Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for July 2017

Some thoughts on Cyril Ritter’s ‘Corporate funding for antitrust academics can be a problem’

leave a comment »

As promised, I am back with some thoughts on Cyril Ritter’s recent post on corporate funding of academic research in antitrust. I will point out, to begin with, that the contribution is most welcome. I would like academics to discuss the issue of corporate-funded research as openly and courageously as Wouter Wils discussed the issue of prosecutorial bias in his magisterial 2004 piece on the combination of functions within the Commission.

I do not have major disagreements with Cyril. What is more, he makes some important points with which I agree wholeheartedly. I just have some comments here and there. This is arguably inevitable, as his was a short blog post, not a dissertation.

‘Corporate funding changes the tone of academic discourse’

Cyril argues that corporate-funded research can have the effect of moving the efforts of academics away from basic research and towards the discussion of case-specific issues or concerns.

I agree with Cyril that there is not enough research on fundamental questions and there is certainly too much of an overflow of articles discussing individual cases or discrete sub-sets of cases. And I am ready to concede that corporate funds may exacerbate this trend – whether it is the main cause of the phenomenon is a different question.

I have long seen the trend with concern and will lead by example. If anyone among our readers is considering a PhD: forget about pay-for delay or SEPs. Think about a dissertation on fundamental, horizontal issues that will stand the test of time!

Even if I agree with the above, a reader of Cyril’s post may get the impression that corporate-funded articles are always one-sided advocacy tracts. It would not have hurt to clarify in the post that this is not necessarily the case. Corporate-funded research can be as rigorous in style and substance as research funded via tuition fees and/or the public purse. Again, the example of Toulouse is one that comes to mind.

The ‘subtle’ and ‘insidious’ effects of corporate-funded research

Cyril points out that corporate-funded research may have effects that go beyond the funding of a specific piece. The same effects may be expected of consulting relationships entertained by academics. As a result of these ‘subtle’ and ‘insidious’ effects, academic work may be biased in favour of the interests of the firms funding the research or consulting work.

For the most part, I fully agree. Cyril describes phenomena that have already been identified in the relevant literature, and it is important to engage with them.

As an academic, I am far less persuaded by one of the risks he identifies, however. According to Cyril, academics may be reluctant to change their minds and contradict the viewpoints already expressed in corporate-funded work.

People who are reluctant to change their mind in public belong with druids and preachers, not with academics. The whole point of research as an intellectual exercise is to advance knowledge. Advancing knowledge involves, by definition, refining prior positions and occasionally abandoning them altogether.

I would say more: the harder one thinks about an issue, the more likely a change of mind becomes. A giant like Keynes was famous for the fluidity of his positions. ‘When events change, I change my mind. What do you do?’, Paul Samuelson said, when a journalist pointed to inconsistencies in the successive editions of his legendary textbook about the desirable rate of inflation.

I can also think of some giants in our field. When the latest edition of Whish & Bailey’s textbook came out, I noted in the blog that the position in relation to exclusivity agreements under Article 102 TFEU had evolved. If you read my blog post, you will not be able to find the slightest hint of criticism about this change of mind. On the contrary, I celebrated it as evidence suggesting that ours is a discipline in constant flux.[1]

I understand that the above may not be obvious to non-academics. This fact may explain, for instance, why many in the EU competition law community entertain bizarre ideas about the ordoliberals. Some view ordoliberalism as some sort of cult in which a fixed set of fossilised ideas are worshipped. Nothing could be further from the truth. Ordoliberals disagreed among themselves at discrete points in time, and their views have evolved over the years, as Peter Behrens and Heike Schweitzer have brilliantly explained.[2]

Collective action and corporate funding: what about capture?

Even though Cyril acknowledges that the issue is more complex in practice, a reader may conclude from his piece that corporate-funded research typically, or as a rule, advocates positions opposed to those of competition authorities. Corporations would be in the anti-intervention camp, and public authorities in the pro-intervention camp. As a result, corporate-funded research may create a climate that is hostile to action by competition authorities, thereby harming the public interest.

However (and Cyril points this out at the beginning of his piece), it is not unusual to see corporations siding with public authorities in the pro-intervention camp. By the same token, there is no shortage of corporate funds for research advocating action by competition agencies. Suffice it to think of patent hold-up and the many companies that have funded pieces explaining why it is a real problem requiring some form of intervention.

If one takes this factor into consideration, the issues discussed by Cyril could be developed further. Instead of creating a climate contrary to intervention, corporate-funded research may very well lead to unwarranted action. Why? Companies in the pro-intervention camp may be able to exploit to their advantage the cognitive biases that Wouter Wils masterfully described in the abovementioned piece.

The risk of agency capture by ‘purchasers’ of regulatory intervention is well identified in the literature. It is also known that what is in the interest of companies advocating intervention is not necessarily in the interest of competition and consumers – in fact, it often has the effect of harming both competition and consumers. As Cyril rightly explains, powerful special interests can organise themselves better than larger groups, such as end-users.

There are other factors that may actually enhance the prominence of pro-intervention views. As a reader pointed out in their reaction to Cyril’s post, proactive enforcement is ultimately in the interest of practising competition lawyers. In addition, pro-intervention views may be more popular in academic circles than views advocating restraint and/or arguing that there is nothing new under the sun. I was sharing this impression last month over coffee with a senior academic.

These quibbles aside, Cyril should be congratulated for enriching the debate and taking it to another level. Thanks so much!

[1] One should note, in addition, that Richard worked as a law firm partner for a number of years. This is an example suggesting that the risk identified by Cyril may not materialise in practice, or that the phenomenon may be less pervasive than he appeared to suggest in his post.

[2] I am proud to disclose that Heike was my PhD supervisor in Florence and that I was Peter’s assistant in Bruges.

Written by Pablo Ibanez Colomo

28 July 2017 at 8:50 am

Posted in Uncategorized

AG Wahl in Case C-230/16, Coty: four lessons in common sense (by Pablo)

with 3 comments

Common sense

The much-awaited opinion in Coty is finally out. When reading it, one cannot avoid wondering whether all the excitement was justified. AG Wahl’s take on the issue is so full of common sense that the outcome he suggests to the Court comes across as the logical one.

The Oberlandesgericht in Frankfurt raised two key questions. The first was whether the protection of the brand image of a product is a legitimate requirement that justifies the setting up of a selective distribution system. The second is whether an online marketplace ban amounts to a restriction of competition by object within the meaning of Article 101(1) TFEU – and, by the same token, a hard-core restriction within the meaning of the Vertical Block Exemption Regulation.

AG Wahl takes the view that a selective distribution agreement aimed at preserving the brand image of a product falls outside the scope of Article 101(1) TFEU altogether if the conditions set out by the Court in Metro I are fulfilled. In addition, AG Wahl holds that an online marketplace ban is the sort of restraint that is acceptable in the context of a selective distribution agreement – and as such not restrictive by object. According to the Opinion, any such ban is comparable to the sort of restraints found in the off-line world and which the Court has already ruled are compatible with Article 101(1) TFEU.

AG Wahl also concludes that an online marketplace ban is not a hard-core restriction under Articles 4(b) and/or 4(c) of the Block Exemption Regulation. This is important insofar as it means that such a ban benefits from the exemption without it being necessary to engage in a case-by-case inquiry about whether the conditions laid down in Metro I are fulfilled.

More than the outcome, which does little more than follow the principles laid down in prior case law (full of common sense too), it makes more sense to say a word of the lessons that we can draw from the opinion.

Lesson 1: Selective distribution is primarily about preserving the brand image of a product

The protection of the brand image of the manufacturer is the primary reason behind the use of selective distribution systems. This is particularly obvious in the case of luxury products. It would make little sense for producers to resort to third-party distributors if doing so would jeopardise the image and aura of prestige of their goods. See in this sense para. 43 of the Opinion: ‘Brands, and in particular luxury brands, derive their added value from a stable consumer perception of their high quality and their exclusivity in their presentation and their marketing. However, that stability cannot be guaranteed when it is not the same undertaking that distributes the goods’.

Against this background, it is only reasonable to hold that any restraints aimed at preserving the brand image of the products are not as such restrictive of competition, whether by object or effect. Any such restraints are objectively necessary for the existence of selective distribution systems in the first place (the counterfactual all over again!).

This idea is not new. As AG Wahl holds, it was already in the case law. It is an idea that is also present in the case law relating to franchising – in Pronuptia, the Court held that restraints aimed at preserving the reputation and uniform brand image  of a product are not caught by Article 101(1) TFEU. AG Wahl applies a reasoning that is similar to the one found in the latter; see again para 43: ‘The rationale of selective distribution systems is that they allow the distribution of certain goods to be extended, in particular to areas geographically remote from the areas in which they are produced, while maintaining that stability by the selection of undertakings authorised to distribute the contract goods’.

Lesson 2: Competition is not synonymous with ‘price competition’. It is much more than that

The Opinion is also a valuable reminder that firms do not only compete on price, but also, inter alia, on quality and innovation. This is a key point that the Court understood very well in its lucid Metro I and Metro II judgments. If it was already clear in the late 1970s and early 1980s that firms do not only compete on price, this fact is all the more apparent in 2017 – I am reminded of this every time I am in a classroom full of 20-somethings that have a marked preference for pricey Apple products.

Accordingly, it is plain irrelevant to argue that online marketplaces intensify price competition among retailers. The Court and the Commission have always understood that, while selective distribution systems restrict intra-brand price competition, they promote competition in other parameters. They encourage producers to compete on the quality of their products and they provide an incentives for retailers to improve the shopping experience of end-users. Why would a restraint that is known to have such positive effects be restrictive by object?

AG Wahl summarises these issues particularly eloquently in para 46 of the Opinion: ‘It should be borne in mind that the compatibility of selective distribution systems with Article 101(1) TFEU ultimately rests on the notion that it may be permissible to focus not on competition “on price” but rather on other factors of a qualitative nature. Recognition of such compatibility with Article 101(1) TFEU cannot therefore be confined to goods which have particular physical qualities. What matters for the purpose of identifying whether there is a restriction of competition is not so much the intrinsic properties of the goods in question, but rather the fact that it seems necessary in order to preserve the proper functioning of the distribution system which is specifically intended to preserve the brand image or the image of quality of the contract goods’.

Lesson 3: The scope of Pierre Fabre is confined to outright bans on online sales

Even if the above seemed clear for a long time (I have always told my students that the whole point of selective distribution is to preserve the brand image of a product) Pierre Fabre created some confusion. This is so because the Court appeared to suggest that the protection of the prestigious image of a product is not a legitimate requirement justifying the sort of restraints found in a selective distribution system.

AG Wahl argues – and I agree – that such statement must be confined to the specific circumstances of that case (para 78). In other words, he takes the view that the Court examined whether the protection of the brand image could justify an outright ban on online sales. Thus, Pierre Fabre was not making any general statements about the former. As explained in the opinion, any other reading of that ruling would contradict a consistent line of case law that acknowledges the role of selective distribution in the protection of the brand image of the producer (para 85).

Lesson 4: Competition law and intellectual property law go hand in hand

The single most important and relevant precedent for Coty was not a competition law case, but an intellectual property one. In Copad, the Court held that the licensor of a trade mark may impose restraints on a licensee aimed at protecting the brand image of its products. Accordingly, it may require the licensee to sell the product to members of the selective distribution network.

If one accepts that Copad is good law – and it is – then it is difficult to see how the Court can take a different view in relation to a contractual clause that has the same purpose. As explained by AG Wahl in paras 88 and 89 of the Opinion, any other outcome would lead to an inconsistency that would not be easy to justify.

Written by Pablo Ibanez Colomo

26 July 2017 at 6:33 pm

Posted in Uncategorized

Important- Save the Date for The Ultimate Competition Law Event- 25 October 2017

leave a comment »

3rd Chillin'Competition Conference

Our next and third annual Chillin’Competition conference will be taking place on Wednesday 25 October 2017.  We have confirmed the date with a surprise guest (we cannot tell you more, but just a hint: she is Danish and, among other things, knits elephants).

We want to make this a uniquely interesting, fun, relaxed and disruptive conference, and we are already thinking about new formats and ideas, so:

If you’d like to help us sending ideas or proposals our way (on new formats, themes, etc), please do so!  A good idea will get you a guaranteed seat…

If you’d like to attend, save the date! At the beginning of September we will publish a tentative programme as well as information on how to register. Remember that last year all seats were gone in 6 minutes (if you think that was fast you should have seen some of the attendees at the open bar after the conference…).

-If you’d like to sponsor it, drop us a line. 

 

Written by Alfonso Lamadrid

25 July 2017 at 4:24 pm

Posted in Uncategorized

Corporate funding for antitrust academics can be a problem, by Cyril Ritter

with 4 comments

[Cyril Ritter, an ‘academically-minded Commission official’ (Chillin’ Competition) has recently written a post addressing one of the issues of the day. Interested as I always am in his views, I was delighted when he told us that he was keen to ‘multicast’ his views to make them available on our blog. I am sure there will be reactions to this piece — I myself have some comments, that I will be posting at some point in the coming days. Enjoy!]

Please note that the following are Cyril’s personal views

The topic of corporate funding for academic articles — and the possibility of academic bias — have been the subject of many recent press articles (here and here), blog posts (hereherehere and here), reports (here and here) and academic articles (herehereherehere and here, for example). This debate is playing out on both sides of the Atlantic, mostly in the areas of antitrust, intellectual property, and internet regulation.

Corporate funding has been linked to ethical issues in medical research, food safety and nutrition, financial regulation, and other fields. There is no reason to believe that antitrust law and economics are necessarily immune to such concerns.

The response from some antitrust academics has been to make a series of arguments that are not particularly consistent with each other: (a) the funding doesn’t matter, only the ideas and arguments matter; (b) the campaign for better disclosure of corporate funding is itself driven by corporate funding from the other side, with a particular agenda in mind; (c) there is no evidence of academic bias; (d) there is no bias when academics express their sincere views; (e) at the same time, let’s aim for better disclosure of funding — but not all types of funding.

To be fair, antitrust agencies sometimes have relationships with academics as well, either as advisers or to produce studies, or by hiring academics in part-time or short-term positions. And corporate funding for academics can take place on both sides of an argument (antitrust defendants and antitrust complainants, licensors and licensees, content providers and platforms, infrastructure owners and “over the top” providers, etc).

The one constituency which is systematically under-represented in academic debates is consumers. This is probably another manifestation of the collective action problem: more concentrated interests are better at defending themselves, while larger groups — whose members have more diffuse interests — have more difficulty organising and financing efforts to push their interests. Given that many European academics’ salaries are paid by taxpayers, one would expect them to work in the public interest, instead of working for particular corporate interests (I am indebted to Ioannis Lianos for this idea).

Read the rest of this entry »

Written by Pablo Ibanez Colomo

24 July 2017 at 9:54 am

Posted in Uncategorized

FCP Annual Training on Competition Law and Economics: Second Edition 2017-2018

leave a comment »

FCP

One of the activities of our friends from the Florence Competition Programme in Law & Economics (coordinated by Giorgio Monti) is the annual training on competition issues that is designed for members of competition authorities and public officials interested in the most recent developments in the field (and open, to be sure, to practising lawyers and economists!)

They tell us that registration for the second edition of the training is still open until the end of this month. More information on the programme and the faculty can be found here and in the video below.

 

Written by Pablo Ibanez Colomo

20 July 2017 at 1:53 pm

Posted in Uncategorized

‘If the gloves don’t fit, acquit!’, by Denis Waelbroeck

with 4 comments

Gloves

[As promised yesterday, I am back with a post with materials from our ‘workshop’ on EU courts and competition law. I am delighted that this first post of the series features Denis Waelbroeck‘s intervention. I feel immensely fortunate to have been Denis’s student and teaching assistant in Bruges. As someone who cares deeply about the EU and its institutions, it was only natural to have him with us for the occasion. He chose an important, original and timely topic – and before I forget: the title of the post was suggested by Alfonso!]

I thought that– in these five minutes you have given me – I might say a word about the EU Courts’ judicial review in competition cases, but would do so from another angle than the one which has been very much at the centre of discussions post-Menarini.

There are indeed two distinct problems in my view with the “too complex to review” case-law:

  • One is the Menarini problem – or the “Article 6 ECHR issue,” with the Commission being prosecutor and judge, and the need as a result to have a “full jurisdictional review” – that problem is well rehearsed and extensively discussed in Fernando and Eric’s excellent new book.
  • there is however in my mind a second issue, which has caught less attention and that relates to the predictability of the law.

To put it bluntly, if the Court says : “this issue is too complex for me to understand and to control“, then the question is: why is it too complex for the Court but not “too complex” for companies to understand ? Or to put is differently : if the law is “not clear“, can you really punish parties for infringing it ?

This raises in other words an “Article 7 ECHR issue. As we know, Article 7 ECHR effectively translates into European law the old Latin rule that “nulla poena sine lege certa” (“No punishment without a clear law“) (see also Article 49 Charter).

The old Romans indeed wisely held that before imposing sanctions, the law should be “clearer than the day” (Justinian Code book IV, vol XX, I, 1-258).

In other words, if the Court finds that the law is “too complex” to be applied by it, then – in my mind – this has serious consequences :

  • First, you cannot impose sanctions on a party for not complying with a law which the Court itself finds “too difficult to understand“.
  • Second, you cannot give the Commission the “benefit of the doubt[1]. Rather, if someone should have the “benefit of the doubt“, it is the accused and not the enforcer (to put it in Latin again : “in dubio pro reo“)[2].
  • And still for the same reasons, if the law is not clear, not only there can be no sanction, but there can in my view be no fault giving rise to liability and damage actions.

The Swiss Bundesverwaltungsgericht has made this point nicely in its Swisscom judgment of 24 February 2010 (see 9. Wettbewerbskommission, B.2050/2007, point 4.5.1) where it ruled that the Swiss equivalent of Article 102 TFEU lacked, in and of itself, the predictability necessary for the imposition of penalties.

And also in the United States, fines will be imposed for per se violations, i.e. for cartels, but not for the more contentious infringements under Section 2 of the Sherman Act for instance. (See US DOJ Report on “Competition and Monopoly : single-firm conduct under Section 2 of the Sherman Act” of September 2008 – https://www.justice.gov/sites/default/files/atr/legacy/2009/05/11/236681.pdf).

Now, as we know, the European Courts have taken on the contrary the view that “the use of imprecise legal concepts within a provision does not prevent liability being established against a person who contravenes it. As the Commission point out, if it were otherwise, an infringement of Articles 101 or 102 TFEU – which are themselves drawn up using imprecise legal concepts, such as distortion of competition or “abuse” of a dominant position, could not give rise to a fine without the prior adoption of a decision establishing the infringement” (GC, 27 June 2012, Microsoft, T-167/08, EU:T:2012:323, para. 91).

In view of the general principle of legal certainty, I wonder whether this is the right approach.

But to make myself very clear: my point is not to criticise “modernisation“, I am all for “economic based approach“, but my only point is that if it implies that the law becomes “too complex” to be reviewed, then the competition authority should look at it differently : then its role is not so much to impose sanctions. Then the authority in fact becomes a regulator for the future. That is no less important and no less useful. But it changes obviously significantly the nature of the rule.

So I would like to submit that this is an important dimension which requires further thinking and discussions.

 

[1]                Systematic approach of the European Courts, see e.g. GC, 30 January 2007, France Telecom (Wanadoo), T-340/03, ECR, EU:T:2007:22, paras 129 and 153.

[2]            Ammianus Marcellinus relates in his Rerum Gestarum how Numerius stood on trial before Emperor Julian. His prosecutor, Delphidius, “a passionate man” seeing that there was not sufficient proof against the accused, exclaimed vehemently “Ecquis, florentissime Caesar, nocens esse poterit usquam si negare sufficiet? (Oh, illustrious Caesar! If it is sufficient to deny what hereafter will become of the guilty?“) to which the Emperor replied “Ecquis, ait innocens esse poterit si accusasse sufficiet?” (“If it is sufficient to accuse, what will become of the innocent?“).

Written by Pablo Ibanez Colomo

18 July 2017 at 7:30 pm

Posted in Uncategorized

One week, three colleges (Bruges, King’s, Pembroke): my trips in June – before it’s too late

leave a comment »

Prembroke

For some reason, I found myself presenting at many more conferences than I thought I would during June. Oh, well. Perhaps some fresh air was not a bad idea after a few months typing. I had a particularly intense week that started in Bruges, continued in London and finished in Oxford. Before it is too late (if it is not already), I thought I would share some materials (including the pics!).

Wednesday 21 June: In Bruges, I had the pleasure of presenting at the symposium organised by the students of the Law & Economics specialism (ELEA in Bruges jargon). Other speakers included Mike Walker (CMA), Luca Prete (Chambers of AG Wahl), Alex de Streel (Namur and CERRE) and Miguel Rato (Quinn Emanuel).

My presentation was on product design. You can find it here. We had great fun, and the event was a good reminder of how lucky I am to teach in Bruges: we went beyond the allocated time and the students wanted to go on with the discussion. At some point, I was clearly the one who wanted a break and a glass of white (and it does not happen often)!

Baskaran

Friday 23 June: Friday took me to King’s College London. As every year for the past three, I acted as a judge in the Herbert Smith Freehills Competition Law Moot. Congratulations to Hong Kong University (and its coach, the great Thomas Cheng), for their second victory in a row! And thanks to Baskaran Balasingham (you will find him above, next to Alison Jones) for sending the picture.

Saturday 24 and Sunday 25 June: And finally, Oxford, where I shared, in the context of the legendary antitrust symposium, some thoughts on the analysis of the counterfactual in EU competition law. The atmosphere of this symposium is truly unique, and the setting (Pembroke College) does not do any harm. The Oxford competition law people (Ariel, Julian, Maria) are, I guess, very proud of their creature.

Here is the presentation I gave. The paper based on the talk will be coming out in the Journal of Antitrust Enforcement. At Oxford, my problem was the opposite than the one I had in Bruges: I wish I had had much more time to go in detail over Maria’s and Ioannis’s excellent comments!

As you know, the marathon continued, in Brussels, the following week, in the form of our ‘workshop’ (in Alfonso’s jargon) on judicial review. More on this tomorrow!

Written by Pablo Ibanez Colomo

17 July 2017 at 7:39 pm

Posted in Uncategorized