Chillin'Competition

Last Tuesday I intervened at the GCLC’s annual conference, focused on the notion of restriction of competition.

What follows is an abridged version of my intervention (that does not include some of the worst jokes). Pablo, who gave me significant input and appears as co-author in the slides, and myself will be writing a joint piece on the subject soon.

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One remarkable thing that conferences organized by practitioners have with European Commission initiatives is that they all seem to be aimed at working less. We don’t want fines, we don’t want abuse of dominance cases, less focus on key industries, less interventionism, etc. And now we want to clarify what a restriction of competition is?  If competition law is fun (and if we all make a living) it is because it is open ended and evolutive. So in a way these attempts at clarification could be regarded either as a collective suicide or a collective attempt at output limitation [I illustrated the point with a gif of the collective suicide squad from “The Life of Brian” that some considered a bit gore…] Even Commissioner Vestager observed this yesterday.

My role in this collective suicide is to comment on what has been discussed these past couple of days and try to extract, from a legal viewpoint, common threads and lessons.

I had many comments on what has been discussed here, but no common thread. But then last night at the speakers dinner Masssimo Merola gave a brief speech and said that yesterday he had realized about both what he knew and what he did not know. I thought voilà, there’s my structure. So let’s focus on those two questions: what is it that we know, and what is it that we don’t know.

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If 50 years into EU Competition policy and centuries after the common law doctrine of restraints of trade was developed a bunch of experts are getting together for two days to ask ourselves something as basic as what is a restriction of competition, an outside observer would immediately think that instead of a bunch of experts we’re a bunch of ignorants!

If we are here enquiring about the notion of restriction, that is because the wording of Articles 101(1) and 102 TFEU do not provide an operational test.

Indeed, if anything that limits competition or commercial freedom were to be legally considered as a restriction in the sense of 101(1), then everything would be caught by 101. As also noted by Sir C. Bellamy yesterday, restraint is the essence of every contract…. particularly marriage.

In my view, there is no point in trying to figure out what a restriction is by looking at the literal wording of Article 101(1) and 102 TFEU. It is a hopeless exercise to find an operational test from such vague provisions. They were intended to be open, adaptable, judge made. That is why I like to say that competition law is a distillation of common sense infused with mainstream economics.

It was said yesterday that there is no room in 101(1) for “consumer harm” and that perhaps we need to re-write article 101. But I think that provision was drafted the way it was precisely so that it would encompass everything: consumer harm and the contrary. It is not because there is no explicit reference in the letter of the provision to consumer harm that the case law cannot evolve in that direction, as it arguably has.

But do we really not know what a restriction is? If the conference has taught us anything is that the problem is not one of the concept in itself, but one of methodology, and even of terminology.

What is a restriction of competition in colloquial and in economic terms is perfectly clear (as clearly explained by Jorge Padilla): it’s a reduction of competitive constraints. The problems rather lie in how a legally relevant restriction is established (Do we look at the short or the long term? Process or outcome? How do we look at the positive effects of a restriction, or an apparent restriction? Can we tell a restriction following a quick look (by object) or do we have to examine in detail all circumstances relevant to its effects (by effect)?)

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Instead of trying to draw lessons with a top-down approach, I propose to analyse what has been said in the conference in a different way: bottom-up.

Let’s focus then on what we know and on what that tells us:

What we know

If we look beyond case-specific often conflicting discussions on the notion of restriction and we pay attention to what the Court has actually clarified over the years, we believe it is fair to say that we actually know a great deal about the sort of conduct that amounts to a restriction of competition.

It is true that the case law is uneven, and that some issues are yet to be clarified, so let’s focus only in those areas where there really is a significant consensus.

• First, and most important of all, the case law is very useful to understand what a restriction of competition is not.

The wording of the Treaty is so broad that there is a strong tendency to consider that every practice restraining the commercial freedom of an economic operator is a restriction of competition.

But if there is something that the Court has consistently clarified over the years is that a restriction in the freedom of action of an undertaking is useful but insufficient to establish a restriction of competition. In landmark cases like STM, Nungesser, Remia, Pronuptia, European Night Services, Coditel, Delimitis, Wouters, to cite only some, this approach to the definition of the notion was attempted but was not endorsed by the Court.

We also know from the case law that a restriction of competition cannot be established in the abstract, or in hypothetical terms. Cecilio Madero just made this point as well.  In particular, it is clear that one needs to consider the economic and legal context of which the practice is part. The fundamental practical implication of this is the need to analyse the counterfactual. We know from Article 101 TFEU that restrictions need to be assessed against the background of the competition that would have existed in its absence. This is something that has always been there to (see STM, European Night Services, Cartes Bancaires (161) or E.ON).

And once we take the counterfactual into account, then many things fall outside of 101(1) altogether. What seem like restrictions are in reality not so:

• Perhaps, co-operation is objectively necessary to achieve the aims sought by the parties.
• Perhaps, some clauses are objectively necessary for an agreement to be concluded
• Perhaps, the regulatory framework precludes competition
• Or, perhaps, as in merger control, the failing firm defence applies

Second, we know that a restriction can be by object or by effect, not only with regard to 101 (where the letter of provision makes it clear), but also nowadays in 102 (as explained by Robert O’Donoghue and also by Pablo at a recent GCLC event on Post Danmark II). We also know, and heard yesterday that mergers are always “by effect”. The fundamental lesson of this is that all EU competition law provisions share a common ground. Article 102 TFEU is not, as some might have feared, a rara avis at odds with the rest.

Third, stakeholders tend to forget what we know (and often even litigate against it) and therefore we create a state of perpetual confusion. As made evident in Sir Christopher Bellamy’s intervention, this creates the impression of a cyclical process, where the same issues are discussed over and over.  We should therefore not feel frustrated about not coming back home from this conference with many answers. But we should not be fooled: the law does evolve incrementally and we know more than we used to.

Fourth,  we know, I see a consensus too, that many of the issues we have with 101(1) in reality have to do with the way in which 101(3) is interpreted . Article 101(3) might in this sense be the big elephant in the room. And the lesson I extract from this is that next year’s conference should be about 101(3).

What we don’t (yet) know

Now let’s move on to what remains open.

As I said in my comment on Cartes Bancaires in Chilling Competition, the Judgment sends a strong (and right) message, but does not provide many solutions or the holy grail operational test; it rather leaves many open questions:

If anything, the conference  has confirmed that there’s a bunch of things we don’t yet know or that remain somehow uncertain. We can group these uncertain issues along two axes:

• What makes a practice restrictive ‘by object’
• The analysis that is required for ‘by effect’ restrictions

• What makes a practice restrictive ‘by object’?

An important question was raised in yesterday’s discussion on Cartes Bancaires: what does the Court mean when it says ‘sufficient degree of harm’?

a)Does it mean that the restriction is particularly likely to have negative effects? This has become a popular interpretation, but it is difficult to say that it is supported by the case-law. As Johan Ysewyn said at the Chillin’ Competition conference, even the most sophisticated cartel arrangements sometimes fail to have restrictive effects. Conversely, in Maxima Latvija and Metro I the Court says yes, this agreement will in all likelihood reduce competition, but this is not sufficient to qualify it as a ‘by object’ restriction.

b)Does it mean that the restrictive effects are particularly harmful? Again, it’s difficult to say, at least after Expedia and Bananas. It appears that n agreement might restrict competition by object irrespective of its effects.

c) Or does it mean that the practice is not presumed to have a plausible pro-competitive rationale. This is the theory that Pablo has been advocating for some time, and one that I find increasingly persuasive. If we pay attention to what the Court actually did in Cartes Bancaires (and not so much to what it said), this is probably the best explanation for the Judgment, and also for a large part of the case law, from Maxima to Societe TM. It is also a useful approach to make sense of Article 102 TFEU case law.

• The analysis required for ‘by effect’ restrictions

As you see, there remain plenty of questions regarding “by object” cases, even if these are the majority of those brought to the Court’s attention.

In the context of Article 102 TFEU: it is now clear that an effect must be shown for some abuse categories, but not much about what this entails. In the cases that we have, it was easy to establish anticompetitive effects(e.g. ‘margin squeeze’ where access to the incumbent’s infrastructure is indispensable; Post Danmark II and Microsoft where the firm is a quasi-monopoly)

Regarding Article 101 TFEU, ‘by effect’ cases tend to be preliminary references. They lay down a test, but the test is never implemented as such by the Court (would the ECJ have crafted the Delimitis test had it been the one who had to apply it?)

At the end of the day, many of these questions boil down to the following: “What is exactly foreclosure? What needs to be shown to establish foreclosure to the requisite legal standard?” These questions would, in our view, make another great topic for next year’s conference.