Chillin'Competition

Having dealt with substantive questions, primarily relating to the notion of restriction by object (see here, here and here), it makes sense to continue this series by switching to a received idea of an institutional nature.

When presenting my research, it is not unusual for me to hear that the Commission ‘is a (very) risk-averse institution’, which, accordingly, would only intervene in clear-cut cases and this after choosing them carefully (perhaps too much).

This is the opposite of what one finds when examining systematically the Commission’s behaviour (which happens to be one of the research areas on which I focus).

And before I move on to explain why, allow me to clarify that I am convinced that, on balance, it is emphatically a good thing that a competition authority takes risks, and takes them often.

I struggle to see how the public interest would be advanced if the Commission only pursued the safest cases and were reluctant to explore new ideas or challenge existing doctrines.

On the other hand, one should be aware of the consequences of a relatively risk-prone attitude of the Commission. The higher the willingness to take risks, the more likely the errors (in law and in fact). And, by the same token, the more important full judicial review becomes.

Examples of the risk-prone attitude of the Commission

If one reviews the Commission’s administrative practice since the 1960s, it seems pretty clear that it has systematically explored the outer boundaries of the case law, sometimes departing from it (by applying a different doctrine, introducing a new one or by explaining why it is not applicable in the context of a particular case).

Off the top of my head, I can think, inter alia, of the following examples (I do not mention areas like State aid, but I have been able to identify a similar pattern there too):

Restrictions by object after Regulation 1/2003

Restrictions by object dominate the enforcement of Article 101 TFEU following the adoption of Regulation 1/2003. This is not only due to the prioritisation of clear-cut infringements by the Commission.

The Commission appears to have chosen to embrace a risky approach that occasionally departs from the logic of the case law. Cartes Bancaires is there for all to see. Even more interesting is ISU, where (as I explained here), it chose not to follow the most recent case law on the issue (Cartes Bancaires itself and Maxima Latvija).

And these are not the only examples. I have devoted many posts to explain why cases like Pay-TV and Lundbeck are controversial from this perspective (Lundbeck is interesting in that there was documentary evidence, back from 2004, showing that the Commission was aware that the practices were in a ‘grey area’, and thus of the risks involved in pursuing the case).

The analysis of effects under Articles 101 and 102 TFEU

Examining the effects of practices (whether under Articles 101 or 102 TFEU) can mean many different things. The analysis may vary greatly depending on what we mean by effect and on the degree of probability that is deemed sufficient to trigger intervention.

And I devoted my Chillin’ talk last year to the question. It is now possible to discern a definition and a methodology from the case law.

The important point here is that the Commission has showed a tendency, over the years, to depart from the notion of effect as defined by the EU courts.

The administrative practice that followed Delimitis is perhaps the best example in this sense. That landmark judgment clarified (once more) that a restriction in a firm’s freedom of action does not amount, in and of itself, to an anticompetitive effect. In addition, it laid down a test that revolved around foreclosure (defined as the ability of a rival to enter the relevant market).

In Langnese-Iglo and Scholler, the Commission did not follow Delimitis (as noted by commentators at the time). It chose instead to take the risk of committing to its traditional approach (under which a restriction in a firm’s freedom of action is sufficient to establish an anticompetitive effect).

One can identify a similar pattern in recent Article 102 TFEU decisions, of which Servier is a great example. More on this soon: it is a fascinating question that keeps me busy.

Refusals to deal

There is much talk these days about interim measures. It is said that, since IMS Health, the Commission has never adopted a decision of this kind. But it is not always explained why the decision was quashed by the (then) Court of First Instance.

IMS Health was just an interim measures decision, but the interim relief sought was far-reaching by any standard (it imposed an obligation that effectively altered a firm’s business model).

One could argue that the context was not ideal for the Commission to take the risk of embracing a heterodox reading of Magill, but the authority chose to give it a try.

The interim measures decision argued, controversially, that the Magill conditions were alternative, and not cumulative, and thus that an obligation to license could be imposed even absent evidence that a refusal would prevent the emergence of a new product.

No surprise that the Court of First Instance took the view that imposing a duty to license on an interim basis should not be based on a peculiar reading of the relevant case law.

The Commission took similar risks again in Microsoft. The Court of First Instance acknowledged in its judgment that the decision had not established an abuse in light of the conditions set out in Magill (in particular, the Commission had not attempted to show that the refusal prevented the emergence of a new product). This second time, however, the risk taken by the authority paid off.

Rebates

I could go on for a while, but I will finish this overview with the case law on rebates. As we all know, the Court declared in Hoffmann-La Roche that rebates conditional upon exclusivity were abusive.

In the years that followed, the Commission progressively expanded the scope of the prohibition rule to encompass target rebates (in Michelin I and British Airways) and even standardised volume rebates (in Michelin II).

This risky approach was successful in the sense that the doctrine encompassed a wider range of potentially harmful conduct. On the other hand, it created a sense of legal uncertainty that prompted the Commission to review its approach to the enforcement of Article 102 TFEU.

The importance of judicial review

The willingness to take risk by stretching, or departing from, existing doctrines is not without consequences.

The interpretation of the law may become less consistent and intervention less predictable as a result – past cases would not provide reliable guidance on the outcome of future investigations and conflicting lines of case law may emerge.

The complex reality of Article 102 TFEU – and the subsequent attempt by the Commission to remedy the consequences of its own approach, mentioned above – speaks for itself. Perhaps the risks were justified to avert potentially harmful conduct by powerful undertakings, but the cumulative effect of individual decisions resulted in the absence of clear and meaningful boundaries between abusive and lawful conduct.

Against this background, judicial review is of paramount importance to preserve the general interest (including legal certainty) and explore why and when it is justified to depart from, or ignore, the prevailing legal doctrines.

I do not believe the law is cast in stone and should never be revisited. And I am sure none of our readers believe the role of judges is to ensure the law never changes.

The point is instead that existing doctrines have a point and a rationale – they are typically the product of careful thought by courts. Accordingly, the case law cannot be dismissed or stretched without an appropriate explanation (which, in turn, may or may not persuade the review courts).

The Commission announced this week the formal opening of a case against Amazon (see here). It had also informally done something quite similar almost a year ago (see here), and that first news cycle triggered comments from Pablo that remain current and are even more valuable today. In parallel, the competition authorities from Germany, Austria and Luxembourg closed proceedings against Amazon after the company agreed to modify certain clauses.

The Commission’s case is plagued with interesting legal issues and questions that we look forward to exploring. It is a prime (pun intended) example of the issues raised in contemporary antitrust. I’ve received a few press inquiries about this and already had a chance to discuss the development almost live during a lecture at the College of Europe on “Multi-sided platforms: the lessons from the case law”, so I’ll build on what I explained there (off the top of my head, so this is all likely to evolve).

Bear in mind that we have no information as to whether the Commission’s factual suspicions are well-founded or not, so for the purposes of this post let’s simply assume that they are and focus on the law:

Duality at the core. The case against Amazon is premised on the observation that “Amazon has a dual role as a platform: (i) it sells products on its website as a retailer; and (ii) it provides a marketplace where independent sellers can sell products directly to consumers”. The Commission suspects that Amazon collects competitively sensitive information about marketplace sellers and, according to the press release, it “will focus on whether and how the use of accumulated marketplace seller data by Amazon as a retailer affects competition”.

Challenging vertical integration/a business model. Is the Commission challenging a business model or vertical integration itself? To the extent that one argues that the problem lies in “being umpire and having a team at the same time” (see here) in itself, then this would effectively constitute a challenge to a given (hybrid) business model more than to specific practices [on a different note, the referee/player metaphor was the one traditionally used to challenge the Commission’s own business/enforcement model]. 

If this is the Commission’s thinking (it may well not be), this could have very profound implications, as many companies other than Amazon (including e.g. large offline retailers with private label brands) rely on the same business model. This is particularly true given that the investigation is based not only on Article 102 but also on 101, so its ramifications could extend beyond dominant companies.

As we always say, competition law is business model agnostic. Amazon, for one, has suffered from this when it comes to platform bans (think about it, Coty is also a prime example of the idea that one cannot treat a firm that opts for selective distribution worse than a vertically integrated rival pursuing the same objectives). The use of a given business model, in itself, does not warrant antitrust intervention. It might, if it gives rise to anticompetitive effects in the sense of the case law. As Pablo explained in his post, vertical integration and lack of neutrality is often even procompetitive. Again, that doesn’t mean that specific practices may perhaps be legal/illegal, but one cannot simply presume legality/ illegality just by looking at the business model.

On the threshold of effects. If it’s all about the effects, what effects are we talking about? What legal standard should the Commission apply?

Is the theory then that merchants suffer a competitive disadvantage? The case law tells us that a mere disparity of treatment/competitive disadvantage is not enough to find an infringement (see e.g. Lesson number 7 here ;), MEO, Post Danmark I or Deutsche Telekom (para. 250 where the Court said that the existence of a margin squeeze/forcing rivals to price below cost is in itself, absent anticompetitive effects, insufficient to find an infringement).

Is the theory about unfair trading conditions? If one frames this as an exploitation/unfair conditions/excessive pricing case, one would need to look at whether the price paid by merchants is excessive having regard to the value of the service provided by Amazon’s Marketplace. And that may be pretty hard. Moreover, cases like TeliaSonera also involved unfair conditions and also require a showing of anticompetitive effects. As explained in the previous paragraph, this means something beyond a mere competitive disadvantage.

Isn’t this rather about conditions for access? The idea seems to be not only that Amazon is dominant but that merchants actually depend on Amazon to market their products (if not, it’s clear that there is no foreclosure, right?). In a way, you could say that data allegedly collected by Amazon is part of the price that a merchant pays to be able to sell its products in the marketplace (don’t critics of online platforms actually often repeat that people pay with data?). Amazon may need that data for different purposes, including ensuring that the overall platform/marketplace remains competitive (this is a fundamental point on which I would expect much of the legal discussion to focus). And this is in the nature of the hybrid business model, which has so far worked in this and other sectors. Would we be better off if Amazon re-adopted its previous model and closed the marketplace to third parties? And in that scenario, could a competition authority force Amazon to reopen it again under FRAND terms? The intuitively easy answers to the questions may be telling.

If one thinks about the case law (a big “if” these days), cases like Bronner, Commercial Solvents and Télémarketing all involved similar settings (vertically integrated rivals “favoring” their own services) and all of them require indispensability and the elimination of all competition. Bronner very much emphasizes this point beyond doubt (“self-favour” yourself and read it again).

Are merchants foreclosed/driven out of the market by Amazon’s alleged conduct? At first sight this would not appear to be the case given the continuous growth in merchant sales on the Amazon marketplace and the existence of other channels to market products. In fact, Amazon needs merchants and it is highly unlikely that its marketplace would thrive if merchants didn’t. An automatic assumption of foreclosure would imply presuming that Amazon is somehow an indispensable sales channel, which sounds like quite a stretch (and which, by the way, also appears to be at odds with brands’ appetite for platform bans). It will be interesting to see how the Commission approaches this question.

Increasing competition? If it were true that Amazon really uses merchant data to set its competitive strategy, I guess one could even argue that Amazon would be merely observing where there is scope for greater competition (in terms of price, output or quality) in order to adopt certain decisions, including whether to launch its own product. Under this optic, one could therefore argue that this practice (again, assuming it might exist) would actually enhance competition in every product category.

On similarities with other cases. This investigation is but one more step in a trend/line of thinking that started and peaked with the Google Shopping case (the judicial outcome of which could have a crucial impact on the Amazon case depending on time and on how Amazon plays this). Pablo accurately calls this “common-carrier antitrust”. The irony is that some of the people that propelled and still defend those theories are now faced with their boomerang effect (talk about dual roles…). Expect some creative contortions

Openings and closings. As some commentators have observed, the parallel closing of the German and Austrian cases shows that competition cases can also be quickly and effectively resolved, regardless of their merit, even absent interim measures. But, among other factors, that depends on whether what is at stake is an essential component of the business model or not. This may perhaps be one more reason to focus on cheap exclusion and not second guess business models (which is what some people are now openly advocating for).

To be continued…

Online platforms are all over the news these days. Today we have learnt that the European Commission has opened a formal probe into Amazon’s practices. I could write a post, but I have the sense that the one I prepared on the preliminary investigation a while ago still captures well my thoughts on the case.

I would simply add a question for discussion: is the data supplied to Amazon by merchants not just an element of the cost of doing business via the marketplace (i.e. part of the price they pay to access the platform)? If so: is this aspect of the case not simply about alleged excessive pricing (with all the consequences and implications that follow)?

More to the point of today’s post, large tech companies have made the headlines on both sides of the Atlantic following the French Senate’s green light to the so-called Digital Services Tax (which, it seems, is known as ‘taxe Gafa’ in France).

I have been asked to share my views on the State aid dimension of this tax (a topic that Alfonso covered on the blog). Last week I was interviewed by Bloomberg Tax (see here), together with Alfonso’s partner José Luis Buendía Sierra.

On Monday of this week, I took part in a radio programme (Knowledge@Wharton), run by The Wharton School at Penn and offered via SiriusXM Radio. I was interviewed together with Ruth Mason (University of Virginia) and Andrea Matwyshyn (Penn State). It was fascinating, no less because this case has sparked an academic interest in EU State Aid Law in the US. You can access the interview here.

What are my views on the State aid dimension of the Digital Service Tax (or ‘taxe Gafa’)? From a substantive perspective, I believe it is difficult to argue that this tax is not vulnerable to challenge on State aid grounds.

If one pays attention to recent administrative practice, the most reasonable conclusion is that it is more likely than not that the Commission would conclude that it is caught by Article 107(1) TFEU. In this sense, the French Senate’s position, which insisted on the notification of the measure, comes across as sensible and prudent (and in the spirit of Articles 107 and 108 TFEU).

Does it mean that the measure is necessarily State aid? No. Even though it appears to be explicitly targeted at some firms (it is known as ‘taxe Gafa’ for a reason), one could try and make the argument that the targets are not in a comparable factual and legal situation as everybody else.

Perhaps. But there is, at present, no operational test to determine whether undertakings are in a comparable factual and legal situation. This is one of the fundamental issues I emphasised in my presentation at our State aid workshop a month ago. I struggle to see why and when two groups of undertakings are likely to be deemed in a comparable situation, and when they are not.

Against this background, my sense is that it would be desirable to get some guidance from the Court on this point. And perhaps this case (together with the pending disputes on the Polish Retail Tax and the Hungarian Advertising Tax) provide the ideal context to do so.

The legal community should acknowledge more, and more often, the importance of good textbooks in helping us structure and make sense of a discipline.

Samuelson’s (and Nordhaus’s) Economics is a great example. And I have often said and written that EU competition law’s very own Samuelson is Whish’s and Bailey’s Competition Law. Our field is a better place thanks to Richard’s and David’s efforts.

As any textbook that intends to provide a first approximation to a tricky area of the law, it presents some issues in a somewhat simplified way. This is inevitable and arguably necessary.

As I write this, I am reminded of Borges’ On Exactitude in Science, the story of the map of an Empire whose size was that of the Empire (and entirely useless as a result).

Academic simplifications (or models, if one prefers) are useful to get closer to the essence of a complex reality.

A problem may emerge, however, when a model becomes so successful and its use so pervasive that some lose sight of the fact that it is not the real thing. This is exactly what has happened with Whish’s legendary ‘object box’.

Enthusiasts of the ‘object box’ are often tempted to see it not as a model but as an accurate representation of the case law. I can see why. An off-the-shelf list of agreements that are restrictive of competition by object comes across as very attractive.

The promise of a simple and elegant way to navigate and administer Article 101(1) TFEU may indeed be tempting, but reality, for better and worse, is considerably more complex.

The ‘object box’ concept is not easy to reconcile with the case law

The ‘object box’ concept appears to suggest a methodology to identify restrictions by object that is not easy to reconcile with the logic of the case law.

First, the case law shows that the analysis of the object of an agreement is never undertaken in the abstract.

Second, the Court has always placed substance above form. The finding that an agreement is formally about price-fixing or the restriction of output is not (and has never been) conclusive. What matters is the objective purpose of an agreement (i.e. its object) as ascertained in the economic and legal context of which it is a part.

These are the key messages conveyed by the Court in Allianz Hungaria, a much misunderstood ruling that did not hold anything that had not been said or done before (or has been said or done afterwards).

The ‘object box’ is both over and under-inclusive

The previous two instalments of this series (see here and here) provided a few of the many examples of agreements that show that form (price-fixing, output restrictions, market sharing and so on) is not decisive.

And because the form of an agreement is not decisive, the ‘object box’ approach is both over-inclusive and under-inclusive.

It is over-inclusive insofar as it suggests that some formal categories qualify, by definition, as object infringements (although the authors have always nuanced this point).

The concept is under-inclusive insofar as some agreement may not formally fall within one of the categories listed in the ‘object box’ and still be an ‘object infringement’. Business realities, and human ingenuity, cannot be captured in a closed list.

Cartel conduct, for instance, can take many different forms. All should be prohibited by object and heavily fined. It does not matter whether the cartel relates to prices, output or the development of clean technologies (just to mention a topical example).

The evaluation of the object of an agreement is a case-by-case inquiry

The immense popularity of the ‘object box’ approach appears to have obscured a crucial aspect of the case law: the evaluation of the object of an agreement is a case-specific inquiry.

And figuring out, in light of the relevant economic and legal context, whether an agreement has as its object the restriction of competition is not the same as assessing its effects. The case-specific inquiry is intended to shed light on what the agreement is about (again, its object), not on its impact on competition.

The idea that case-by-case somehow equals an analysis of effects is the single most important (and most widespread) confusion that has resulted from the success of the ‘object box’.

I believe I understand where the confusion comes from. The ‘object box’ concept may have created the illusion in some that the evaluation of the object of an agreement can be done mechanically, that is, simply by checking that a restriction is ‘on the list’. Alas, this is not true, and has never been.

There is a kernel of truth in the ‘object box’ concept

As any model seeking to capture the essence of a complex reality, there is of course a kernel of truth in the ‘object box’ . And, if there was any doubt, it certainly makes sense as a first approach to competition law.

Not all price-fixing agreements between competitors are restrictive by object. But it is undeniable that ‘naked’ price-fixing agreements involving (actual or potential) rivals are.

More generally, the ‘object box’ works for ‘naked’ conduct at large (that is, conduct that has no plausible purpose other than the restriction of competition). Understood in this narrow, nuanced, sense, the concept is not fundamentally at odds with the case law (as Alfonso and I explained in this piece).

By giving the impression that the concept may apply beyond ‘naked’ restraints, and by suggesting that only practices listed in the ‘box’ are restrictive by object, however, it can be misunderstood and lead (if taken literally) to type I and type II errors.

In any case, the above should not distract us from the fact that the concept has helped generations of students from all over the world gain a first understanding of a distinctly complex competition law issue!

Last week the Commission announced the issuance of a statement of objections to adopt interim measures in parallel to the opening of an investigation against Broadcom (see here). The Financial Times published a piece about it that features some of my views on this development (see here).

A few more developed thoughts are in order:

1. This is the first time since the adoption of Regulation 1/2003 that the Commission intends to adopt interim measures under Article 8. As you know, this power was not expressly foreseen in the previous procedural regulation. In fact, for some time the Commission held the view that t it did not enjoy the power. In Camera Care, however, the Court confirmed that it did because it was indispensable for the effective exercise of its functions. So in a way the Commission obtained a power it did not want.
2. This is hardly a surprise. Many independent and not-so-independent commentators had been asking for the application of interim measures, particuarly in fast-moving sectors. Commissioner Vestager had publicly stated that the Commission was looking for a test case. This is it.
3. For many years the Commission didn’t have an appetite for interim measures. These cases were always exceptional (pretty much confined to ports and ice creams), but trickled out after several Court losses. The scare from the last defeat (in IMS) has finally lasted 18 years.
4. The reasonable appetite to bring this tool back to life does not mean that one should forget the lessons from the past. The main one being that interim measures may be appropriate in clear-cut cases, but not where the law is unclear. This is both as regards the theory of harm and the remedy. As IMS shows, interim measures might not be appropriate in cases where a company may be forced to relinquish for good core elements of its business model (admittedly, that would hardly be the case with regard to exclusivity agreements).
5.  In policy terms, the news that this power is back in the game is a positive one  (btw, I wish the same happened with declarations of inapplicability and guidance letters, which were also foreseen in the Regulation and that are yet to be used).
6. The Commission’s change of attitude, however, is that: a change of attitude. That does not alter the strict legal conditions to justify interim measures nor does it have a bearing on what really matters: the relevant factual circumstances of each case. In other words, the Commission cannot simply order interim measures because it wants to revive them. This is one of these things that you do when you have to, not when you want to.
7. In that regard, whether interim measures were or not justified in this particular case is something on which we can’t have a view, as it depends only on factual and complex market information that we ignore.
8. Complainants are likely to insist even more on interim measures, but these can only be adopted ex officio; complainants cannot force the Commission to adopt them and cannot appeal their non-adoption.
9. A very positive implication of this development is that parties contesting the measures may get a chance to bring matters to Court from an early stage (in the past several applicants have successfully sought interim measures from the Court to suspend interim measures ordered by the Commission). Greater and earlier judicial scrutiny is always good, and certainly preferable to informal pressure on companies to do or not do something without the possibility of review.
10. There is no reason for the Commission not to adopt interim measures when there is a real risk of “serious and irreparable harm”. At the same time, however, this remains an exceptional power that should not be forced upon a particular sector/set of cases.
11. The Commission’s view of the circumstances in which interim measures may be necessary at the administrative stage may perhaps also have an impact on the Court’s view of the circumstances in which they are necessary at the judicial stage. Both were very restrictive. If the Commission becomes more flexible ordering interim measures on companies, the Court may perhaps also become more flexible in granting interim measures against Commission decisions…
12. If we are concerned about timing remedies, perhaps we should also think about some way of limiting the, at times excessive, duration of investigations.