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Archive for July 2016

AG Opinion in Joined Cases C-20/15 P y C-21/15 P, Santander and World Duty Free Group (ex-Autogrill): Wathelet proposes nothing short of a revolution

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Nobody doubts that the notion of selectivity is the single most complex issue in EU State Aid Law. There have been many genuinely hard cases in the past few years, and the issues raised by each of them are very different. On the other hand, I had the impression that we were coming close to reaching a point of consensus, and that, by bringing together the different strands of the case law, it was possible to come up with something that looks like a coherent framework.

I do not have this certainty anymore after reading yesterday’s Opinion by AG Wathelet in the Santander and World Duty Free Group (ex-Autogrill) cases (on which Alfonso has been working). The Advocate General proposes a major departure from the consensus that had been developing. The Opinion appears to go further than Gibraltar, which is the most controversial case of the past few years.

There is nothing wrong, per se, in advocating a change in the law. We have been there before in EU State Aid Law. I am ready to anticipate, however, that the position advanced by AG Wathelet will give rise to considerable controversy. I can think of three main lines of criticism:

  • From a strictly positive perspective, commentators are likely to argue that the opinion is at odds with the case law. Interestingly, this case law (such as 3M and a Germany v Commission judgment from 2000) is discussed in the Opinion. I explain this point in some detail below.
  • From a functional perspective, the Opinion, if followed, would have major consequences. The notion of state aid would be significantly broader, thereby leading to an appreciable increase in the range of measures that would be caught by Article 107(1) TFEU (and the volume of cases that the Commission could potentially handle).
  • From an institutional perspective, the Opinion would lead to a significant shift in powers to the Commission. The Commission would have greater discretion to scrutinise (and to have a say over) national tax systems. When reading the Opinion, I thought of AG Jacobs’ Opinion in PreussenElektra, who discussed in detail the institutional consequences of broadening the scope of the notion of aid.

The case was, I thought, relatively straightforward (just to give you an idea, I mention it just in passing in class). It is about a measure that allows firms that are tax residents in Spain to amortise the goodwill resulting from the acquisition of shareholdings in undertakings which are tax resident abroad.

The question is whether this measure is selective. The General Court concluded that it is not. After all, it does not discriminate between firms that are tax residents in Spain, and it is open, in fact and in law, to all undertakings. Sure, some firms benefit more than others from it, but this has never been enough to qualify a measure as State aid (or so I thought).

I can illustrate this idea by reference to a classic example discussed in the Commission Notice on direct business taxation. Consider a reduction in the tax burden of research and development activities. Not all firms would benefit from the measure to the same extent (some of them do not benefit from it at all). Insofar as it is genuinely open to all undertakings, however, it is not selective (this is in fact what the Commission itself said in the Notice).

AG Wathelet’s Opinion departs from this position. In his view, both the deduction at stake in Santander and ex-Autogrill and the tax break for research and development activities would be selective and thus would qualify prima facie as State aid. AG Wathelet appears to argue that any deduction in the corporate tax system would be selective insofar as it would have the effect of treating some firms more favourably than others. If you are familiar with the reality of corporate taxation across the EU you may have thought ‘well, then it means that pretty much all of the tax code is State aid’. I thought that too when I read the opinion, which is why I referred to institutional and functional issues above.

As I pointed out above, the fact that AG Wathelet proposes to broaden substantially the scope of Article 107(1) TFEU is not a ground of criticism in itself. Why will the Opinion be criticised from a positive standpoint, then? I can think of the following reasons:

  • The Opinion suggests that any derogation is prima facie selective. In doing so, it appears to conflate two separate questions. Contrary to what it is implied by AG Wathelet, not all derogations are selective, in the same way that a selective measure need not be derogation from a ‘normal regime’.
  • I also note that the Opinion reveals a tendency to conflate the notion of advantage and the notion of selectivity. Again, contrary to what is suggested, an advantage within the meaning of Article 107(1) TFEU is not necessarily selective. This is something that the Court has always made clear, more recently in MOL.
  • The Opinion can simply not be reconciled with the case law. Germany v Commission, which is a judgment that I have studied in some detail, is objectively at odds with the position taken by the Advocate General. Pretty much the same can be said of 3M. In essence, the Opinion is inviting the Court to overrule these precedents.

We will have to wait a few months. As I explained earlier this month, the Court has a preference for stability and continuity. But we know that changes happen, and this may be the occasion in which the notion of selectivity is given a whole new, much broader, meaning, to become something akin to an instrument to harmonise corporate taxation.

Written by Pablo Ibanez Colomo

29 July 2016 at 1:07 pm

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A reasonable solution, for no problem? Advance rate increase announcements under EU competition law (by Luis Ortiz Blanco)

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Intro by Alfonso: When the Commission recently announced the adoption of a commitments decision in the liner shipping case I asked my colleage Luis to write a post about the legal issues at stake (he was not involved in it, but wrote an expert academic report for a law firm involved). Luis, as you know, is a partner at Garrigues, a reputed academic, and the person responsible for me working in competition law (not sure that’s a good thing).  But what you may not know is that for 10 years he was a case handler at DG Comp dealing with transport cases, that he wrote his PhD on liner shipping and that he is about to publish the book “EU Regulation and Competition Law in the Transport Sector” (Oxford University Press). We leave you with him:



 On 7 July this year the European Commission adopted a Decision (not yet published) declaring legally binding the commitments offered by 14 container liner shipping companies allegedly aimed at increasing price transparency for customers and reducing the likelihood of coordinating prices and consisting on (i) stopping publishing and communicating General Rate Increases (GRIs) announcements, (ii) announcing figures including at least the five main elements of the total price, in order for price announcements to be useful for customers, and (iii) the binding character of the price announcements as maximum prices for the announced period of validity.

The European Commission formally opened infringement proceedings in November 2013 against container liner shipping companies that have regularly carried out similar price announcements (the General Rate Increases or GRIs), allegedly intentionally aligning them with the ones announced by other carriers.

The Commission had concerns that these GRIs announcements did not provide full information on new prices to customers but merely allow carriers to be aware of each other’s pricing intentions and make it possible for them to coordinate their behaviour, what may lead to higher prices for container liner shipping services and harm competition and customers.

Although no infringement has been identified, there are some aspects of the Commission’s intervention in this case that are worth noting:

First, the fact that more than two years elapsed from the inspections to the first requirements for information sent to the lines gives the impression that the initial intention of the Commission was not to put forward the theory of harm finally adopted; but rather that it was initially seeking to establish some form of explicit collusion and that this novel theory of harm might aim at not seeing the extensive efforts made by the Commission go to waste.

Second, the Commission is taking a very bold step, beyond the T-Mobile Netherlands and Wood Pulp case law. Indeed, the Commission’s case does not fit into what Wood Pulp would require to establish a concerted practice; neither does it fit into T-Mobile Netherland’s conditions required for a concerted practice to amount to an infringement by object. In fact, the Commission may have considered price announcements as an infringement by object in themselves and not as an evidence or sign of contacts or meetings between competitors as in Wood Pulp. Furthermore, while T-Mobile Netherlands established that the information exchange must be considered capable of harming competition depending on its legal and economic context, the European enforcer has refused to even consider such frame, eluding its duty to set up the whole picture of the case at hand.

Finally, the Commission has admitted that contrary to T-Mobile Netherlands, the information was disclosed to the public – making possible customers to benefit from it – and no evidence of contacts between the lines has been established.

The Commission apparently relies on ¶63 of the Horizontal Guidelines – which states that for unilateral announcements to constitute a concerted practice they must be shown to be a strategy for reaching a common understanding about the terms of coordination – and it seems to believe it has nothing to prove beyond that which is obvious and no one denies, i.e., that shipping lines make advance price announcements which they are not always able to implement. The Commission’s theory is not impossible, but clearly less likely to believe than alternative, simpler explanations of the facts.

Leaving aside all the above, the crucial question is whether the object or the effect of the announcement of GRIs is to create conditions of competition which do not correspond to the normal conditions of the market in question regard being had to the nature of the products or services offered, the size and number of the undertakings involved and the volume of that market (T-Mobile Netherlands, ¶33), as established by the Court of Justice case law. The Commission may believe it is indeed the object of these advance announcements to restrict competition in the internal market, on the basis that they allegedly do not benefit consumers as much as shipping lines, at least when they are made too far in advance.

In this respect two issues must be highlighted. Firstly, if the purpose of this practice is not clearly to restrict competition because it prima facie has a different purpose – to inform customers on future prices –, then it should not be considered a restriction by object. Secondly, and if the length of time between announcement and implementation of GRIs is of importance in determining whether this practice is restrictive or not, what is the maximum period of notice at which announcement is deemed to be restrictive (and possibly neither redeemable under Article 101(3) TFEU)?.

Considering that it is not really obvious that price announcements enable shipping lines to know the market positions and strategies of their competitors (T-Mobile Netherlands, ¶34) (as in the end many of them are not implemented as announced) and assuming both that there is a sufficient degree of parallelism in shipping lines’ conduct and that that parallelism is suspicious, it is necessary to determine whether this parallel conduct can be traced to the fact that competitors have adopted a concerted action with an anti-competitive object, [in this case] an exchange of information capable of removing uncertainties between participants as regards the timing, extent and details of the modifications to be adopted by the undertakings concerned (T-Mobile Netherlands, ¶41).

The answer to this question must necessarily be negative. Indeed, price transparency in respect of base rates and surcharges – a simple point of departure for real prices – is a fact in this industry and any non-public advance price announcement is bound to be known by all market participants very soon anyway, so that publicizing them simply makes lines’ lives easier given the number of customers they have.

Last by not least, according to the European Court of Justice case law, a concerted practice is a form of coordination between undertakings by which, without it having been taken to the stage where an agreement properly so called has been concluded, practical cooperation between them is knowingly substituted for the risks of competition (T-Mobile Netherlands, ¶26). Therefore an element of consciousness is required. Accordingly, the Commission should have at least gathered a reasonable amount of evidence showing that a non-negligible number of lines did knew that what they were doing might be anti-competitive.

All the above elements seem to indicate that price signaling is not the most obvious explanation for advance GRIs announcements; rather, the most obvious explanation is clients’ convenience and the dynamics in a market where list prices are easily available, with or without public announcements, but effective prices are not.

Will the commitments enhance the opacity of the market? One could think so. But will they solve a competition law issue? Many would say there was nothing to solve.

Written by Alfonso Lamadrid

28 July 2016 at 6:50 pm

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The Commission accepts Paramount’s commitments: what limits for remedies in EU competition law?

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The Outer Limiits KI

The Commission announced yesterday that it has accepted the commitments submitted by Paramount. This is an important landmark in the Pay-TV case [Alfonso, who is representing an interested party, already wrote about Paramount’s commitments here]. It is in any event far from being the last chapter. There are no indications that the other major studios are willing to follow the same path.

The commitments offered by Paramount are very far-reaching, but not totally unheard of. As I understand them, Paramount has committed not to enforce its intellectual property rights against Sky (or any other broadcaster). More precisely, it has accepted not to require by contract the respect of copyright legislation and not to bring an action against Sky when the latter responds to unsolicited offers from subscribers based in EEA Member States other than the UK (sigh) and Ireland. The latter commitment may sound surprising, but we know at least since Huawei that enforcing intellectual property before a court may be a breach of competition rules.

What is truly extraordinary about these commitments is what the Commission does not say about them. The remedy package may not work at all, and it is likely that the Commission will not reach the outcome it wishes (i.e. that copyright-protected content is offered online across borders). One obvious reason is that taking action against a single copyright holder does not really change anything for as long as the legal status of the contested practices remains unclear.

The second reason is perhaps the most interesting. For these commitments to achieve anything meaningful, Sky (or any other broadcaster) would have to play the game. In other words, Sky would have to decide that it is willing and able to breach copyright. And I can think of many reasons why it may not be in the interest of a pay-TV operator to do so. If a pay-TV operator decides to undermine the value of copyright in other territories, the studios may decide to license their rights to other operators in the following auction. In addition, licensees in other territories may decide to fight back, making everybody worse off.

The third reason is (sigh) that referendum…

If it is far from clear that the remedies will achieve the outcome desired by the Commission, it is almost certainly because there was not a competition law problem in the first place. If you can’t fix it, it ain’t broke.

Written by Pablo Ibanez Colomo

27 July 2016 at 1:54 pm

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Brexit, experts, courts and EU competition law

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Gove - Experts

One of the most distressing aspects of the EU referendum campaign in the UK was the way in which expert advice was ridiculed by Vote Leave. Hard facts, evidence and serious research were dismissed and derided as irrelevant ‘scaremongering’. This high-point of this feast of anti-intellectualism was no doubt reached when Michael Gove, one of the leaders of Vote Leave, infamously declared that ‘people in this country have had enough of experts’.

As President Obama puts it, when ‘experts are dismissed as elitist, then we’ve got a problem’. This trend is now making the headlines the world over (thanks, Mr Trump), but it has a familiar flavour to us competition lawyers and economists. Expert-bashing has long been fashionable in our field. Some lawyers and academics believe it is cool to dismiss economic expertise as irrelevant at best and suspicious at worst. We have all heard that ‘economists use too much math’, ‘they make comically unrealistic assumptions’ and that, in any event, ‘the only thing they want is their consulting business to grow’.

The problem with expert-bashing is that it is systematically given considerable prominence in public debates. Serious economic research tends to be put on a par with nonsense, intuition, or outright falsehoods. As a result, the two are presented as being equally respectable. A serious paper published in Econometrica is worth as much as someone’s lay opinion, which may not be grounded on formal analysis. And the latter may be wittier, more controversial or more spectacular (i.e. a la Boris Johnson, with or without the hair).

I often think about it, and I worry. But when I look beyond the short run I tend to be more optimistic. My impression is that the ‘white heat’ of science and progress, to paraphrase Harold Wilson, irradiates everything in the end. As far as EU competition law is concerned, my optimism comes from the attitude of the EU courts, which, at critical moments, have always sided with formal analysis and consensus positions. Just think of AKZO, Airtours, Tetra Laval or Wood Pulp. This is not a coincidence. The core task of courts reviewing administrative action is after all to protect citizens against charlatans, megalomaniacs and, to be sure, the occasional errors made by authorities. And this task cannot be meaningfully achieved without listening to experts.

Written by Pablo Ibanez Colomo

25 July 2016 at 10:10 am

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What I have been up to (besides obsessing about Brexit)

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Law innovation and society

The past month has certainly been intense. And to think that the month of June had started out so well. Apart from obsessing about the future of the UK, I have been travelling a bit, to Belgium and Spain, and also within the UK. Here is a summary of what I have been up to (and whom I have met)

In June, I attended a conference organised by the Association of European Competition Law Judges (see the programme here). Mercedes Pedraz, judge at the Spanish Audiencia Nacional, was a wonderful host.
In my panel (chaired by Kimmo Mikkola), I discussed how the balance between competition law and intellectual property is changing. In this regard, I argued that courts reviewing administrative action are uniquely equipped to understand and addressed the challenges raised by the ongoing shift. A lightly edited version of my script can be found here.
I was pleased to present together with – and meet for the first time – Scott Hemphill, one of the top antitrust scholars of the day (and, above all, a proud alumnus of the LSE). He was kind enough to send me his presentation (which focused on pay-for-delay agreements in the pharmaceutical industry). You can access it here.

In Bruges, I presented at the symposium organised by the students of the College of Europe taking the Law & Economics option. It yet another conference on geo-blocking with – yet again – Thomas Kramler. What I enjoyed is that the nature of the event forced me to give a different perspective, more focused on the underlying economics of copyright and geo-blocking. It was a perfect opportunity to insist on one of my favourite themes: the Court of Justice has consistently displayed a solid understanding of economic issues in its Article 101 TFEU case law, from Societe Technique Miniere to Cartes Bancaires. My presentation can be found here.

I delivered a presentation on a similar topic earlier this month at the Law Society, which has a Competition Section run by Isabel Taylor and Stephen Smith. It was a really pleasant event with an even more pleasant after-event. Click here for more information (including the presentation).

A couple of weeks ago I travelled to Newcastle to speak at a conference on ‘Fossilisation and Innovation in Law’. The scope of the conference was not devoted to our field, but there were a couple of presentations on EU Competition Law and US Antitrust. Jonathan Galloway, one of the co-organisers and a good friend of Chillin’ Competition, presented on Antitrust Utility in the Face of Innovation. Bill Kovacic spoke about the FTC. For those thinking ‘one trick pony’ after reading the above, I am pleased to let you know that my presentation was not even on competition law, but on the evolution of telecommunications regulation. Click here and check for yourselves!

Written by Pablo Ibanez Colomo

22 July 2016 at 11:47 am

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A record fine

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After Pablo’s post from last week it’s time to comment on something that is actually related to the law…

Today the European Commission imposed a record-breaking € 2.93 billion cartel fine on truck manufacturers.

That’s what you call a heavy load.

And this means that truck manufacturers have just overtaken Microsoft as the main historical contributors to the EU budget. [For a previous post outlining some absurd ideas on what the Commission could do with the almost 2 billion in fines paid by Microsoft, see here ] 😉

Whereas sky-rocketing fines are headline-grabbing and may contribute to future deterrance (not that they have provided so useful in the past), I have traditionally not been a fan, as suggested by my post on The massacre of the innocents

That post, by the way, referred to an article we wrote back in 2008 and which is available here Fine Arts in Brussels (text) [as you will see,  the arguments in this article are accompanied by Roman numerals; those numbers refer to paintings which graphically illustrate those ideas, you can see those here: Fine Arts In Brussels (pictures)].

Written by Alfonso Lamadrid

19 July 2016 at 2:30 pm

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What to make of the fresh charges against Google

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Making habits

The Commission is making a habit of sending Statements of Objections to Google. There should be little doubt that Google has become the most emblematic saga of the decade (and one cannot exclude at this stage that it will also dominate the coming one). Yesterday, it brought additional charges relating to the Search case and fresh ones concerning its ‘AdSense for Search’ platform. Neither of the two moves is particularly surprising, as they have been expected for a while. Yet they reflect very well the current trend and the remaining open questions. ‘How many more Statements of Objections?’ is of course the one that springs to mind immediately. I can also think of the following:

All Google-related cases are essentially variations on the same theme: When reading about the AdSense case, it became pretty clear to me that it raises the same fundamental issue as Google Search and Android. The question is whether – and why – it is an abuse for an integrated firm to favour its own activities. The case law does not support the idea that dominant firms are bound by a general duty of non-discrimination. Thus, the Commission will have to articulate a coherent legal test and to explain how its interpretation of Article 102 TFEU is consistent with prior case law and its overall approach to the enforcement of the provision.

Clarity in this sense is indispensable, as the positions hinted at by the Commission in the press release are potentially far-reaching. For instance, they suggest that a TV channel could be abusing its dominant position by keeping its advertising space and revenues for itself, or that supermarkets may be bound by a duty of non-discrimination when placing goods on their shelves.

The industry has changed a great deal since 2010: The Google Search case has been going on for a very long time. This is always dangerous in EU competition law, and even more so in dynamic industries. It is obvious that end-users’ habits have changed a great deal since 2010. Firms’ behaviour and strategies have also changed. As the press release shows, this is something that promises to be contentious in the case. Amazon and eBay look more like price comparison websites. And Google Shopping looks more like them. As a result:

  • The credibility of the case depends, by and large, on market definition: If one assumes that Amazon and eBay compete with Google on the same market, the Google Search case certainly sounds far less problematic. Can one credibly argue that Google’s practices are an issue where it faces rivalry from two giants? Unsurprisingly, the press release refers to this point of contention. The Commission acknowledges that the market may be broad enough to encompass Amazon and eBay. Still, it believes that these two firms do not compete with price comparison sites. In any event, it clarifies, Google’s practices would still be abusive under a broad definition of the market.
  • It is not clear that there is a causal link between Google’s practices and the abuse claims: When the industry changes significantly during a period of time, the exclusion of some firms may very well be the natural consequence of the evolution of the market. In Post Danmark II, the Court emphasised that Article 102 TFEU applies where the effects are ‘attributable’ to the dominant firm, that is, where there is a causal link between the practice and the alleged effects.
    Irrespective of how the market is defined, the Commission would have to show, accordingly, that the alleged decline of some price comparison sites is the consequence of Google’s behaviour, and not the consequence of the rise of Amazon and eBay and/or of changes in end-users’ behaviour. You will certainly remember that this is where Streetmap failed. Mr Justice Roth concluded that the decline of that firm would have happened anyway, and was not attributable to Google.

Is Google Search an object or an effects case?: I wrote last year that it was not entirely clear to me whether Google’s practices were deemed abusive by their very nature or only insofar as they are likely to have exclusionary effects. The issue is not any clearer after reading yesterday’s press release. Google’s practices have been under investigation for so long that we should know by now whether they had exclusionary effects. But maybe this fact does not really matter that much.

There are references to exclusionary effects in the press release, of course, but I am not sure that they are decisive. Bloomberg echoes the statements made by the Commissioner, which suggest that what really matters is the fact that Google discriminates in favour of its own services, and that evidence in this sense may point to a broader ‘pattern’. If Google Search is indeed being pursued as an object case, what I wrote above is irrelevant. A ‘by object’ approach could allow the Commission to start new cases (concerning travel and local search, for instance) very soon. Which is, I understand, exactly what the Commissioner has suggested.

Written by Pablo Ibanez Colomo

15 July 2016 at 10:49 am

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