Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Persistent myths in competition law (IV): ‘the European Commission is a risk-averse institution’

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myths

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).

Written by Pablo Ibanez Colomo

25 July 2019 at 2:19 pm

Posted in Uncategorized

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