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Archive for June 11th, 2020

Can This Be the New Normal? 10 Questions on the Proposed New Competition Tool

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Last week the European Commission launched a public consultation in relation to a proposed “new competition tool”. The impact of this “tool” on competition law and policy would be impossible to overstate. It would be likely to change competition law as we know it, and as developed over decades of thinking, debate, precedent and experience.

The goal of the tool is to identify “structural risks” that cannot be addressed under Articles 101 and 102, and under the merger rules. These include markets that risk tipping, unilateral practices by non-dominant firms or oligopolistic market structures. In the face of those risks, and even absent any infringement, the Commission could then impose behavioural or structural remedies (e.g. divestments, break-ups and other line of business restrictions). The Commission explains that the scope of this tool would not necessarily be limited to digital markets. 

This new initiative would have been unthinkable only a few months ago. But then again, we live in a strange new world. Let me give you just one additional example: in a report also published last week, the Austrian competition authority proposed to “reverse the burden of proof” in cases where “official investigations rapidly come up against natural or technical limits” (!).  As explained here, and by more authoritative people than myself, this was, and should still be, something “hard to conceive, at least in free democratic societies”. I have trouble accepting that these ideas might be the new normal.

The proposal of a new competition tool also raises too many important questions; here are just a few as an appetizer. We will have time for more in the future. [Disclosure: Just like virtually every competition lawyer/economist, I have a large number of clients that would be potentially affected by this proposal, and they might have different views about it; these are just my own].  Please feel free to engage with these questions, particularly if you have different views.

  1. Would there be an overlap between the new tool and Articles 101 and 102? The justification for the tool is that there may be concerns that “the EU competition rules cannot tackle or cannot address in the most effective manner”. Is the idea to cover alleged “gap” cases only, or also concerns that could be addressed under competition law but that it would be harder to prove under an infringement procedure (e.g. because there are clear evidentiary standards)? Overlaps could be problematic (see the next question below). And if the Commission wants to avoid potential overlap, then it should make clear the type of “concerns” that fall outside the scope of the competition rules (e.g. self-preferencing absent indispensability?) I doubt one may want to do that.
  2. The key question, and the limitations of the legal basis: Would the tool have the object or the effect of bypassing the intervention standards set by the EU Courts in relation to Articles 101 and 102? This is, in my mind, the real question. To the extent that there may be a material overlap, this would become inevitable. As explained here and here, I think it would be unwise to ignore the lessons learnt over the years (I don’t buy, and will actively combat, the new argument that “judges don’t get it”). But my point today is a different one: there is no legal basis for the Commission to bypass the content of Articles 101 and 102 as interpreted by the EU Courts. The Commission has explained that the competition legal basis for the proposal would be Article 103 TFEU. This provision only enables the adoption of legislation to “give effect to the principles set out in Articles 101 and 102”, “ensure compliance with the prohibitions” or “define the scope of the provisions”.  Any new tool based on Art. 103 TFEU would need to be consistent with the provisions of the Treaty as interpreted by the Courts (regarding, for example, the burden of proof, the notions of restriction of competition, dominance, anticompetitive effects…). The Treaty provisions deal with restrictions of competition, but can arguably not be the legal basis for measures that seek to create new competition. 
  3. Do we want to bring the definition of the substantive scope of the competition rules to the realm of politics? Competition law has historically been judge-made law, in the belief that this would ensure its flexibility, adaptability, and its isolation from small politics. Until now, only the Commission and the Courts have played a role in defining the material scope of the competition rules. Legislative initiatives under Art. 103 TFEU were limited to merger rules and procedural matters. Again, the times they are-a changin’. This may (for better or for worse) cross what until now was a red line, potentially changing the discipline. It may seem the Commission is obtaining new powers, but it may be at the risk of losing its preeminent role in defining the rules.
  4. Is there really a blind spot in competition law? We dealt with that in a recent post. There are few, if any, areas of the law as flexible and malleable as competition law. Are there really gaps? I, for one, trust in the ability of the Commission to bring, and win, cases where a real problem exists. Have DG Comp’s existing sectoral powers let us down? Remarkably, not so long ago the sentiment was that competition law was unduly harsh to dominant firms (I didn’t buy that then, and I don’t buy the opposite now). That competition law may not reach where some people would like it to doesn’t mean there is a gap. Having to analyze practices on a case by case basis is not a flaw, but the only way to get it right.
  5. Can the pace of competition enforcement give rise to irreversible consequences? Two questions here: is there any case where we know that earlier intervention would have made a change? If you think about it, even the tech cases that have taken a number of years (e.g. Google Shopping) were ultimately precautionary in nature (i.e. concerned about likely potential effects). If the decision had really come too late, it should have been easy to make a case about actual effects. Also, can we all agree that  competition authorities need more resources and that this would also help speeding up cases? 
  6. Are remedies the problem? You may have lately heard on the conference circuit that cases are good but remedies are horrible. It’s clear why one would say that, but it can be a legitimate view. The way we see it, though, remedies, and their outcome, often tell you a lot about how solid a case really is. Imagine a fictional case where there would be no causality between the conduct found as abusive and its alleged effects (for example, because the domco’s market share was due to superior quality). If you impose a remedy targeting that conduct, the remedy will of course not have any impact. Arguably, the remedy’s failure would simply expose that the conduct wasn’t a problem  in the first place. If one believes that the theories of harm underlying  a decision are sound, and we believe that a compliant remedy is insufficient, why don’t we simply draft decisions differently? 
  7. How to ensure the proportionality of intervention? Under current EU competition law (and except in Art. 9 commitment scenarios) remedies need to be proportionate to undoing the consequences of an alleged infringement. Some people believe that the advantage of the new tool is that it would enable the Commission to impose more far-reaching remedies because, as there would be no infringement, there would be no need to ensure proportionality to it. This is a curious logic: since a company did nothing wrong, it can be treated worse. Where would then lie the proportionality limits? The Inception Impact Assessment explains that “these remedies would increase costs for the companies concerned. The proportionality of the costs incurred would be ensured by the fact that such remedies have to be limited to ensuring the proper functioning of the market under scrutiny”. You can judge for yourselves whether that dispels concerns.
  8. What impact on international convergence? The EU competition law system of objective, expert-based and fair enforcement has been a model to other jurisdictions and has inspired many important legislative initiatives around the world. The creation of new standards, the imposition of remedies absent an infringement and the wide margin to identify the situations in need of intervention could also be replicated in other jurisdictions with arguably less guarantess. Be careful what you wish for. The CMA experience is cited as the basis for this new tool, but not all jurisdictions have the UK’s checks and balances. There are in any case lessons from the experience there. The UK has chosen not to use that tool for tech issues when it could have, believing that other tools would be preferable. Why? Where has the CMA done a better job in a market than DG Comp? Was it because the CMA could act faster or because of something else?
  9. Would the new tool be of a “non punitive” nature? The Inception Impact Assessment insists that the options considered would entail no finding of infringement, no fines, no damages claims. Why that emphasis? There may be an assumption that a new regulatory tool would be able to do away with some burdens, including the burden of proof. The “advantage” of the new tool is that one could impose even stricter remedies, without having to establish any wrongdoing. That seems like a win-win for some. But think about it again: companies may face stricter remedies than under quasi criminal competition law, with less procedural rights, and even if they haven’t done anything wrong. This doesn’t mean there is no punishment; it means there would be punishment without the crime and without limiting principles. Would a new tool compliant with the standards that the ECHR sets for liberal democracies? How would we be able to challenge other countries if they start adopting adopting harsh remedies (against companies or individuals) absent wrongdoing but in response to perceived threats?
  10. Do we really want this to be the new normal? The “new tool” would not be a mere technical refirenement; it goes much beyond that. We can no doubt make improvements, but we should be extremely careful not to cross red lines. In competition law (and perhaps even more in competition economics) we have become accustomed to the absence of bright lines and we dislike restrictions, but the law does by nature set some limits to what we all can do (and this goes both for companies and public authorities). Legal rules are but the wise restraints that make us free. It may be frustrating, but we know from experience that it is much better than discretion. This doesn’t mean we should necessarily be satisfied with the “status quo” (without some friction there may not be progress), but we shouldn’t compromise basic principles in the search for solutions. The European Union leads with values, and the balance of justice that makes us proud depends on our taking an evidence led approach to competition law subject to clear standards and thorough judicial review.

Written by Alfonso Lamadrid

11 June 2020 at 11:34 am

Posted in Uncategorized