Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

The German government intends to exempt cartels in the press sector: bad news for competition law, bad news for free speech

with 4 comments

pulitzer

Rupprecht Podszun, Professor of Competition Law at the University of Dusseldorf, has recently published two posts outlining the reforms to the German competition law system proposed by the government. You really should take a look at them here and here.

As has been widely reported, part of the changes introduced in Germany are intended to capture concentrations in online markets. In any event, the single most significant (and no less than shocking) aspect of the reform is an almost blanket exemption from the application to the press sector of the national equivalent of Article 101 TFEU.

In case you were not aware, you read well. If this proposal goes through, German competition law would no longer apply to, inter alia, plain vanilla cartels among press publishers in the country.

This is a worrying development, for many reasons. First and foremost, it shows that the consensus in favour of the protection of the competitive process is fragile, even in the country with the oldest and most developed system in Europe. Unfortunately, many stakeholders see competition law as a tolerable annoyance during normal times. These same stakeholders are always ready to claim that there are exceptional circumstances that justify setting up cartels and legal monopolies. Even worse, many (perhaps most) politicians appear happy to give in if they believe it is in their (short-term) interest.

Will this development change something?

One could argue that the exemption of the press sector from German competition law will change little after all. Article 101 TFEU would continue to apply to publishers insofar as the agreements they conclude are capable of affecting trade between Member States. And the most problematic agreements, such as cartels (a precondition of which is substantial market power), will almost certainly meet this condition.

Suppose German publishers form a cartel to extract rents from online platforms (which, I suspect, is part of the overall plan). For this cartel to work properly, nearly all (if not all) publishers need to play the game (the Spanish ‘Google tax’ was an embarrassment, but the legislator at least understood this point). And such an agreement would certainly have an effect on trade between Member States.

The Bundeskartellamt does not have the power to exempt agreements caught by Article 101 TFEU (the limited scope of Article 5 is a clever feature of Regulation 1/2003). As a result, any industry-wide agreement would be vulnerable to challenge before a court, or before the European Commission. And if the agreement in question is a blatant cartel, I guess neither a court nor the Commission would have much choice. It might not be easy and there might be considerable external pressure, but the credibility of the whole system (which is a remarkable achievement of the European Union) would be at stake.

Bad news for free speech and pluralism

Some readers may argue that the above is irrelevant, as media pluralism and free speech are far more important than competition law. I agree. In fact, media regulation will always be one of my main areas of interest. But even from that perspective, I struggle to see how allowing cartels in the press sector can be good.

Fiercely independent newspapers that proudly defend their editorial line are essential in a democracy. Can the press fulfil its fundamental mission if it cosies up with politicians and exchanges favours with them? An unholy coalition between newspapers and politicians is certainly not better than an instance in which the independent press is criticised by those in power – which is undesirable, but criticism is at least an indicator that journalists are doing their job.

We competition lawyers know that, in an age of rapid technological change, the cartelisation of the press is unlikely to achieve anything meaningful. At best, it can only delay the inevitable transformation of the industry. The press is important for reasons that go beyond purely economic ones, but this does not mean that the sector is not subject to basic principles of economics.

Written by Pablo Ibanez Colomo

21 February 2017 at 11:37 am

Posted in Uncategorized

4 Responses

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  1. Peibol, if the intended goal, as you suggest, is to enable press editors to collectively negotiate with online platforms free-riding on them, where is the harm to competition and to free press? Sometimes (very often) competition law is nothing else than a regulatory interference with free market forces. One example: RPM, great way to facilitate growth of retailers at the expense of suppliers, and now everyone wondering how to address retailer power…JB

    Javier Berasategi

    22 February 2017 at 10:12 am

  2. Pablo, I could not agree more. As Rupprecht rightly points out in his post, providing sector-based exceptions in competition law is always bad, irrespective of the sector at issue. If an anticompetitive agreement is efficient has to be assessed by antitrust authorities and judges. Here the German government is setting a precedent which endangers legal certainty and leaves room for other industries to ask the same conditions in the future

    Marco Lo Bue

    23 February 2017 at 7:54 pm

  3. Thanks both for your comments!

    Javi: I can think of at least two potential concerns from a competition law – free speech perspective.

    As a result of the cartels, many firms will not address their long-term viability problems and some firms that would otherwise have disappeared will stay around for longer. This will delay the entry of new and profitable players which, precisely because they have a viable business model, will be more willing to keep power under check.

    What is going on in Spain is fairly interesting in this regard: as you know it is the new players (like eldiario.es), and not established ones, which are uncovering major corruption scandals.

    And, of course, the very fact that favours are being exchanged with politicians does not suggest that there will be heightened scrutiny by the press of the very people that have carved out an exemption just for them.

    Pablo Ibanez Colomo

    24 February 2017 at 8:51 am

  4. This is certainly an interesting and very topical discussion that raises a number of fundamental issues. Sorry for chipping in only so late, but I’ve only just now gotten round to reading part of the draft and the explanatory memorandum. Prof. Podszun did not mention that the exemption is not a blanket one. In fact, such cooperation is only allowed ‘insofar as it enables the companies involved to increase their economic basis for the competition between media’ (a rough translation from: ‘soweit die Vereinbarung den Beteiligten ermöglicht, ihre wirtschaftliche Basis für den intermedialen Wettbewerb zu stärken’. Moreover, cooperation on editorial matters is excluded, so pluriformity of the press (Pressevielfalt) should not be endangered. I’m afraid that the discussion could have benefitted from a closer scrutiny of the primary source.

    The blanket statement that sectoral exemptions are always bad, may well be overinclusive. For one, this reminds me of an interesting merger control case I was involved in in the Netherlands. It essentially turned on whether or not the conditions attached to a newspaper merger that were designed to protect editorial independence were complied with. There was probably a good case for arguing that both newspapers were failing, in view of declining readership and advertising income. The same is probably happening in Germany and many other countries (cf. Trumps statements on failing press), so we may ask ourselves what would be the better way to protect plurifomity of the press: enhancing the possibilities for cooperation to increase income or to subsidise the press? One could argue that investigative journalism has a public good character (non-rivalry of benefits and exclusion only exists insofar as subscriptions limit access to the content; note that it is the exclusion that is reduced precisely as a result of the advent of content aggregation companies), and we all know what happens to public goods in a market economy. The idea of investigative journalism being dependent on subsidies frightens me far more than Pablo’s suggestion that favours may be exchanged between the press and politics. Then again, we could also just wait for the moment when readership has declined to the extent that investigative journalism cannot be sustained anymore so that even we will give up our newspaper subscriptions…. And as regards market entry for new more efficient players: are we really expecting companies to start providing public goods?

    The explanatory memorandum to the draft act explains that this exemption applies as much to print as it does to the ‘Internetpresse’ (negating the eldiario.es point) and how it is designed to enhance the competitiveness of the press in relation to other media undertakings that cannot be qualified as press. To my mind this draft is designed to address the inequality between press (facing the costs of providing investigative journalism) and content aggregation companies. That doesn’t seem too different from what happens in an agricultural cooperative, and I’m not aware of hordes calling for the Court to revisit Oude Luttikhuis or Gottrup Klim.

    What interests me most is how this will work in practice and what I’ll do to the position of the Federal Cartel Office. The draft provision is – in my humble opinion – not drafted too clearly and thus begs for legal certainty. This is best obtained from the FCO and the draft envisages a – conditional – right to a legal opinion of the FCO for the companies involved. Experience in the Netherlands shows that several forms of cooperation will indeed be notified to the authority for such legal opinions. The FCO will thus have devise a policy to deal with this matter. In this regard we could even envisage a situation in which several forms of press cooperation come into being, just as we once had several agricultural cooperatives that all strived in different ways to maximise the profitability of their members.

    Hans

    1 March 2017 at 10:26 am


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