Chillin'Competition

DG Comp held its much heralded conference about “Competition Policy in the area of digitization” a few days ago. Whilst I unfortunately had to miss the event, I was able to watch part of the recording over the weekend thanks to a new acquisition that admittedly has provoked some laughter and jokes at the office. A good overview of the event is available here.

Some hopefully constructive thoughts follow:

1) The way I see it, it’s a good thing for competition authorities to hold conferences on issues about which they care. These initiatives can show that authorities are willing to listen to different viewpoints. They also publicly expose the thinking that is influencing enforcers. From this perspective (and for all their hard work), the organizers truly deserve credit.

2) The conference was meant to be about “shaping competition policy”. The official line is that the conference showed a consensus on the need for active enforcement. If the real aim was to give an appearance of consensus to put the issue on the table for the next Commission and Parliament, then it probably was a success.

3) The conference did indeed feature multiple viewpoints, all of which nonetheless converged in advocating for stronger enforcement. The problem, however, is a certain impression that the program may have been designed with that in mind. The conference would have benefitted from a greater balance of views, even if (or precisely because) that would have shown that the consensus may not be there at present.

4) The point above is, in my personal view, particularly important in the case of a conference organized by an enforcer. This is, first, because an enforcer must not only be neutral but appear to be neutral; and second, because one learns the most from views that  -right or wrong- challenge one’s own ideas. From that perspective, it would seem ironic to use the conference to discuss “neutrality obligations” and the problem of “echo chambers”.

5) Perhaps the best illustration of what I’m saying lies in this intervention of a representative from the Open Markets Institute focused on Amazon as a Private Government (see around 11.58 h. here). I cannot see the reasons that would justify giving a public enforcer’s microphone (even if a not-always-functioning one 😉 ) to such extreme views. Perhaps because other stuff would seem more reasonable by comparison? On this point there seems to be a real consensus among attendees. The Commission itself must have probably instantly realized about how self-damaging that was for the event and its objectives.

6) In my view, the more-vs-less enforcement debate is pretty Manichean and not so useful. Most, if not all of us, would always support strong enforcement if the law is correctly applied to a proven set of facts. So this is not so much about policy as it is about the law. Stronger enforcement may perhaps be needed, but then the question is “how?” Is it just about doing more cases under the current legal framework, or is it about changing or ignoring the law as refined and incrementally built over decades of experience? Do we need to change the law as applicable only to certain companies/business models/activities? [On the latter point, by the way, the State aid experts at the Commission could explain that selective regulation also constitutes State aid…]

7) Unfortunately, there was not that much discussion about the law. In fact, too often in these debates the law is side-stepped or looms in the background as an uncomfortable obstacle. Unfortunately the conference only featured (3/18) jurists (plus a very good one, Heike, as moderator) and no practitioners (this I can understand) or judges. The academic panelists were surely respected figures, but also the most vocal on the anti-big-tech front (which is absolutely fine, but only represents one side). There was not much of a debate on how the current case law already addresses the issues raised. Btw, Pablo’s contribution to the Commission’s call for ideas was precisely about that.

8) The highlight of the day was probably Jean Tirole’s keynote. Many of us admire his work and consider him to be a very reasonable person. Two messages that caught my attention were (a) his comment that failing to consider the multi-sided nature of some practices leads to absurd results; and (b) the common theme that one “should err on the side of competition policy”. From a legal standpoint, I couldn’t agree more with the first message. From the same standpoint, the second message sounds my alarms, as it did when in a previous interview some months ago (available here) he responded the following to the question “so how should antitrust evolve?”:

“First, we need to reconsider our burden of proof in antitrust decisions. This is a delicate matter. Consider the acquisition of WhatsApp and Instagram by Facebook. They were social networks, just like Facebook. They could have become Facebook competitors. But is there any evidence for that? Not really, as this is just a guess on what the future would have looked at in the absence of acquisition. The suppression of competition in the absence of data is hard to prove. My guess is that we should err on the side of competition, while recognizing that we will make mistakes in the process”.

9) Tirole’s comments  have the virtue of putting the spotlight exactly where it belongs. It reveals what the debate is really about in clear terms that others are (understandably) much more reluctant to use. One can perhaps legitimately decide to “err on the side of competition” when it comes to regulation or even merger control. We can have a debate on those areas, and this is perhaps what Mr. Tirole has in mind.  But, in my view, not when it comes to antitrust (i.e. Articles 101 and 102). As repeatedly held by the Courts, this is a quasi-criminal area of law. This is not about regulation nor about seeking optimal results. It is about punishing illegal behavior with potentially very drastic consequences for the company’s finances, reputation and now, seemingly, even structural integrity. And illegal wrongdoing must be established by the authority on the basis of facts, not suppositions to compensate for lack of evidence.  There is probably a consensus among jurists on this point, as we are trained to identify the dangers of such logic and to protect the presumption of innocence. The rule of law is no less important than alleged optimal economic outcomes.

This should not be a problem, and digital businesses should certainly not get a free pass.  There may well be competition problems and anticompetitive practices in these markets, but if the alleged problems are so evident, then proving them is perhaps not so much to ask for.

This is not to say that one should not be cautious or take into consideration factors such as innovation or potential competition. One can perfectly do all that within the current legal framework. What I’m saying is that there’s no reason to reconsider our burden of proof.

10) This is why, interestingly, the policy debate that is taking place in this regard goes in exactly the opposite direction to the legal trends visible in the case law (see most notably Cartes Bancaires and Intel which, as noted by Vice-President Van der Woude, raise questions for which answers “can be found in the burden of proof that rests upon the Commission pursuant to Article 2 of Regulation 1/2003”, or see also the most recent Krka Judgment). One can only speculate about what will happen when these two opposing trends meet each other and clash (although if history tends to repeat itself, look at the 2002 annus horribilis on the merger front). Strong competition policy requires a strong, respected, neutral and confident enforcer. And the Commission can certainly be that, perhaps better than any other authority in the world. But the trick is to step up and meet its burden, not to try to relax it or do away with it.

+1) Some may perhaps think that I’m writing all this because I myself am biased and work for large digital companies affected by this debate (which I do, although I also work for smaller and non-digital companies that might also be affected). But any of you who has ever attended our own events would have realized that we have always done our best to ensure a good balance of views regardless of how convenient or aligned with our own opinions (see e.g. the first panel at our last Chillin’Competition conference). That’s really not it.  For the reasons recently set out by Pablo, we genuinely care about the Commission’s reputation and we believe so much in the Institution that we often subject it to the high standards that it can aspire to meet. In the long term, defending our law-based system is the best way to protect the Commission.

Sarah Long did one of the most-talked-about interventions at the 4th Chillin’ conference, where she discussed “Gender, competition policy and the GUDP (Grossly Undervalued Domestic Product)”.

In the picture illustrating this post, she is presenting with a slide depicting Adam Smith. Sarah explained that every night his dinner was served by his mother, with whom Adam Smith lived until she died: “It was therefore thanks to Adam Smith’s mother, to her invisible hand, to her GUDP, that he was free to write his great works“.

The video of Sarah’s presentation is available here.

[Note: this is the seventh 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]

Catriona Hatton,  who is also known as one of the nicest people in this field, spoke about due process in antitrust at the 4th Chillin’ conference.

The video of her presentation is available here.

[Note: this is the sixth 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]

On 15 February we will be holding a seminar in Madrid on “The role of competition policy in hi-tech markets“. The seminar -that we have put together in cooperation with Cecilio Madero and Nick Banasevic- is part of the competition law course that I remotely co-direct in Madrid.  This seminar will be hosted by the Spanish Competition Authority.  If interested in attending, please drop a line to competencia@ieb.es

This is the program:

15.30- Keynote Speech

Cecilio Madero Villarejo (Deputy Director General, DG COMP, European Commission)

16-17.15: The Role of Competition Policy in Hi-Tech Markets

Beatriz de Guindos (Director for Competition, Comisión Nacional de los Mercados y la Competencia)

Nicholas Banasevic (Head of Unit, DG COMP, European Commission)

Alfonso Lamadrid (Partner, Garrigues, Brussels)

Moderator: Lewis Crofts (Editor-In-Chief, MLex)

17.15-17.30: Break

17.30-18.45: Competition Law and Online distribution

Kevin Coates (Partner, Covington&Burling, Brussels).

Henar González Durántez (Partner, Herbert Smith Freehills, Madrid)

Milan Kristof (Legal Secretary, Court of Justice of the European Union, Luxembourg)

Moderator: Lewis Crofts (Editor-In-Chief, MLex)

18.45-19: Break

19-20: Hi-Tech Mergers

José María Jimenez-Laiglesia (Partner, Latham&Watkins, Madrid)

Christian Riis-Madsen (Partner, O’Melveny&Myers, Brussels)

Moderator: Lewis Crofts (Editor-In-Chief, MLex)

We continue the serious of posts devoted to the TED@Chillin’Competition talls delivered at the 4th Chillin’Competition conference with the interventions of two of the people have had a greater influence on Pablo’s career (which should be a positive thing to say, I guess?) 😉

-The video of Denis Waelbroeck‘s clarifying intervention on the notion of restriction of competition is available here. Denis’s to-the-point presentation has the virtue of reminding us of cases that should never be forgotten, but that too often are.

The slides he used are available here: denis waelbroeck- what is a restriction

-The video of Andriani Kalintiri ‘s quite unique presentation on “The Burden of Proof” is available here. While it is not evident to many people, the interpretation and application of this concept might well be single most important issue in competition law nowadays. And very few people understand it and explain it as neatly as Andriani. If this interests you, she has a book on the pipeline .

The slides she used are available here: andriani kalintiri-the burden of proof

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[Note: this is the fifth 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 first OECD Competition Open Day will be held at the OECD Headquarters in Paris on Wednesday 27 February 2019 from 09:30 to 18:15. The programme is available via this link: Open Day Programme. 

The event is open to all and will cover hot issues, including vertical restraints in e-commerce, non-price competition in digital markets, excessive prices in pharma and gun jumping-pre-closing exchanges of information.

And it’s also a great excuse to visit Paris..

You can register here

On 12 December 2018 the General Court rendered its Judgment in Canal+. The case concerned an appeal against the Art. 9 decision that made binding the commitments offered by Paramount in the Hollywood Studios/Pay-TV case. The latter is a case I followed with particular interest and on which I certainly am not objective, as [disclosure alert] I have represented PACT, the association of UK independent cinema and TV producers.

The case will presumably be over very soon, as all investigated parties have now offered commitments. First, it was Paramount (two and a half years ago and due, apparently, to financial reasons); then it was Disney (which was in a strong position in the case as it had got rid of satellite restrictions before the probe started but nevertheless offered commitments “coincidentally” at the same time as the Commission authorized its acquisition of Fox in Phase I); Sky and all other Hollywood majors have now followed.

Interestingly, the latest round of commitments offer was announced only a few days after the General Court’s Judgment in Canal + “established” (see below) that the clauses under investigation constituted restrictions by object.

The Commission can claim a clear victory, putting an end to a case that otherwise had no clear end in sight, and obtaining concessions that go well beyond what an infringement decision could have attained. But beyond winners and losers, what does this mean for the law?

Now that the case is over and there is even a Court Judgment avant la lettre, the law should be clear, right? Many might believe that even if the parallel legislative attempt to curb online geoblocking restrictions has failed, competition law can kick in and, once again, fill the apparently regulatory void. Well, not so fast.

Some reflections:

-First, and as a preliminary point, the Studios are of course in their right to offer commitments, and these may well be in their best interest. There’s nothing to criticize in this, and no clear legal grounds to do so even if one wanted to (which is why I never entirely understood the Canal+ appeal, although I might well be missing something). Commitments are not law and in fact have little to do with the law, so no comments on these.

-Second, beyond other interesting issues, the main legal question that the case presented has not been resolved. The cross-border “passive sales” that the agreements allegedly restrict are unlawful. They amount to a copyright infringement. This makes the Pay TV case stand apart from Murphy and more traditional parallel trade cases. For the same reason, it raises a number of fundamental questions that did not arise in those cases. Does a transmission that infringes copyright amount to “competition” within the meaning of Article 101(1) TFEU? If an agreement prohibits a cross-border transmission that would have been unlawful anyway under copyright law, can it be said to restrict competition that would otherwise have existed (i.e. against the counterfactual)? My sense is that the Commission was aware of this aspect of the case and the legal difficulties to which it gives rise (which perhaps explains the long time elapsed since the oral hearing), having lost a number of cases on very similar grounds (O2, E.On Ruhrgas, European Night Services or Nungesser to name a few).

-Third, now you may be wondering: but what did the General Court have to say about this argument in the context of the Canal + appeal? After all, as just explained, the Court has quashed quite a few EC decisions on this point, right? [btw, we still need to comment on the last case where this has happened only weeks ago, T-684/14, Krka- Servier]. Well, the Court said nothing. But in its defense, the truth is that, despite its prominence in academic debates, apparently the argument was not presented before it. Take a look at Canal+’s grounds of annulment. One can only speculate that this may be explained Canal+ greater interest in satellite than in online communications. The General Court ruled on this plea and endorsed a conclusion that the Commission had never formally adopted. And this while ruling on an action brought by a third party, without having heard the arguments of others (although to be fair, the setting was not for the Court to decide). The relevant IPR-related arguments re online communications do not feature in the Judgment and don’t seem to have been considered at all. At most, the analysis of the General Court clarifies that the Commission’s preliminary assessment was not manifestly incorrect. In other words, the Canal+ Judgment is therefore more an illusion of a precedent than a real precedent. That seems well suited to a case concerning cinema.

For some reason, the appeal challenged the Commission’s preliminary finding that the clauses constituted restrictions by object. The Commission never actually found a restriction by object, it had simply taken that preliminary view in the SO and in a commitment decision, which by nature does not declare the existence of an infringement.

-Fourth, the EC itself has publicly stated that the case was specifically about the agreements between the Hollywood majors and Sky, and that it would somehow not affect independent producers. From a purely selfish perspective, it would have been nice to have some sort of creative formal carve out for indies (whose business model would be severely compromised), but the absence of a declaration of infringement and the multiple statements from high-ranking Commission representatives create the legitimate expectation that independent producers have nothing to fear about the legality of their agreements (or at least not until the Commission adopts a prohibition decision or until the ECJ otherwise rules on the matter).

-Fifth, there is an intellectual consolation to this strange open ending. Over two years ago, when the Commission accepted Paramount’s commitments, I wrote here that –in my view- this would legally preclude the imposition of fines on all other investigated companies for exactly the same practices. This is because, as you know, commitments are only appropriate in cases where the Commission does not intend to impose fines. There has never been a case or cases involving the same practices where the Commission accepted commitments and imposed fines for the same conduct during the same period covered by the commitments ( see here for a comment on this point). As we had anticipated, there have been no fines in this case either.

One of the best traditions of the Brussels competition law community is around the corner: the 14th Annual GCLC Conference will take place on 31 January and 1 February at the Residence Palace.

The conference has all the bits that have turned it into a must-go event: a topical theme of major theoretical and practical relevance; and an impressive line-up of speakers. The updated programme is available here.

Chillin’Competition will be represented at the conference. I am honoured to have been invited to speak in the last session, where I will go back to one of my favourite themes: regulatory vs antitrust remedies. I will address the policy implications of remedies.

SPECIAL OFFER: The organisers are kind enough to offer a free spot to the first Chillin’ reader sending an email to remedies.gclc@gmail.com (thanks so much!). The subject of the email should be: ‘Chillin’ @GCLC’.

We look forward to seeing many of you there!

The hearing in Lundbeck will take place on Thursday of next week. Readers of the blog know that this is a case that I have been following with keen interest (see for instance here). It raises some fundamental questions about the interpretation of Article 101 TFEU.

As I explained in the past, the Commission decision in Lundbeck departed in some respects from the relevant case law (and, indeed, from the authority’s own past administrative practice). The ECJ will now have to decide whether this interpretation is upheld, thereby leading to a transformation of the nature and scope of Article 101 TFEU.

These fundamental issues will become much more apparent, I believe, in the context of the appeal. Before the General Court, issues of law and fact, generally become so intertwined that it is difficult, in practice, to tell one apart from the other – or to fully appreciate the consequences of the underlying interpretation of a given provision. In this sense, the appeal is good news for the competition law community.

The areas in which Article 101 TFEU may (radically) change after Lundbeck are the following:

• The notion of competition within the meaning of Article 101 TFEU.
• The change in the understanding of the notion of potential competition, which would become a subjective concept (as opposed to the objective concept it has so far been).
• The relationship between competition law and intellectual property.

The notion of competition within the meaning of Article 101 TFEU

In Société Technique Minière, the Court declared that the notion of competition within the meaning of Article 101 TFEU must be understood as such competition that ‘would occur in the absence of the agreement in dispute’.

As subsequent judgments would consistently confirm, the analysis of restrictions does not occur in the abstract. It needs to consider whether, in the economic and legal context in which it is implemented, the agreement restricts competition that would otherwise have existed.

It is explicit in Société Technique Minière that this analysis applies both to restrictions by object and by effect (see p. 250 of the Reports, top paragraph). The Commission Guidelines on Article 101(3) TFEU are equally explicit on this point (see paragraph 18).

What are the consequences of this interpretation of the notion of competition?

The fundamental consequence of Société Technique Minière and subsequent case law is that, if an agreement does not restrict competition that would otherwise have existed, it falls outside the scope of Article 101(1) TFEU (that is, it does not restrict competition, whether by object or effect).

For instance, the Court explained in Société Technique Minière, an agreement would not restrict competition (whether by object or effect) if it is ‘really necessary’ to enter a new market. The Commission elaborates on this example in its Guidelines on vertical restraints. An agreement protecting a distributor from both active and passive sales is in principle restrictive by object. That is not the case, however, where the agreement is objectively necessary to achieve market entry. In such a case, it falls outside the scope of Article 101(1) TFEU altogether (see paragraph 61 of the Guidelines).

Lundbeck gives rise to a similar question. What if market entry is made impossible by virtue of the intellectual property regime? Can there be a restriction of competition if the only way for generic producers to enter the market is to infringe a patent? This is a central question in the case, and one that is somewhat obscured by its complex facts.

In light of Société Technique Minière and subsequent case law, the answer to these questions is clear. In such a scenario, the agreements at stake in Lundbeck would not restrict competition that would otherwise have existed. Accordingly, there would be no restriction, whether by object or effect.

The Commission, however, proposed a new interpretation of Article 101(1) TFEU in its Lundbeck decision. It suggested that an agreement can restrict competition by object even when it would entail the breach of a patent.

The ECJ, in its Lundbeck appeals, will decide whether to depart from a consistent line of case law.

The notion of potential competition as an objective (as opposed to subjective) concept

A related question in the Lundbeck appeals relates to the notion of potential competition. Is a firm a potential competitor if market entry requires breaching an intellectual property right? Until the Lundbeck case, there was little doubt that unlawful entry on the market did not count as potential competition.

E.On Ruhrgas is an eloquent example in this regard. The General Court concluded that an agreement does not infringe Article 101(1) TFEU where market entry is made impossible by virtue of the regulatory framework – in that case, the regulatory framework created a de facto monopoly. In such circumstances, it is the regulatory framework, not the agreement, which restricts competition.

The Commission also shared this view. In the 2004 version of its Guidelines on technology transfer agreement (the version published prior to Lundbeck, that is), the authority explained, in paragraph 29, that there is potential competition if market entry would have been possible ‘in the absence of the agreement and without infringing the intellectual property rights of the other party’ (emphasis added).

Lundbeck departs from these principles. How? By embracing a subjective approach to the analysis of potential competition. In Société Technique Minière, European Night Services and E.On Ruhrgas, to name a few, the notion of potential competition was an objective concept, in the sense that market entry was assessed in light of objective factors – that is, whether such entry possible and likely, given the economic and legal context.

In Lundbeck, by contrast, the economic and legal context (in other words, objective considerations) are not decisive. Subjective considerations (in other words, firms’ perceptions about the likelihood of market entry) can lead to the conclusion that two firms are potential competitors. Accordingly, potential competition may exist even when it would require infringing a presumptively valid patent.

As can be seen, Lundbeck advocates a major shift in the analysis of potential competition. Will it win the day? An analysis of the case law reveals that the ECJ clearly prefers objective approaches to the definition of legal concepts. In particular, the subjective intent of the parties is neither a sufficient nor a necessary condition to establish a restriction of competition. Similarly, the notion of aid within the meaning of Article 107(1) TFEU is an objective one.

The relationship between competition law and intellectual property

Finally, Lundbeck also marks a new relationship between competition law and intellectual property. As mentioned above, EU law does not question the existence of intellectual property rights; it only questions the way in which they are exercised.

Accordingly, EU law does not second-guess intellectual property systems, or whether the underlying ideas are worthy of protection. Thus, Articles 101 and 102 TFEU are applied without questioning the validity of the rights at stake in a case. All cases in which intellectual property is relevant, including Consten-Grundig, Coditel II or BAT (Toltecs-Dorcet) confirm this point.

By suggesting that a firm is a potential competitor even when market entry requires the infringement of a presumptively valid patent, Lundbeck alters this balance between competition law and intellectual property. According to this new balance, EU law would question the very existence of intellectual property rights (for instance, whether they are valid, or whether the underlying ideas are worthy of being protected). The consequence of the EU legal order would inevitably be significant.

[IMPORTANT: I did not want to end this post without mentioning the passing of Gil Carlos Rodriguez Iglesias. Gil Carlos led the Court of Justice at a key moment in time – Opinion 1/94 is just an example that springs to mind immediately. More importantly, he is fondly remembered by everybody who worked with him. Alfonso and I send our deepest condolences to his family and close friends. May he rest in peace.]

Fernando Castillo and Eric Gippini, two good friends of the blog, organise every year a seminar in Madrid in which they discuss recent developments relating to the application of Articles 101 and 102 TFEU.

This year, the seminar will take place on 25 January (Friday) and, as usual, it features top Commission officials and practitioners. For some reason, I have been invited to discuss the market integration objective alongside Jorge Padilla (can’t wait).

If you happen to be around, do sign up for it. The event is invariably of the highest level (and great fun too).

More info on the event and on how to register can be found here. The location, by the way, could not be better (and more convenient): IEB, calle Alfonso XI, 6 (28014 Madrid) – literally around the corner from the spots you see in the pic above.

The programme is the following:

16:00 – 18:00: First panel
Recent developments in the Pharmaceutical sector
Borja Martínez (KPMG)
Blaz Visnar (DG COMP, European Commission)
Irene Moreno-Tapia (Cuatrecasas)
Paul Hutchinson (RBB Economics)

Chair: Fernando Castillo de la Torre (Legal Service, European Commission)

18:30 – 20:30: Second and third panels
Negotiated procedures: Settlements / Commitments
Henning Leupold (Legal Service, European Commission)
Frances Dethmers (Allen & Overy)

The market integration objective in EU competition law
Jorge Padilla (Compass Lexecon)
Pablo Ibañez Colomo (LSE and College of Europe)

Chair: Eric Gippini Fournier (Legal Service, European Commission)

If you have any questions about the event, do not hesitate to send an email to: competencia@ieb.es.

We look forward to seeing many of you there!