Chillin'Competition

Not so long ago it seemed like we had arrived to the end of history in competition law. The level of substantive convergence at the international level was remarkable and unique by reference to most other areas of the law. The level of substantive convergence within the EU (and the EEA more generally) was even more impressive. All national competition authorities and judges understood and respected the European Commission’s role as primus inter pares, the Commission exercised this role flexibly but responsibly, and politicians had not yet shown an interest in transforming the discipline.

But things have changed, and EU competition law enforcement is now facing a fragmentation threat. This post seeks to (A) demonstrate the existence of this threat; (B) identify the reasons why the existing safeguards may not be working; and (C) throw out there a proposal intended to spur some debate

A) Is there a risk of fragmentation of EU competition law?

Let me give you some very recent examples (for full disclosure: I have worked on some of them so I tend to view them critically, but I will leave aside the question of whether individual cases are right or wrong and, instead, will focus on the wider trend):

• Last week the German, French and Dutch Government asked for “leeway” to craft and apply different national competition rules going beyond EU law. In parallel, several other Member States (like Italy or Sweden) are considering the adoption of additional national rules inspired by the DMA.
• Also last week Germany already announced new investigations under its reformed Competition Act, which the European Commission itself has consistently invoked (e.g. here, p. 111) as a source of potential fragmentation so troubling that it would justify the adoption of the DMA.
• A couple of weeks ago the German Supreme Court confirmed the prohibition of Booking.com’s narrow MFN clauses, a conduct accepted by competition authorities in other EU jurisdictions. In spite of the risk of divergent interpretations of EU law, this is a case where the European Commission had not intervened and where the German Supreme Court decided not to submit a preliminary reference to the CJEU.
• Earlier this month the Italian Competition Authority adopted its Android Auto decision which, as discussed by Pablo, has little to do with EU case law as we know it (the decision in fact admits –para 315– that it relies on a “gatekeeper” theory of harm that cannot be traced back to the case law but to recent reports…).
• A few months ago the European Commission recently opened a formal investigation into Amazon but carved out Italy from the legal effects of the initiation of proceedings, thereby enabling parallel proceedings to take place at the EU and national level in relation to the very same conduct.
• Last October the Polish Competition Authority imposed the highest fine ever imposed under competition law (6.7 billion on Gazprom, a figure slightly higher than that imposed by the Commission) without, as explained by EVP Vestager, ever informing the European Commission about its intentions.

B) Why aren´t the existing safeguards working?

Most people would agree that regulatory fragmentation is a serious problem. The DMA proposal, in fact, is based on the premise that this is a serious problem threatening the proper functioning of the internal market. The concern is not new; the uniformity in the application of EU competition law has always been a priority; ensuring effectiveness and uniformity were in fact the two drivers behind the adoption of Regulation 1/2003 and of the ECN+ Directive.

To be sure, differences and divergent outcomes are partly inevitable in a decentralized system, and there should be some margin for authorities to innovate and even perhaps explore the boundaries of the law. But if we truly believe in an internal market governed by common rules, there need to be limits or safeguards. And while we currently do have tools and safeguards to ensure the uniformity in the application of the rules, these do not appear to be working as intended. Until now, those tools were mainly:

• The obligation to apply EU law in parallel with national law whenever there is a likely effect on trade between Member States (an obligation that may arguably not have been strictly complied with in the German Facebook case or in the Polish Gazprom case). This is a problem that has also been discussed by Wouter Wils in this interesting paper. As Wouter explains, the Commission could theoretically take action against Member States breaching EU Law on this point but, for various reasons, that is extremely unlikely.
• The obligation not to prohibit under national law conduct that would not be prohibited under EU Law (an obligation diluted by the possibility for Member States to apply stricter national laws in relation to unilateral conduct under Article 3 of Regulation 1/2003; a crack in the system of increased interest to Member States, as illustrated by the joint German/French/Dutch position paper from last week);
• The possibility for the European Commission to comment on draft national decisions under Art. 11(4) of Reg. 1/2003. This, however, is something that the Commission often does cautiously, mostly orally, and always confidentially, even vis-à-vis the parties to each case. In addition, the Commission does not have sufficient resources to deal with almost 100 draft decisions every year. The Commission, moreover, has political and legal priorities of its own, and it is also an enforcer of the of the very same rules it is called upon to interpret (and so has a stake in the interpretation of such rules). There might be a certain tension between the missions of advancing a certain interpretation of the law and promoting its uniform and consistent interpretation. There are recent examples of cases where the Commission intervened at the national level to advance an interpretation of the law that was later (too late?) corrected by the CJEU (e.g. compare para. 82 of Budapest Bank with the Commission’s amicus curiae observations here). To be sure, this is no criticism; it is simply a natural result of a system in which the Commission is placed in a privileged, yet tough, spot (and, as we often hear nowadays, dual roles may result in conflicts of interests). At the end of the day, in my view, the Commission may not always be in a position to privilege the uniform application of the law over other perhaps equally legitimate interests.
• The possibility for the European Commission to resort to Article 11.6 of Reg. 1/2003 to open proceedings and deprive NCAs of their competence. As the Commission has explained (here, Chapter 3, Section 5), the Commission would do this when, for example, where “network members envisage a decision which is obviously in conflict with consolidated case law”, or where “there is a need to adopt a Commission decision to develop European competition policy in particular when a similar competition issue arises in several Member States”. The examples identified above, and the experience of the past 17 years, also confirm that the Commission is very unlikely to make use of this power.
• The main tool conceived to ensure the uniform interpretation of EU law (the preliminary reference procedure) is not available to national competition authorities, because these are not “Courts” (see here). This is of course correct as the law currently stands but, in a way, it is also an anomaly. There is arguably no other area of the law where a public authority can impose cuasi criminal sanctions pursuant to a direct application of EU law, but cannot request guidance from the EU Courts. In practice, this means that, in the best case scenario, decisive questions will only be raised before the EU Courts several years into an investigation and only once an administrative decision is final (like in the German Facebook case). This is far from ideal.

C) A proposal for (some) improvement

Unfortunately, growing political interest in competition enforcement means that Member States will continue to maintain enforce and enact national competition rules going beyond EU competition law as regards unilateral conduct. Again, this is the very risk that the Commission invokes to justify the adoption of the DMA but, as explained here, the content of the DMA Proposal does not prevent, but rather encourages, fragmentation. I suspect, however, that some stakeholders will prefer a legally vulnerable EU instrument if that means strong national powers.

Beyond harmonization, improvements could also come from a more effective use of the powers that Reg. 1/2003 vests on the Commission but, for the reasons explained above, the Commission may not be ideally placed to put the uniformity of the law above all other relevant interests.

My proposal would be to preserve the Commission’s powers, but to give national competition authorities the power to consult also an independent and well-resourced judicial body interested only in the correct application of the law, namely the General Court.

Enabling NCAs to pose questions to the General Court would, in my view (i) lead to the creation of a new and welcome body of authoritative guidance not constrained by the limitations inherent in actions for annulment; (ii) avoid legal disputes dragging on for years without the possibility to get to Luxembourg; (iii) ensure that the case law can come in time and decide on present, not past issues (we are still discussing Intel’s rebates); (iv) liberate Commission resources, which could be devoted to running more cases; (v) make a good use of the increased resources of the General Court; and (vi) free up CJEU resources at a time when its workload continues to increase.

There has been a debate for quite some time about whether to grant the General Court the power to render preliminary rulings in certain areas. As a matter of fact, the Treaties already open the door to this possibility. Article 256(3) TFEU provides that “the General Court shall have jurisdiction to hear and determine questions referred for a preliminary ruling under Article 267, in specific areas laid down by the Statute [of the Court of Justice]”. The transfer of this competence has, however, never materialized, possibly due to the CJEU’s arguably understandable reluctance to have a “first instance” Court deliver a final interpretation on the law of the land. There are, I think, ways of alleviating such concerns in addition to those already envisaged in Art. 256.

For example, one could conceive a system under which the General Court would issue Opinions (as opposed to “preliminary rulings”) on those questions. These could even be delivered by a judge appointed as Advocate General (the possibility of appointing AGs among the judges is also already envisaged in the existing rules). These Opinions would only be delivered in the context of administrative proceedings. Since the administrative decision resulting from those could always be appealed before national Courts, the latter would still enjoy the possibility of requesting a preliminary ruling from the Court of Justice. This, in turn, would enable the Court of Justice to retain the last word and correct the General Court’s approach if necessary. If not, the CJEU could simply validate the GC’s Opinion, possibly via an expedited procedure resulting in an Order.

In my view, some kind of solution along these lines would be good for the law, for NCAs, for the General Court, for the CJEU and for all those interested in an effective, uniform and faster application of the law. This proposal could be a small step in the direction outlined by General Court President van der Woude at our last conference (see here, min. 25-28.42), but a great leap for substantive competition law.

Earlier this month, the Italian Competition Authority (AGCM) adopted a remarkable decision, which deserves close attention, in a dispute involving Enel (the Italian incumbent in the electricity sector) and Google. You will find the decision here (in Italian) and a press release (in English) here.

The decision stands out from others in the digital sphere in that it is expressly framed as an outright refusal to deal. While in other cases it is genuinely open to question whether the ‘exceptional circumstances’ tests laid down in Magill and Bronner are applicable, there is no doubt on this point in Enel v Google. The complainant requested access to Android Auto and the authority applies the case law on refusals to deal.

That Magill and Bronner provide the relevant tests is also clear in light of Slovak Telekom. Intervention in Enel v Google amounts to requiring the defendant to redesign its product. On this point, the decision goes beyond an obligation to negotiate access with a would-be rival, which is the typical remedy in a refusal to deal case. The Italian authority has asked Google to release a version that can accommodate the functionalities of Enel’s product.

What is the case about? Android Auto and Enel’s JuicePass

The case is about Android Auto, which is an application that gives access to some of Android’s features on a car’s dashboard. Thus, instead of accessing these features (say, Google Maps) via the smartphone, they can be accessed, more conveniently, via the car’s own display.

Enel’s complaint concerned Google’s refusal to allow one of its applications (JuicePass) to feature on Android Auto. JuicePass provides assistance to drivers of hybrid and electric vehicles: more precisely, the application allows car users to search for charging stations, book charging slots and pay for the electricity.

According to the complaint, Google’s refusal to allow JuicePass into the Android Auto ecosystem amounts to an abuse of a dominant position. The claim raises a number of interesting issues. I will only focus on two of them: whether Android Auto can be said to be indispensable and whether the refusal would result in the elimination of all competition on the adjacent market. These are the two key conditions that are common to Bronner and Magill (and which are notoriously difficult to establish in practice).

Establishing the indispensability in the case would involve showing that it is not possible to compete on an adjacent market without featuring in Android Auto and that there are not any economically viable alternatives to the said application. The elimination of all competition condition, as the law stands, demands evidence of the certainty, or quasi-certainty, of anticompetitive effects absent access.

The reasoning in the decision is interesting in two major respects. First, the adjacent market is never defined by the authority. It identifies a ‘competitive space’ (‘spazio competitivo‘) instead. Second, the interpretation of the indispensability condition is not obvious to square with the definition provided in the case law (in particular IMS Health, which is the most explicit on the point).

This approach, which departs from that followed in Magill and Bronner, seems to mark the comeback of a doctrine of ‘convenient facilities’ (as opposed to essential). If one pays attention to the remedy, on the other hand, it becomes apparent that the decision is unprecedented in another fundamental respect: the duties imposed on Google go beyond an access obligation. These questions are examined in turn.

Indispensability in Enel v Google: towards tailored access to ‘convenient facilities’?

A look at the facts in Enel v Google suggests that access to Android Auto is not indispensable within the meaning of Magill and Bronner. After all, the application (JuicePass) can be readily downloaded and used (and has been readily downloaded and used since it was launched) on smartphones (via both Play and AppStore). Insofar as there are alternatives around Android Auto, a plain reading of the case law would reveal that the indispensability condition is not met.

The Italian authority hints at a different interpretation of the condition. According to the decision, the indispensability element of the test is met because access to JuicePass via smartphone is not comparable to access via Android Auto. This is so, according to the authority, for safety and/or convenience reasons (using JuicePass on the smartphone is said not to be as safe as using the car’s dashboard; and stopping the car to use the application would not be convenient).

It is difficult to square this understanding of the notion of indispensability with Bronner, which makes it explicit that the condition is not met where there are alternatives around an infrastructure, irrespective of whether they are ‘less advantageous’. The decision, in this sense, is indicative of the return of a ‘convenient facilities’ doctrine that would substantially lower the threshold for intervention in refusal to deal cases. Indispensability, under this new approach, means the ability to use apps in an ‘easy and safe way’ (‘in maniera facile e sicura‘).

The passage addressing the remedies suggests that the indispensability condition is also expanded in a different direction: Google has been required to ensure that JuicePass has access on the terms and conditions that Enel deems indispensable. From this perspective, the decision marks a move from an objective understanding of the notion to a subjective interpretation: what is indispensable depends on what each specific firm demands and deems necessary.

Will Bronner and Magill survive common carrier antitrust?

Many disputes in digital markets concern the terms and conditions of access to an input or platform. Therefore, it was only a matter of time before the Bronner and Magill case law would be directly challenged in an outright refusal to deal case: it is not a secret that indispensability is very difficult to establish in practice and thus acts as a limit to how much digital ecosystems can be refashioned by competition authorities.

Given the obvious and substantial tension between the Italian authority’s decision and the relevant case law, there is a chance that the issue is eventually brought before the Court of Justice, which has recently reaffirmed the principles of Bronner and Magill (including the importance of preserving firms’ incentives to invest and innovate) in Slovak Telekom.

It remains to be seen whether the case law, including Magill and Bronner, survives common carrier antitrust. In this regard, it is interesting to note that Enel v Google applies, avant la lettre, some of the concepts underpinning recent legislative proposals (and in particular the notion of gatekeeper). Future law, rather than existing law, appears to drive and shape enforcement. Fascinating times indeed.

As usual, I have nothing to disclose.

The post published on Monday (see here) sought to explain the tensions that tend to emerge in relation to the interpretation of Article 101(1) TFEU. The experience of the past few years shows that the analysis of the objective necessity of a practice and/or of the ancillarity of some clauses are occasionally conflated with the evaluation of the restrictive object of an agreement.

As the ISU judgment shows, it is sometimes claimed that, unless an agreement is objectively necessary to attain a pro-competitive aim, it is restrictive by object. This interpretation of Article 101(1) TFEU is at odds with decades of consistent case law, but it is still relatively commonplace. I was reminded of this understanding of the provision when the German Federal Court of Justice announced its ruling on Most Favoured Nation Clauses (MFNs) earlier this week.

The document of the judgment is not yet available, but a press release explains the key points here. The case concerned the so-called ‘narrow’ MFNs. Even though these clauses have less restrictive potential than the so-called ‘wide’ ones, the German BGH ruled that they are restrictive of competition under Article 101(1) TFEU and do not fulfil the conditions set out in Article 101(3) TFEU.

While we wait for the judgment, there are three salient aspects of the press release that are worth discussing at this stage:

• First, how the case was framed and approached, which is most unusual in contemporary competition law: at least in light of the press release, it looks like the discussion revolved around the application of the ancillary restraints doctrine and of Article 101(3) TFEU.
• Second, the BGH may have departed from the case law of the Court of Justice on a key point: contrary to what the press release appears to suggest, the pro-competitive aspects of an agreement are relevant (and must be considered) under Article 101(1) TFEU.
• Third, the BGH did not refer the case to the Court of Justice for a preliminary ruling. To the extent that the judgment may have departed from the case law on the abovementioned point, it raises the issue of the fragmentation of the EU legal order.

Ancillarity, object and Article 101(3) TFEU

The press release issued by the BGH suggests that the compatibility of narrow MFNs with Article 101 TFEU revolved around two questions: whether the clauses can escape the prohibition in accordance with the ancillary restraints doctrine and whether they fulfil the conditions defined in Article 101(3) TFEU.

There are two key intermediate steps that are nowhere to be found in the press release: first, whether the narrow MFNs are restrictive of competition by object and, second, whether they have, or are likely to have, anticompetitive effects. The judgment jumps (or so it seems from the information available) from ancillarity to Article 101(3) TFEU.

This approach comes across as unusual for a number of reasons. To begin with, the BGH seemingly accepted that ‘narrow’ MFNs may be explained as a means to address free-riding. This point would have been central to the assessment of whether the clauses are restrictive of competition by object. Suffice it to remember that free-riding considerations determined the outcome in, inter alia, Cartes Bancaires.

There are, however, no traces of the question of whether ‘narrow’ MFNs amount to a restriction by object in the press release. There is a chance that, just as in ISU, the ancillary restraints doctrine was conflated with the evaluation of the object of the clauses.

Judgments like Cartes Bancaires and Budapest Bank show that the above are two separate inquiries. More precisely, the fact that the ancillary restraints doctrine does not apply in a given case does not mean that the agreement is necessarily restrictive of competition, let alone by object. It simply means that the assessment under Article 101(1) TFEU has to move to the object and, if needed, the effect stages.

The case law makes it clear that an agreement may escape the ‘by object’ qualification irrespective of whether it is objectively necessary within the meaning of the ancillary restraints doctrine. There was no objective necessity test in Delimitis, Asnef-Equifax or Cartes Bancaires. However, in all these cases, the Court expressly ruled that the object of the agreement was not anticompetitive and that an analysis of its effects was necessary.

The BGH judgment, just like ISU and the CMA decision in Ping (to mention another salient example in which the same error of law was committed), suggests that some ideas about the operation of Article 101(1) TFEU are not easily abandoned, even when they are clearly at odds with the case law. Several factors may potentially explain this reality. In this sense, the judgment suggests that how cases are framed and argued before courts may well contribute to it.

The role of pro-competitive effects under Article 101(1) TFEU

The press release is notable in that it appears to suggest that, according to the BGH, the pro-competitive aspects of the MFN clauses (namely, the fight against free-riding) can only be considered under Article 101(3) TFEU, where they would be weighed against any anticompetitive effects.

On this point (and while we wait for the judgment), it is important to emphasise that, after Generics, there should be no doubt that the pro-competitive aspects of an agreement are relevant under Article 101(1) TFEU. More precisely, the Court made it clear that, as elements of the economic and legal and economic of an agreement, they ‘must’ be considered under the first paragraph of the provision (Generics, para 103).

What is more, the Court expressly ruled that the above should not be construed as meaning that there is such thing as a rule of reason under Article 101(1) TFEU (Generics, para 104). Thus, and contrary to what the press release appears to suggest, there was a role for the pro-competitive aspects of ‘narrow’ MFNs under Article 101(1) TFEU in the case (just as there was in Cartes Bancaires and Budapest Bank) and that such role does not necessitate any balancing assessment.

Suffice it to remember, in this regard, the centrality of the pro-competitive aspects of the agreement in Budapest Bank. The fact that the agreement is capable of leading to pro-competitive or at least ambivalent gains is, the Court confimed, a key consideration to establish a restriction of competition under Article 101(1) TFEU (Budapest Bank, paras 82-83).

The risk of legal fragmentation and the role of the Court of Justice

Regulation 1/2003 sought the decentralisation of EU competition law. The flurry of enforcement across the EU attests to the resounding success of this landmark piece of legislation. At the same time, some developments show that with decentralisation comes (inevitably) a real risk of legal fragmentation.

The risk of the fragmentation of the EU legal order originates from two main sources. On the one hand (the BGH judgment hints at this) some interpretations of Articles 101 and 102 TFEU are not abandoned, even when they are at odds with a plain reading of the case law.

There are, on the other hand, developments at the national level that are exploring (when not stretching) the outer boundaries of the EU legal order. Just last week, for instance, the Italian Competition Authority adopted a decision in a dispute involving Enel and Google that substantially expands the ‘exceptional circumstances’ case law (see here) and ventures into uncharted territory.

It was always clear that, in a decentralised model, the Court of Justice would play a central role in preserving the uniformity of the EU legal order. The evolution of the enforcement regime suggests that, as things stand, it will be called upon to intervene more frequently that some might have anticipated in the wake of the adoption of Regulation 1/2003.

[Chillin’Competition will be publishing a series of posts featuring the views of various experts and stakeholders in relation to the European Commission’s proposal for a Digital Markets Act. We have received several contributions and will also be inviting some experts to ensure a plurality of informed views from a variety of perspectives. For our previous posts on the DMA see here (by Pablo), here (by Alfonso) and here (by Cani Fernández, originally published in JECLAP). Today we bring you some reflections by Tim Lamb, Director of Competition at Facebook]

The proposal for a Digital Markets Act (DMA) signals a new approach to the regulation of digital services in the European Union. In the best case scenario, the DMA could establish targeted obligations for true bottlenecks in the digital economy that will help to preserve and re-distribute value for consumers and business users.  That is a scenario that could be welcomed and for that to materialise the new regulation would need to pay particular attention to core virtual infrastructure, such as app stores, operating systems or productivity software.

The DMA will unquestionably apply to Facebook, Google, Microsoft, Apple, Amazon and could potentially to others such as Booking.com, SAP, Zalando, Deutsche Telekom, Schibsted and Orange in one form or another.  These companies have to accept that and understand the implications for their respective consumer and business offerings and products.  Critically, for companies to be able to understand the potential implications of the DMA, the proposal will need to ensure that it contains understandable and actionable obligations.

As it stands right now, the draft DMA is the crystallization of a growing drumbeat over the past few years pressing for new rules to address perceived concerns expressed in many conferences, regulator reports and academic papers. The drumbeat and the draft DMA itself contain an underlying assumption that the extensive powers already conferred on authorities under existing competition laws are insufficient to address a range of perceived harms.

While there are frequent debates as to whether the European Commission (the Commission) has the right tools to exercise its competition functions, there may be something different this time around.  A central tenet of the current debate is the desire for a lower threshold for regulatory intervention and a material lowering of the evidentiary standards. 

As a result, the draft DMA is advancing a form of quasi-competition regulation which is untethered from traditional competition law concepts such as dominance, detailed case by case assessments, economic analysis and an assessment of efficiencies. That untethering gives rise to three key implications that I wish to explore here.

● First, while competition law is generally concerned with market power and business conduct, the draft DMA has a keen desire to intervene in core product design.  Yet that should call for a sharp focus on the consumer experience of those products which appears lacking in the draft DMA. 

● Second, the prohibitions in the draft DMA have very few meaningful or identifiable limiting principles and risk capturing conduct that is both pro-consumer and pro-competitive.  Such an outcome would be undesirable and careful thought should be given as to how to mitigate such risks.

● Third, innovation is a key driver of long-term economic growth. Yet the draft DMA’s proposals will very likely reduce, not increase, the ability and incentive for firms to develop innovative products for consumers. 

The suggestions contained in the article are designed to strengthen the draft DMA. The full article is available here:

The world of sport was shaken a few weeks ago when a number of clubs announced a breakaway tournament, the SuperLeague. The follow-up suggests that the consequences for sport will not be immediate (and might never be manfiested). From a competition law perspective, however, the implications may not take long to unfold: it appears that last week, a Spanish judge has referred some questions to the Court of Justice for a preliminary ruling concerning the compatibility of UEFA and FIFA regulations with EU competition law (see here).

The submission, arguably inevitable, could not be more timely: the ISU judgment (see here) was rendered by the General Court in December of last year and has since been appealed to the Court of Justice (see here). Some of the fundamental issues raised by the two cases are identical.

In essence, ISU was about a non-compete obligation imposed on athletes taking part in competitions organised by the International Skating Union and its members. The practical consequence is that participants in competitions not authorised by the ISU would face a lifetime ban (with all the dramatic consequences that follow).

The similarities are obvious with any disciplinary action that football governing bodies might take against teams having taken part in the organisation of the SuperLeague (or at least those that have not given up on the idea).

Interestingly, the public perception was not the same. While there was a great deal of sympathy vis-a-vis athletes facing a ban from the ISU, many thought football governing bodies would be right to take disciplinary action against the teams forming a breakaway league.

From a competition law perspective, howevever, I fail to see any differences between the two. In both cases, there is a (de iure or de facto) non-compete obligation imposed by the association setting up the tournament. Accordingly, whether or not the said obligation amounts to a restriction of competition (by object or effect) should be assessed in accordance with the same principles.

Which takes me to the General Court’s judgment in ISU. I already explained, when the Commission decision came out (see here), that I struggle to see how a non-compete obligation such as the one at stake in the case can be seen as a restriction by object. Moreover, I explained why a finding of a ‘by object’ infringement in the case is difficult to reconcile with, inter alia, Cartes Bancaires and Maxima Latvija (the first crucial in relation to free-riding considerations and the second on non-compete obligations).

That post still reflects my views on the case. I fail to see why an association investing in the development of a competition and giving visibility to athletes would be infringing Article 101 TFEU, by object, when taking measures against free riding by competing organisations.

Alas, the General Court came to a different conclusion. The first instance judgment, however, seems to be at odds, in some crucial respects, with the case law on restrictions by object. In this sense, it provides a test for the case law developed in the past few years and illustrates where the potential difficulties might arise in practice in the coming years.

The points on which to focus (and the issues in which there seems to be some tension between the General Court judgment and the established case law), are the following:

• First, the conflation of the ancillary restraints doctrine (whereby some agreements escape Article 101(1) TFEU altogether) and the question of whether a practice is restrictive by object.
  • Contrary to what the judgment appears to suggest, a disproportionate measure is not necessarily restrictive by object.
  • The General Court relies on case law dealing with ‘by effect’ infringements to assess the restrictive object of an agreement; there is therefore a mismatch between the case law cited and the conclusions drawn from it.
• Second, the allocation of the burden of proof.

Ancillary restraints and restrictions by object: why they tend to be conflated (or object and effect in Ordem dos Técnicos Oficiais de Contas) 

The judgment is valuable in that it reveals that there are two tests that tend to be conflated in practice: the ancillary restraints doctrine, on the one hand, and the assessment of whether an agreement is restrictive by object, on the other.

Under the ancillary restraints doctrine, the question is whether some clauses are ancillary to a pro-competitive transaction and thus whether they fall outside the scope of Article 101(1) TFEU altogether. Where a restriction is found to be ancillary, there is no restriction of competition, whether by object or effect.

The ancillary restraints doctrine has an illustrious history in EU competition law: salient examples include Metro I (on selective distribution) and Pronuptia (on franchising). When it comes to non-compete obligations, Remia is an excellent example.

These cases define the conditions under which the clauses are ancillary and thus escape the prohibition altogether. Typically, these conditions include a proportionality assessment: only where the measure is proportionate does it escape Article 101(1) TFEU. What if one or several of the conditions, including proportionality, are not fulfilled? In that case, it would still be necessary to assess whether the agreement is restrictive by object or effect.

This is the stage at which errors arise. Every now and then, courts and authorities wrongly conclude that, because the ancillary restraints doctrine is not applicable (for instance, because the measures go beyond what is necessary), the agreement is restrictive by object. In other words: the test under the ancillary restraints doctrine and the assessment of the restrictive object of the agreement are sometimes conflated.

A clear example of this conflation is provided by Ping (see here for my analysis). In that case, the UK CMA concluded that the clauses in the agreement were restrictive by object insofar as they were not objectively necessary to attain the pro-competitive aims of the agreement. In other words: the CMA conflated objective necessity and restrictive object. The CAT identified this error of law on appeal (see here).

I notice a similar conflation in the ISU case. It is well-established case law that, in certain circumstances, sporting rules fall outside the scope of Article 101(1) TFEU altogether. In cases like Meca Medina, the Court of Justice referred to key ancillary restraints judgments such as Wouters and Gottrup-Klim. More precisely, the Court ruled, in para 47 of Meca Medina, that any restrictions must be proportionate for them to fall outside Article 101(1) TFEU.

It does not follow from that case law, however, that the agreement is necessarily a restriction by object if it goes beyond what is necessary to attain a legitimate objective. Quite the opposite, in fact. Para 47 of Meca Medina expressly refers to the potential restrictive effects of the agreement (as opposed to its object) where the clauses in question are found to be disproportionate.

There is clear tension between this line of case law and paras 100-114 of the ISU judgment, where the General Court suggests, in contradiction with the abovementioned rulings, that a measure that pursues a legitimate objective is restrictive by object if it goes beyond what is necessary (see in particular paras 103 and 110). In the same vein, Wouters and Meca Medina are not capable of substantiating the conclusions drawn from them.

The General Court makes abundant references to Ordem dos Técnicos Oficiais de Contas. This judgment is relied upon to justify a finding of a restriction by object, even though (just as Meca Medina) the Court did not treat the restraints in that case as ‘by object’ infringements (in fact, the Court of Justice expressly ruled that they did not amount to a ‘by object’ prohibition).

That judgment exemplifies, perhaps better than any other, that, contrary to what the General Court suggests, measures that go beyond what is necessary to attain a pro-competitive aim (for instance, because they provide for penalties that are too severe) are not necessarily restrictive by object.

Conflating the ancillary restraints doctrine (or, more generally, objective necessity) and the question of whether an agreement is restrictive by its very nature could have major consequences in practice. It would substantially expand the ‘by object’ category and would thus run counter to the principle whereby the said category is to be interpreted restrictively.

I guess this point will be central in the assessment before the Court of Justice.

Burden of proof and restrictions by object: what the authority needs to prove

If I look back at the landmark cases of the past few years, it appears that the rules governing the allocation of the burden of proof are at the heart of most disputes. It would seem that, very often, administrative action is quashed for reasons pertaining to the allocation of the burden of proof. From State aid to merger control, the issue cuts through key judgments.

ISU might well be the next on the list. It is unquestionable that the Commission bears the burden of showing that an agreement amounts to a restriction by object. One would be forgiven for reaching a different conclusion when reading ISU. The judgment goes over the content of the non-compete obligations and their objectives, and rules that they go beyond what is necessary (even if the legitimate objectives were to be accepted).

What seems to be missing, however, is the following step (that is, the evaluation of the evidence showing, to the requisite legal standard, that the object of the agreement is restrictive of competition). That step is crucial: it is still necessary for an authority to show that the contentious measures are caught by Article 101(1) TFEU by their very nature.

Contrary to what one may infer from ISU, it is one thing to rule out some potential justifications for the agreement and another one to evaluate whether the agreement in question is restrictive by object. The second does not follow, logically and inevitably, from the former. As already pointed out, this second step was missing in the judgment.

Here and there, the judgment gives the impression that it is for the parties to show that the agreement is not restrictive by object. This conclusion is inescapable when one reads the evaluation, by the General Court, of the objectives pursued by the contentious rules (paras 84-89). The tension between the judgment and the rules governing the allocation of the burden of proof also transpires from an analysis of paras 110-114.

The General Court, while accepting that the economic nature of the restraints cannot be a reason to conclude that their object is anticompetitive, relies on Ordem dos Técnicos Oficiais de Contas to rule that the ISU did not behave in a manner consistent with its duty to ensure undistorted competition. As pointed out above, it is sufficient to take a look at the Ordem dos Técnicos Oficiais de Contas judgment to realise that this fact alone is insufficient to substantiate the claim that an agreement is restrictive by object.

It remains to be seen how these points will be addressed by the Court in the appeal. In any event, ISU provides an excellent illustration of the areas, concerning the interpretation of Article 101(1) TFEU, in which tension between the case law and the administrative practice are likely to arise.

I very much look forward to your comments (as ever, nothing to disclose).

As an academic, I sometimes feel that ideas of principle are not discussed often enough. One misses, every now and then, deep exchanges on substantive issues. Sometimes there is so much noise around these debates that, even when they take place, they are silenced or not sufficient attention is paid to them. Therefore, I very much welcome Damien Geradin‘s post discussing my views on the ongoing Apple investigation (see here).

When I read it, I felt that it provided a wonderful occasion to discuss the case law on anticompetitive effects. By the way, much of what follows was already addressed at length in my paper on the notion of effects, which I am proud to be publishing with the Journal of Competition Law and Economics (coincidentally co-edited by Damien himself).

I will start this post by clarifying that, contrary to what Damien appears to suggest, I do not believe that the Statement of Objections issued by the European Commission is a ‘rather reckless’ move. There is nothing reckless or unusual in opening an investigation.

My own research has shown me that the European Commission regularly tests the outer boundaries of the law, and occasionally interprets Treaty provisions in a way that is not immediately obvious to reconcile with the case law. We have seen examples this very week, with the annulment, by the General Court, of the Commission decision in Amazon’s tax ruling case (see here).

There is nothing reckless in that. Quite the opposite. If you ask me, an authority that dares take risks when enforcing the law is one of the treasures of the EU competition law system (just compare and contrast with the systemic underenforcement of antitrust provisions in the US).

The practical implication, however, is that some Commission decisions will fail to persuade the EU courts and thus will occasionally be annulled. I have written that the annulment of a Commission decision is nothing more than the sound of the system working. It means that both the EU courts and the authority are serving the public interest by doing what is expected from them.

Here’s hoping the competition law community will stop using sensational vocabulary (e.g. defeat, blow) when administrative action is quashed and take it for what it is: a manifestation of the routine operation of the law and its institutions.

Most of the points addressed by Damien in his post concern the notion of anticompetitive effects. He mentions most of the key cases, which helps structure the discussion. I will focus on this aspect of the post. If there was any doubt, I am interested in the law and have nothing to disclose in this or indeed any other case (on this point, by the way, I am particularly grateful to Damien for the clarity of his disclosure).

Losing customers to a dominant firm is not in itself evidence of anticompetitive effects: I explained in my post (and in the comments section) that evidence that rivals have lost, or are likely to lose, customers to the dominant firm (or, as a commentator – Charlie – and Damien coincide in putting it, ‘some diversion to Apple’) is insufficient to show anticompetitive effects within the meaning of Article 102 TFEU. Anticompetitive effects under that provision (and Article 101 TFEU) necessitate more than evidence in this sense.

I would not have anticipated that this point would be controversial. After all, we have a case (Post Danmark I) expressly addressing it. The facts of the case reveal that the new entrant had lost two customers to the dominant firm. This fact, alone, was deemed insufficient to justify a finding of effects.

The Court examined the nature of the practice and the features of the relevant market (paras 38-39) and concluded that, in spite of losing some customers to the dominant firm, the new entrant was willing and able to fight back (it maintained its distribution network and was even able to gain its two customers back after a while).

Against this background, it seems clear to me that, under the Court’s interpretation of Article 102 TFEU, the inquiry should revolve around the actual or potential impact of the practice on rivals’ ability and incentive to compete: so long as they are likely to remain willing and able to compete on the merits (and thus place pressure on the dominant firm), the practice will fail to have effects.

As in Post Danmark I, evidence that the new entrant maintained (or will likely maintain) its assets and means to compete is particularly valuable. Other factors in this regard have been identified in subsequent cases: for instance, the coverage of a practice has emerged as a crucial consideration since Post Danmark II and Intel.

A competitive disadvantage is not in itself evidence of anticompetitive effects: Damien refers to Deutsche Telekom in his discussion. It is particularly useful in the context of the Apple investigation. After all, a ‘margin squeeze’ is the prime example of a raising rivals’ costs strategy. The crucial point in Deutsche Telekom is that, according to the Court, evidence of a ‘margin squeeze’ is, in and of itself, insufficient to show anticompetitive effects (paras 250-253).

In other words: evidence that a practice would disadvantage rivals to such an extent that it would force them to sell at a loss does not suffice to establish anticompetitive effects. Something more, to be determined by paying attention to the nature of the practice and the features of the relevant market (e.g. whether there are alternatives to the incumbent’s network), is necessary.

Anticompetitive effects need to be considered by reference to the market as a whole: Generics, mentioned by Damien too, provides a valuable clarification. In that case, the Court ruled that anticompetitive effects involve harm to competition that goes beyond harm to individual rivals (para 172). In other words: the mere fact that a particular firm no longer has (or will likely no longer have) the ability and incentive to compete is insufficient to trigger Article 102 TFEU. Again, the factors mentioned above would need to be considered.

On business models and competition law: I will say a final word about business models. I noted in my post a change of attitude in this regard by the Commission: from reluctance, absent exceptional circumstances, to challenge business models to the relatively frequent enforcement of Article 102 TFEU in relation to them. It is yet another example of EU competition law becoming increasingly proactive.

Damien rightly mentions Microsoft as an example in which a business model was changed. The case illustrates, better than any other, the point above. The threshold for intervention in Microsoft is consistent with the exceptionality of cases challenging business models under traditional competition law. After all, a variation on the Magill/IMS Health test was applied in the case (requiring evidence, in particular, of indispensability within the meaning of Magill).

Times seem to be changing. Rather than judging whether the move is good or bad, it is important to consider the consequences that follow. In this sense, my post mentions that business model cases are trickier for competition authorities, in particular because establishing a restriction against the relevant counterfactual is considerably more complex.

As I mentioned last week, some of the most basic tenets of the post-modernisation consensus are being questioned (as much as the post-modernisation consensus itself). The idea that the vast majority of practices should only be prohibited following a case-by-case analysis of their likely effects is one of them.

More to the point, it has also become relatively frequent to challenge the idea that Article 102 TFEU is concerned with competitors that are as efficient as the dominant firm (at least so as a matter of principle).

This principle tends to be associated with the modernisation of the EU competition law system and the ‘more economics-based approach’. However, it has long been part of the case law. An explicit reference to equally efficient rivals can be traced back to the seminal AKZO ruling of 1991, where the Court explained that below-cost pricing is potentially exclusionary insofar as it is capable of foreclosing firms that are as efficient as the dominant player. In subsequent cases, the principle has been confirmed by the Court, perhaps more emphatically in Post Danmark I and Intel.

Two conclusions can be drawn from the case law. First, the idea that Article 102 TFEU is only concerned about the exclusion of equally efficient rivals is broader than the ‘as efficient competitor test’. The latter (‘AEC test’) is merely a manifestation of the broader principle. Accordingly, whether or not the AEC test is applied, Article 102 TFEU will still be concerned with the exclusion of equally efficient rivals. Similarly, the inquiry (is the practice likely to exclude equally efficient rivals?) is the same, irrespective of the instrument used.

Second, the principle is relevant across all parameters of competition. Because the AEC test and the broader principle tend to be conflated, there is a tendency to think that the latter applies only to price-based competition. However, the case law is unequivocal in this regard. In Post Danmark I, the Court made it clear that principle made it clear that Article 102 TFEU is not concerned with the exclusion of less efficient rivals in terms of, inter alia, ‘price, choice, quality or innovation’.

As we undergo times of change, it makes sense to look back and explain the logic of the case law. The hearing in Qualcomm (which took place last week) and the (UK) Royal Mail ruling have brought the discussion to the fore again. The analysis seems useful for two reasons. First, it is important to distinguish between the (narrow) AEC test and the broader principle, as the conflation of the two is relatively frequent. Second, it is an aspect of the case law that wonderfully exemplifies the extent to which law and economics go hand in hand.

The essence of the case law can be summarised as follows:

Competition on the merits: Article 102 TFEU seeks to ensure that firms remain willing and able to compete on the merits. The exclusion of firms that are less efficient is the very manifestation of the process that EU competition law is intended to preserve: it is the logical and expected outcome of a system based on undistorted competition. Protecting inefficient firms would alter the competitive process as much as a subsidy intended to keep a firm artificially afloat.

EU competition law protects a process, it does not engineer market structures: In the same vein, the point of Article 102 TFEU (and EU competition law) is not to design markets in accordance with a preconceived vision. Similarly, it is not for a competition authority to decide how many players should compete on the market (and for how long or with which assets). The protection of the competitive process as enshrined in the Treaty is far more modest in its ambitions: instead of determining outcomes and engineering market structures, Article 102 TFEU is there to ensure that rivals that have the ability to do so can thrive in spite of the presence of a dominant firm.

Causality: It is clear from the case law (think in particular of Post Danmark II), that any actual or potential effects must be attributable to the behaviour of the dominant firm. In other words, the Court makes it necessary for an authority or claimant to establish a causal link between the latter and the former. Where a firm is less efficient than the dominant player, any actual or potential effects cannot be attributed to the dominant firm, but to the fact that it is less attractive in terms of quality, price or any other parameter of competition. In other words, the causal chain would break in such a scenario.

Legal certainty: The case law suggests a final rationale. A dominant firm should be in a position to anticipate when it is in breach of Article 102 TFEU. For instance, a dominant firm knows its costs. Accordingly, it is aware of when it is pricing below cost (and thus where an equally efficient rival would be selling at a loss). Similarly, it can evaluate whether a rebate scheme is capable and/or likely to exclude a competitor that is at least as efficient as itself. On the other hand, a dominant player cannot be expected to be aware of the cost structure of a less efficient rival and, by the same token, it would not be able to tell in advance whether or not it is in breach of the law.

While some aspects of the case law are yet to be addressed, the principle has consistently been confirmed over the years. As we rethink EU competition law, the fundamental question we should be asking is whether there are compelling reasons to depart from it, and interpret Article 102 TFEU along different lines. I very much look forward to your comments on this point.

As readers will know, the Commission sent a Statement of Objections to Apple last week (for the press release, see here). The investigation focuses on the firm’s practices in relation to the conditions under which it provides access to its app store; it is confined to music streaming services. Most of you probably remember that the case traces its origins back to the complaint brought by Spotify, which concerned the 30% commission Apple ask on sales taking place via its app store.

According to the press release, the Commission has reached the preliminary view that the abovementioned practice amounts to an abuse of a dominant position. The document also mentions the ‘anti-steering provisions’ whereby app developers are restricted in their ability to inform users about alternative purchasing options.

The case has long intrigued the competition law community. The theory of harm that the Commission would pursue was not immediately obvious to infer from the publicly available information. Was the investigation really about exclusion, considering that Spotify is by some distance the market leader on the relevant market? If so, what are the conditions to assess the legality of the conduct? Was the case about exploitation instead?

The press release hints at some answers in this regard. Generally speaking, it suggests that common carrier antitrust (an emerging interpretation of competition law provisions and a new approach to enforcement) is picking up speed. I would note three aspects in this regard:

• First, the press release suggests that the lawfulness of potentially exclusionary conduct does not depend (or, rather, no longer depends) on an assessment of anticompetitive effects.
• Second, the press release signals that the Commission is ready to question firms’ business models in the digital sphere: what EU competition law, for decades, was reluctant to challenge absent exceptional circumstances, has now become a central feature of enforcement.
• Finally, the press release hints at an additional feature of common carrier antitrust: it would seem that each ecosystem is deemed a market on its own.

A farewell to anticompetitive effects?

Modern EU competition law, as interpreted by the Court of Justice, is based on the idea that the vast majority of potentially abusive practices are unproblematic where they are unlikely to have anticompetitive effects (in refusal to deal cases, the test is even stricter). This is the interpretation underpinning the most recent case law (including Deutsche Telekom, TeliaSonera, Post Danmark I and II, Intel, MEO) and the Commission’s Guidance Paper (in which the authority committed to prioritising cases that would likely lead to anticompetitive foreclosure).

The principles of contemporary EU competition law are not obvious to reconcile with the Apple investigation. In this sense, the case hints at the rise and consolidation of common carrier antitrust.

Rulings like Deutsche Telekom and MEO show that a raising rivals’ costs strategy is not anticompetitive in and of itself. An evaluation of the likely impact of the conduct is a precondition for the application of Article 102 TFEU (or, indeed, merger control and Article 101 TFEU). According to this case law, the Commission would need to establish the anticompetitive effects of Apple’s app store-related behaviour.

A cursory look at the relevant market suggests that showing the exclusionary impact of Apple’s practices on the market for music streaming services is anything but an easy task. The fact that the original complainant in the case is (and has been for a while) a market leader one of the factors in this regard. The fact that music streaming is accessible in many ways (that is, not only via Apple’s app store or, more generally, Apple devices) is another one.

The press release is interesting in that it suggests that the Commission believes that it can establish an abuse of an exclusionary nature without showing that the practice is likely to have anticompetitive effects. It would seem that the case is predicated on the idea that the Commission can discharge its burden of proof merely by showing that the practices distort competition by raising rivals’ costs. In this sense, it signals a move away from Deutsche Telekom (with all the implications and/or complications that follow).

The move away from anticompetitive effects does not seem to be an isolated instance. I have the impression that other cases in the digital sphere will be conducted following the same approach. One can think, in particular, of the Amazon case (which I discussed here). As is true of the Apple investigation, the use of non-public data by Amazon cannot be assumed to lead to the exclusion of rivals on the relevant markets (and might very well inject competition in Amazon’s marketplace).

This new approach to the assessment of practices comes at a time when the fundamental tenets of modernisation are being challenged. It has become relatively frequent to read that the effects-based approach has gone too far, or that it would place an undue burden on authorities in digital markets.

The move away from anticompetitive effects raises a number of fascinating questions. I will mention just two here. The first is whether the Court will agree to depart from the case law mentioned above and embrace the Commission’s expansive interpretation of its powers. The second is whether this new approach makes it possible to meaningfully constrain administrative action. To the extent that it equates a competitive disadvantage with harm to competition, its scope of application seems to lack clear boundaries (it is a criterion that seems fulfilled pretty much always and everywhere).

In this sense, the post-modernisation approach reminds one of the pre-modernisation times, when the Commission had a tendency to equate a limitation of a firm’s freedom of action with a restriction of competition.

Competition law and business models: what is the counterfactual?

The Apple investigation is also an example of another aspect of the emerging approach to enforcement: the Commission is no longer reluctant to challenge firm’s business models. Traditionally, the EU competition law system was deferential to firm’s strategies. It did not question, absent exceptional circumstances, a company’s decision to produce exclusively in-house. Similarly, the core of distribution methods like selective distribution and franchising are deemed prima facie lawful irrespective of their effects.

Common carrier antitrust is much less deferential to the central aspects of a firm’s business model. This approach to enforcement is fraught with challenges for an authority. First and foremost, one cannot simply assume that the undesirable aspects of a company’s core strategy can be removed without consequences. For instance, one cannot take for granted that a manufacturer will rely on franchising if it is required to accept competing products in the franchisees’ premises. Similarly, one cannot simply assume that forcing a company to deal with third parties will have no impact on incentives to invest and innovate.

Generally speaking, tweaking a firm’s business model via competition law enforcement requires a careful evaluation of the counterfactual. When it is said that a business model restricts competition, the question should be: compared to what? What would the world look like if the business model was a different one? How are the different aspects of a business model (both the desirable and undesirable) intertwined? I was reminded of these questions when reading the press release in the Apple case.

The press release suggests that a central aspect of the Commission’s case is that Apple’s 30% fee leads to higher prices for consumers (as the fee is passed on to subscribers). It is unlikely that challenging Apple’s ability to charge a fee to app developers will come for free; it will most probably be compensated elsewhere (possibly in the form of more expensive devices and/or services for end consumers). Once again: one cannot assume that the undesirable aspects of a business model can be removed without consequences.

I look forward to seeing how these central questions are addressed in the case. And I look forward to your comments, in particular if you see things differently. As you know, I have nothing to disclose in this or indeed in any other matter.