Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

The legal test and the remedy are not two separate steps; they are two sides of the same coin

with 9 comments

Following two of my latest posts – a though experiment on smartphones and cameras, and an update on Slovak Telekom[1]– some of you have contacted me about the central argument I develop in them.

My main point in both is that the remedy is not an afterthought that is irrelevant when establishing an infringement. The remedy – or, more precisely, what a finding of liability would entail – is central to determine whether there is a breach in the first place.

This statement is true as a matter of positive law – Van den Bergh Foods encapsulates the essence of the case law – and is also true from a normative standpoint – as the post on smartphones and cameras sought to explain.

The messages I have received following these posts are certainly sensible. How can the remedy determine the applicable legal test? Is it not getting the case backwards? Should we not establish an infringement first and then figure out the way to remedy it?

These questions, no doubt reasonable, are based on a fundamental assumption, which is that the finding of an infringement and a remedy are two separate steps, independent of one another.

I do not believe this assumption reflects the reality of the interaction between legal tests and remedies. More importantly, I do not believe the Court treats the infringement and the remedy as separate steps. They are rather two sides of the same coin.

The remedy reliably tells us what a case is about, and what the legal test is

A finding of infringement and a remedy are so closely intertwined that the single most reliable way to tell whether there is a competition law breach is to inquire about how to bring the alleged breach to an end.

In other words: to understand what a firm has done (and whether what it has done is prohibited), the best approach is to ask the claimant what the alleged infringer would need to do to comply with the law.

This point can be illustrated by reference to refusal to deal scenarios. These cases are not always easy to spot, and the lines are sometimes blurred between them and other legal categories, including tying and ‘margin squeeze’.

How to tell apart one category from the other? Inquire what the endgame would be. If the endgame is one in which a court or authority mandates (directly or indirectly, implicitly or explicitly) shared access to an input or an infrastructure, then the case raises the issues that are typical of refusal to deal cases. For the same reason, indispensability would be an element of the legal test.

Suppose, conversely, the remedy is a different one. For instance, an obligation on the firm not to require exclusivity from its customers. If so, we would be in Hoffmann-La Roche and Intel territory (where nobody has ever thought of making indispensability an element of the legal test).

These statements are hardly revolutionary. It is, in essence, what the Court held in Van den Bergh Foods and then in TeliaSonera. In Van den Bergh Foods, the firm argued that indispensability was an element of the legal test. Both the General Court and the Court of Justice, in light of the endgame, concluded that the case belonged in the Hoffmann-La Roche/Intel family, and rejected the argument.

The remedy is routinely considered when calibrating the legal test

The history of competition law also teaches us that the remedy (that is, what the case would involve in practice) has been routinely considered when designing the appropriate legal test.

In particular, courts tend to craft strict legal tests where a finding of infringement would demand the administration of a regulatory-like remedy (such as mandating access obligations and setting the terms and conditions under which access is to be granted).

Again, this idea is hardly revolutionary, and is part of our law. Why is indispensability part of the legal test in refusal to deal cases? Magill and Bronner seem to reflect a deep awareness of the implications of a finding of infringement.

Think of Magill. Again, the question is: what is the endgame of ruling that a refusal to license copyright-protected information is abusive? Imposing a duty to license on the right holder. By definition, there is a tension between such an endgame and the logic of intellectual property systems (the very point of which is the right to refuse to license).

It is not a surprise, against this background, that the Court confined to ‘exceptional circumstances’ the instances in which Article 102 TFEU can be relied upon to impose a duty to license (thereby minimising the tension with intellectual property systems).

The uncertainties and complexities of administering a remedy have also been mentioned as factors to consider when crafting a legal test. In his celebrated article on essential facilities, Phillip Areeda – the ultimate centrist in our field – expressed the view that ‘[n]o court should impose a duty to deal that it cannot explain or adequately and reasonably supervise’ and went on to warn against the imposition of regulatory-like obligations.

The EU experience shows that competition authorities do not fare much better than courts when it comes to the administration of these proactive remedies. The failure of the media player remedy in Microsoft I often comes up in these discussions. The principles-based approach to the question in Google Shopping and Android, and the resulting state of limbo (which appears to continue), another one.

Big Tech and legal tests: the question that will not go away

The discussion above gives, hopefully, a sense of what is going on, from a legal standpoint, in relation to Big Tech. Many of these cases demand regulatory-like intervention, and this, more frequently and more intensely than in the past.

It would seem that some competition authorities are more confident than they used to about their ability to redesign products and to tweak business models (other authorities, like the CMA, are more cautious, as the Final Report on digital advertising shows).

This increased confidence tends to trickle down into the interpretation of competition law provisions. The link between the nature of the remedy and the legal test, which acted as a limit on intervention, is now questioned (with the institutional implications that follow, in particular in a decentralised system). Fascinating, and potentially transformative, times.


[1] Speaking of which, AG Saugmandsgaard Øe’s Opinion is out on 9 September.

Written by Pablo Ibanez Colomo

11 August 2020 at 5:33 pm

Posted in Uncategorized

9 Responses

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  1. Out of interest, how would you square this with Courage v Crehan, and/or the Commission’s ‘legitimate interest’ to pronounce upon past infringements?

    Niamh

    11 August 2020 at 9:03 pm

    • Thanks so much, Niamh! I would say that the right to damages comes in addition to, and on top of, the application of Articles 101 and 102 TFEU in full by national courts. The two coexist well.

      On the Commission’s power to adopt decisions re past infringements: I do not see why the legal test would change in such circumstances (which I understand is the implicit point). As I make sense of Van den Bergh Foods, the relevant question is ‘what would the remedy have been?’. After all, one can presume that the ‘legitimate interest’ comes from the desire to set a precedent (as in Motorola).

      Pablo Ibanez Colomo

      13 August 2020 at 12:56 pm

  2. Another convincing reasoning, as always. Just wondering how to frame the efficiencies analysis in the equation. To put it (very) simply, should not the test be :”remedies = restriction – efficiencies” rather than “remedies = restriction”? Or is it legal test = “remedies + efficiencies”.

    Laurence

    17 August 2020 at 2:32 pm

    • Thanks for the great point, Laurence!

      I agree with the underlying idea. It is a very elegant way of putting it. My sense is that, in a way, efficiencies are considered when assessing the nature of the remedy. In this sense, they are implicit in the calculation.

      If the remedy involves breaking up vertically-integrated firms, or redesigning a products, it is reasonable to presume that efficiencies are being sacrificed. For that very reason, one should be cautious before intervening.

      Pablo Ibanez Colomo

      25 August 2020 at 4:04 pm

  3. Thank you for the inspiring piece.
    Indeed, the hypothetical remedy can tell us a lot about the aptness of a legal test in dynamic markets, yet, it may also expose the error in its proper application to the facts.
    You claim that „the mechanical application of traditional tying doctrines, as interpreted by the Commission, inevitably leads to the conclusion that the embedding a camera in a smartphone is abusive.“
    But this appears as a rather semantic argument, divorced from the assessment of the demand side in the real market situation.
    That said, the demand-side assessment is a starting point of the analyses of two product hypothesis in accordance with the settled case law.
    Indeed, the independent demand for the alleged tied product is the sine qua none for tying, but works only if there is a tying product from the demand side perspective.
    Namely, the independent demand for an allegedly tied product as an argument has an auxiliary purpose as long as it can support the argument that alleged “two products are dissociable in economic and commercial terms (Microsoft I, p. 939).
    In most cases it does.
    However, by that the General Court hardly meant anything else than the real consumers’ preferences, not hypothetical ones, establish if the two tech functionalities of the smartphone are dissociable in market terms.
    Indeed, Microsoft lost because it failed to prove that there is only a demand for no other product than the single product integrating its media player in its dominant PC operating system.
    However, try to take “selfie” and communicate it to your friends via social networks without digital camera functionality in your phone, and you will realize that your device is not a smartphone anymore.
    In other words, from the user perspective, the digital camera function is not a supplementary element to the telecom functionality, but it is what constitutes a smartphone as a product.
    Cripple the phone from the digital camera functionality and it will no longer be considered the smartphone.
    Therefore, find me independent demand for a smartphone without a digital camera functionality embedded and you will have a tying case, is what the judge would ask if it interprets the case law correctly.
    On the other hand, even if the two product argument survives, the tied product is a hardware and the tying product is not the Apple’s OS ecosystem, but the phone as hardware, hence the test of dominance in the tying market would be difficult to establish.
    Therefore, it appears to me that it is more plausible that the courts would apply the tying test and conclude that the smartphone is a single product, only with the digital camera embedded, not otherwise, as there is no independent demand for an alleged tying product without the alleged tied digital camera component.
    That said, the potential remedy (supplying a smartphone without a digital camera) will more often reflect back the fallacy in applying the traditional legal test, and not that the legal test itself is not apt to regulate in the digital market context.

    Zoran Sretic

    24 August 2020 at 12:53 pm

    • Thanks, Zoran! This is something we discussed with other readers.

      My view: if your interpretation of the case law were correct, there would have been no Internet Explorer case. You seem to suggest that the Commission’s preliminary interpretation of the two product test in Internet Explorer is at odds with the case law. At the time of the decision, there was certainly no demand for operating systems without web browsers. The latter were integral in Internet-centred environments.

      Agree or disagree with the case law, I do not believe the Commission’s analysis in Internet Explorer is at odds with the way the EU courts have gone about the two product condition over the years.

      Pablo Ibanez Colomo

      25 August 2020 at 4:11 pm

  4. Pablo – how would you apply the idea in this post to the t the Commission’s approach to remedies in Google Shopping, which could be summarised roughly (by an in-house relative amateur workign from memory such as me) as “We don’t know – you broke the law, you have to find a way to not break the law.”

    I sense that the unwillingness to specify the remedy in detail could be tied with a view that the Commission’s undelying infringement decision was insufficiently justified.

    T-Bo

    28 August 2020 at 1:25 pm

    • Great point, T-Bo, at more than one level!

      In Google Shopping, the remedy was essentially ‘outsourced’ to the firm. What explains this relatively unusual choice? The complexity of the remedy itself. ‘Equal treatment’ in the case required re-designing the search engine, which is complex, prone to errors and leaves the firm in a better position than the authority.

      So in a way, the very fact that the remedy was ‘outsourced’ gives it away. It strongly suggests that the case had more to do with Bronner than with tying cases (but not necessarily, and here we may disagree, that the decision was insufficiently justified).

      Interestingly (and this is the second level), the Commission argued that, since it did not formally impose proactive obligations a la Bronner/Van den Bergh Foods, indispensability was not an element of the legal test.

      I have explained elsewhere why there are reasons to believe this formalistic understanding of Bronner/Van den Bergh Foods is perhaps not the right one. It would give the Commission discretion to decide when indispensability is an element of the legal test. What matters, in my view, is not what the Commission formally requires but what the decision requires in substance.

      Pablo Ibanez Colomo

      28 August 2020 at 6:11 pm

  5. […] experiment on smartphones and cameras, and an update on Slovak Telekom[1]– some of you have contacted me about the central argument I develop in […]


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