Chillin'Competition

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:

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 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.