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Archive for September 2017

On Excessive Pricing and Subjectivity- The CJEU’s Judgment in case C-177/16 AKKA/LAA

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Too Much

Excessive pricing has been one of the topics of the year. It’s also an issue close to our heart, first because Commissioner Vestager’s speech about it includes our names (the text is here and the full video is available here) and, second, because we are victims this practice daily (Pablo in his quest for vegan/bio products and me as a frequent purchaser of products for kids).

In spite of the public perception that competition law should be there to intervene directly against excessively high prices, these cases have –maybe for good reasons- been uncommon at the EU level (as explained before, at the national level things are quite different; see e.g. the CMA’s Phenytoin case). A cause and consequence of this situation is the lack of clarity on the applicable legal criteria, which have remained elusive. The prevailing legal test in this area was the fairly subjective “I-know-it-when-I-see-it-approach”. On a less legal note, that subjective approach is the rule in day-to-day life too; for example, my wife believes that whatever I buy is excessively priced and I think the same of what she buys. Fortunately I have the good sense of not saying it and of crossing this, she certainly wouldn’t have liked me to write that on the blog.

A recent Latvian case provided a good opportunity to clarify these criteria. A few months ago we commented on AG Wahl’s Opinion in the case (see here for our comments). The CJEU delivered its ruling on 14 September. It is available here. The name of the case is “Autortiesību un komunicēšanās konsultāciju aģentūra/Latvijas Autoru apvienība’ v Konkurences padome”. Since the acronyms aren’t so easy to remember either, it will probably be verbally referred to in the future as “the collecting societies case in…was it Latvia??”

As noted in our earlier post, the questions posed by the Latvian Supreme Court were right on the mark (except for one on the effect of trade between Member States the answer to which was evident and on which we will not comment). There is also a quite interesting issue regarding calculation of fines that is unrelated to the discussion on excessive pricing and on which we will comment in a future post.

In a nutshell, the issues posed by the case and the responses from the CJEU are the following:

Issue 1: In order to identify excessive pricing, “is it appropriate and sufficient-and in which –cases- to draw a comparison between the prices in the market in question and the price (rates) in neighbouring markets”? (underlining added)

The CJEU reformulates the question in para. 31 as only referring to whether the comparison is “appropriate”. Accordingly, the CJEU only responds to that question saying that yes, it is appropriate. It refers to established case law pursuant to which “a method based on a comparison of prices applied in other Member States must be considered valid” and that “that difference must be regarded as indicative of an abuse” (para. 38, citing Tournier and Lucazeau).

As the Court says, this was all “apparent from the case-law”. Actually, the referring Court was very much aware of it, as evidenced by the summary of its views contained in para. 20 of the Ruling. But can it be “sufficient” and, if so, “in which cases”? Those questions remain unanswered.

Issue 2: When is a comparison across markets sufficiently representative?

This is actually not a question that had been explicitly asked by the referring Court, but it certainly something that was in its mind, as perceptively observed in para. 39 of the Ruling. Since comparative exercises often boil down to this question (the apples and pears issue that we see everywhere), it is commendable that the Court went on to address it. It is however unfortunate that we may not be able to extract practical lessons. What the CJEU says in this regard is that:

  • “A comparison cannot be considered to be insufficiently representative merely because it takes a limited number of Member States into account” (40).

This is pretty common-sensical, but does the inclusion of the word “merely” suggest that it nevertheless is a relevant factor?

  • “Such a comparison may prove relevant on condition (…) that the reference Member States are selected in accordance with objective, appropriate and verifiable criteria” (41), that these “may include, inter alia, consumption habits and other economic and sociocultural factors, such as GDP per capita and cultural and historical heritage” (42), and that the comparison “must be made on a consistent basis” (44).

“Objective, appropriate, verifiable and consistent” all sound great and make sense, but I’m not sure they offer much practical guidance as they lend themselves to interpretation and gerrymandering as many different choices and divergent results can be said to be covered by those. Also, the examples provided by the Court “other sociocultural factors” or “cultural and historical heritage” are arguably perhaps not the best examples of objective and verifiable criteria. The CJEU concludes that all this is for national courts to assess depending on the circumstance of the case (42). If the comparison of prices requires competition authorities and courts to compare cultures and historical heritage, well, subjectivity will continue to play a major role.

Issue 3: In order to identify excessive pricing, “is it appropriate and sufficient- to use the Power Parity Index based on gross domestic product”?

Paras. 45 and 46 of the Judgment now make it clear that the PPP index “must be taken into account” when conducting comparisons between Member States. Whether the outcome of this assessment is or not conclusive or “sufficient” remains unclear (AG Wahl had said that it was useful and appropriate, its sufficiency depending on other factors), but we now know that it is not only “appropriate” but “mandatory”. This is a genuine development.

Issue 4: Should one compare user segments or average rates for all segments?

That was, again, an excellent and tough question. The CJEU’s sort-of-response is that it is possible to look at “one or several specific segments” (50), so that the assessment of average rates is not the only possible method. But the Court makes it clear that “it falls to the competition authority concerned to make the comparison and to define its framework, although it should be borne in mind that that authority has a certain margin of manoeuvre and that there is no single adequate method” (49). In other words, this is the sort of “complex economic assessment” for which some latitude on the part of the auhority is accepted.

Issue 5: When is a difference between prices “appreciable” and indicative of its abusive nature?

Once again, excellent question. The CJEU observes, first, that the differences in this case (twice as high in comparison to Estonia and Lithuania and between 50-100% higher than the average EU rates) were not as large as the differences that gave rise to the finding of excessive pricing by collecting societies in Tournier and Lucazeau (para. 54). It then notes, however, that this doesn’t mean that differences like those at issue cannot be abusive, given that “there is in fact no minimum threshold above which a rate must be regarded as “appreciably higher, given that the circumstances specific to each case are decisive in that regard.” The CJEU clarifies, along the lines of what AG Wahl had suggested, that “a difference between rates may be qualified as “appreciable” if it is both significant and persistent on the facts” (55) and that “that difference must persist for a certain length of time and must not be temporary or episodic”.

This all makes sense, the next question (aside from the unavoidable “what is significant”), being:  “what is a certain length of time?”, what counts as “temporary”? Wahl’s Opinion (at 109) had acknowledged that those questions would always be there. His proposed solution was that an authority should intervene “only when it feels sure” that “almost no doubt remains” as to the abusive nature of a price.

FINAL COMMENTS

-Unlike AG Wahl’s Opinion in this case, and somewhat unlike in the Intel Judgment, the Ruling does not contain any wider statements of principle. Perhaps unsurprisingly, the Court does not delve into discussing why prudence may or not be needed in these cases, nor about the exceptional circumstances in which action may be needed. As AG Wahl had observed, legal monopolies –including collecting societies, at issue in this case, and companies benefitting from exclusive rights- are exceptional and perfect candidates in this regard.

-At the end of the day, the CJEU ultimately says that the elusive riddles are for national authorities and courts to solve on a case by case basis (although with a different “background music”, this is actually not so different from the bottomline of AG Wahl’s Opinion). Indeed, the end result of this story is that it is up to national Courts or competition authorities to (a) determine whether to rely on a comparison across Member States or on other methods also/instead (37-38); and, in case a comparison is used, to (b) come up with a relevant benchmark for the comparison considering objective, appropriate and verifiable criteria which include economic, sociocultural and historical elements (40-41); (c) decide whether to make the comparison within one or several specific segments (50), and (d) determine whether a given price difference is “both significant and persistent” (55).

-However, and as we said then, the main contribution in AG Wahl’s Opinion was the idea that since no method is perfect, a combination of methods would be the most perfect of imperfect solutions: “competition authorities should strive to examine a case by combining several methods among those which are accepted by standard economic thinking” (Opinion, 43). That made sense to me. The CJEU’s ruling, as explained, falls short of saying this. It appears to be less conscious, or less concerned, about the alleged flaws inherent to a methodology of comparison across Member States (arguably, the CJEU understandably operates under an internal market logic which might play a role) and seems to leave the door open to the idea that this method may be sufficient.

-To be sure, the CJEU has nonetheless clarified that any comparison analysis must take into account the PPP index, and that “appreciable” means “significant and persistent”  (well, that last one we could have guessed… )

-In reality, however, and in the Court’s defence, perhaps this is all unavoidable. This may very well be one of the cases that is impossible to discuss in the abstract and that can only be assessed on a case by case basis. But as unavoidable as this might be, it says something (once again) about the lack of predictability of Art. 102 TFEU. If one admits that there is a large “margin of manoeuvre” for an authority to (a) define a relevant market; see here; (b) identify dominance; see here, (c) choosing what to compare to what; and (d) determining whether the result of the comparison is satisfactory, well, there may be an issue there.

But like Ortega y Gasset said of another problem that is unfortunately making headlines this week, this is one that perhaps cannot be resolved and that we need to carry on and live with…

Written by Alfonso Lamadrid

28 September 2017 at 3:21 pm

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Pop Antitrust

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A few years ago we presented you with a selection of the best antitrust-related videos (see here, here and here) and comics (see here and here).

All those were made by, and mainly for, experts. But since then antitrust has made inroads as an element of popular culture (now there’s even hipster antitrust!) . Think about it, today:

-Messages are conveyed via comics (see here; source: Pablo’s favorite site: geeksaresexy.net; you probably think I am kidding…)

-Competition Commissioners deliver TED-Talks (read Commissioner Vestager’s talk here);

-And antitrust is even the subject of US late night shows (watch John Oliver’s latest show here);

On second thought, however, antitrust has always had some role in popular culture. Don’t believe me? Well, check out this report “Antitrust in Pop Culture, A Guide for Antitrust Gurus” (by the Institute for Consumer Antitrust Studies) discussing how antitrust has featured in movies, theater, television, music, books, cartoons, and more. If you have additional suggestions to include in that list, please feel free to comment on this post; we can then send a compilation of suggestions to Spencer Webber Waller

 

 

Written by Alfonso Lamadrid

26 September 2017 at 5:53 pm

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Registrations now closed

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registrations

The tickets for the 3rd Chillin’Competition conference were all gone almost immediately, and after half an hour the waiting list already had 200 people.

Whereas it’s clear that we will not be able to fit everyone, we will do our best to reduce the waiting list to the minimum possible (we have some ideas, but we need to check whether they are feasible).

In any event, we need to think of a solution for next time. I guess an auction remedy might do the trick 😉

Written by Alfonso Lamadrid

25 September 2017 at 11:16 am

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Registrations now open

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registrationopen

To register to the 2017 Chillin’Competition conference, click here

Written by Alfonso Lamadrid

25 September 2017 at 9:01 am

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CHILLIN’COMPETITION CONFERENCE 2017- THE PROGRAM AND 10 THINGS YOU SHOULD KNOW

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Chillin'Competition Conference

The 3rd edition of the Chillin’Competition Conference is poised to be greatest event in the history of law. Well, that may have been an understatement…

The program is below. And here are 10 things you should know about it:

1)      The program features names, but it does not say much about substantive content. That is because we want to give speakers freedom to talk about the most interesting stuff they have to say. By the way, we are enormously grateful to all of them, particularly to Commissioner Vestager.

2)      We will be striving to foster conversations rather than the usual monologues to which you may have grown accustomed at other conferences, and we will even be having Ted @Chillin’Competition talks (if any IP expert reads this, please let me know whether crossing the word does the trick). This is supposed to be an interactive, dynamic and chilled debate; tough job for moderators and speakers, but surely good news for attendees.

3)      This time, and together with the big names of today, we have also invited some relatively new faces (they are the big names of tomorrow, so you better get used to them!).

4)      We have found a new and pretty original venue “Area 42”, not far from the Madou tower; we hope you’ll like it as much as we do.

5)      One of the reasons for switching venue is that other places “bundle” the catering. It was important for us to have the freedom to have the catering done by “We Exist”.

6)      “We Exist” is an NGO, created by and for Syrian refugees, with whom we have cooperated in the past, so expect some Syrian delicacies.  Even if you can’t make it to the conference you can participate in their events, or support their crowdfunding campaign to buy a food truck.

7)      The conference remains free. That is all thanks to our sponsors (to be announced soon).

8)      Every attendee will receive a special gift from Chillin’Competition (that is, if the shipment from China arrives on time and without major damage).

9)      Unfortunately, we won’t be able to fit in more than 270 people…

10)  Registrations open on Monday 25 September at 10am via a link that we will be posting on the blog at exactly that time.

***

THE CHILLIN’COMPETITION CONFERENCE

25 October 2017 (Area42, Rue des Palais 46, Brussels)

9-9.45: Registration and coffee

9.45-10: Introduction- A Year in Review 

Alfonso Lamadrid (Garrigues and Chillin’Competition)

10-11.15: Competition Law Everywhere?

Pascale Déchamps (Oxera)

Kyriakos Fountoukakos (Herbert Smith Freehills)

Damien Geradin (EUCLID)

Sascha Schubert (Freshfields)

Moderator: Kevin Coates (Covington&Burling)

11.15–12.30: The Real Center Stage

Beatriz de Guindos (Comisión Nacional de los Mercados y la Competencia)

Philip Marsden (Competition and Markets Authority)

Jacqueline Riffault-Silk (Cour de Cassation)

Eddy de Smijter (European Commission)

Jacques Steenbergen (Belgian Competition Authority)

Moderator: Niall Collins (Mason Hayes & Curran)

12.30-14: Syrian Lunch by the NGO “We Exist”

14-15: Ted@Chillin’Competition

Pablo Ibañez Colomo (LSE, College of Europe and Chillin’Competition)

Kai-Uwe Kühn (University of East Anglia and CRA)

Miguel de la Mano (Compass Lexecon)

Mark Powell (White&Case)

Antoine Winckler (Cleary Gottlieb)

15-15.45: Keynote by Commissioner Vestager

15.45-16: Coffee

16-17.30 Mergers and Disquisitions

Gavin Bushell (Baker&McKenzie)

Catriona Hatton (Baker Botts)

Adrian Majumdar (RBB)

Michele Piergiovanni (European Commission)

Moderators: Susana Cabrera (Garrigues) and Paul McGeown (Wilson Sonsini)

17.30-19 Looking Ahead

Luca Crocco (Latham&Watkins)

Natura Gracia (Linklaters)

Pola Karolzcyk (Sidley Austin)

Jürgen Schindler (Allen&Overy)

Gianni de Stefano (Hogan Lovells)

Moderator: Peter Alexiadis (Gibson Dunn)

19 Onwards: Wine Tasting (and Pairing)

Written by Alfonso Lamadrid

22 September 2017 at 2:39 pm

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Registration for the 3rd Chillin’Competition Conference (+ other interesting events)

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As announced back in July, our next Chillin’Competition conference will take place on 25 October in Brussels. We are quite satisfied with our previous events, but this time we want to do something even more interesting, dynamic and even fun. As always, it will be free for attendees. On Friday we will publish the program together with an explanation of some of the novelties envisaged for this new edition of the conference. 

The registration window will then open via a link that we will publish here on Monday 25 September at 10 a.m. Last year all availabe tickets were gone in 6 minutes, so you better be quick! Unfortunately we have had to keep the maximum number of attendees at 275.

***

Since it may be problematic for a blog (an online platform after all) to advertise only its own conference, and because we want to prove that organizing our own conference was intended to address a market failure that causes an insufficiency of competition law events, see below some other very interesting events that will take place in the course of next month:

-On 4 October Queen Mary University will be holding a conference on “Cross-border challenges in competition enforcement in innovative markets” in London. The aim is to showcase areas of convergence and divergence in competition enforcement, in markets where innovation plays an essential role. The conference will present different perspectives from EU, US as well as China. More information is available here.

-On 13-14 October the UniSA School of Law will hold the 15th edition of its Competition Law and Economics Workshop (CLEC) in Adelaide, Australia, with the participation of Nicolas Petit. The programme is available here. The workshop will be held in partnership with the Australian Competition and Consumer Commission (“ACCC”). Click here for further info.

-On 18 October antitrustitalia will host its 40th lunch talk at the auditorium of DG Comp in the Madou Tower. Chief Economist Tommaso Valletti will deliver a presentation assessing the role of the Chief Economist and clarifying the methodological issues of economics and econometrics that can be crucial in determining which competition law enforcement to pursue, if any. It will offer a survey of previous cases where the economic analysis “made a difference” as well as other cases where the economic defences put forward by the parties were “out of focus”. For more info, click here.

-On 20 October the GCLC and UCL will be holding a joint event in London on “Transformations of Competition Law” with a superb list of speakers. More info is available here.

-On 26 October our friends at ERA will host a workshop on “Anticompetitive Practices in the Online World: Hot Issues”. It will also be streamed live. You can access the program and register via this link.

-On 25 October, unfortunately on the same day as our conference, GCR, Baker Botts and E.CA will hold a seminar on innovation, IP and antitrust. More info is available here.

 

Written by Alfonso Lamadrid

19 September 2017 at 5:19 pm

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The Serbian Menarini

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[The global Human Rights Logo, above, was created by Predrag Stakić from Serbia]

Some in the EU claim that EU Courts are permissive of the alleged flaws of the institutional/procedural system for the enforcement of the competition rules. The prosecutor-and-judge debate is one of the most longstanding in contemporary competition law. Whereas the Menarini Judgment from the European Court of Human Rights seemed to indirectly endorse the EU system, some continue to question whether the ECHR’s requirements are complied with by a system where the Courts do not always exercise “full review”. In anticipation of possible future challenges, you will in fact have noted that, following Menarini, the expression “marginal review” has disappeared from EU competition law Judgments. The extent to which there was a problem, or to which there may have been a change, in this regard is further discussed here.

Now, what happens when the EU mode is exported to/imported by other jurisdictions with allegedly different checks and balances? Well, here’s a story that is currently making the headlines in the Balkans and that has triggered some unprecedented developments, including a common constitutional challenge on the part of the national Bar, Human Rights Organizations and criminal law academics, public accusations on the part of the competition authority against individual lawyers, alleged breaches of private correspondence and other black-novel-like developments. Who said competition law couldn’t be adventurous…

A quick recap follows:

Read the rest of this entry »

Written by Alfonso Lamadrid

18 September 2017 at 10:27 pm

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More on Intel: some thoughts after the IBA Conference in Florence

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Santa Maria Novella

Last Friday I took part in an (ideally timed) panel on Intel at the IBA Conference in Florence. The panel was chaired by Thomas Janssens and Timur Bondaryev (thanks a lot to both, and the rest of the panellists!). I learnt a great deal.

Inevitably, I spent some time re-reading some decisions and judgments ahead of the event. In the process, I shaped my thoughts on Intel and its implications.

These are some key takeaways that I did not develop at any length in my first post, and which I believe are key:

The AEC test is a (valuable) proxy; it is not the only factor

One of the issues that came up in the conference (no surprise) is whether the AEC test can rule out, in and of itself, the existence of an abuse. As I understand the judgment, the AEC test is better understood as a proxy or filter, not as the end of the inquiry.

If the test suggests that an equally efficient competitor would not be forced to sell below cost (read: below ATC or LRAIC), the onus is on the Commission to show why the rebate scheme is capable of foreclosing equally efficient rivals. Anticompetitive harm is possible in such an instance, but it cannot simply be presumed. It has to be substantiated in light of the factors identified by the Court in Intel.

Post Danmark II is an exception; Post Danmark I is the rule

When Post Danmark II came out, some commentators claimed that the judgment made efficiency considerations irrelevant in practice. Intel suggests that an alternative reading of the judgment is probably more reasonable: as a matter of principle, Article 102 TFEU is concerned with the ability and incentive of equally efficient rivals to compete. This makes Post Danmark I the rule, and Post Danmark II the exception.

Post Danmark II is in fact a wonderful example of the sort of special circumstances that may justify a departure from the rule. In that case, Post Danmark’s position came close to a monopoly; this position was, moreover, protected by exclusive rights.

A victory for consistency and legal certainty

A strict stance towards exclusivity agreements and loyalty rebates has often been defended in the name of legal certainty. Is there something better for legal certainty, the argument goes, than a clear rule that states that X is unlawful?

I have never been persuaded by this claim. Those advancing the argument only pay attention to one side of the rule (the outcome) and lose perspective of the other side (the scope of the rule, or trigger).

And the scope of the rule in Hoffmann-La Roche (and Michelin I, and British Airways) has never been clear. Look no further than Intel: it is far from uncontroversial to say that all schemes in the case are truly conditional on customers obtaining ‘all or most’ of their requirements from the dominant supplier.

For a rule to provide legal certainty, both the scope and the outcome need to be clear and predictable: make the first vague and the only certainty is that an undefined but potentially very vast range of practices is caught by the prohibition.

The Court’s clarification in Intel (and I believe it is a clarification) is a valuable step towards legal certainty.

Why? Intel provides a uniform benchmark: companies know that a cost-based test can be confidently relied upon as a proxy across the board. They also know that the cost-based test will be, in practice, the starting point of any inquiry.

Intel also makes it clear that the legal characterisation of a rebate scheme no longer has fatal consequences: it does not really matter (or not that much) whether a scheme is qualified as a loyalty or a ‘third category’ rebate. The methodology and approach will be roughly the same in practice.

Capability = Plausibility

As I understand the law, the threshold of capability is a relatively low one (on this one, I understand I agree with the Commission’s submission). In a ‘by object’ case (both under Articles 101 and 102 TFEU), it is sufficient that anticompetitive harm is plausible.

By the same token, what a firm would need to show to rebut the presumption of harm is that anticompetitive effects are implausible.

The good thing about rebates and predatory pricing is that we know where the threshold of capability lies: if a practice does not force an equally efficient rival to sell below cost (again: ATC or LRAIC), anticompetitive effects are in principle implausible: absent other factors, an equally efficient rival would be in a position to match the prices offered by the dominant firm. Its ability and incentive to compete would not be affected.

Exclusive dealing and loyalty rebates are not hardcore cartels

A hardcore cartel worthy of the name is capable, always and everywhere, of having restrictive effects on competition – otherwise, the cartel would have no point. As Toshiba suggests, arguing that a genuine hardcore cartel is incapable of restricting competition is hopeless in the vast majority of, if not all, cases.

But exclusivity agreements and loyalty rebate schemes are not hardcore cartels. These practices are implemented even when anticompetitive harm is implausible – which is also the reason why small market players with little or no market power resort to them.

The acknowledgement of this reality in Intel is valuable: the Court makes explicit that not all restrictions by object are created equal and that the law should take this factor into account. What is true of exclusive dealing is also true, inter alia, of tying and RPM.

What about de minimis?

The Court held in Intel (para 139) that a dominant firm may challenge the capability of harm on the basis, inter alia, of the limited market coverage of the practice. Is there a contradiction between this principle and Post Danmark II, where the Court held that there is no de minimis threshold in Article 102?

I do not believe there is a contradiction. Once again, it is worth taking a look at how things work in the context of Article 101 TFEU.

We know from Expedia that a ‘by object’ infringement that affects trade between Member States is not de minimis. But we also know from Murphy that the parties to a prima facie ‘by object’ infringement can show that the practice is not capable of restricting competition. I have never heard anyone argue that there is a contradiction between the two.

The same system would operate in the context of exclusivity agreements and loyalty rebates under Article 102 TFEU. A claimant or a competition authority can build a prima facie case without showing that the practice is capable of having appreciable effects. This is the point the Court made in Post Danmark II. On the other hand, Intel clarifies that dominant firm(s) can show that the practice is incapable of having effects. The former does not preclude the latter (it should not).

Applications of Intel: intellectual property-related cases are the obvious candidates

Intellectual property rights may prevent actual or potential competition between firms. Competition between these firms, in other words, may be implausible due to the existence of intellectual property rights.

Cases involving the exploitation of these rights are thus an ideal arena in which firms are likely to rebut with success the presumption that a practice is capable of restricting competition.

Examples? Think of the disputes in pay-for-delay cases (Servier, Lundbeck), in which the disputes revolve essentially around whether patent protection made market entry by generic producers implausible .

Written by Pablo Ibanez Colomo

12 September 2017 at 2:26 pm

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More questions (and some answers) on, and beyond, Intel (C-413/14 P)

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m4nrehat

The best, and quickest, Intel comment by the most preeminent academic of his generation –who also happens to be my co-blogger- already contains the keys to understand and make sense out of the very essence of today’s CJEU (Grand Chamber) Judgment in Intel (see the preceding post). In what follows I add my two cents on another set of issues raised by the Judgment. Read the rest of this entry »

Written by Alfonso Lamadrid

6 September 2017 at 5:43 pm

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Comments on Case C‑413/14 P, Intel: presumptions, effects-based analysis and open questions

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Intel Reports Quarterly Earnings

There was a lot of hype about the appeal judgment in Intel. It proved to be justified. The Court of Justice has set aside the ruling of the GC, and it has done so on the issues that have proved to be more controversial in the past few years: the question of whether, and to what extent, it is necessary to evaluate the effects of a system of loyalty rebates on competition.

Other grounds of appeal, including the territoriality question and the rights of defence, were rejected by the Court.

I will focus on the meaty stuff – Alfonso will jump in later and add his thoughts.

Does the judgment change the law?

Not really. The principle whereby exclusive dealing and loyalty rebates are prima facie abusive (or ‘by object’) stands (see para 137). What is new(ish) then? Well, the Court now clarifies that it is possible for a dominant firm to rebut the presumption that the rebate scheme is ‘capable’ of restricting competition. See para. 138: ‘that case-law [Hoffmann-La Roche and others] must be further clarified in the case where the undertaking concerned submits, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects’.

The Court makes explicit that anticompetitive harm is simply presumed in exclusive dealing and loyalty rebate cases. Accordingly, where supporting evidence is produced, the Commission must take seriously any arguments showing that the practice is not capable of having effects on competition.

Revolution? No. More of a desirable clarification, which makes a lot of sense.

Think of restrictions by object under Article 101(1) TFEU. In that context, the parties can also show that an agreement is not capable of having restrictive effects on competition, and therefore escape the prohibition (see for instance Murphy, paras 140 and 143). Does it mean that the Commission needs to show that the agreement has effects? No, it means that the parties can show that the practice cannot have effects. We now know that the same principle applies in Article 102 TFEU.

The Court’s clarification is welcome. A good legal system applies the same basic principles across the board. In EU competition law, it is now clear beyond doubt that ‘by object’ practices (read: those practices that are prima facie prohibited without the need to show effects) are treated in the same way under Articles 101 and 102 TFEU.

Efficiency counts in Article 102 TFEU, also in rebate cases: a welcome end to a controversy

We already knew from the Post Danmark saga – well, even from AKZO – that Article 102 TFEU is not inimical to efficiency considerations. On the contrary. The Court had already declared that the exclusion of less efficient rivals is a natural consequence of the competitive process, and therefore not attributable to the behaviour of the dominant firm.

The Intel judgment reiterates these principles and, by doing so, it gives them an aura of generality that is welcome for our understanding of Article 102 TFEU. In para 133, the Court holds that ‘it must be borne in mind that it is in no way the purpose of Article 102 TFEU to prevent an undertaking from acquiring, on its own merits, the dominant position on a market. Nor does that provision seek to ensure that competitors less efficient than the undertaking with the dominant position should remain on the market’.

It goes on in para 134, where the Court holds that ‘not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation’.

However, the most important bit comes in para 139. Post Danmark I and AKZO were about aggressive pricing. Do efficiency considerations count in rebate cases, where the concern is about distribution and access to outlets? They do. The judgment is crystal clear in this regard: when assessing the capability of harm, the Commission is ‘also acquired [sic, I assume it means required] to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market’.

This declaration was very important: I read it with relief. Saying that efficiency considerations are relevant only in one area of Article 102 TFEU but not in other areas seemed indefensible.

One important implication of the judgment: it is clear from AKZO and Post Danmark I that a practice is not capable of having exclusionary effects if it does not require equally efficient rivals to sell below cost. It follows, I would say, that a rebate scheme that does not force equally efficient rivals to sell below cost is prima facie compatible with Article 102 TFEU.

Open question: what is capability? How is the threshold of capability met?

The crucial part of the judgment (paras 129-147) is carefully crafted. Every word counts and is in the right place.

One aspect that I note is that the Court only uses the word ‘capability’. The open question then is: what is capability? Is it the same as likelihood? Is the meaning a different one? If the Commission needs to assess the capability of harm, does it mean that the tripartite division between loyalty, quantity and ‘third category’ rebates will disappear in practice?

We do not seem to have clear answers in the judgment. This said, it is not necessarily bad that the Court leaves the issue open.

On this point (capability vs likelihood), I happen to agree with the Commission submission in the case: capability and likelihood are not synonymous. They mean different things, and it would make little sense to give the same meaning to the two. The line between ‘by object’ and ‘by effect’ infringements (or between loyalty and ‘third category’ rebates) would otherwise become completely blurred. And this is not what the Court is declaring. Para 137 suggests that the tripartite division stands as a matter of principle.

The threshold of capability applies to ‘by object’ infringements, where harm is presumed (this is true of both Articles 101 and 102 TFEU). The threshold of likelihood, which is higher, applies to ‘by effect’ cases, where harm needs to be established on a case-by-case basis. To distinguish between the two: think of T-Mobile (by object, capability), and Delimitis (by effect, likelihood).

My views on the question: the assessment of capability is not and cannot be as detailed as the analysis found in ‘by effect’ cases. But capability plays a role! Just think of Post Danmark I. I discussed the difference between the two thresholds in Oxford back in June. Check my PPT here.

I am sure there will be a lot of commentary on this question in the coming months. All I can say for the time being is that, if I understand it correctly, what the Court has done makes a lot of sense. And that I will try to tease out its meaning and implications. Stay tuned, and let me know your thoughts!

 

Written by Pablo Ibanez Colomo

6 September 2017 at 10:52 am

Posted in Uncategorized