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Archive for June 8th, 2017

The elephant in the Courtroom: it’s the dominance, stupid!

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elephant courtoom

This blog has always been a bit Court-centric, in the sense that we typically pay more attention to what comes from Luxembourg rather than to what comes from Brussels. To our mind that is logical, but it also is certainly not the general rule. Our forthcoming workshop on EU Competition litigation (see here) is a testimony to that approach.  And this post aims at giving you an example of the sort of issues that we would like to discuss at the workshop.

Most of the criticism to the case law of EU Courts in the competition field has focused on abuse of dominance cases. And when any commentator  -ourselves included- criticizes or discusses the case law, we all tend to focus on the substantive legal tests applied to discern the legality of a given conduct (we discuss presumptions, capability, likelihood, the need to show foreclosure and the relevant extent of foreclosure, etc). All those are extremely relevant, and there are arguably gaps in the law, but we may be missing out something; the title of this post may admittedly give you a hint.

Back in March we organized a sort-of- high-level-Spring Meeting in Madrid to discuss the most important competition cases of the past 20 years with some of the people who worked closely on them. One of the speakers at this event was Eric Gippini-Fournier, from the Commission’s Legal Service. Readers of this blog know Eric from, among other things, his Friday Slot interview and for being –together with Fernando Castillo- the author of this gem of a book and –also with Fernando- co-organizer of our litigation workshop.

Many also credit –or rather blame- Eric for some of the case law regarding abuse of dominance, as he was a successful Commission lawyer in some of the most controversial unilateral conduct Court cases in recent years, including  Michelin II, Lélos, Telefónica, Wanadoo, Astra Zeneca, Tomra or Post Danmark II. Few people, if anyone, have comparable litigation experience in Art. 102 cases. During his intervention in Madrid Eric logically defended the Court’s approach to several of these cases, and also made an important point that I had not really heard before, or not so clearly put. He explained that, in his view, the strict case law on Art. 102 and the concept of special responsibility as interpreted by the Courts only makes sense provided that the market definition and the assessment of dominance are serious, thorough and strict. He noted, however, that the Court’s ability to exercise its review, to give guidance and to advance the law has been hindered by applicants’ unwillingness or ineffectiveness to challenge market definition and/or dominance in Court (perhaps that also had to do with the Commission historically prioritizing cases where these questions were not in dispute). And as regards dominance, even when it is challenged, the discussion remains often at the level of market shares and there is comparatively little recourse to the sophisticated tools and methods routinely used, for example, in merger control, to assess the competitive constraints and the margin for independent action of the dominant company.

All this explains why in this area we are stuck in the same place as 30 years ago, using rudimentary tools and assessments and most often looking only at market shares (an approach that has been largely abandoned in other jurisdictions as well as in the EU when it comes to merger control). Even “old” cases such as Hoffmann-La Roche discuss in detail the competitive constraints faced by the company, in a manner that has become rare today.  

There may be a negative externality in academic commentary in this area that has contributed to hiding a possible problem. Market definition and dominance issues are so factual and case-specific that commentary on the case law dealing with them is surprisingly scarce (people other than parties to the cases understandably care more about substantive principles of general application). I, for one, only know of one recent article in years that has tried to analyze the stance of the EU Courts in this regard (which underlines that market definition involves many legal, factual and logical assessments subject to full, nor marginal, judicial review).

Market definition and dominance may thus very well be the elephant in the room when it comes to judicial review of abuse of dominance cases (even if these are by now almost extinct –and I mean the Court cases, not the elephants) (for more on elephants from me –really- see here from min. 3.28 onwards). Whilst everyone acknowledges that market definition’s in-or-out methodology is by nature inaccurate and prone to errors, in the absence of a better tool we continue to rely on it. And with a sufficiently contrived/procrustean market definition (see here, also the comments, for our best examples), almost any case may fly. And that is partly because the inaccuracies inherent market definition fail to be corrected in the assessment of market power, due our excessive reliance on market shares [an exception –although again in the merger field was Microsoft/Skype-; by the way, given the Commission’s efforts to conveniently ignore this Judgment they could have as well let us win it! 😉 ]

Admittedly, one could try to see cause for optimism. If one reads carefully the Judgments in cases like Microsoft (2007), Clearstream (2009), Astra Zeneca (2010) or CEAHR (2010) the picture that emerges is one of thorough review of market definition (this even if the Court was formally undertaking a marginal review), and of abandonment of market-share only approach (Cisco, 2013)).

On the negative side, however, the problem is that these cases don’t get to the General Court anymore. Why would the Commission take the odds of facing such a scrutiny? And why would companies take the risk of not offering commitments when the (even if sometimes misleading) statistics suggest to them that taking a case to Court may be hopeless? And since commitments decisions do not require complex assessments of market definition and dominance, we are left without any Commission guidance on this front [a bit like what happens in Art.101(3)]. And this is a problem for national competition authorities and national judges as much as it is one for companies and their economic and legal advisors.

What now then? In my view, it is clear that the Commission is unlikely to shake things in this area, as relying on market shares in 102 cases is pretty comfortable, particularly when one gets to define the relevant market. With the General Court effectively sidelined from this debate for now, the initial reflex could be to expect the CJEU to provide guidance in the form of preliminary rulings. In this case, however, that might not happen, as national Courts are most unlikely to refer questions that they see as not having to do with the interpretation of law, but with economic of facts, and as such inadmissible.

For further reflections on this issue and on the possible way out, join us on the 3rd of July in Brussels.

Written by Alfonso Lamadrid

8 June 2017 at 10:34 am

Posted in Uncategorized