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Archive for January 11th, 2018

About the ISU decision: a policy perspective

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ISU.jpg

All the best for the New Year! For better or worse, it is time for the blog to resume its normal activity.

We have been assisted by a flurry of enforcement that took place in the last weeks of the year. I hear a decision in a major Article 102 TFEU has (finally!) been made public. I will pass on that one (for now), and will focus on another case (for which, by the way, there is no decision published yet).

A month ago, the Commission announced that it had found that the International Skating Union’s policies vis-à-vis participants in its competitions were in breach of EU competition law. Thanks to DG Laitenberger’s speech, we know that the Commission considers these policies to be restrictive of competition by object.

The press release expressed concern about the impact of the ISU’s policies on athletes’ freedom to take part in other competitions. According to the Commission, these policies (i) did not relate to legitimate sports-related objectives; (ii) enable the ISU to pursue its own commercial interest at the expense of athletes and potential rivals; and (iii) prevent the latter from organising competing championships.

As usual, I am not interested in the outcome of this specific case. I am ready to believe that ISU’s policies did not fulfil the conditions set out in Article 101(3) TFEU. More importantly, I do not really see the point of questioning this conclusion.

If I am intrigued, it is because of the policy dimension of the case, which got me thinking. In the process, I realised that I have, after all, a few wishes for the New Year.

Yet another ‘by object’ case: why do they dominate enforcement?

One of the most remarkable features of the Commission’s enforcement policy since the adoption of Regulation 1/2003 is that virtually all non-cartel prohibition decisions are qualified as ‘by object’ infringements (if you want the exact numbers, wait for my forthcoming book!).

The dominance of ‘by object’ cases is a phenomenon which, I believe, was first described and studied systematically by Damien Gerard in this great piece, one of my favourites (if you prefer PPTs, see here).

The overwhelming dominance of ‘by object’ cases is perfectly consistent with the ‘more economics-based approach’. In fact, one would expect ‘by object’ cases to feature prominently if enforcement is informed by economics. The most egregious violations of competition rules tend after all to be ‘by object’ infringements.

Of course, the ‘by object’ label may occasionally be applied to practices that do not really belong in that category (Cartes Bancaires is there to prove the point; and I cannot resist adding Lundbeck, about which I have made my views clear on this blog and the appeal of which is pending before the Court). In this regard, ISU is also interesting…

ISU’s policies as a ‘by object’ infringement

It is impossible to draw conclusions from just a press release, but, as I say, I am nevertheless intrigued by it. In light of what I read, the reasons why these policies were deemed to amount to a ‘by object’ violation of Article 101 TFEU are not immediately apparent.

What the press release tells us, in essence, is that the ISU imposed a set of non-compete obligations in a vertical relationship (between the ISU and the athletes).

And there is long line of case law that suggests that non-compete obligations in vertical relationships are not ‘by object’ infringements.

Remember Pronuptia: the ECJ held that the non-compete obligation is not caught by Article 101(1) TFEU in a franchising agreement – in that context, it is an ancillary restraint that is prima facie lawful. Think of Delimitis too: the Court made it explicit that an exclusivity obligation in a beer distribution agreement does not have as its object the restriction of competition.

Are the ISU’s policies different from these cases? Why? I really look forward to reading the decision. Here are some thoughts on this fundamental question.

As in Pronuptia and Delimitis, the relationship between athletes and sports associations is mutually beneficial. They need each other. Competitive athletes need rivals (I have written here before that even the Harlem Globetrotters need the Washington Generals). They also need a framework in which to compete and become known by the public. Sports organisations need, of course, participants.

Against this background: is an attempt to protect the investment made in the organisation of events blatantly anticompetitive? Is it not a reasonable attempt to address free-riding, as in Pronuptia?

Even State aid provides an interesting example in this regard: ISU’s policies made me think of training aid: I see analogies between the problems faced by employers (which tend to under-invest in the training of their employees as they fear free-riding by other employers) and those faced by sports organisations.

Why would these analogies not be relevant in this case? Is there something specific about skating or speed staking?

I will have to wait to get an answer to these questions. It is clear to me, in any event, that one of the factors mentioned in the press release is not suggestive, in and of itself, of the anticompetitive object of the policies.

The Commission mentions in the press release that the ISU sought to protect its commercial interests. Well, which firm does not? The franchisor in Pronuptia and the incumbent banks in Cartes Bancaires also intended to protect their commercial interest. In spite of this fact, the agreements were not deemed to have an anticompetitive object.

The question is not so much whether the ISU wanted to protect its commercial interest but whether the policies served a legitimate purpose, not necessarily sports-related (remember Pierre Fabre!). The case law suggests that tackling free-riding is a legitimate aim (that is, in my view, the key message in Cartes Bancaires).

The press release also points out that ISU’s commercial interest is pursued at the expense of athletes. Is it really the case, considering that it is a mutually beneficial arrangement? As in Pronuptia or Delimitis, athletes give up their commercial freedom, true, but they gain in other respects. Would athletes have been able to gain prominence in the first place without the ISU? As you see, the counterfactual chases us wherever we go.

ISU and the ‘by effect’ route

When reading the press release, I could not avoid the impression that the ‘by effect’ route would have been as easy as the ‘by object’ route. As far as I can gather, the case appears to be about a monopoly or quasi-monopoly. Add an exclusivity obligation to the quasi-monopoly position and restrictive effects become very likely, if not inevitable.

And I can think of a policy-related reason why it might have been desirable to take a ‘by effect’ route: there is virtually no guidance about how to conduct a ‘by effect’ assessment under Article 101 TFEU. It is not even 100% clear what we mean by the word effect in EU competition law (although we know more about the question than we tend to assume)

As I see it, these questions are important from a policy-making perspective. I hope the New Year will bring us some guidance in this regard (and there are cases in the pipeline which are ideal candidates).

And while we are at it: another area in which we need precious guidance is in relation to Article 101(3) TFEU. Prohibition decisions dealing with the third paragraph of the provision are good. But a ‘finding of inapplicability’ within the meaning of Article 10 of Regulation 1/2003 would be even better. That is my other wish for 2018. Don’t stop believin’.

Written by Pablo Ibanez Colomo

11 January 2018 at 3:54 pm

Posted in Uncategorized