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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

Posted in Uncategorized

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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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

Posted in Uncategorized

The General Court’s Judgment in Case T-216/13, Telefónica (Counterfactual reasoning applied to fine calculation?)

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A few days ago the General Court issued interesting Judgments in cases T-208/13, Portugal Telecom, and T-216/13, Telefónica that have gone fairly unnoticed (possibly because they are not available in English). For the purpose of this post I will discuss the Telefónica Judgment.

The annulment proceedings relate to a Commission decision sanctioning Telefónica and Portugal Telecom (“PT”) for having included a clause under which both parties committed “to the extent permitted by law” not to compete with each other in the Iberian market in any new projects or activities in the telecommunications sector (including fixed telephone and mobile telephone services, internet access services and television services) as part of the agreement for the sale of PT’s stake in Brasilcel to Telefónica during a certain period. The clause was meant to be in force between September 2010 and 31 December 2011 but was formally withdrawn following the opening of the case in February 2011.

The decision considered this clause akin to an outright market sharing agreement, and dismissed the arguments Telefónica put forward in relation to, among others, the fact that a qualification “to the extent permitted by law” had been introduced at the end of the negotiations; the absence of actual anticompetitive effects; the alleged ancillary nature of the clause; as well as the argument that the clause was in reality considered ineffective following an ex post self-assessment undertaken by the parties’ lawyers. For the purposes of the calculation of the fine, the decision took into account the value of sales made by the parties’ in their respective home countries and applied a 2% coefficient that resulted in almost 67 million euros for Telefónica and in roughly 12 for PT.

The General Court’s detailed Judgment validates practically all of the Commission’s substantive thesis with one notable exception related to the calculation of the fine. But don’t lose the interest yet; there is some very interesting legal debate here:

-On the one hand, the Judgment confirms that, having regard to the legal and economic context, the conduct was a “by object” restriction. Telefónica had claimed that the clause was ancillary to a complex deal and that it had been imposed by the Portuguese government, so that its only choice was to limit the impact of the clause by forcing a self-assessment of any future conduct by including the phrase “to the extent permitted by law”. The Court dismisses the argument observing that Telefónica’s behaviour was autonomous and not forced by the Portuguese government (¶¶ 111-120) and that the claim that the clause was considered indispensable by the Portuguese government had not been proved (¶¶ 123-166). The Judgment does not accept Telefónica’s contention that adding the “to the extent permitted by law” qualification conditioned the validity of the clause to a subsequent self-assessment. It essentially observes that the parties themselves did have doubts as to the legality of the clause and that no one had explained why it had not been possible to clarify the matter prior to the closing of the deal or to its entry into force (¶¶ 181-192). Moreover, the Judgment does not accept the statements of the parties’ lawyers made before a notary as those do not coincide with the content of the written agreement to suppress the clause; ¶¶ 187-200).

The counterfactual. In its fourth ground of appeal Telefónica had claimed that the Commission had failed to assess in detail the structure of the markets in order to verify whether there would have been real, concrete opportunities for the parties to compete during the period affected by the clause had the latter been absent (i.e. that the Commission failed to address the counterfactual). The legal logic is correct: an agreement cannot restrict competition that would not have existed, but the argument was lost on the facts. The Judgment responds to these arguments noting that in this case it was not necessary for the Commission to assess in detail the structure of markets or potential competition given that the non-compete clause itself implied an acknowledgment of at least potential competition, that its subject-matter consisted of market-sharing, that its scope was very wide and the affected services had just been liberalized (¶¶ 201-227).

-On the other hand, however, and this is the main novelty in the case, the Judgment rules that the Commission was nevertheless required to assess potential competition between the parties for the services affected by the clause when calculating the value of sales. Since this exercise was not conducted, the Commission is ordered to make a fresh finding with regard to the calculation of fines (see ¶¶ 295-310). This relates mainly to the sales made by virtue of activities that would not have been subject to competition even absent the agreement  (e.g. services provided under monopoly conditions or others where PT’s access was impossible; see ¶ 274). The Judgment provides that the Commission should have examined the parties’ arguments seeking to establish that there was no possibility of competition for certain services, and that only after it might determine the value of sales linked to the infringement for fining purposes.

So, effectively, the Court endorses the Commission’s stance not to assess potential competition for the purposes of determining the legality of the conduct but nevertheless requires it to conduct this exercise at a later stage, when calculating the fine. And you may wonder: Why? Is this right?

Here is my off-the-top-of my-head take subject to our usual disclaimer:

  • My feeling is that the Court was also –rightly- seduced by the counterfactual logic, as it wouldn’t make sense to sanction a restriction of competition that would not have existed. However, the Court’s overall assessment of the nature of the clause and context to the case led it to conclude (like in Toshiba, also cited in the Judgment) that the agreement did restrict at least potential competition that would otherwise have existed. This is correct in general, but also ignores that the scope of the infringement would have been reduced by excluding those activities where competition was not possible (in fact, ¶ 221 seems to suggest this could have been done) (admittedly, I don’t know how the parties argued it so perhaps the Court wasn’t able to do more). Accordingly, it moves on to the next step and follows a similar logic at the stage of fine calculation.
  • In doing so, the Court encounters a problem, as there is also case-law from the ECJ (cited in 306) stating, in the context of market sharing, that one cannot uphold an interpretation whereby the Commission would be, when calculating fines, subject to obligations to which it is not subject for the purposes of the application of Article 101 (C-543/07, Prym, ¶ 64).
  • The Judgment appears to be aware of this tension and therefore observes that the ECJ’s Judgment in Prym was rendered at the time the previous Fining Guidelines were in force (306 in fine), and emphasizes that in this case it is not imposing different obligations on the Commission but merely extracting the necessary consequences of recital 13 of the current fining guidelines which was self-imposed by the Commission (and which provides that in determining the basic amount the Commission will take the value of the undertaking’s sales of goods or services to which the infringement relates). This is an interesting and certainly defensible argument; at the same time, some may claim that it does not fit squarely with other case-law (e.g. C-580/12 P, Guardian ¶¶ 57-58).
  • In my personal view, and taking for granted the Judgment’s factual assessment, perhaps the “more correct” solution, and one that would have avoided this tension, would have been to rule, in the first place, that the clause restricted competition by object but only in relation to activities where there could have been viable competition between the parties. There is abundant case-law that would have supported this reasoning (STM, European Night Services, O2, E.On –discussed in the Judgment- and others). Should that have been done, the Court would not have found the above-mentioned obstacles. Now, this is only my hastily formed opinion; happy to think it through together in case you might have comments.

If interested in all of these issues (which must be the case if you made it this far), you should know that Pablo and I are (or rather he is and I should be) working on a paper that develops the views expressed here, particularly regarding counterfactual assessments.

Written by Alfonso Lamadrid

12 July 2016 at 6:56 pm

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Yet another presentation on competition and big data

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My silence on the past few days has to do with several open fronts thanks to the Commission’s bad habits of summertime desk cleaning, but also to my bad habits of devoting  non-work time to conferences and talks (my only consolation is that Pablo has recently been by far the most active speaker in Chillin’ Competition’s flying circus).

-Some of you have asked for the presentation I used at the VUB’s very interesting debate on big data and competition law; here it is:

Competition-big-data_lamadrid 23 June

You know my views from quite a few previous posts (all links appear at the end of the ppp). The main addition this time was to discuss the joint French-German report issued last May which essentially makes general conjectures about how standard theries of harm could apply to big data (like they apply to any other asset) if the right facts were to arise in a given case. In sum, nothing new under the sun.

The change of attitude on the part of competition authorities is nevertheless remarkable. When I spoke at the EDPS closed-door workshop at the European Parliament in one of the first discussions on this matter my views were perhaps a bit anti-climatic for an audience pre-disposed to use competition law to tackle non-competition issues. But I did -logically- have the support of the only authority in the room, DG Comp. Now, however, we see not only the German Facebook case and the French-German report giving further visibility to a non-issue, but I also hear that some within DG Comp are pushing to do more on this front. That’s disconcerting.

-None of you have asked for the presentations I have used the past two Fridays at the College of Europe Summer Courses (where for the 4th year in a row I’ve lectured on Antitrust Procedure and Article 106). Lack of interest has never precluded me from posting stuff here, but since the two presentations are in Mandarin I’ll spare you the pain…

Written by Alfonso Lamadrid

12 July 2016 at 6:46 pm

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Some thoughts after the Intel hearing: the Court will choose between legal consistency and continuity

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I have read with great interest the report on the Intel hearing that Trevor Soames shared via Chillin’ Competition. I now feel I have a good sense of what went on and, more importantly, of what is at stake.

Above all, the hearing has revealed the Court of Justice will be making a choice between legal consistency and continuity. It is not a secret that courts typically lean towards stability, and thus tend to favour the latter. More often than not, it is sensible to do so, primarily because it preserves legal certainty.

Sometimes, however, continuity can be the very source of legal uncertainty. Where the case law is plagued with inconsistencies, it may not be possible to tell in advance whether a practice is lawful or unlawful. In such circumstances, favouring continuity becomes counterproductive. It may indeed provide stability, but at the price of making the case law impenetrable. If legal certainty is to be achieved, it may be necessary to refine it.

As the law stands, exclusive dealing and loyalty rebates are prohibited as abusive by object under Article 102 TFEU. These practices are only acceptable where the dominant firm is in a position to provide an objective justification. I see the attraction of continuity, and I certainly understand the reluctance to depart from a line of case law that dates back to the 1970s. Thus, I would not be surprised if the Court of Justice went for stability in Intel.

The hearing has made apparent, on the other hand, that the prohibition by object of exclusivity and loyalty rebates is a source of legal inconsistencies. It is simply not possible to reconcile this line of case law with other rulings. This is the reason why rebate cases remain controversial almost 40 years after Hoffmann-La Roche, and the reason why the Commission reviewed its enforcement priorities a decade ago.

The existing legal inconsistencies have become, if anything, more apparent after Post Danmark II. This idea is clearly illustrated by comparing the legal treatment of standardised rebates schemes (at stake in Post Danmark II) with the legal treatment of exclusive dealing and loyalty rebates (at stake in Intel).

Consider the example of a standardised rebate scheme that only covers 1% of the market. Is this practice prohibited under Article 102 TFEU? Almost certainly not. The Court explained in Post Danmark II that a standardised rebate scheme is only abusive if it is likely to have exclusionary effects. The Court also mentioned the coverage of the practice as one of the factors that determines the likelihood of such effects. And it is very unlikely that a rebate scheme that covers 1% of the market will be exclusionary.

How about an exclusive dealing agreement that only covers 1% of the market? If the supplier is dominant, this agreement would be prima facie prohibited by object. It would be very unlikely to have exclusionary effects. As the case law stands, however, this fact is irrelevant. It would still be unlawful.

I gather from the reports of the hearing that many of the questions asked by the Advocate General and the judges focused on this inconsistency. This is not surprising. It is difficult to think of a reason why loyalty rebates, on the one hand, and standardised schemes, on the other, should be treated differently under Article 102 TFEU (most probably because there is not a single one). The case law (Michelin II, British Airways, Tomra) shows that loyalty and standardised rebates are similar in their nature, purpose and (pro- and anticompetitive) effects (so much so, in fact, that it is sometimes difficult to distinguish between them in practice).

Against this background, I feel that, in this particular instance, continuity appears to do clearly more harm than good, and that, accordingly, consistency should be favoured instead. What I do not know, alas, is whether the Court will come to the same conclusion.

Written by Pablo Ibanez Colomo

7 July 2016 at 11:25 pm

Posted in Uncategorized