Chillin'Competition

I was privileged to speak, yesterday, at the conference jointly organised by UCL and White & Case, which was devoted to the Moving Boundaries of Competition Law. With James Killick as chair, I discussed the institutional aspects of the Draft Digital Markets Act alongside Cristina Caffarra, Cani Fernández, Peter Freeman, Georgios Gryllos and Andriani Kalintiri. I learnt a great deal about procedure and the potential challenges that may result from the adoption of the new regime.

It was not the first time I benefitted from Cani Fernández‘s unique insights as President of an authority that deals with both competition law and sector-specific regulation (on top of a lifetime as a leading practitioner). She kindly accepted our invitation to write an editorial for JECLAP on the relationship between the Draft DMA and Articles 101 and 102 TFEU. The editorial is now available as an advanced piece, and free of charge, here.

As you see, Cani considers the potential impact of a new instrument that would overlap with existing provisions, and pleads in favour of the adoption of coordination mechanisms to ensure not only that Articles 101 and 102 TFEU continue to play a role in digital markets, but also to avoid discrepancies and preserve legal certainty. Enjoy!

As mentioned last time, LSE Law is organising a Short Course on State Aid and Subsidies Regulation in July 2021. This course is part of the activities organised around the Jean Monnet Chair in Competition and Regulation.

More information about the short course can be found here. Do not hesitate to contact my colleague Amanda Tinnams at A.Tinnams@lse.ac.uk for registration and fees (or for any other queries).

This area is undergoing substantial change: EU State aid law keeps growing in complexity and the EU-UK Trade and Cooperation Agreement provides the basis for the development of a subsidies regime in the UK.

The idea behind the course is to get you up to speed in the field. It is intended for (i) practising lawyers that are or may be exposed to State aid law and/or subsidies regulation but have not studied the subject in any formal or in-depth way; (ii) in-house lawyers who would benefit from a greater understanding of the risks involved in the award of subsidies and similar measures; and (iii) professionals and students with an interest in developing an expertise in the field.

The course will be run online (via Zoom) over four Fridays in July (2nd, 9th, 16th and 23rd) To maximise interaction, the short course will be capped at 25 participants.

The meetings will run from 2pm-6pm (London time) and will cover both the EU State aid law system and the subsidies provisions enshrined in the EU-UK Trade and Cooperation Agreement (including on enforcement) and will be structured as follows:

• Day 1 (2nd July): Scope of provisions on subsidies and State aid.
• Day 2 (9th July): Advantage and selectivity/specificity.
• Day 3 (16th July): Special focus on tax measures (tax rulings, digital taxes and beyond).
• Day 4: (23rd July ): Procedure and enforcement.

A certificate will be available on completion, along with CPD points for practitioners. Once again, it would be wonderful to get to meet some of you for the occasion!

On 15 April 2021, AG Pitruzzella issued his much awaited Opinion in Sumal (not available in English at the time of writing, see here for the text in various language versions), which concerns the question of whether damages may be sought from affiliates of the entities identified in a previous public enforcement decision.

Sumal is one of the four preliminary references submitted by Spanish commercial courts in the context of the flurry of claims following the Trucks decision of the European Commission, together with case C-30/20 Volvo seeking clarification on territorial jurisdiction and Article 7(2) of Regulation (EU) No 1215/2012,  case 267/20 Volvo and DAF Trucks on the retroactivity of the Directive 104/2014 and the recently submitted case 163/21, PACCAR, on rules of evidence. These claims have been followed by multiple authors in Spain, notably Fernando Díez, Francisco Marcos and Juan Ignacio Ruiz Peris and raise many issues of interest in the field of private enforcement.

The interest on these matters of course goes beyond this country. Back to affiliate liability, as reported by Caroline Caufmann, a Dutch court has enforced a decision against an affiliate. In Germany, Christian Kersting has discussed in D’Kart a decision pointing at that direction from the Dortmund Landsgericht. I refer the curious reader to my article published earlier this year by the Journal of Competition Law & Practice (draft available on SSRN).

This post provides a brief introduction to the Opinion. The comments follow the document’s structure.

Procedure (paras 4-10). The initial paragraphs of the Opinion recall the context of the preliminary reference and the main procedural steps at the Court, which will hear the case in Grand Chamber, the observations formulated by two Member States (Italy and Spain) and the decision not to hold an oral hearing, replaced by written submissions on specific questions placed by the Court. (para 10).

Admissibility (paras 11-18). AG Pitruzzella opines that the admissibility objections raised by the defendant in the original case, Mercedes Benz Trucks España, S.L.(MBTE) should be dismissed, save in respect of the fourth question, for lack of sufficient information. That question (‘If the answers to the earlier questions support the extension of subsidiaries’ liability to cover acts of the parent company, would a provision of national law such as Article 71(2) of the Ley de Defensa de la Competencia (Law on the Protection of Competition), which provides only for liability incurred by the subsidiary to be extended to the parent company, and then only where the parent company exercises control over the subsidiary, be compatible with that Community doctrine?’) may arguably be responded anyway through the general principles on primacy and direct applicability of EU law.

General observations (paras 19-22). The Opinion proposes to address the three questions jointly and then summarises the main arguments of the parties. The interesting bit there is in paragraph 21, where AG Pitruzzella notes that the initial position of the Commission in the case was contrary to affiliate liability, a position that evolved in the last written statements, where the Commission would have conceded that the subsidiary could be made liable (i) if there is a ‘link’ between its conduct and an essential element of the infringement or (ii) if a direct claim against the parent company was impossible or excessively difficult. This second element is not discussed further in the Opinion.

The notion of undertaking (paras 23-31). This section recalls the case-law on the doctrine of ‘economic unit’ under EU competition law, starting with ICI (case 48/69, EU:C:1972:70) and stressing its functional nature. This part hovers around the idea that an ‘economic unity’ or undertaking is based on organisational, economic and legal links defined by control. A good summary, but nothing revolutionary.

The foundations of upward liability (paras 32-47). This part looks at the parental liability doctrine. This might surprise, given that this is clearly not an issue in Sumal; it could be said it would be the exact opposite. The intention is clearly to discuss ‘downward’ liability by contrast to the established notion of ‘upward’ or parental liability.

At the outset, the Opinion notes that parental liability as found in case-law might be understood to be based on two constructions (para 33). One would be that parent companies are liable because of their capacity to determine the conduct of an affiliate. Another is based on the idea that all legal entities form an economic unit.  AG Pitruzzella notes that the answer to the questions formulated in this case may determine the answer to be given, and resolutely opts for the second alternative (para 36), finding support in the recent jurisprudence of the Court which has stressed that the principle of personality applies to the undertaking, not to each legal entity (para 46). This section ends with candid comments on the evolution that is perceived in various fields of law towards some form of ‘enterprise liability’ or similar tools based on the true economic nature of groups of companies (para 47).

Economic unit and ‘descending’ liability (48-53). The discursive section on upward liability contrasts with the brief comments on the downward dimension. That is understandable, since the latter is built on the prior section. However, two elements in this part of the Opinion deserve a mention.

One is the four-step intellectual process proposed to impute a legal entity in both upward or downward situations, aimed at presenting them as identical (paras 48-52). It ultimately defends that the identification of the legal entity is just a last step in the logic process of attribution.

The other is the reliance on the General Court decision in Biogaran (case T-677/14, ECLI:EU:T:2018:910), for want of a better (ie, from the CJ) precedent. That case had been mentioned by the referring court and is helpful in defending the liability of subsidiaries with unproven knowledge of the infringement. At the same time, however, is a remarkably weak foundation for a principle with the importance of the one at stake here.

In the end, and this should be stressed, the discussion does not address ‘why downward liability exists in law’ but rather ‘whether there are logical reasons to discard it’ (para 52). By so doing, Sumal evades addressing the question as an obligation based on EU law, but as a tool that EU law would tolerate in certain conditions. It is difficult to overestimate the importance of that approach for the solution proposed to this case.

The conditions for declaring joint liability of the affiliate (paras 54-59). This is arguably the most interesting part of the Opinion. In it, AG Pitruzzella notes that, in ‘upward’ (parental) liability scenarios, the fact that the parent company determines the conduct of the affiliate suffices to impute the conduct to the former; however, in ‘downward’ liability cases, the mere existence of control would not suffice, it being necessary that the activity carried out by said legal entity is necessary for the implementation of the conduct. That would be the case where the affiliate is involved in the specific economic activity under consideration, for example, by selling the goods object of the cartel (para 57). In this respect, the Opinion relies on several UK cases starting with Provimi (fn 70) and ENI (case T‑39/07, EU:T:2011:356). As mentioned above, this link had been required in the written submissions filed by the Commission.

When explaining this logic, the Opinion argues that a subsidiary carrying activities in other areas would fall outside the functional notion of undertaking for these purposes. The consequences of this logic are difficult to anticipate and will require further reflection.

Extension of these principles to private enforcement (60-69). Paragraphs 60 ff of the Opinion move away from logic of public enforcement and build on Skanska (case C-724/17, ECLI:EU:C:2019:204). AG Pitruzzella recalls that the determination of the liable entity is directly governed by EU law and notably that it may not have a different meaning in public and private enforcement, linking the discussion in the prior sections to the case, and concluding that downward liability is as acceptable in private as it is in public enforcement.

The reliance on Skanska is understood; it is however noted that, unlike Sumal, that case was based on the principle of effectiveness, displacing national rules when it would stand in the way of EU law. In contrast, as above noted, the Opinion discusses if EU law would permit, not require, such ‘inverse’ claims. In other words – the Opinion does not advocate that EU law would impose downward liability, treating an eventual failure to do so as a breach of EU principles (as in Skanska), but proposes confirming that EU law would not impede such attribution of liability within certain conditions. Consequently, the procedural obstacles faced by claimants are acknowledged (para 68), but in no way considered a barrier that would stand in the way of the rights granted by EU law and that national courts should disarm.

While this logic is understandable, it leaves unanswered the question of what principle of law, either EU or national, would require affiliates to be held liable for these damages, despite offering a construction that would ultimately impose legal obligations on legal entities. That, of course, is just one out of many questions that arises from this case and will require further reflection.

Binding nature of the determination in the public enforcement decision (70-76). The last section of the Opinion discusses whether the determination of the legal entity made in the public enforcement decision would bind the referring court. If so, national courts would, out of respect to the decision of the Commission under Art 16 of Regulation 1/2003, be prevented from imposing liability in a follow-on case on entities other than those specifically identified in it.

This is a tricky issue on which there is limited authority. In Martinair (case T-67/11, ECLI:EU:T:2015:984, 37) the GC declared noted that the identification of an entity in the public enforcement decision would bind national courts. AG Pitruzzella does not mention that case and moves swiftly to proclaim that the national judge can determine a different legal entity, provided that that entity meets the above criteria of participation in the infringement (para 74). At this point, the Opinion quotes the Commission as having accepted this logic in its written submissions, creating the impression that these statements may have played a role.

Conclusion The Opinion concludes that, in a claim for damages as that before the national court (ie, a follow-on claim), a legal entity may be held liable despite the fact that only its parent company has been sanctioned by the Commission provided that the economic, organisational and legal links at the time of the infringement have been established, and that the conduct of the controlled entity has contributed in a substantial manner to the illicit behaviour and to the effects of said infringement.

The matter is now laid before the Grand Chamber of the Court of Justice. An eventual acceptance to the proposals formulated by AG Pitruzzella would facilitate private enforcement claims. Some additional clarity on the requirements that affiliates must meet to be liable in these situations will be needed over time. The potential weakening of the binding nature of the identification of the liable entity seems a price the Commission is happy to pay. However, questions shall be raised on the legal basis for this solution. Time, and indeed the Court, will tell.

Women AT recently announced a cross-disciplinary, cross-organisation and cross-border Mentoring Programme for women competition professionals spanning geographies from the North, Central & South Americas, to Europe, to South Africa.

This is a great opportunity for women professionals, which we are most happy to support.

If you or your female colleagues might be interested, please apply and/or encourage them to apply by 23 April.

Apply now

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.

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.

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 the 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 as 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.