Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Archive for January 2019

NEW PAPER on State aid post-Brexit (with Vincent Verouden)

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Two spheres

As all of you know, the vote on the Agreement for the Withdrawal of the UK from the EU will take place in Westminster later today.

I could not think of a better way to mark the event than by sharing a Brexit-related paper.

The paper, co-authored with Vincent Verouden, is already available on ssrn (click here to access it).

As you will see, our piece examines the application of State aid rules in the UK after Brexit (if it indeed takes place). First, it shows why some form of control in this sense seems not only desirable but inevitable (given how close and how intertwined the economies of the UK and the rest of the EU are). Second, it discusses the various enforcement models that can be put in place, with a particular emphasis on the EEA system. Finally, it examines the institutional framework put in place by virtue of the Withdrawal Agreement and takes a look at what the future relationship between the EU and the UK may look like in this regard.

Vincent and I would very much welcome your comments and questions on the piece!

In accordance with ASCOLA’s declaration of ethics, I am happy to clarify that I have nothing to disclose.

Written by Pablo Ibanez Colomo

15 January 2019 at 3:26 pm

Posted in Uncategorized

Ahead of Siemens/Alstom, the competition law community should do more to defend the European Commission (and our law-based system)

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Readers of the blog know that I am sometimes critical of the European Commission. I regard it as my obligation. Since I am fortunate enough to devote my professional life to study the behaviour of competition authorities (and the evolution of the legal system), I have a duty to share my findings, wherever they take me.

Every now and then, however, people get confused about what drives my criticism. Make no mistake: if I am sometimes critical of the European Commission, this is because I believe in the crucial role of competition law in a social market economy and because I care about the system (its internal consistency, its predictability and the aspects that could be improved).

And because I care, I find it unacceptable when governments resort to all forms of lobbying to twist the arm of the European Commission in sensitive cases. The pending merger in Siemens/Alstom is one where the pressure is about to reach unbearable levels.

A few days ago, the French Minister for Economic Affairs claimed that it would be an economic and political mistake (no less) to block Siemens/Alstom. His arguments are the same tired ones (national champions and all the rest) that were advanced, back in the day, by Arnaud Montebourg, this blog’s favourite French (ex-)Minister.

Bruno Le Maire’s statements add to a plea, by 19 EU Member States, in favour of à la carte antitrust (see here). According to the reform suggested in a ministerial meeting, EU competition law would only apply to the baddies. The goodies, on the other hand, would not be subject to the rules, or would benefit from exemptions so they can become competitive at the global level.

One could say many things about these statements. One could say, for instance, that, if the approach they advocate were to be implemented, it would be the end of competition law as we know it. The French Minister’s arguments could very well be used to justify hard-core cartels: if a merger to monopoly should be allowed to go through in the name of the ‘competitiveness’ of domestic companies (whatever that means), why not allow EU firms to cartelise their activity and extract rents from companies based elsewhere?

One could also say that these statements are incredibly short-sighted and nothing sort of an own goal. If the EU system is the global reference, and if the European Commission is the leading authority in the world, this is because EU competition policy is enforced through law, not discretion or arbitrary distinctions between goodies and baddies.

If, as proposed by 19 EU Member States, the application of EU competition law were influenced by the firms’ place of establishment (or by their status as goodies or baddies), the system would lose its hard-won credibility. Such a move would play in the hands of those who argue (with no evidence so far) that EU competition law is tilted against foreign, in particular US, firms.

But there is something else that I would like to add to the above. I am always surprised that the competition law community does not do more to defend the European Commission, and our law-based system, in these circumstances. I tell myself that we should perhaps be more vocal.

One thing is to disagree with the Commission about whether Intel requires the application of the AEC test in every single rebates case, or about the legal test that should apply to constructive refusals to deal. And another thing is to question the very foundations of the system. When the latter are at stake, it makes sense to forget disagreements about particular points of law or policy (no matter how strong) and side with the Commission.

A consensus seems to be emerging across the political spectrum about the need for a well-functioning competition law regime. In particular, there is an understanding that the careful scrutiny of horizontal mergers, such as Siemens/Alstom, is indispensable (there are reasons to believe that the enforcement of merger control has been somewhat lenient vis-à-vis these transactions in the past couple of decades).

In these circumstances, and now that momentum is building, it would be terrible (for the economy, for consumers, and for our community) if competition law mutated into some sort of Frankenstein driven by political expedience (as opposed to rigorous legal and economic analysis grounded on consensus positions).

It is true that some have been vocal. At the risk of doing injustice to others, John Fingleton, for instance, has been vocal against proposed changes to UK merger control (see for instance here). It would be wonderful if others followed this example.

Written by Pablo Ibanez Colomo

10 January 2019 at 9:00 pm

Posted in Uncategorized

Competition Law and Innovation: Where Do We Stand? (a JECLAP editorial)

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JECLAP

The latest issue of JECLAP (see here) features an editorial of mine that takes stock of the relationship between competition law and innovation. I get the sense (a) that the topic will become increasingly prominent in law and policy discussions and (b) that there is still scope for deeper and more sophisticated analysis of the question. 

I copy the editorial below (see here for the version published in JECLAP, which is accessible for free). As usual, I look forward to your comments!

Discussions around the relationship between competition law and innovation have been on the rise in the past few years. The height of this debate took place in the lead up to, and the aftermath of, the Dow/DuPont merger. The pieces published in this Journal give a clear idea of the sort of arguments that have been advanced by commentators in this regard.

For some of these commentators (mostly economists, but also some lawyers), Dow/DuPont marks a significant departure from previous cases. The novelty would come from the fact that the analysis does not relate to markets in the traditional sense. The analysis would also move away from the way in which constraints coming from potential competitors were considered.

According to this view, the moment competition law analysis focuses on research and development capabilities – as opposed to precisely defined product markets, or pipelines in the pharmaceutical sector – it enters uncharted, speculative, territory. The fact that firms devote resources to the development of new products does not mean that these efforts will be successful. What is more – the argument typically continues – there is not an obvious relationship between the level of concentration and the rate of innovation in a given industry.

The opposite arguments have also been eloquently advanced. The idea that competition law can evaluate the impact of transactions in light of firms’ research capabilities is certainly not new. A framework based on this very idea has existed since the first version of the Guidelines on horizontal co-operation agreements. What is more, it has long been accepted that competition law analysis applies not only to price and output, but also to other parameters, including innovation.

The single most important lesson to draw from this debate is that exchanges between lawyers and economists sometimes get lost in translation. The deep and sophisticated economic debates about the relationship between market concentration and innovation, and about how to conduct merger analysis when innovation is the main driver of rivalry in an industry, have not always paid sufficient attention to the legal dimension. As a result, they fail to consider what needs to be proved as a matter of law.

Many economic arguments are indeed based on the idea that, when evaluating a merger, the European Commission is required to show direct harm to innovation (or prices, output or any other parameter of competition). This assumption is at odds with the relevant case law. In Case T-175/12, Deutsche Börse AG v Commission, the General Court confirmed that, as a matter of law, a significant impediment to effective competition can be established by proxy.

In other words, it is sufficient for the Commission to show, to the requisite legal standard, that a transaction will lead to a significant reduction of the competitive pressure faced by the parties. When conducting this assessment, the Commission can rely upon quantitative and/or qualitative evidence, including, in particular, the factors identified in the Guidelines on horizontal mergers (such as the closeness of competition between the parties, customers’ switching opportunities or rivals’ ability to expand production).

Against this background, it seems that most of the criticisms that have been directed against the analysis of the Commission in cases like Dow/DuPont – that the analysis is new and/or that it is insufficiently robust – come across as misguided, insofar as they ignore the legal dimension of merger control.

Is there room for claims that, even though it reduces competitive pressure, a merger will lead to an increase in innovation? There is. It is always possible for the parties to provide evidence showing that, in spite of the prima facie finding of a significant impediment of effective competition, the efficiency gains resulting from the transaction will outweigh its likely negative impact.

One could argue, reasonably, that the bar for the efficiency defence is overly high in Europe, and that it has not, since the adoption of Regulation 139/2004, played any meaningful role in practice. This reality is not necessarily problematic. Arguing that a significant reduction of competitive pressure can be pro-competitive is an exceptional claim that contradicts the very premises of competition law. It is therefore only natural that the so-called efficiency defence is very unlikely to succeed in practice.

Any other outcome would have serious consequences for the integrity of the competition law system. The same argument about the unique nature of innovation can also made, for instance, in the context of Article 101 TFEU enforcement, and this, with a view to justifying the most egregious practices.

Earlier this year, the Commission announced the launch of an investigation into an alleged collusive agreement involving the leading German car manufacturers. The unusual feature of this agreement is that it relates, allegedly, to innovation, and more precisely to the roll-out of clean emission technologies.

If one were to take the approach advocated by some economists in relation to merger control, one could argue that this collusive agreement, if established, should not be given the same legal treatment as other cartels. After all, the argument would go, it is not clear that cartel conduct relating to innovation is as harmful as traditional cartels – typically focused on prices, output and market-sharing.

If these arguments were to be accepted, the fight against cartels would suffer an important blow. The consequences would inevitably spill over the entire EU competition law system and would damage, without any valid reason, the ability of competition authorities to take action against particularly serious infringements.

Does the above mean that the introduction of innovation considerations in competition law analysis is always uncontroversial, or that the debate is over after Dow/DuPont?

Certainly not. Recent investigations hint at new ways in which such considerations can enter the analysis. For instance, innovation appears to play a role in the preliminary probe into Amazon’s practices. The Commission is exploring whether the online retailer exploits its role as a marketplace to copy rivals’ products, thereby reducing their incentives to innovate.

It is far too early in the process to comment meaningfully on this case. But there are grounds to believe that it gives rise to new questions. JECLAP’s editors will keep an attentive eye on this and other similar developments.

Written by Pablo Ibanez Colomo

8 January 2019 at 9:34 pm

Posted in Uncategorized

My wish for 2019: please engage with the hard questions, don’t avoid them

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Tough questions

Happy New Year! 2018 was an intense year for the two of us. But we already look forward to what promises to be an exciting 12 months.

Competition law thinking has become more polarised in the past couple of years. By and large, this is great, as it reflects vibrant competition in the marketplace of ideas. It also shows that our discipline is at the heart of some fundamental choices that our society is to make.

What is my wish for 2019, against this background? More than wishing that courts and authorities ‘get it right’ (whatever that means), I wish that they engage with the hard questions and that they do not dodge them under the pretence that things are easy.

Readers of the blog know that I do not care much about outcomes (who ‘wins’ or who ‘loses’ an individual case). That is a very poor measure of a legal system, let alone the performance of a court or authority.

A reasonable person can come to a decision that contradicts my own views on what the sensible outcome should have been in an individual case. There is nothing wrong with that. I very much struggle, on the other hand, with decisions that dodge the fundamental questions at stake.

And, at present, there is a growing market for commentators declaring that things could be very easy if we were to follow their infallible recipes.

For some people, it is all about words (or magic spells, as if we lived in Harry Potter’s universe). According to this view, magic happens when we pronounce the right words. If we proclaim that we are embracing, say, the ‘real deal competition standard’, all perceived problems in the system will vanish.

For other commentators, the secret to wisdom is to follow the long-forgotten teachings of our most virtuous ancestors. Thus, if we pick a large multinational and perform a ritual sacrifice in the form of a breakup, markets will become competitive again.

Alas, the fundamental question at the heart of any competition law system (when and how to take action against practices with ambivalent effects on the competitive process) is pretty hard.

I would say more: competition law is fascinating precisely because it is so hard. That is why reasonable people can disagree about the outcome of individual cases, and why I never take issue (or engage) with outcomes as such.

The past and coming months have given us a few good examples of the sort of tough questions that should not be dodged. Here are a couple:

  • Pay-for-delay: This area is certain to be discussed abundantly in the coming months (including on this blog). According to the Curia website, the hearing in Lundbeck (just to mention one) will take place later this month. This case and similar ones give rise to really tricky points of law.
    Is there potential competition if market entry makes it necessary to infringe a presumptively valid patent? Is there a restriction of competition if the regulatory framework makes market entry unlawful?
    I do not believe anyone claiming that pay-for-delay cases are straightforward, or just plain vanilla market-sharing arrangements. Perhaps the outcome is justified in an individual instance, but this does not mean that these cases are easy.
  • ‘Margin squeeze’ and refusal to deal: We have not yet discussed the Slovak Telekom judgment (it’s coming). This is the seminal case nobody discusses. Why? Because it has shown that the relationship between outright and constructive refusals to deal needs to be carefully pondered. Contrary to what has been suggested by some commentators, it is an incredibly tricky one.
    What Slovak Telekom has shown, first and foremost, is that the difference between refusal to deal and ‘margin squeeze’ abuses is, in and of itself, an artificial one. Some of the practices at stake in that case were half-way between a ‘margin squeeze’ and a refusal to deal à la Bronner, in the sense that they could be characterised either as the latter or as the former. Since the legal tests are so different, the question arises of how to deal with them. Should we require indispensability or not?
    I wrote last year that the relevant case law is sensible, and that its underlying logic is far less obscure than commonly argued. The Court has suggested, and I agree, that indispensability should not be required in every (outright and constructive) refusal to deal case. The remaining questions relate to the instances in which indispensability is a necessary condition for intervention, and the instances in which it is not.

These are just two examples, and I guess my message is clear. The temptation for short-cuts, or to take a ‘big picture’ (i.e. lazy) approach to tricky legal questions is always strong (in the same way that the temptation not to take the law seriously is strong).

Here’s to hoping that difficult stuff will be addressed in the way it deserves to be adressed. We will, as usual, try to contribute to these debates.

Written by Pablo Ibanez Colomo

2 January 2019 at 7:33 pm

Posted in Uncategorized