Chillin'Competition

Robert O’Donoghue’s discussed the notion of restriction by object in relation to vertical agreements at the 4th Chillin’ conference (a matter that we discussed on the blog here and here during 2018).

The video of his superb presentation is available here, and the slide deck he used, here.

[Note: this is the fourth post in a series featuring videos of the individual interventions that took place at the Chillin’Competition conference on 30 November 2018. For more videos, click here]

Johan Ysewyn’s spectacular intervention at the 4th Chillin’Competition conference featuring provoking ideas, ABBA songs and his own singing (no kidding) is available here.

[Note: this is the third post in a series featuring videos of the individual interventions that took place at the Chillin’Competition conference on 30 November 2018. For more videos, click here]

Commissioner Vestager’s intervention (3rd in a row, as she explains at the outset, and for which we are very grateful) is available here.

[Note: this is the third post in a series featuring videos of the individual interventions that took place at the Chillin’Competition conference on 30 November 2018. For more videos, click here]

The video of my Ted@Chillin’ Talk on ‘What is an anticompetitive effect?’ is available here. And the slides are available here. Our readers know that this is a question that keeps me busy. It is also a topical one. You may remember that I wrote a post about the MEO case earlier this year.

In MEO, the Court clarified that not every competitive disadvantage amounts to an anticompetitive effect under Article 102 TFEU. In my view, it is the single most important development in EU competition law this year.

Speaking of which: I am truly honoured to have taken part in Rupprecht Podszun‘s famous Advent Calendar, where I make that very point and discuss at length MEO and its implications (see here).

If you prefer to read rather than listen to my presentation, here is the (approximate) transcript of my Chillin’ talk:

What is an anticompetitive effect?

We have been hearing about the effects-based approach for over 15 years now. The effects-based approach is embraced in papers issued by the Commission, in papers issued for the Commission, in papers issued by Commission officials and is discussed many conferences and publications.

Since we have been talking about effects for all these years, you would be forgiven to assume that we know what we mean by effect, or at least that there is a consensus about what we should be looking for when we evaluate the impact of a practice on competition.

No matter how surprising this may sound, the truth is that this is a question we do not ask ourselves, and about which there is not unequivocal guidance in the case law and administrative practice. We need to dig very deep to find insights.

One can think of some reasons this may be so. But I will betray the supposed topic of the conference and will not make the ‘why, though’ the focus of my talk.

I will just mention that, if we do not discuss this question, this is not because the answer is an obvious one, or one that does not need to be discussed.

An effect can be anything from a competitive disadvantage to a consumer welfare loss – with some options in between.

The consequences of the choice we make in this sense are very significant in practice.

If we say that any competitive disadvantage amounts to an anticompetitive effect, then pretty much every practice can be safely assumed to have a negative impact on competition.

Just think about it: potentially anticompetitive practices inflict, by definition, a competitive disadvantage on rivals. That is the reason we look into them in the first place.

If we were to decide that any competitive disadvantage is an anticompetitive effect, then there would be no meaningful difference between restrictions by object and by effect.

The threshold would be so low that the line between object and effect would be blurred.

The veterans among you will remember the days of Regulation 17, where agreements were deemed restrictive of competition by object or effect. It did not matter whether one was chosen over the other, because pretty much every agreement was prohibited anyway.

If this were still the meaning we attached to the notion, the effects-based approach would have achieved exactly nothing.

The good news for those who believe in a meaningful analysis of effects is that this approach has been unequivocally rejected by the Court of Justice.

The MEO judgment, which was delivered earlier this year, is particularly eloquent in this regard. A difference in price, the Court told us in that judgment, is not sufficient to trigger the application of Article 102 TFEU.

One could also argue that anything that makes competitors’ life more difficult amounts to an anticompetitive effect.

Again, if every practice that makes competitors’ life more difficult amounted to an anticompetitive effect, then the threshold would be very easy to meet in practice. After all, we pay attention to some practices precisely because they make competitors’ life more difficult.

Exclusivity obligations, tying and margin squeeze are examples that come to mind immediately.

So again, is it sufficient to show that a practice makes competitors’ life more difficult to trigger EU competition law?

There is a critical mass of case law already showing that an anticompetitive effect is something more than that.

It makes sense that I pause for a second and discuss three cases that illustrate this idea well.

The first one is Deutsche Telekom.

The Commission had found evidence that the rivals of the incumbent had been squeezed.

Surely a margin squeeze is sufficient to trigger Article 102 TFEU? What else do you need other than showing that competitors are being forced to sell at a loss?

That was the argument raised by the Commission. It is certainly not an unreasonable one. However, the argument did not win the day.

The Court made it clear that a margin squeeze, in and of itself, is not enough to establish an anticompetitive effect. This point would be confirmed in TeliaSonera.

The second one is Post Danmark I.

Again, there was evidence in that case that the dominant company was selling below cost, and that it had gained some customers from rivals.

And again, the Court ruled that these factors are not enough to establish an anticompetitive effect.

The reasoning of the Court is worth recalling.

The Court noted that, as a general rule, an equally efficient rival can match prices that cover the average incremental costs

It also noted that, in the meantime, the competitor had been able to gain back a customer it had previously lost to the dominant undertaking.

So yes, competitors’ life might have been made more difficult during the aggressive pricing campaign, but competitors stayed on the market and fought back

My third case is Intel. There is not much point in discussing it in detail. Suffice it to mention that exclusivity agreements make, by definition, competitors’ life more difficult (that was after all the point made in Hoffmann-La Roche). But even if this is so, the Court declared in Intel that the dominant firm can escape Article 102 TFEU

What do these cases tell us, when taken together?

I believe they tell us that a practice does not have an anticompetitive effect where the ability and the incentive of competitors is not affected by it.

In other words, conduct has an anticompetitive effect were rivals are no longer willing and able to fight. And a competitive disadvantage, or a practice that makes their life more difficult, may well incentivise them to fight even harder.

So there you have it, my definition of an anticompetitive effect.

This idea should come across as obvious if one pays attention to other areas of EU competition law.

Think of Tetra Laval/Sidel and GE/Honeywell. Think of Microsoft/Skype.

All these cases involved dominant companies. In all these cases the new entity enjoyed a competitive advantage that made rivals’ life more difficult. And we know that these facts, alone, were deemed insufficient to prohibit the mergers.

Is there a reason to define the notion of effects differently depending on the provision? I do not think so, and have never seen a cogent argument in favour of defining effects differently

Some in the audience, when listening to this, might have thought: ‘wait a second, you are cheating’.

Did the Court not say that there is no such thing as de minimis in Article 102 TFEU, and therefore anything that dominant companies do cannot fail to have an effect?

To which I would reply: I am afraid the appreciability issue is a different one. A third dimension of the analysis of effects if you will. But for that, I would need more than 10 minutes –  for today, I can leave it here

Thanks very much.

Over the past few weeks many of you have asked whether there was any possibility to watch a recording from our conference or to have access to the materials presented. Well, now there is:

In the course of the Christmas period we will be publishing videos of all of TedTalks, most likely one a day. We will eventually publish other materials related to the panel discussions.

As a starter, here are:

• My introductory speech, titled Why though?
• A highlights video

Unfortunately, no material is capable of capturing the great, chilled, atmosphere. Thanks again to all those who made it possible. But even if you missed that, and the gifts, and the Syrian food, and the wine, we hope these materials may provide some compensation in the form of food for thought and laughs.

We have not yet had time to read  carefully analyze the Servier Judgment rendered today by the General Court and I’m afraid we’ll need the weekend to process a few hundred pages in French and to comment on the many interesting points it surely raises. Expect to hear from us about this case early next week.

For now, and as an appetizer, I’ll just say that the outcome of the case and a mere read of the press release confirms something we had been saying for a while: Courts do carefully review market definitions when asked to, and are open to annulling them when justified.

The perception that applicants have low probability of success in overturning the Commission’s decisions on the point of market definition is (was?), in my view, based on a mere statistical analysis of the cases in which the GC was receptive to the applicants’ arguments.

There is certainly a surprising paucity of precedents in which market definition had played a significant role, but that is not the Court’s fault. Sousa Ferro observed, in a 2015 piece, that within a universe of 608 annulment proceedings concerning substantive competition issues, the issue of market definition was only raised in 134 cases (22%). Within those, the Commission decision under appeal was only wholly or partly annulled in 5 cases (3.75%) on the basis of an incorrect or insufficiently justified market definition, whilst in another 4 cases the Court expressed some dissatisfaction with the market definition but without annulling the decisions at issue.  The article concluded that “applicants have only succeeded in persuading the Court that the Commission erred in its delineation of the market in 6.7% of the cases where the issue was raised”.

Whilst interesting, the figures presented in this recommendable article (one among the very few on the subject) may not provide the full picture. The selection of cases considered includes all types of competition cases, including those in which market definition was not required from the Commission (e.g. cartel cases) as well as, admittedly, the “very large number of cases” in which a precise definition would not have altered the Commission’s findings and that, consequently, failed to be examined by the Court.  The analysis understandably also fails to account for the way in which arguments were pleaded or substantiated.

Other commentators – including experienced Commission litigators in high-profile abuse of dominance cases (remember Eric Gippini’s “It’s the dominance stupid!” intervention at one of our workshops) coincide in underlining the paucity of challenges to market definition and dominance in many of the abuse of dominance cases litigated within the past 20 years.

Note, for example, that market definition – and dominance – were not contested in a number of the leading abuse of dominance cases in the EU, including Intel, Tomra, Deutsche Telekom and Michelin II. And we haven’t had many other abuse of dominance cases brought before the Courts in the past few years.

Full annulments of market definition are certainly rare, although not unprecedented, as shown long ago by Continental Can, some time ago in Tetra Laval (merger case), more recently in CEAHR (concerning a decision to reject a complaint) and today in Servier. But the objective reality is that the Court has most often (albeit admittedly not always) undertaken a very thorough review of market definitions, and this regardless of the outcome of the case. If one looks closely at the case law, this has happened both in cases where the GC referred to the manifest error of assessment standard (e.g. Clearstream or Astra Zeneca) and in cases where it did not (see e.g. Wanadoo or Telefónica). And the same is true of merger control cases, such as Tetra Laval or NVV.

So don’t let labels such as that of the “manifest error” standard fool you. A careful read of the formulation of the Tetra Laval standard of review (what President Jaeger has called “the forgotten paragraph”), and particularly an analysis of how it has been implemented in practice, reveals that Courts have a wide margin of review and that they can intervene whenever they are persuaded about possible gaps in the Commission’s analysis. [Btw, this confirms what our friends Fernando Castillo and Eric Gippini say in their excellent book, that “practice shows that the manifest error concept captures much more than a decision that is facially or self-evidently wrong. In a way, manifest is whatever the judges consider to be manifest”].

The trend is much more evident in recent years, and my take is that it is here to stay, particularly after  KME and Chalkor and perhaps even more following the Court’s enlargement.

And this makes sense, for if everyone were easily found dominant in a narrowly defined market, then the special responsibility would become ordinary and one could easily abuse the notion of abuse. Servier’s lawyers, who clearly did not buy the myth, actually made this point at the oral hearing citing the Bicycle Repair Man Monty Python sketch, showing how ordinary it would become if everyone were superman.

The bad news is that we may run out of material to continue this saga of posts….  😉

A while ago, I wrote about ASCOLA’s conference at NYU School of Law. There was a bit I did not mention: at the same gathering, the ASCOLA General Assembly unanimously approved a Declaration of Ethics, which can be found here. The initiative seeks to preserve the integrity and trustworthiness of legal research. Ioannis Lianos headed the committee that worked on the declaration.

If you take a look at my profile on the blog, you will see that I now make it explicit that I abide by it.

By and large, this declaration overlaps with the principles that have guided the publication of pieces in the Journal of European Competition Law & Practice (JECLAP) since I became its joint general editor (alongside Gianni De Stefano). Because it is intended for academics, the ASCOLA declaration is stricter in some respects . In this sense, it is a wonderful complement to JECLAP’s policy.

At our last meeting, JECLAP’s editorial team endorsed the declaration. Accordingly, authors submitting a piece to JECLAP are assumed to abide by ASCOLA’s declaration of ethics if they claim an academic affiliation. We are confident other competition law and economics journals will follow, and we have no doubt our authors and readers welcome the initiative.

And since I am speaking ASCOLA: remember that, if you want to take part in the next annual conference – Aix-en-Provence (!), 27-29 June – you have until 15 January 2019 to submit your articles and extended abstracts (more info here).

These days, competition lawyers and economists spend a considerable amount of time discussing the rise in concentration and profit margins, or the decline of the labour share in the economy. However important, these challenges are not quite as critical as climate change.

It looks like no week passes without at least a new piece of alarming news about global warming and its consequences (just check here from The Guardian alone). The only reason for optimism is that we may be getting so close to the cliff edge that political actors may decide, at long last, to take radical and decisive action.

This year’s Nobel Prize in economics is a sign that things may be changing for the better. William Nordhaus and Paul Romer are two giants that have long deserved the award, but we all know that timing matters, and timing is often not a coincidence. Climate change, in fact, is expressly mentioned in relation to William Nordhaus.

I find myself thinking about climate change pretty much every day. Since competition issues tend to be in the back of my mind quite often too, you will not be surprised to learn that I sometimes reflect on the lessons that the latter can draw from the former.

Is there something that our community can indeed learn from the climate change challenge?

Ideologues will always dismiss expert evidence

Addressing the climate change challenge requires large-scale government intervention and international cooperation. Some conservatives cringe at this idea, which directly contradicts their worldview.

How do they relieve their anxiety and avoid reality? By bashing expert evidence. ‘We do not know whether global warming is actually happening, and even if it is happening we do not know whether it is truly man-made’ is a well-known position.

These same ideologues – a category that happens to include the current POTUS – also love to say that ‘the models used by so-called “experts” are not reliable and simply reflect a political agenda that favours intervention’.

Experts in the competition law community are often bashed in the same way, in particular economists. You are all familiar with these lines too: ‘economists’ models do not reflect reality’; ‘economists are corrupt’; ‘it is a flawed discipline that is fraught with biases’; or, even that ‘it is politics disguised as fancy math’.

Ideologues try to make it all about picking sides

It is not so difficult to read between the lines of ideologues’ mantras and clichés.

The (not so subtle) point is that anyone’s hunch about a given topic is just as valid and relevant as the expert consensus developed incrementally over decades. Since experts have a political agenda or are corrupt (perhaps even both), there is no reason to defer to them. If one’s worldview conflicts with the positions experts happen to advance, such positions can be comfortably ignored.

‘I don’t believe it’ is all one needs to dismiss a report involving 13 agencies and 300 leading scientists.

If expertise does not matter, it all becomes a game of picking the side one prefers. The quest for truth is no longer a worthy cause. What matters is to make noise and to advance one’s agenda.

We observe a similar trend in competition law. Law and expertise are being openly dismissed. Consensus positions, the body of knowledge incrementally refined over the years is seen, by many, as a dispensable and inconvenient obstacle. Such body of knowledge would be ‘out of tune’ with existing realities and demands. Who needs expertise if one can be ‘modern’ and deliver what politicians want?

There will always be opportunists

Some people are aware that climate change is real, is man-made and can have potentially catastrophic consequences, but side with ideologues. Why? For reasons of expediency. In the short-run, it may be profitable to deny climate change, as it may deliver some quick political and/or economic victories. For instance, I am always amazed that some Australian politicians are climate change denialists when their country is particularly vulnerable to the phenomenon and is already suffering its consequences.

There are opportunists in the world of competition law and policy, too. This is natural. Some stakeholders would benefit enormously if consensus positions were ignored, and if enforcement were turned into a discretionalist tool unconstrained by law (and courts).

The more discretionary (and the less legal) competition policy becomes, the faster the burden of proof is reversed, the easier it is for these stakeholders to influence the process and achieve the outcomes they favour. It is not a coincidence that claims that the law is not to be taken seriously, or that it should not be an obstacle to remedy pressing concerns, are frequent these days.

Expertise and law are the way forward

Ideologues and opportunists pose a challenge for the integrity of competition law and policy, in the same way that they pose a challenge for the fight against climate change.

Can something be done about it? I can think of two reasons to be optimistic.

First, a key way forward is to preserve the integrity and trustworthiness of academics, so that expertise is not pre-emptively dismissed by those who feel uncomfortable with it and would rather make it all about politics and picking sides. Fortunately, major steps have been taken in this regard in the competition law and economics community (we will inform about some of these soon on the blog).

The above said, academics should also make a greater effort to explain what we do: the quest for truth is never over, and consensus positions can (and do) always evolve. True researchers are not preachers or activists: they are always open to changing their minds, and to being persuaded by new evidence. Just to mention an example, there are reasons to believe that merger control has been too lenient in the past decades.

Second (and certainly more importantly), one cannot ignore that, at the end of the day, it is for courts to state what the law is. The temptation to see competition policy as a discretionary tool that can be used to save the world may be quite strong. However, competition law (at least EU competition law) is not about fine-tuning markets, but about showing why, in a specific economic and legal context, a given practice amounts to an infringement (or a merger to a significant impediment to effective competition). This analysis is subject to judicial review.

If there is something that my research has taught me, this is that the EU courts are prudent, and that they dislike, above all, arbitrary and unchecked policy-making.

The EU courts have always been particularly suspicious of administrative action that ignores expert consensus. Decisions that go against such consensus are invariably annulled when challenged (think of Airtours and Tetra Laval). Similarly, the EU courts are only willing to depart from the established case law where there are real and powerful reasons to do so, not simply because it is expedient or fashionable.

The Competition Law course founded by Luis Ortiz Blanco (and currently run by Luis himself and Alfonso) is one of the great traditions of our community. The course takes place between January and March in Madrid (at the IEB, literally around the corner from the landmarks you see in the pic above).

This year’s will be the 22nd edition of the course. The programme can be found here. You may also want to check the course’s website (with information about the individual modules and about how to register) here.

What Luis and Alfonso have achieved is truly unique. Top competition lawyers (judges, officials, practitioners, academics) gather every year in what has emerged as a great community.

As you will see in the programme, the course has three components:

• Teaching modules that cover the main aspects of competition law (agreements, unilateral practices, mergers, State aid/public entities as well as the interface between competition law and regulation). I will have the honour to deliver the introductory session, and I will also be coordinating and teaching on the module on the interface competition law and regulation; Alfonso will be running the module on abuses.
• Three half-day seminars bringing together some luminaries in our field. There will be one (coordinated by Eric Gippini Fournier and Fernando Castillo de la Torre) on competition law developments in 2018; a second one (coordinated by Cecilio Madero Villarejo and Nick Banasevic) on competition law and policy in hi-tech markets; and a third one (coordinated by Mercedes Pedraz) on private enforcement.
• Three practical workshops (2h30min each) aimed at familiarising students with the practice of competition law enforcement.

For any practical question, do not hesitate to send an email to competencia@ieb.es. In any case, we will be sharing info on the blog about the half-day seminars in case you want to join us in Madrid!