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Archive for April 2021

Why The Proposed DMA Might be Illegal Under Article 114 TFEU, And How To Fix It

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At the end of 2020 I wrote a post here titled “The Key to Understand the Digital Markets Act: It’s the Legal Basis“, noting how, in my view, this is the single most important legal and political issue when it comes to the design and adoption of the Digital Markets Act.

That post already sketched my thinking, but given the interest and importance of the subject, and the remarkable absence of a public discussion about it, I have now fleshed out those ideas in a paper co-written with my colleague Nieves Bayón.

The paper is available here:

Here is a summary of its content and main findings:

The Commission’s DMA Proposal seeks to create a new regulatory instrument including new ex ante rules applicable to “gatekeepers” and a new set of far-reaching powers. Like any EU legislative initiative, the DMA must be grounded on a legal basis provided for in the EU Treaties. The choice of the legal basis determines both the relevant legislative procedure and the scope for EU action. Recourse to an inappropriate legal basis has in the past led to the annulment of various pieces of EU legislation.

The current DMA Proposal is based on Article 114 TFEU. This legal basis empowers the EU legislature to adopt measures that are designed to approximate national rules and to prevent regulatory fragmentation in the internal market, provided that these measures are proportionate to the objectives pursued. 

An analysis of the DMA Proposal in light of the relevant EU case law suggests that the current text could be incompatible with primary EU Law.

First, the DMA Proposal does not appear to be designed to prevent regulatory fragmentation. On the contrary, the current text of the Proposal, and in particular Articles 1(5) and 1(6), would enable Member States to enact and maintain in force national rules overlapping with, or going beyond, EU rules. Some Member States have in fact invoked the DMA as a reason to adopt parallel “supplementary” national rules. Absent a real harmonization effect, the DMA Proposal could result in increased regulatory fragmentation, and even give rise to ne bis in idem concerns. The EU Courts have made clear, in this regard, that Article 114 TFEU is not a valid legal basis for measures which do not approximate or harmonize national rules because they aim at introducing new legal instruments and/or leave unchanged the different national laws in existence.

Perhaps the best illustration that the DMA Proposal falls short of its declared objective of preventing regulatory fragmentation is the fact that none of the existing or likely sources of regulatory fragmentation identified in the Commission’s Impact Assessment to justify the adoption of the DMA would actually be affected by the DMA. The recent reform to the German Competition Act exemplifies how Member States could adopt new obligations simply by defining a scope of application that is not limited to “gatekeepers” as defined in the DMA and/or by presenting those obligations as an extension of their national competition rules. 

Second, the definition of the DMA’s scope in Article 3 and some of the obligations and prohibitions listed in Articles 5 and 6 would appear to risk breaching the principle of proportionality, and impinge on the fundamental rights of the companies subject to its obligations. To ensure the proportionality of the DMA’s scope of application and content, the EU legislature would be required to set adequate limits on the Commission’s discretion, and verify that, in the light of the available evidence, the limitations on gatekeepers’ freedom to conduct their business and right to property do not go beyond what is necessary to ensure the proper functioning of the internal market.

For these reasons, the paper submits that the DMA Proposal would require important adaptations in order to validly rely on Article 114 TFEU and avoid the unanimity requirement applicable under Article 352 TFEU.

We identify 10 constructive solutions that could enable the EU legislature to achieve its goals while complying with the substantive requirements flowing from Article 114 TFEU and other general principles of EU law.

Absent these changes, the DMA would, in our view, be vulnerable to an eventual legal challenge before the EU Courts.

Written by Alfonso Lamadrid

12 April 2021 at 6:56 pm

Posted in Uncategorized

Rubén Perea Award: 1st Special Issue published in JECLAP

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We are delighted to announce that the Special Issue devoted to the Inaugural Rubén Perea Award is now available on JECLAP’s website.

The issue opens with Rubén’s LLM dissertation and with a lovely editorial (freely available), Competition Law and Friendship, where Lena Hornkohl and David Pérez de Lamo pay tribute to Rubén and introduce the first of (we expect and hope) many editions of the award.

The compilation of articles is the result of the hard work of the jury (namely Alfonso, Lena and David together with Damien Gerard, Michele Piergiovanni, and Gianni De Stefano).  

The articles included in the Special Issue are the following:

The ECN+ Directive and the Next Steps for Independence in Competition Law Enforcement, by Rubén Perea Molleda

Abuse of Dominance in Digital Markets: Can Amazon’s Collection and Use of Third-Party Sellers’ Data Constitute an Abuse of a Dominant Position Under the Legal Standards Developed by the European Courts for Article 102 TFEU?, by Vladya M K Reverdin (Winner of the Inaugural Award).

The Selective Advantage Criterion in Tax Rulings: The Path Towards a More Coherent and Thorough Analysis of Selectivity, by Nieves Bayón Fernández

When Does Algorithmic Pricing Result In an Intra-Platform Anticompetitive Agreement or Concerted Practice? The Case of Uber In the Framework of EU Competition Law, by Hubert Bekisz

At the Mercy of the Gatekeeper: The Theory and Practice of Undertakings’ Fundamental Rights in the EU Cartel Settlement Procedure, by Ştefan Ciubotaru

Which Sustainability Agreements Are Not Caught by Article 101 (1) TFEU?, by David Wouters

We will provide via the blog the details on how to take part in the Second Edition of the Award. Do not hesitate to come back to us for any questions about it.

Needless to say, we very much welcome, in the meantime, your contributions to JECLAP. More information for prospective authors can be found here.

Written by Pablo Ibanez Colomo

8 April 2021 at 1:08 pm

Posted in Uncategorized

Indispensability in Google Shopping: what the Court did, and did not, address in Slovak Telekom

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Google Announces Free Google Shopping Listings | Onefeed

Slovak Telekom was eagerly awaited, to a significant extent, because of its impact on Google Shopping, currently pending before the General Court. The question of whether the legality of the behaviour in the latter should be assessed in light of the Bronner conditions is arguably the most important aspect of the case.

Last month’s judgment provides some valuable clarifications concerning the conditions under which the Bronner conditions apply. A careful and dispassionate assessement of Slovak Telekom reveals, however, that some issues remain open.

It does not seem possible to claim, categorically, that the judgment unequivocally supports one conclusion or the other. Depending on how some open questions are interpreted, both outcomes (i.e. that indispensability is required and that it is not) seem in principle defensible.

What the Court held in Slovak Telekom

Dominant firms are in principle able to engage in self-preferencing: In paras 45-46, the Court holds that, at least in principle, there is nothing inherently abusive in the fact for a dominant firm to develop an infrastructure for its own needs. In particular, it is not unlawful for a dominant firm to favour itself by refusing to conclude an agreement with a rival.

The indispensability and elimination of all competition conditions are required where intervention would force a firm to conclude a contract: In line with the relevant case law since Commercial Solvents (see here) the Court confirms that Bronner conditions are relevant where intervention would require a firm to conclude a contract (paras 46-47). The applicability of the indispensability and elimination of all competition conditions depends, in other words, on the nature of the remedy required to bring the infringement to an end. If intervention demands a duty to deal with third parties with which the dominant firm had chosen not to deal, the lawfulness of the behaviour would be assessed in light of Bronner.

Freedom of contract and long-term incentives to invest and innovate explain the ruling: The Court is explicit about the reasons why the Bronner conditions are sometimes required. Forcing a firm to conclude a contract interferes with firms’ freedom of contract and their right to property, and should therefore be confined to exceptional circumstances.

Open questions in Google Shopping

Is it for an authority to decide when the Bronner conditions are applicable?

Interestingly, the Google Shopping decision shared the point of principle summarised above: the Bronner conditions are applicable where intervention would require a firm to ‘transfer an asset or enter into agreements with persons with whom it has not chosen to contract‘ (para 651 of the decision, which refers to Van den Bergh Foods).

More controversially, the Commission argued that the above question hinges on what the decision formally requires. The first open question is therefore whether this is an appropriate interpretation of Van den Bergh Foods and Slovak Telekom.

I have explained elsewhere why the Commission’s interpretation of the case law is not wholly uncontroversial. If it were followed, it would give a competition authority the discretion to decide when the Bronner conditions are applicable and when they are not. Insofar as it turns an issue of law into one of discretion, it does not find easy accommodation in the EU legal order.

Similarly, if one were to follow the Commission’s approach, a competition authority would be able to circumvent the Bronner conditions simply by avoiding the specification of the remedy.

As I have already argued, a more satisfactory understanding of Van den Bergh Foods and Slovak Telekom is to focus on what a decision requires in effect (as opposed to what it formally demands). This interpretation would be consistent with the role of the Court of Justice in the EU legal order and would place substance above form (a key leitmotif of EU competition law since its inception).

Do organic search results count as ‘access’ within the meaning of Slovak Telekom?

There is an important, and potentially decisive, difference between Google Shopping and Slovak Telekom. The technology behind Google’s search engine does not require the firm to deal with rivals. Accordingly, the display of Google’s generic search results involves strictly unilateral conduct (the underlying technology is explained, by the way, in paras 15-17 of the Commission decision).

In this sense, Google Shopping is different from the practices at stake in Slovak Telekom. In the latter, the provision of services by downstream rivals necessitated an access agreement between new entrants and the incumbent. In Google Shopping, on the other hand, the concerns related to the fact that comparison shopping sites only aspired to feature as ‘generic search results’ (para 344 of the decision).

Against this background, the question is whether featuring in Google’s generic search results counts as ‘access’ within the meaning of Slovak Telekom. In one sense, one could argue (as I presume the Commission and the complainants will) that it does. There are, on the other hand, reasons to take the opposite view, and claim that ‘access’ within the meaning of Slovak Telekom presupposes an agreement between the dominant firm and its rivals. These reasons are sufficiently compelling to make the issue interesting from a legal standpoint.

As explained by the Court in para 51 of Slovak Telekom, the question is whether intervention would interfere with the firm’s freedom of contract. Action under Article 102 TFEU would not interfere with such freedom where there is an ongoing contractual relationship with third parties (whether this is the result of voluntary dealing or of a regulatory obligation).

No such ongoing contractual relationship would exist, on the other hand, where the dominant firm unilaterally operates a service such a search engine. In fact, only following intervention by the Commission in Google Shopping did the firm conclude an agreement with third parties. Which takes me to the last open question.

What about remedies that are effective alternatives to a duty to conclude an agreement?

In Google Shopping, the Commission did not specify a remedy. One may thus be tempted to argue that, even though intervention led to Google concluding agreements with third parties and granting them access to a feature it had reserved for its own use, such an outcome was not mandated by the decision. According to this view, Bronner would not be relevant. Shared access to a feature was the choice of the firm, not a requirement.

One may reach a different conclusion, however, if one considers that there is a gap in the case law, which Google Shopping exposed. Cases like Bronner and Slovak Telekom focused on one possible way in which refusal to deal cases can be remedied: by requiring the firm to provide access.

However, such cases can be remedied in two other ways, which are equally effective. First, by mandating the structural separation of the two activities (separating, for instance, the infrastructure and the services running on the infrastructure). Second, by asking the dominant firm to close a division (for instance, by no longer providing the services and merely operating the infrastructure).

Since all three remedies (mandating access, structural separation, closing down of a division) are functionally equivalent, and since they all intrude with firms’ freedom of contract and their right to property, I struggle to think of a reason why they should be treated differently from a legal standpoint.

In the same vein, one could define the scope of Bronner as follows: the indispensability and elimination of all competition conditions are part of the legal test where intervention would amount, in effect, to any of the three remedies above. Whether the remedies are spelled out in the decision would be immaterial. The relevant question would be whether bringing the infringement to an end would require, in effect, either a duty to conclude an agreement, the structural separation of two adjacent activities or the closing down of one of the activities.

I very much look forward to your thoughts on how best to make sense of Slovak Telekom, in particular if you see things differently. As you know, I have nothing to disclose.

Written by Pablo Ibanez Colomo

2 April 2021 at 6:06 pm

Posted in Uncategorized