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Archive for November 2nd, 2018

Finding the appropriate legal test in EU competition law: on presumptions and remedies

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There is not a single legal test in EU competition law.

Some practices are deemed prima facie lawful, and other practices prima facie unlawful irrespective of their effects. In between, there is conduct subject to a (standard) analysis of effects. As I explained recently on the blog, there is yet another category of practices; these are subject to an ‘enhanced effects’ analysis. By ‘enhanced’ I mean that it is necessary to provide, at the very least, evidence of indispensability before intervening.

I like to think of the applicable legal tests in EU competition law as discrete points along a spectrum.

This is what the spectrum looks like under Article 102 TFEU:

Spectrum Art 102

It makes sense to zoom into the right end of the spectrum, which is a bit crowded. It looks like this:

Spectrum - enhanced

This is what the spectrum looks like under Article 101 TFEU (ATP stands for ‘absolute territorial protection’ in case you are wondering):

Spectrum Art 101

One question that keeps me busy (and which I discussed, inter alia, in Ithaca and Vilnius) is why and how the Court of Justice chooses the applicable legal test in individual cases. Why is some behaviour deemed prima facie lawful? Why is the enhanced effects analysis chosen for some practices but not for others?

The question is important, and the answer not immediately obvious. For instance, leveraging conduct is not subject to a single legal test under Article 102 TFEU. ‘Leveraging abuse’ is not a legal test. These words do not say anything about the conditions under which a given practice is deemed abusive.

In some instances (e.g. tying), leveraging is prima facie unlawful irrespective of its effects. In other instances (e.g. refusal to deal), it is subject to an enhanced effects analysis. What explains the disparate treatment of the various leveraging strategies?

I found the question interesting for other reasons. For instance, the Court has been criticised for applying different legal tests to refusals to deal, on the one hand, and ‘margin squeeze’ practices, on the other. The latter are subject to a standard effects analysis whereas the enhanced effects analysis applies to refusals to deal. Could it be that the Court has a point in spite of the criticisms? Spoiler alert: I believe it might.

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Why are some practices prima facie unlawful under both Articles 101 and 102 TFEU?

The case law suggests that a practice is deemed prima facie unlawful irrespective of its effects – i.e. it is a by object infringement – where:

  • It is presumed to serve no purpose other than the restriction of competition; and
  • It is presumed to be capable of having restrictive effects on competition.

Intel (in the context of Article 102 TFEU) and Murphy (in the context of Article 101 TFEU) make it clear that firms can always provide evidence to rebut the presumption of capability.

Why are some practices prima facie lawful? I can identify two instances in this sense:

  • Where the practice is objectively necessary to attain a pro-competitive aim (think of Metro I, Coty, Pronuptia and so on as clear examples); or
  • Where the effects would not be attributable to the practice. For instance, the effects of above-cost price cuts are not attributable to the dominant firm, but to rivals’ inefficiency.

And finally: why is it that sometimes the Court of Justice has required an enhanced effects analysis? And why, for instance, is the enhanced effects analysis required in refusal to deal but not in ‘margin squeeze’ cases?

It all has to do, I believe, with the remedy. One needs to turn the analysis on its head and start by figuring out what intervention might entail in practice.

The standard effects analysis applies where the remedy is reactive in nature – a one-off obligation not to do something. These are instances in which a cease and desist order can effectively deal with the issue (no monitoring, no complexity with the implementation and/or with compliance).

The enhanced effects analysis applies where the remedy is proactive – that is, where it amounts, directly or indirectly, to imposing positive obligations on firms (a requirement to do something). These are instances in which the remedy comes with all sorts of potential difficulties (related either to the design, the implementation or the monitoring of the obligations).

The Microsoft I case (and, more precisely, the obligation to supply interoperability information on FRAND terms) is a good example of proactive enforcement. Determining the fair price of interoperability information is incredibly complex. So much so, in fact, that the Commission left it for the firm to figure out.

Against this background, one can understand why the Court may have deemed it justified to differentiate the legal treatment of refusals to deal and ‘margin squeeze’ practices.

A ‘margin squeeze’ can be effectively addressed through reactive intervention. Dealing with an abusive refusal to deal, on the other hand, is much more complex. One has to determine (directly or indirectly) a wholesale price, and then monitor compliance with the remedies on a lasting basis.

In cases like Commercial Solvents, Magill or IMS Health, the Court may have felt that the complexity of the remedy justified raising the substantive bar. The remedy, accordingly, is not an afterthought, but a key question that informs substantive analysis.

Ordering a company to resume supplies with a rival, to start licensing its intellectual property or to change the design of its products (as in the Internet Explorer case) can go wrong for several reasons – this is where I generally crack my joke about Richard Whish being probably the only person with a version of Windows without the Media Player.

If this is true (which it is), it makes sense to confine to exceptional circumstances the instances in which these remedies may apply.

I would say more: looking at the remedy to identify the appropriate legal test is a much more meaningful exercise than all other attempts to distinguish between categories of practices.

Instead of using more or less artificial labels and discussing whether one label is more appropriate than another, it makes sense to look at what remedial action may involve in practice, and infer the legal test from this exercise.

As ever, I look forward to your thoughts!

Written by Pablo Ibanez Colomo

2 November 2018 at 4:28 pm

Posted in Uncategorized