Chillin'Competition

Chillin’Competition will very soon turn 10, and it recently reached 2 million visits. This calls for an even more special annual conference.

The Conference will take place on Monday 9 December 2019.

Commissioner Vestager has confirmed that she will be there for the 4th time in a row. Will you? 😉

We have been working on our ideal program and will start contacting speakers tomorrow.

We will be posting some updated info on the blog, but will also keep some surprises.

Registrations will open on 5 November at 10am (Brussels time) via a link that we will publish here. Be warned that in past years they were all gone within 2-5 minutes.

Should you need to travel long distance and plan more in advance, please drop us a line (we might not reply immediately, but we’ll try to do it asap).

As always, the conference will be free of charge. If you would like to contribute by sponsoring the event, please contact us.

Yesterday the General Court handed down the first and much awaited Judgments regarding the assessment of individual tax rulings under State aid. The Court roasted the Starbucks decision, but the Commission managed to drive home the Fiat one.

These Judgments raise complex issues and fit within a complex line of case law. Those interested in a full overview of these should attend a forthcoming presentation at the ULB’s Mardis de la Concurrence (more information here; incidentally, I’ll be the speaker).

But here is an appetizer. My colleague (and main specialist on the issue) José Luis Buendía, Pablo and myself all immediately devoured the Judgments yesterday and spoke to several media outlets about them. The text below contains a collage of our views:

General comments

The Judgments are carefully crafted in their content, outcome and intended message. Not much of a sexy headline, but the takeaway is that tax rulings may, or may not, amount to State aid: the Commission needs to do a thorough job, and the Court has demonstrated its willingness to exercise a strict control. In Pablo’s words “proceed – but with caution, because the court is watching.”

As I told Politico yesterday, “the Court has not challenged the Commission’s policy as a matter of principle, but has sent a clear message that the devil lies in the details of each specific ruling”. This complicates predictions (also as to the outcome of the Apple case, which moreover raises different issues) and arguably legal certainty.

The Judgments are nuanced on the law, avoiding some of the thorniest legal issues (notably the questions related to selectivity, which are effectively bypassed by focusing virtually all of the debate on the requirement of “advantage”). The Judgments are also fact-heavy, which might minimize the chances of success of possible appeals on either side.

Politically, the credibility of the Court and of the EU system may be reinforced by the fact that – fortuitously –  it was only the US company (and the Netherlands) getting out of the hook, not the European one (and Luxembourg).

In our view, the key to understand the opposite outcomes of the Judgments is the Court’s insistence in taking the Commission’s burden of proof seriously. The Commission needs to establish the existence of an advantage, without shortcuts, however tempting.

Advantage 

The GC confirms that the Commission was entitled to rely on the arm’s length principle (“ALP”) as a tool for screening whether a given tax measure is in line with market conditions. The Court seems cautious (just like the Commission itself) not to extract a general ALP principle directly from EU Law, but it accepts that it may be relied upon as a tool. The Judgments seem to be premised on the “nationalization” of the ALP; i.e., on the understanding that both the Dutch and Luxemburguese legal systems had – even if implicitly – incorporated this principle.

Given their recognition at the national level, the Commission was entitled to rely on this principle tool to check whether the specific tax rulings had accepted transfer pricing arrangements departing from normal market conditions (in the sense of Art. 107) and, therefore, departing from what had been the normal taxation of these situations without the tax rulings. Our view is that the Court did not endorse the far-reaching Commission theory that the ALP originates directly from EU law and would apply regardless of its recognition at the Member State level. One could argue that the “nationalization” of the ALP may have required an interpretation of the decision and of national laws that goes beyond the obvious.

Even if the Commission was entitled to apply the ALP in both cases, the judgement underlines that the ALP admits different methodologies, as the OECD guidelines show. Member States thus have a certain choice between them, and the Commission’s assessment ALP must therefore recognize the existence of a certain margin of possible inaccuracies. Crucially, the GC notes that the choice of a particular methodology, in and of itself, is beyond reproach. Thus, the mere fact that the Member State has relied on a method different from the one preferred by the EC does not automatically create a presumption of advantage.

Very much on the contrary, both judgements underline that it is the Commission that has the burden of proving the presence of an “advantage”, that this exercise may be demanding (as exemplified in Starbucks), but nevertheless feasible (as shown in Fiat). It is therefore not for the Member State or the beneficiaries to prove the absence of an advantage, but up to the Commission to prove its existence.

In fact, a too proactive defense by the Member State might even backfire in some cases, by providing the Commission with an analysis that was originally absent. In Fiat the Court validated the reasons offered by the Commission to question the methodology used by Dutch authorities. In Starbucks, it has ruled that non-compliance with methodological requirements cannot be used as a shortcut to find an advantage. Paradoxically, this may require the Commission to do a greater job when Member States do worse. In other words, the Commission cannot simply assume that because the Member State acted in a seemingly arbitrary manner the outcome was wrong.  As Vice President van der Woude noted at the Apple hearing last week, one cannot fully exclude that there may have been a happy coincidence. The message, again, is that nothing is evident and that the Commission cannot take things for granted.

Selectivity

The General Court clearly avoided discussing “selectivity” to the extent possible. The Starbucks Judgment did not need to go there due to the finding that there was no advantage. The Fiat Judgment did require a selectivity assessment, but there the Court found its own shortcut.

Indeed, the Fiat Judgment endorses a  “presumption” of selectivity for cases concerning individual aid (not in cases related to aid schemes). The tax rulings at stake look very much as individual aid. The GC considers that they are not the product of an “scheme” with a predetermined content but rather that they are tailor made by the administration applying discretionary powers. Therefore, if the Commission can prove that the individual tax ruling is advantageous (like in Fiat), it does not need to prove in addition that it is also selective.  This is automatically presumed. The existence of such presumption in EU Law is, in our view, not totally clear. This could therefore be a point of law that the applicants could raise in a possible appeal.

Perhaps because the existence of the said “presumption” of selectivity is far from obvious, the General Court also applied – just in case – the “3 steps test” in order to confirm the selective character of the Fiat tax ruling. The Judgment claims that  ruling would constitute a “derogation”, irrespective of how one were to define the reference system (only the treatment of companies belonging to a group vs those and also stand-alone companies). However, our impression is that the judgement does not entirely justify that claim. Instead, it equals the already established finding of an “advantage” with the finding of a “derogation” for selectivity purposes. This equivalence may be legally questionable and may also offer fertile ground for debate, perhaps on appeal.

Analysis

At the end of the day, the General Court has confirmed that the Commission may indeed use State aid rules against certain tax rulings, but it has also carefully framed its power to do so. It can rely on the ALP (except in the unlikely, and arguably purely theoretical, case that the national legislation explicitly excludes it), but has to recognize a certain margin of “error” to the Member States. Above all, the Commission must prove clearly that the tax ruling confers a real advantage.

The impact on these judgements on the pending tax rulings cases is hard to predict. It would largely depend upon the investigative evidence provided by the Commission in the different decisions. The impact on these judgements on other fiscal cases, dealing with general schemes, might be none.

The Commission may not even file an appeal against the Starbucks Judgment, since the judgement is eminently based on a factual assessment and avoids a taking position on important legal principles. Fiat and Luxembourg may have more incentives to try an appeal, perhaps arguing that the GC has denaturalized national law and raising points of law concerning selectivity. In any case, the chances of success may not be very high.

These judgements will allow the Commission to claim a partial victory and to vindicate its crusade against tax rulings. At the same time, however, they also underscore the need for detailed and thorough investigations. The Commission will no doubt be particularly careful in picking its cases from now on.

It looks like everything is polarised these days.

In certain countries, citizens’ positions have moved towards the extremes. Many voters abandon the centre ground to embrace radical views. It would seem it is all about joining a team – becoming a loud, proud member of a camp that supports everything that comes from within and opposes whatever comes from the other side.

The same trend seems to be extending to competition policy. Some people now even speak in terms of teams – Team Pro-Enforcement vs Team Anti-Enforcement. And I see with concern that ideas are sometimes judged not on their merits but based on the camp from which they come. X says A? Well, X is on Team Anti-Enforcement, this is what they would say, wouldn’t they?

Competition law debates have changed a great deal in little more than five years. It may just be my impression, but the arguments that were advanced in the past decade sought to persuade across the board and create a common set of principles reflecting consensus views.

This is certainly not the way in which I see debates taking shape these days. The ambition to preach beyond one’s circle is not as strong as it used to; it is not even the main objective. Here and there, claims are advanced to please the like-minded crowd and strengthen its priors – what matters is what the teams believes in, not what others may say (they’re the rival, after all).

When there is no attempt at persuading, the objective is no longer to build common ground. The goal, as in a football match, is to take over (to take over the discipline; to claim victory over the rival), not to convince.

When competition policy gets footballised, the tools also change. Law and expertise, which can be cumbersome and may provide answers we may not want to hear, are replaced by discretion and intuition, for which the sky is the limit.

The push towards the transformation of competition policy is strong, as there are powerful interests at play. Can something be done about it? I tell myself there is nothing wrong in reminding ourselves of the obvious, at least as a starting point. And I can think of the following in this sense:

The Pro-Enforcement vs Anti-Enforcement divide is a straw man: we are all in favour of enforcement

The problem with the attempt to divide scholars and practitioners between two camps is that that the Anti-Enforcement team is empty. I am yet to meet an EU competition lawyer or economist who does not believe in enforcement and, more generally, in the central role of antitrust in a social market economy (maybe such people exist, but they do not seem to be around).

In fact, I believe pretty much everybody agrees in saying that it would be wonderful if competition authorities enforced the law more, not less, and this across the board (including unilateral conduct, horizontal co-operation agreements and vertical restraints). Unfortunately, there are many practices that remain under the radar in spite of their obvious anticompetitive potential.

It is not all about ideology

There is always a strong temptation to simplify debates and to look for simple and definitive answers to complex problems. The ubiquity of this temptation goes a long way to explain polarisation as a phenomenon.

Inevitably, simplification makes inroads into competition law. It is not unusual to dismiss some views as driven by ideology. It is all too easy to conclude that, if someone is not persuaded by our position, this is because of their priors and preconceptions.

Alas, not everything is explained by ideology, and certainly not in competition law. More than a sign of foucauldian sophistication, resorting to ideology at every juncture suggests an unwillingness to engage with the subtleties and technicalities of the field (or laziness, if you want to put it that way).

It is for those who want to change the law and/or the institutional framework to convince the others

The Pro- vs Anti-Enforcement rhetoric has developed in a context in which changes to the law and/or the institutional framework are being proposed. The Special Advisers’ Report commissioned by DG Comp, for instance, has floated the possibility of reversing the burden of proof in some circumstances. The Furman Report, in turn, has (among other proposals) advanced the idea of altering the institutional setting.

The ideas advanced in these reports are bold and some of them are controversial; it is not certain that they will improve the regime. In fact, the Special Advisers were very open about the fact that their intention was to start a conversation and to gain a deeper understanding of certain phenomena, not to provide definitive answers.

Those who express scepticism or who identify the legal and economic problems with some of these ideas are not Anti-Enforcement zealots. It just happens that they are not persuaded that the proposals represent, on balance, an improvement on the system. As I have occasionally mentioned here, legal doctrines and principles are typically the result of decades of trial and error and cannot be brushed aside without proper reflection.

By the same token, the onus is on the innovators to show that the changes they advocate will improve the system – let us not lose perspective and reverse the burden of proof here, where it would be even more difficult to justify.

Expertise and evidence are built in the peer-reviewed literature, not in opinion pieces

I told a good friend last week that I feared that, in the current landscape, people would get the impression that expertise is developed in opinion pieces and editorials (or even tweets and LinkedIn posts). Pretty much anything seems to count as ‘evidence’ these days.

This is one of the most significant shifts in the discipline. Ten years ago, there was an explicit attempt to ground competition policy on the expert consensus and the best available evidence. Policy followed expertise (in other words, expertise determined whether intervention was warranted).

I have the impression that things are changing. We may reach the point where the equation is inversed and expertise follows policy: the desired policy outcome is determined in advance, and the expertise supporting the outcome is developed along the way. Inevitably, intervention would no longer reflect the best available evidence.

Sound competition law and policy is by definition grounded on the expert consensus, not on untested or work-in-progress theories that may turn out to be insufficiently robust. Thanks to the EU courts, EU competition law, as it stands, is firmly based on this premise. Things may change. There is a risk that expertise itself gets footballised (in the same way that the current US administration is trying to fooballise climate science).

The trend towards the footballisation of expertise is not easy to challenge (if only because the community of experts and the community of stakeholders is not the same). As a first step: I hope it becomes clear that an op-ed (let alone a tweet) is not evidence and a report that discusses the literature is, as mentioned above, an invitation to ask hard questions (which is a great starting point, but is far from enough).

PS: By the way, I do like football, but I happen to like basketball even more (just like Alfonso).

Registration for the JECLAP Anniversary Conference event is now open. You can sign up for it here.

Remember that the programme can be found here.

Gianny, myself and the rest of the editors look forward to seeing many of you there! Feel free to drop a line for any question you may have.

AG Bobek’s Opinion in Case C-228/18, Budapest Bank has just come out (see here). It is interesting, first and foremost, because of the clarifications it brings to the notion of restriction of competition by object.

The Opinion will be widely discussed for three reasons.

First, it provides a clear, lucid and comprehensive overview of the existing case law. It discusses every major aspect relating to the notion, and does so in an orderly (and occasionally outright funny) way that is easy to follow. It is a gift for the classroom, as I told a colleague right after reading it. Alfonso and I tried our best in an article that is cited by AG Bobek (see here), but I will from now on choose the Opinion over my own work for my students.

Second, the Opinion provides fundamental clarifications on the practical application of the notion (what needs to be considered in the analysis and what the parties need to show).

Third, the Opinion suggests that the case law will prove resilient. The principles to evaluate the object of agreements have been clear for a long time. This orthodoxy has been questioned in recent years: there are persistent myths about the notion (see here, here and here). So far, however, the Court has not departed from its consistent case law. It is less likely to do so after the Opinion and the structure and lucidity it brings.

The case is yet another one concerning credit cards, and more precisely multilateral exchange fees. The single most interesting aspect of the case is that the banks involved introduced a uniform fee for the two main credit card systems (Visa and MasterCard).

The orthodoxy consolidated

AG Bobek’s Opinion consolidates the case law in the two senses of the verb. Thus, (i) it discusses the disparate aspects of the notion in a single text that brings all the pieces together and, by doing so, (ii) it makes it stronger.

The Opinion addresses, one by one, the main principles:

First, AG Bobek explains that a restriction by object can never be established in the abstract (paras 45-48). This is something that we have regularly emphasised on the blog. Figuring out the object of an agreement is a case-specific inquiry that needs to consider the economic and legal context of which it is a part.

Very sensibly, the Opinion infers a two-step test from the case law (paras 41-43). The first step would be an evaluation of the content and nature of the agreement. The second step focuses on the relevant economic and legal context.

The second step takes account of, and is modulated by, the experience accumulated over the years (which may in turn be informed by economic analysis). A hard-core cartel that reaches an authority via a leniency application does not require the same degree of analysis as other practices.

Second, AG Bobek clarifies a major point: evaluating the economic and legal context of an agreement to establish its object is not the same as analysing its effects (paras 49-51). Identifying the object of an agreement is a different exercise. It is true that the same elements may be relevant at both the object and the effect stages. There is not, however, an overlap between them. The said elements fulfil a different purpose at each stage.

The conclusion that an agreement restricts competition by object follows, always and everywhere, the analysis of the nature and context of the agreement, not the other way around. Object restrictions are not abstract categories (indeed, treating them as categories in the first place is misleading, as I sought to explain here).

The evaluation of the relevant factors in the Opinion is exemplary (see in particular paras 63-73). First, AG Bobek considers the nature and content of the agreements at stake in the case and examines what the experience acquired over the years, and economic analysis, says about them.

Reasonably, AG Bobek comes to the conclusion that there is not enough experience (and, importantly, very little economic analysis) supporting the suggestion that an in-depth evaluation of the economic and legal context is not necessary.

Third, the evaluation of the object of the agreement is about establishing its objective purpose or economic rationale (paras 74-82). There is much confusion about this point, and it is important that AG Bobek clarifies that the question is less esoteric than it may seem: it is all about trying to understand what the agreeement is about (that is, what its economic rationale is).

In addition to providing several case law-based illustrations of this point, the Opinion hints at the crucial aspect of the inquiry: where an agreement is capable of having ambivalent effects on competition (where it is capable of producing positive and negative effects on competition), it is not restrictive by object (to use AG Bobek’s exact expression in para 81: ‘any time an agreement appears to have ambivalent effects on the market, an effects analysis is required’).

If this point is understood, everything else follows (thankfully for the general interest, the argument is presented very clearly in the Opinion; to further clarify the point, AG Bobek includes an intriguing metaphor involving a fish and a lily).

Fourth, and this is a related point, the pro-competitive aspects of an agreement are of course relevant to make sense of the object of an agreement (para 81). The moment the Court concludes in its analysis that an agreement is capable of generating pro-competitive gains (and thus ambivalent effects), it is not restrictive by object.

In that regard, AG Bobek explains that it is incorrect to claim that the pro-competitive aspects of an agreement are only relevant under Article 101(3) TFEU (I explained the issue and discussed the extensive case law at length here).

The orthodoxy clarified

The Opinion is particularly valuable in that it sheds light on the practical operation of the analysis of restrictions under Article 101(1) TFEU.

If one reads the case law (I particularly recommend, Delimitis, Asnef-Equifax and Cartes Bancaires) one realises that the analysis of whether the agreement is capable of generating pro-competitive gains is relatively brief or ‘abstract’ (to use the GC’s expression in MasterCard).

The threshold is low, one of plausibility (para 82). Put differently: once the Court is persuaded that the agreement is at least a plausible source of pro-competitive gains, it concludes that it is not restrictive by object. The pro-competitive gains need to be quantified at a later stage (under Article 101(3) TFEU, once anticompetitive effects are established).

By the same token, it is open to the parties in competition law proceedings to put forward evidence, supported by experience and/or economic analysis, suggesting that there is a plausible pro-competitive rationale for the practice.

This is, indeed, the analysis undertaken by the Court in Cartes Bancaires. You will remember (paras 74-75 of Cartes Bancaires) that the Court concluded that the contentious clauses in that case were a plausible mechanism to address free-riding. Once it reached this conclusion, the finding that the agreement did not have, as its object, the restriction of competition was inevitable.

Other aspects

There are other many interesting aspects about the Opinion. I will just mention a couple of them. The first is straightforward if one pays careful attention to the case law, but I do not believe it had been spelled out so clearly by an Advocate General before.

The need to consider the economic and legal context applies not only to the analysis of restrictions under Article 101 TFEU; it also applies under Article 102 TFEU. The analysis of abusive conduct, in other words, is contextual as well. I made this point at Oxford’s antitrust symposium a couple of years ago (see here).

This conclusion is clear in light of judgments like Michelin I or British Airways. I would say more: it cannot be otherwise. The meaning of ‘competition’ has to be the same under Articles 101 and 102 TFEU. And we know since Societe Technique Miniere that competition means ‘(actual or potential) competition that would have existed in the absence of the practice’.

And, finally, what I see as a minor point: AG Bobek holds, reasonably that a practice can be found to restrict competition both by object or effect. Finding that an agreement has both as its object and effect the restriction of competition is in fact something that the Commission routinely did in the early days of Regulation 17.

Together with Gianni De Stefano, I am one of the proud Joint General Editors of the Journal of European Competition Law & Practice (JECLAP). It may seem like yesterday to some of us, but the journal has been around for 10 years now.

The editorial board decided to mark the occasion with an afternoon event to take place in a month time (4 October) in Brussels (Fondation Universitaire).

The idea is to bring together authors, editors and readers and look back to the past decade in light of some seminal articles. We have put together a great programme, which is awaiting a few final tweaks. You can find it below.

Interested in attending?

The tickets will be released via Eventbrite this Friday (6 September) at 11am Brussels time (10 am London time). Watch this space for the link!

JECLAP Anniversary Conference | 4 October 2019, Fondation Universitaire (Rue Egmont, 11)

13.00 | Registration

13.15-13.45 | A Decade of JECLAP and EU Competition Law, in conversation with the Founding Editors

13.45-15.00 | Cartels: from leniency to ex officio, from compliance to WhatsApp, from liability to economic screening

Chair: Gianni De Stefano (AkzoNobel)

Speakers: Speakers: Eric Barbier de la Serre (Jones Day), Paula Ramada (London Economics) and María Luisa Tierno Centella (European Commission)

15.00-16:15 | Article 102 TFEU and the route towards the effects-based approach

Chair: Moritz Lorenz (Arnecke Sibeth Dabelstein)

Speakers: Pablo Ibáñez Colomo (London School of Economics), Giorgio Monti (Tilburg University) and Ekaterina Rousseva (European Commission)

16.15-16.45 | Coffee and tea break

16.45-18.00 | The interplay between institutions, procedure and substance

Chair: Martin Farley (European Commission)

Speakers: Mark English (Quinn Emanuel), Andriani Kalintiri (City University) and Paul Nihoul (General Court) 

18.00-18.45 | Economist Notes, with Pascale Déchamps (Oxera), Giulio Federico (European Commission) and Lars Wiethaus (CRA)

18.45-20.00 | Drinks

A comment on the suspension of the Bundeskartellamt’s Facebook decision seems like a perfect fit for the start of the new academic year at Chillin’Competition. The Order is truly a must read for anyone interested in competition law, particularly in digital markets. The fact that it’s written in German complicates that a bit. Let’s hope this helps. This post is lengthy, but that’s the price to pay for not reading the full original.  If short on time, go to the highlighted bits.

We already commented on this case at the time it was opened (see here) and decided (see here). Last week the Higher Regional Court of Düsseldorf suspended the decision pending a final decision on the case, expressing “serious doubts” as to its legality and using some pretty strong language. This development seems to have surprised many. Not so much us. If anything, we are pleased that it is very much in line with our understanding of the law, as consistenly expressed in this blog. 

After reading an excellent Twitter summary (here), I couldn’t help spending some of my last hours of holidays reading a pretty good Chrome translation (available here:) of the German original version and writing this post. The quotes used in this post are based on that automated translation (so please check against the original) and on the input of my colleague Konstantin Jörgens. To help find references, my comments also refer to the numbering of paragraphs in the translation (not present in the original). Note also that the Order discusses German law, but that it relies on principles common to EU Law (and makes an ironic(?) reference in passing to “the desired alignment of national competition law with that of the Union” (para. 29)).

The Court suspended the decision arguing that even a summary examination of the factual and legal situation leads to the conclusion that it will be set aside (para.25). Its (annotated) reasoning follows. [In Part II we will build on these elements to discuss why the Order is a perfect illustration of sensible and necessary judicial review, and by no means an obstacle to proper enforcement in digital markets].

Is there an exploitative abuse? Our first comment on this case said that “admittedly, and theoretically, the Bundeskartellamt could build an exploitative case alleging that Facebook sets infra-competitive privacy terms and conditions. However, this does not seem to be the reasoning underlying the investigation. Perhaps this has to do with the difficulties in determining which is the “competitive” level of privacy (…) possibly in the light of these difficulties the authority is prepared to take a shortcut, automatically equating an alleged “violation of data protection provisions” by a dominant company with an abuse of dominance.

The Court shares the same view, and that’s essentially why it suspended the decision. It underlines that an exploitative abuse may take place when a dominant company imposes business conditions that differ from those which would likely result from effective competition. In line with our first post, the Court understands that there is in theory no reason why one could not run an exploitative case in relation to privacy policies. Crucially, however, it rules that “the [Bundeskartelamt] did not carry out sufficient investigations into an “as if competition” and consequently did not provide any meaningful findings on the issue of which conditions of use would have formed in the competition” (para. 27; the Order comes back to the counterfactual also later at para. 47). Facebook did not have to show what the competitive level of privacy would have been; it was for the Bundeskartellamt to look into it, but it didn’t.

Failure to assess the counterfactual, again. As repeatedly held by EU Courts, and as you will have read us write a thousand times, a proper counterfactual analysis is the best sanity check for any given theory of harm. Contortions to avoid the sanity check suggest that the authority itself is aware of the pitfalls of its case. A competition authority may have a margin of appreciation in conducting complex analysis, but for that very same reason it cannot entirely do away with them. This logic, by the way, is very much in line with the tendency we see in EU Courts (see e.g. here). Most of the discussion that follows, regarding causality, is also in essence about the counterfactual. In addition, the Court also faults the Bundeskartellamt’s assumption that users “prefer a fee-based network to a free but ad-supported one” because the authority “made no reliable and meaningful findings” (para. 78).

Assessing the consumer harm: data processing as a voluntary consideration for free and non-indispensable services. The Court observes that the data gathered by Facebook is duplicable and can also be made available to third parties  (para. 31). It also observes that the decision failed to address why “all” of the data collected by Facebook was excessive (para. 32), and that there is “no loss of control” on the part of users because the data processing took place in compliance with Facebook’s terms of use and with users’ consent. According to the Court, the fact that use of the network is conditional on consent to the processing of the data a issue “requires to  balance the benefits of using an ad-supported (and thus free) social network with the consequences of the use of the data” (para. 35 and later also at paras. 71 and 85, and more at length at 76) and users remain free to use or not use free-ad-supported Facebook depending on their values and preferences. The Court repeatedly stresses that in Germany there are more Facebook non-users than users, which shows that non-usage is evidently an option. As we said in our comment on the opening of the case, “Facebook is not an unavoidable trading partner and consumers are not locked in to it; if consumers don’t think it’s worth giving data in exchange for the service, they won’t join. So, again, we agree.

What’s essential to a business model? Our post commenting on the decision underlined that the Bundeskartellant did at least not target the processing of data generated by Facebook’s own website because “[t]his is an essential component of a social network and its data-based business model”. Setting the business model as a red line seemed sensible. But the Court here takes a wider –and arguably even more sensible- view of what is essential to Facebook’s business model (described at the very outset in paras. 8 and 9, as well as later in 35 and 71, as offering free services financed via tailored online advertising in exchange for users agreeing to the terms of service). Later at 93 the Court points to a “lack of reliable explanation on if and to which extent  the use of the added data boosts advertising revenues to finance the social network”.

What matters (in a sanctioning regime) is the company’s behavior, not users’ psychology. The Bundeskartellamt had argued that users do not read terms of service, but the Court dismisses this argument observing  that based on a realistic interpretation , this most probably is due to “indifference or convenience of the Facebook user” and that no one had claimed there was any informational deficit on the part of Facebook (para. 37; at 71 the Court adds that “there is no evidence that Facebook obtains the consent of users through coercion, pressure, exploitation of lack of willpower or otherwise unfair means”). At 84-85 the Court explains that “whether the users act out of indifference or because they do not want to spend the necessary time and effort (…) does not matter” as their decision is ultimately “free, uninfluenced and autonomous”.

Not every legal violation is sufficient to give rise to an abuse. The Court does not agree with the Bundeskartellamt’s interpretation of the German case law. It discusses the Supreme Court’s rulings and explains that only unlawful behavior that has an effect on the protected goods of competition law (freedom of competition and openness of market access) can be equated to anticompetitive conduct. Our first post on the case presented it as part of the tendency “of extending the “special responsibility” of the dominant firm in order to comply with the law, and not just with competition law, with literally any legal provision”. Well, in a quote that deserves a proper translation, it argues that the “special responsibility” only regards competition, and does not extend to legal compliance by way of avoiding any possible violation of the law (paras. 44 and 46).

On Causality. In our comment on the opening of the case we noted that “the Press Release does actually say –or suggest- something which is arguably sensible (albeit contrary to Continental Can and Astra Zeneca) when explaining that it needs to check whether there is “a connection between such an infringement and market dominance”. Well, the Order deals at quite some length with this issue (I spare you the discussions on German case law), noting that a link of causality between dominance and the disapproved behavior (“or at least the anticompetitive effects of its behavior”) is required both under EU and German law (paras. 53-56). The Court observes that the suspected exploitative abuse does not result in a structural weakening of competition (para. 58) and that its effects on consumers are unrelated to dominance (para. 59).

Perfect understanding of “anticompetitive effects”. If you have read Pablo’s posts (e.g. here) or head me speak recently (e.g Lesson 7 here)  you will have heard that one of our recent obsessions has to do with the watering down of the notion of effects. Our contention is that according to the case law mere disparity of treatment is not enough, and that there can only be anticipative effects when rivals’ ability and incentive to compete are hindered. Here, the Court explicitly says precisely that, that“not every economic disadvantage inflicted on another company constitutes a hindrance in the antitrust sense. What is needed is an impairment of the competitive and entrepreneurial options for action and decision-making” (90). Amen.

Barriers and effects need to be convincingly shown, not simply assumed. In our comment on the decision we remarked the simplistic approach of assuming, without the necessary analysis, that “practices are problematic because they enable companies to improve their products and offer ads that are more relevant to users (…).But, unfortunately, there seems to be little appetite to deal with complexity and ambiguity these days, particularly when it comes to certain “online platforms”.

The Court in para. 93 argues that the idea that additional data increases barrier to entry because data is relevant to generate advertising revenue is “incomprehensible” and that this is a question that “requires closer examination and a detailed explanation” /”a review and conclusive presentation by the antitrust authorities. That’s what’s missing” Why? Because, the Court explains, direct network effects mean that the value of the Facebook network increases as the number of users increases and the real barrier to entry lies in rival’s need to offer an equally attractive offer capable of gaining a sufficient number of users. The Court takes the view that the decision has not “substantiated and demonstrated” how the processing of the data at issue could affect market entry. It also observes a “lack of reliable explanation on the extent to which and in what scale the use of the data boosts advertising revenues to finance the social network”. This analysis was “indispensable” because the key to entry does not lie in obtaining the highest possible advertising revenues but a sufficient number of users. At the end of 93 the Court explains what type of analysis was required. The same is true about allegations of leveraging in other (not properly defined) markets, where the decision shows a “serious lack of reasoning” (para. 94) “lacking robust and comprehensible explanations” (para. 95).

A competition law problem? The conclusion to our first post on this case was that “there may be a market failure, but one that has to do with asymmetries of information, not market power. In other words, whether consumers know or not what terms and conditions they are accepting may be a public policy issue, but one that, in my humble view, is not for competition law to address”. The Court appears to share this belief. It explains that only with the help of the causality requirement “it is possible to avoid antitrust enforcement beyond the regulatory purpose of abuse control and to prevent the antitrust authority from prosecuting non-competition related infringements”(…) “unfairly disadvantageous terms (…) can also be based on informational market failure and the resulting systematic asymmetry of information to the detriment of customers) (para.61). The Court understands that “this possible alternative causation link justifies both the unlawfulness of the decision” (because the Bundeskartellamt bore “the burden of determination”/proof) (para. 76) and the legitimacy of consumer protection rules. Like. Earlier on the Court had made a point in this regard that we have also made before: the interests of those affected by the same behavior on the part of non-dominant firms are no less worthy of protection (para. 47), which is another reason not to leave these matters to competition law.

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Stay tuned for Part II, with our comments on the reactions from other commentators and on what this development may/should mean for competition enforcement.