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Archive for July 15th, 2019

Persistent myths in competition law (III): the ‘object box’

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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!

 

Written by Pablo Ibanez Colomo

15 July 2019 at 11:18 am

Posted in Uncategorized