with your CV (see “How to Prepare a More Effective CV“).  I was once a young lawyer and I wish that I had had someone to talk to about the market and my place in it.

Avoid market churners.

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There is a fundamental aspect of Post Danmark II that, I realise, is still poorly understood. I know I have already written quite a bit about the judgment, but it makes sense to say a word about it before the discussion loses topicality.

In paras 70-73 of Post Danmark II, the Court refused to set a de minimis threshold in the context of Article 102 TFEU. This is sensible and, may I add, wholly uncontroversial. When a firm holds a dominant position, anything that it does is potentially exclusionary (in the sense that it ‘is liable’ to have anticompetitive effects).

By the same token, when it is shown that a practice implemented by a dominant firm is likely to have exclusionary effects, it is by definition the case that these effects will be appreciable. Again, I fail to see anything controversial in this regard. Suffice it to think, by analogy, of an exclusive distribution agreement implemented by a supplier with a 35% market share. If this agreement is found to have restrictive effects on competition within the meaning of Article 101(1) TFEU, these effects will be appreciable.

Where does the misunderstanding come from?

The Court refuses to set a de minimis threshold, true, but this fact does not mean that dominant firms’ practices are always abusive. This key aspect of the judgment is not very well understood. As I explained during my talk, Post Danmark II is clear in saying that the exclusionary effects of standardised rebate schemes need to be established. It is simply not enough to assume that this practice can have exclusionary effects.

What is the practical consequence? Standardised rebate schemes may fall outside the scope of Article 102 TFEU if, for instance, the dominant firm is not an unavoidable trading partner, or if the relevant market is not conducive to foreclosure. If the practice is unlikely to have exclusionary effects, it will not be caught by Article 102 TFEU. The fact that the Court refused to set a de minimis threshold is entirely compatible with a finding that the practice is not abusive.

The analogy with Article 101 TFEU.

Allow me to go back to the example I used above to illustrate my point. An exclusive distribution agreement where the supplier has 35% of the market falls outside the scope of the de minimis Notice (the market share is above 15%). It also falls outside the scope of the Block Exemption Regulation (the market share is above 30%). Does this mean that the agreement is necessarily caught by Article 101(1) TFEU? No. Provided that it is not ‘by object’, its likely restrictive effects on competition will have to be established (and not simply assumed) under Article 101(1) TFEU. This point is eloquently explained by the Commission in the Guidelines on vertical restraints (para 96, if you are curious). Well, the same is true in the context of Article 102 TFEU (as far as ‘by effect’ practices, like standardised rebate schemes, are concerned).

Expedia and Tomra: two provisions, a single logic.

As I pointed out in my first reaction on the ruling, the statements about de minimis found in Post Danmark II are only truly relevant for ‘by object’ practices, that is, for those practices that are deemed abusive irrespective of their impact on competition. This category includes, as the law stands, exclusive dealing and loyalty rebates.

The authority or the claimant would not have to show that exclusive dealing is likely to have exclusionary effects on competition to establish an abuse. In this sense, it is different from the standardised rebate schemes examined in Post Danmark II. If evidence of the likely exclusionary effects is not necessary in the case of exclusive dealing, it would not be a valid defence to argue that the practice is de minimis. This is the point made by the Court in Tomra, which from a positive perspective seems uncontroversial too.

One may dislike this outcome, but is it any different from what we observe in the context of Article 101(1) TFEU? Remember Expedia, where the Court held that agreements between undertakings that (i) restrict competition by object and (ii) have an effect on trade between Member States are never de minimis. Expedia and Tomra can be said to follow the same logic. Where a practice is deemed anticompetitive ‘by object’, the appreciability of the effects becomes irrelevant.

Today is “Love your lawyer day”.

As explained by the American Bar Association here, this day is necessary given that: “(i) Lawyers have consistently been the target of verbal bashing, derogatory portrayals and literature is rife with lawyer bashing dated back hundreds of years; (ii) A 2013 Pew Research Center survey found lawyers last among ten professional categories for “contributions to society”; (iii)  According to a 2014 Gallup survey, the public perception of lawyers on honesty and ethics is an unsatisfactory 21%; and  (iv) The portrayal of lawyers in American popular culture, including on television and cinema, is largely negative, which promotes a negative stereotype of lawyers in society”.  

In order to conmemorate the day, we are willing to offer a couple of rounds of beers or two tickets for the Chillin’Competition conference to whoever can tell the best joke about lawyers on the comments to this post. The winning joke will be that with more thumbs up by next Friday 🙂 

For some posts from the past on the profession, you can read our “Is associate lawyer the unhappiest job?” or my take on “What makes a great lawyer“.