A priceless precedent for multi-sided platforms (and beyond)- The UK’s High Court Judgment in Mastercard and the key relevance of the counterfactual analysis (PART I)
Few seem to have remarked the great importance of the Judgment issued by the UK’s High Court of Justice on Monday this week in the Mastercard private litigation case.
This case is the most relevant instance of practical application of the legal criteria set out by the ECJ in its two leading cases so far on multi-sided platforms. It constitutes highly relevant guidance for the future, including for several high-profile ongoing cases (in some of which I disclose to be involved) (for more on this see in particular prior discussions on Pay-TV and Android, here and here). It also fits exactly with the arguments Pablo and I developed in our piece on The Notion of Restriction of Competition regarding the key importance of the counterfactual assessment (see particularly section 2.1.1 of the piece).
As you will remember the ECJ’s Judgments in Cartes Bancaires and Mastercard –issued on the same day- converged in the message that multi-sided considerations should not play a role at the tail-end of the analysis, but rather be considered as part of the economic and legal context prior to examining whether a restriction exists in the first place under 101(1) (see Cartes Bancaires, paras. 73-99) and Mastercard (paras. 179-182). Importantly, at this stage the burden of proof lies on the Commission.
What this means in practice is that one cannot examine a practice that affects one side of the market in isolation; one also needs to look at how it contributes to balancing all sides of the platform. In other words, would the business model be viable in the absence of the practice at issue? That is the counterfactual assessment.
This exercise may show that the practice is indispensable, or that it could be indispensable for the platform to operate (and in the face of “uncertainties” the practice will be considered legal, as shown by the GC’s Judgment in O2) [which ties very well with the limiting principles I proposed here (in writing) and here (in ppt format; slide 13), as well as with what Pablo explained last week in his GCLC presentation on dynamic markets; see here, slide 8]
In the Mastercard Judgement the ECJ actually used this analytical framework for the analysis of the counterfactual (para. 161, also distinguishing it from ancillary restraints at para. 173). And it also identified an error of law in the Commission’s choice of the counterfactual in the absence of the agreements, as it had failed to consider whether it was a “likely” counterfactual. (para. 169). Importantly, the reason the Court ultimately did not annul the GC’s ruling and the decision was because Mastercard had failed to “claim” that its scheme would have collapsed in the counterfactual scenario (para. 173). The ECJ did therefore rule that the MIF at issues was restrictive of competition in the sense of Art. 101(1) and could not be exempted under 101(3) [for our comments on the also very interesting 101(3) leg of this case, see here and here].
Several large retailers decided to initiate follow on actions in the UK on the basis of the Commission’s decision as confirmed by the ECJ Judgment. It may have seemed like a home-run.
On Monday, however, the High Court ruled against them concluding, contrary to the ECJ, that the MIF was not restrictive of competition in the sense of Art.101(1) relying precisely on a counterfactual assessment.
There seems to be some surprise at this apparently diverging outcome but, frankly, it is not that surprising. Why? Because Mastercard did learn the lessons from the ECJ’s Judgment. As I explained before, para. 173 of the Judgment explains that “it was not in any way claimed before the General Court that MasterCard would have preferred to let its system collapse rather than adopt the other solution” and the key para. 180 says that the counterfactual argument had only been invoked by an intervener too late before the ECJ but was not part of the arguments submitted before the General Court. The ECJ therefore did not consider it.
As revealed by an MLex headline from last year, Mastercard learnt the procedural lesson very well:
As you will notice, this is exactly what the ECJ said Mastercard did not do before it. In the damages case, by contrast, Mastercard did put all the eggs in the basket of the counterfactual argument, and it won.
Actually, the word “counterfactual” is used about 190 times in the High Court’s Judgment.
And the winning argument was indeed what the Court refers to as the “death spiral” argument, pursuant to which in the counterfactual scenario other platforms would have killed Mastercard, whose scheme “would not have survived (…) in a materially and recognisably similar form“.
For an analysis of how this analysis was conducted on Monday’s (pretty lengthy but excellently written) Judgment (including on important issues related to the burden of proof or the differences with the notion of ancillarity), stay tuned for the second part of this post.