Chillin'Competition

The European Internet Foundation invited me to participate at a dinner-debate on digital platforms held last Tuesday at the European Parliament. It’s the second time that I go to the Parliament to discuss this sort of issues (the first time was this one) and, for someone who, like me, has an odd frustated political vocation, that is always an interesting experience.

It felt partly like a déjà vue , but it was fun. The main innovation in my speech as opposed to my previous interventions on the subject was a change in the jokes used (the new ones weren’t better, though), but essentially the ideas I developed there are the same ones that I set out here as part of our inter-platform dialogue with the DisCo blog.

The type of audience that was present on Tuesday (MEPs, representatives of the industry and policy experts) also led me to emphasize a message: that the passage of laws is not more important than the outcome of their enforcement. 

A video about the event is already available here. I understand that the complete recording of all interventions will soon be made available here.

By the way, in case you haven’t read it, last week the European Parliament adopted a resolution on the annual report on competition policy. I like how it “welcomes the new Commissioner’s refusal to bow to political pressure” and then goes on to give directions on what to do regarding specific companies and markets… There are nevertheless some interesting ideas in it.

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P.S. The next “public appearance” will take place tomorrow in Madrid:  Seminar on recent developments in competition law (EN_ESP) 29 Jan (this time on the notion of “single and continuous infringement”).

Last time I wrote on Uber, I mentioned the recent ECJ ruling on Scottish legislation setting a minimum price per unit of alcohol. These measures are intended to address binge drinking, which, I understand, has become a serious issue in Scotland and the whole of the UK. The Guardian published the other day an interesting – and shocking – piece on the impact of binge drinking on the National Health Service.

What would be the status of similar measures under competition law? I thought of a couple of hypotheticals to show that, under a proper construction of Article 101(1) TFEU, private measures of this kind would not necessarily be problematic.

Example 1: It is well-known that nutrition is key to prevent heart disease, even to those (including Alfonso and myself) who enjoy a burger at Five Guys. Those with a history of cardiovascular problems, or those who want to prevent them might find it a challenge to eat out. Imagine a group of restaurants that create a common label, ‘Heart Healthy’. These restaurants commit to follow the guidelines issued by cardiologists and would give consumers the guarantee that healthy menus would be available.

I do not think anyone would argue that an agreement of this kind is akin to a cartel. It is closer to a standard-setting agreement or a certification mechanism. But please note that the restaurants would go a long way in the coordination of their conduct. They would agree, inter alia, not to add salt to the dishes, not to use red meat (or not to use meat at all) and not to use certain types of oil (or maybe not to use oil at all). Moreover, they might agree to limit the size of their portions (cardiologists insist that portions in some restaurants are too big; Alfonso is not convinced). All of these restraints, examined in isolation, look like those found in cartel agreements, but the rationale of the agreements and the context are clearly different.

Example 2: What if a group of small, independent grocery stores do something similar? A group of retailers could create a common label, ‘Ethical groceries’, and commit, inter alia, to strict animal welfare standards. For instance, they would not sell products like foie gras. They could also commit not to contribute to the negative impact of binge drinking on the community and agree not to sell alcohol in their premises. The label would allow consumers to recognise the stores that share certain views on business practices. A certification scheme of this kind could not be more different from a cartel. Again, I struggle to see how it could be argued that an agreement of this kind is restrictive of competition by object, but I would love to read the views of those who disagree.

Example 3: I have just argued that an agreement between small, independent grocery stores not to sell alcohol and other products is most probably not a restriction of competition by object. What if the same independent stores decide to set minimum prices for alcohol? If an agreement not to sell a product in this particular context is not a cartel, I fail to see why price-fixing should be treated differently. If anything, an agreement not to sell a product at all should be treated more harshly than an agreement setting minimum prices.

The reason why this agreement between small, independent grocery stores should not be treated like a price-fixing cartel seems clear. These small retailers would not have significant market power. And we know very well that a cartel worthy of the name only exists where its participants have market power. If a group of small rivals agrees on price-fixing, they would be harming their profitability. They are in fact foregoing profits to bigger rivals who sell alcohol or who compete on price. If price-fixing in this particular context is not an obvious profit-maximising strategy, the explanation for the arrangement must be a different one (in this context, it would be part of a certification mechanism).

I do not think I am saying anything new. We have acquired sufficient experience to know that not every price-fixing agreement between competitors is restrictive by object. Just take a look at the examples cited by the Commission in its recent Guidance on the question. And I guess the lesson is clear. The nature of the agreement and the economic and legal context of which it is part must always be considered. There are no shortcuts and certainly no exceptions to the principle!

Yesterday the ECJ rendered its awaited Judgment in the Eturas case on the boundaries of the notion of agreement and, specifically, on concerted practices. (An English version was not yet available last night, so what follows uses my own relaxed translation from the French version).

The case originates in a preliminary reference from the Lithuanian Supreme Administrative Court in the context of annulment proceedings against a national decision finding that travel agents had coordinated the discounts applicable to clients.

What makes the case particularly interesting, is that the alleged coordination would have taken place via an online travel booking system (E-TURAS, owned by Eturas) used by more than 30 travel agents in Lithuania. The question that attracted interest to the case was, in essence, that of whether a common electronic platform facilitates collusion, an issue that has elicited interesting comments in recent times  (see here for an interesting paper by Ezrachi and Stucke, and here for a New Yorker piece (When bots collude) on a US case involving coordination through an algorithm). Online poker players discovered these problems a long time ago, so my brothers say…

The facts

According to the Lithuanian authority, prior to the alleged infringement the director of the Eturas had sent an email to other travel agents asking on a vote on whether discounts should be reduced (there is only record of one agent having received it). Following those emails

• a system notice was sent via the internal E-TURAS messaging system announcing that on the basis of the declarations, suggestions and wishes of agents, discounts were in principle capped at 3% (the message was available and could only be consulted in a section of the system called “information messages”; there is only evidence that two agents accessed it; no one replied and no one took public distance from the message either) and, subsequently
• a technical restriction was set in the E-TURAS system (integrated in the websites of the agents) limiting to a maximum 3% the discounts available for online bookings (the technical restriction did not preclude larger individual discounts, but those required additional technical actions)

The national competition authority found an infringement as it observed that agents had not publicly distanced themselves from the initiative, could have reasonably assumed that others had received the same message and were likely to abide by it, and it inferred that agents had previously discussed these actions. An annulment action was partially upheld and fines were reduced, but both the authority and the companies appealed before the Administrative Supreme Court, who referred two questions to the ECJ:

The Judgment

—First question: is the fact that a message was sent enough to establish that its addressees became or should have become aware of its content, and that by not opposing it they acquiesced in a way that would make them liable under the competition rules?

The ECJ starts off recalling the principles that companies are to determine their behavior autonomously (27) and that “passive modes of participation” (i.e. complicity/facilitation) are also caught by Art. 101 (and refers here to the recent Judgment in Treuhand (28)) (our comment on that one is available here).

The Court nevertheless explains that, whereas there is a presumption that companies take into account the info exchanged with others for determining their behavior (33, citing the infamous T-Mobile), the question posed by the national Court is not really about that, but rather about an evidential issue (34). As recalled in paras. 29 to 32, issues pertaining to the standard of proof are not harmonized by Regulation 1/2003 and therefore remain a matter of the national law at issue provided that the principles of effectiveness and uniformity are respected.

The principle of effectiveness requires that national rules on evidence don’t render the application of EU law impossible or excessively difficult; accordingly, it requires that not only direct evidence, but also indicia, be valid to prove an infringement (35-37). However, if, as in the case at issue, the national Court has doubts as to whether the travel agents became or must have become aware of the content of the system notification, then the presumption of innocence applies, in the sense that the mere sending of the notification cannot be in itself enough to infer awareness of its content (38-39). It could nonetheless be used in combination with other objective and consistent indicia to establish a rebuttable presumption of awareness (40).

According to the Judgment, the national Court should not make it excessively difficult for the companies to rebut this presumption; for instance, they should be able to show that they had not received the message, consulted that part or read it until some time had elapsed.

—Second question: in the event of a negative reply to the first questions, what elements should be taken into account in determining whether undertakings participating in a common system like the one at issue take part in a concerted practice?

The ECJ recalls that a “concerted practice” implies not only an element of concertation, but also an ensuing behavior on the market and a causal link between the two (42)

After repeating the facts of the case (43), the ECJ holds that (a) those agents that were aware of the content of the system notification could be presumed to have tacitly acquiesced provided that the other elements (behavior + causal link) are met and thus be liable as from the moment of reception (44); and (b) those agents whose awareness cannot be established cannot be presumed to have participated in a concerted practice by virtue only of the implementation of the technical restriction (45).

A presumption of the participation of a given undertaking in a concerted practice can nonetheless be rebutted by publicly distancing itself from that practice or by reporting it to administrative authorities. In addition, the Court says that, according to the case law, in the absence of a collusive meeting there may be other ways of rebutting the presumption (46).

With regard to “public distancing”, the Court observes that in a case like this, in which it is impossible to identify all addresses of the message, it cannot be required that a company distances itself in the eyes of all other addressees (47), and takes the view that a “clear and explicit objection” addressed to the system administrator would be enough to rebut the presumption (48). AG Szpunar had suggested something similar in his Opinion, adding also that ignoring the communication or instructing employees not to abide by it would not have been sufficient.

With regards to the other means of rebutting the presumption of having participated in a concerted practice, the Court states that, in circumstances such as the ones at issue, the causal link could be rebutted by showing that the company systematically applied a discount exceeding the cap (49).

My comments:

On the first question -whether prove that a message was sent is enough to presume the awareness of the recipient- is rightly treated by the Court as a matter of evidence subject to national law; the Court’s reasoning in the regard is sound and consistent.

Usual readers of the blog have my issues with the principle of procedural autonomy (it is an undeniable problem that the outcome of cases dealt with the same provisions – Art. 101 and 102- can vary so much depending solely on the authority that handles it because in real life cases procedure matters, in practice often more than substance.

We all know that the principle of procedural autonomy is often eroded by the principles of effectiveness and uniformity (there are several examples in competition law; see here). When those principles are applied, however, the result is typically to enlarge the scope of rules, powers of prohibitions (in practice effectiveness tends to weigh more than uniformity…). But in Eturas the Court says something interesting, even if obvious: above all, above other presumptions, and also above effectiveness, is the presumption of innocence, and in the face of doubt, the solution is clear. So, there are two outer limits to procedura autonomy in this regard: proving something cannot be too easy (presumption of innocence) nor too difficult (effectiveness).

In its response to the second question, the ECJ’s approach consists in applying the same principles (presumption that info will be taken into account + requirement of public deviation) but with some flexibility to account for the peculiarities of the technology at issue (i.e. admitting other means of distancing, not requiring that distancing be done with regard to all others, and not suggesting, like the AG’s Opinion did, that it could be necessary to also inform customers).

The Court also admits that distancing can be shown by conduct on the market, but provided that it is “systematic” (AG Spuznar’s Opinion had proposed not to accept market conduct as a valid element of rebuttal as it could hardly be distinguished from “cheating”). This is sensible, and in fact there are several precedents in which EU Courts accepted distancing that did not involve express declarations (e.g.  Cases T-208/08 and T-209/08, Gosselin Group v Commission,  para 161 or Cases T-122/07 to T-124/07, Siemens AG Österreich, paras 60-61).

Furthermore, the ECJ introduces a twist –not so visible in AG Szpunar’s Opinion- which is to make the establishment the concerted practice conditional on the finding that a given company was aware of the content of the message. Note in this regard that the second question posed by the national Court was consciously and expressly framed in a way that assumed that the companies were not aware of that content. Nevertheless, the ECJ rejects the possibility that a concerted practice is proved in the absence of evidence on awareness of the message (45). This is sensible and in line with previous case law.

The implications of the Judgment are interesting:

Companies sharing important IT functions with competitors will now have to carefully craft protocols  to avoid possible liabilities. I have my ideas on how to do that, but I (or rather my firm) bills for those 😉

Questions remain open, particularly concerning system administrators. For instance, in para. 48 the ECJ accepts that distancing may be done only vis á vis the “system administrator”. But in that case, what obligations fall upon the system administrator? Would the immediate forwarding of that message or the withdrawal of the initial communication exempt it from liability? If yes, would that  run counter the effectiveness of the prohibition given that a signal was already sent? If not, what incentives would it have to correct its behavior?

Also, would a “suggestion” or “recommendation” on pricing –as opposed to a technical restriction- be enough of a signal to give rise to a concerted practice?  Is the legality of the system administrator’s conduct conditional on the actions adopted by the users of the system? (after all, in the absence of a concerted practice, its conduct would be unilateral and hardly objectionable, unless perhaps framed as an individual abuse of collective dominance –in what would be a mixture of the EU’s Irish Sugar and the US’s Ethyl case on facilitating practices-). And, in in this sense, could the use of a common IT system be considered as a structural link relevant to establishing collective dominance? I guess not, but take a look at Italian Flat Glass…

My bet is that it won’t take long before these questions come up again.

Kevin Coates has just published on his own blog the excellent introductory remarks he made for one of the panels of our Chillin’Competition conference. We very much encourage you to read it. They are available here.

I’m spending most of my week at an oral hearing, so an easy post is in order: here goes another conference announcement. This one, however, is particularly important because (i) it refers to a conference organized by the emeritus founder of this blog; and (ii) it refers to one of the very few events that can actually provide a full view view of a complex issue, in this case patent-hold up.

The full Conference programme is available here: LCII-Conference-29th-February-2016-Patent-Holdup-Final

How Nicolas has managed to attract the speakers appearing on the programme (including two members of EU Courts, the US’ Deputy Assistant Attornet General for Antitrust among many other reknown experts) is beyond me.

Below please find the abstract provided by the organisers:

The patent hold-up theory has nurtured many policy developments in the past ten years. On the one hand, Standard Setting Organizations (SSOs) have been exploring changes to their licensing policies, in particular in relation to the commercial implications of FRAND pledges given by holder of Standard Essential Patents (“SEPs”). On the other hand, antitrust agencies and patent courts across the globe have been confronted with several waves of cases Those proceedings have generated a thick, diverse and somewhat inconsistent body of case-law on a wide array of topics, including the availability of injunctive relief, patent valuation, portfolio licensing, practicing and non-practicing entities, etc. This conference seeks to provide a 360° state of play on patent hold-up in contemporary antitrust and patent policy.
You can register now via this link: http://www.eventbrite.fr/e/billets-lcii-half-day-conference-regulating-patent-hold-up-19397594728

I’m writing this short post just to make sure that Pablo doesn’t publish his 7th straight one, which would match my record of posts by the same author (he really does keep track of these things…).

My absence from the blog these past few weeks days is explained mainly by me being swamped with all sorts of possible things at work, including quite a few new and most interesting Court and Commission cases, some of which may be worth commenting on here at some point. Given that I was already foreseeing some of this could happen, I made a new year’s resolution: say no to any invitation I received to speak at least until my annual lecture at the Brussels School of Competition in mid-March.

Well, only two weeks into the New Year, this is how my non-billable  speaking calendar for that period is looking (just in case it isn’t clear, what comes below is self advertising events you may be interested in).

• Yesterday I lectured on cartels at LSE. Glad I did it, also for the great burger with Pablo at Fiveguys;

• On January 26^th I’ll be speaking on platform regulation (yes, again) at the European Parliament at a dinner debate organized by the European Internet Forum.

• On the January 29^th I will participate at a seminar in Madrid (more info on this soon), discussing issues related to the notion of “single and continuous infringement” in cartel cases with Viktor Bottka (Commission’s Legal Service) and Santiago Soldevila (former General Court Judge, now at the Spanish Court of Appeal). If interested in attending, you can drop me a line.

• On February 2^nd I will be making comments about the notion of restriction of competition at the Global Competition Law Centre’s annual conference in Brussels. Pablo and I are likely to write a joint piece on the subject soon. Btw, if you haven’t done so yet, you should register to this one; the programme is truly excellent.

• On February 19^th I’ll be taking part in another Madrid seminar coordinated by Cecilio Madero, Nick Banasevic and Milan Kristof (programme to be published here soon).

• On March ^1st and 2^nd I’ll be lecturing on State aid litigation, and on March 15^th about the interface between competition law and IP.

• On March 4 and 5, intervening in AIJA’s conference on Competition Law Developments in Technology, Media and Telecommunications in Valencia, Spain (on a weekend, decent weather, paella…; couldn’t say no). Btw, registrations are now open here.

So much for my good intentions (the above also means that my “sleep more” resolution is also done with…).

Fortunately, however, I have found a way to reconcile work and spending time with my son 😉

The mighty Richard Posner is featured in the Harvard Magazine. If you have some time, you will find it interesting. I guess many readers will agree with his views on legal pragmatism, which he considers to be the only viable approach to judging and, more generally, his scepticism vis-à-vis grand theories. I have the impression, through my exchanges with lawyers and officials, that this is the approach that comes more naturally to those exposed to the realities and constraints of daily decision-making.

I have to say that I kept reading the feature because it announced the release of a new book by Posner, Divergent Paths. A few years ago, he published How Judges Think. There is a chapter in this book, ‘Judges Are Not Law Professors’, that I have read a few times already.

That chapter is a good reminder of what meaningful legal scholarship is. But what it does, first and foremost, is to describe the growing gulf between legal academics and the legal profession in the US. It may be the case that some law professors in the US are towering intellectual figures, but what they say, Posner explains, matters little to judges, officials, and practicing lawyers.

Interestingly, the rise of interdisciplinary research – which Posner championed in the 1970s – explains in part the growing irrelevance of legal academics in the US. Too much ‘Law and…’ and little traditional, black-letter research that sheds light on what the law is and how it evolves. I understand that Divergent Paths expands the topic and I look forward to reading what he has to say.

Other than that, here are a few gems:

• ‘I have to say at the risk of blasphemy that I found the Supreme Court an unimpressive institution’ (about his time as a clerk there).
• ‘I hate the moral philosophy stuff. It is theology without God’ and ‘I don’t like theology with God, I don’t like theology without God. It’s preachy, it’s solemn, it’s dull. It’s not my cup of tea at all’.
• ‘One 2014 case, for example, dealt with whether workers at a poultry-processing plant should be paid for the time it took them to remove and put on protective gear at the start and end of their 30-minute lunch break. The workers said it took 10 to 15 minutes; the company said two to three. Posner bought the gear and videotaped and timed his law clerks putting it on (95 seconds) and taking it off (15 seconds), for a total of less than two minutes’.

My admittedly modest resolution for 2016 was to read (at last!) Transport for London’s proposals for the regulation of the private hire sector (aka the Uber proposals). Uber is an immensely popular service that works lawfully, and in the interest of consumers, in London. It is affordable, reliable, and works around the clock.

I genuinely thought that, at least as far as London is concerned, there was no way back. I know it is immensely difficult to change regulation to allow a disruptive service. And I appreciate that managing change is even more difficult. But once the service is lawfully up and running, as Uber is London, I did not think that regulators would try to re-regulate a service to penalise consumers.

Having read TfL’s proposals, I realise that I may have underestimated the power of regulators to adopt rules that harm users for no compelling reason. In this sense, these proposals are a useful case study on the behaviour of regulators and possibly a template of what the current obsession with the regulation of ‘platforms’ (whatever that means) may bring about in the near future.

The most controversial proposals advanced by TfL are the following:

• ‘Operators must provide booking confirmation details to the passenger at least five minutes prior to the journey commencing’. In other words, it is necessary to wait five minutes before getting on a car. What if there happens to be an Uber car around the corner? The rule would still apply. The alleged rationale for the five-minute rule is that it would ‘reduce the risk of a customer getting into the wrong car and/or into an unlicensed vehicle’. Really.
• ‘Operators must offer a facility to pre-book up to seven days in advance’. TfL believes that ‘increasing absence of advance booking facilities will restrict the choice for passengers’ and therefore that it should require all operators to provide this service. This says much about how regulators see competition. TfL does not expect competition to bring about the services that consumers want and value. It is for the regulator to do that.
• ‘Operators must not show vehicles being available for immediate hire, either visibly or virtually via an app’. This proposal seeks to prohibit one of Uber’s most interesting features. The application displays the cars that are in the vicinity and allows users to see where the car is any time. Apparently, this feature creates ‘the impression of vehicles being available for immediate hire’. And apparently, this is a bad thing.
• ‘Operators must specify the fare prior to the booking being accepted’. Something strange must be going on in this city. For some reason, consumers use (massively and enthusiastically) Uber without knowing exactly how much the trip will cost.

The picture that emerges from the above is clear. TfL ostensibly intends to create a level playing field. But it seeks to do so in the wrong way. Instead of changing the regulatory regime with consumers’ interests in mind, it seeks to eliminate some of the competitive advantages of new entrants to protect incumbents (including cabs and large minicab companies).

We have seen this story many times before. My favourite example is that of cable television in the US (here is a great article about it). For years, the FCC prevented the growth of cable systems (which have transformed television, for good and for the better, around the world) simply to protect incumbent broadcasters.

This discussion begs two questions, and I would love to read your views on them. One is whether good regulation is the exception rather than the rule.

The second is whether, paradoxically, good regulation tends to be treated more harshly than dubious initiatives. Right before Christmas Day, the ECJ ruled on Scottish legislation setting a minimum price per unit of alcohol. This is an example of government regulation at its best. It seeks to address a serious concern in a way that is sensible and proportionate. Alas, there is no guarantee that the regime will be upheld after the preliminary ruling.