On the Android hearing (Case T-604/18): when competition law challenges business models
Few cases are as exciting and potentially as consequential as Android. The hearing before the General Court is now well under way. For us outside observers, Lewis Crofts‘ quasi-live tweeting is truly invaluable (witty and insightful as ever, and this time with a fascinating digression about the differences between the dental and the alveolar ‘d’ in MADA).
Today’s session was devoted to the tying aspects of the decision. In this respect, the case is more interesting than the Microsoft saga (and thus not simply a re-run of it). In the latter, the Commission did not question Microsoft’s monetisation strategy: the dominant firm could carry on making money via licensing Windows and other software, just as it had done prior to the decision.
In Android, on the other hand, the Commission challenged the primary mechanism through which the firm monetised its assets (the licensing, free of charge, of a set of applications conditional on their pre-installation). As I have explained before, the decision is akin to finding that a free-to-air broadcaster’s business model (which involves the bundling of content and advertising) is anticompetitive.
Does it make a difference that a decision finds that the core of a firm’s monetisation strategy (as opposed to a peripheral aspect thereof) is anticompetitive? As I tried to explain in this paper on product design and business models, it does. Does the case law account for that difference? I think so.
I can gather from Lewis’ tweeting that the counterfactual was at the heart of the discussion. This is hardly surprising (I already identified the point in this post, drafted a lifetime ago). The identification of the relevant counterfactual is inevitably more complex when intervention in a case challenges the firm’s very business model, as in Android.
Arguing that a particular monetisation strategy restricts competition means little unless we identify a relevant benchmark against which the validity of the claim can be assessed. If a business model is said to be anticompetitive, the question should be: ‘anticompetitive compared to what?’. What does the but-for world look like? Can we say that the strategy restricts competition that would otherwise have existed?
From the outset, the Court emphasised the need, for an authority or claimant, to identify the counterfactual against which effects are established. Competition, the ECJ told us in Société Technique Minière, must be understood as such competition which would have existed in the absence of the contentious practice.
This analysis may reveal that there is no restriction of competition after all. Perhaps the monetisation strategy was objectively necessary for the firm. Perhaps an alternative business model would have made room for less, not more, competition. Nothing in the case law suggests that dominant firms are not entitled to monetise their assets. For the same reason, one cannot simply assume that the but-for world is one in which rivals would have had the same opportunities to compete.
The bottomline, in theory and practice: one cannot take for granted the positive or uncontroversial aspects of a business model and assume that they would remain untouched when other aspects, deemed undesirable, are removed or tinkered with. If a monetisation strategy is challenged, it is challenged with all the consequences (both intended and unintended). A meaningful analysis of its impact can only consider them without exceptions.
There are not many details, so far, about how the counterfactual was discussed at the hearing, and in how much detail. It will be fascinating to see how the General Court engages with it in the judgment. Lewis did mention that the burden of proof came up (which was predictable, as it is a crucial step when establishing the actual or potential effects of a practice).
As far as I can gather, the discussions about the meaning of anticompetitive effects have also been interesting. And I look forward to the discussions around the AFA aspects of the case (by far the most interesting in my view, if only due to the absence of obvious precedents). Hopefully I will be able to write about both. To end on a predictable note: nothing to disclose.
Chillin'Competition 
You’ll be disappointed to know how little the counterfactual was discussed so far: either in the Commission’s defense, or in the questions of the Judges …
Kay
28 September 2021 at 7:43 pm
I am not sure disappointed is the word; surprised, perhaps? Must have been fascinating to be there!
Pablo Ibanez Colomo
28 September 2021 at 7:59 pm
Not surprising that judges appear so far to be rather uninterested in the specific topics you discuss (multiple sources say). Why should a counterfactual be relevant here? Does any 102 judgment actually mention it (Generics only mentions it for 101)? When dominant undertakings have argued that the effect would happen anyway (a sort of counterfactual?), the reply in judgments has been rather dismissive (see eg T-321/05, § 836).
Are dominant undertakings not bound by special responsibility which means that they are not so free to design their business model? Are business models sacred and untouchable even by basic provisions of EU law constitutional nature? Not even partly? Must competition “controlled” by the dominant company (eg instrumental to its business model, and therefore serving ultimately the interest of the dominant undertaking and developed under its supervision) even if it were to exist, really be weighed against the competition not controlled by dominant undertaking that could exist in the absence of the conduct? Do they deserve equivalent protection in law? Just asking.
Joan
28 September 2021 at 8:13 pm
Thanks, Joan – some of your questions go to the heart of the discussion and help move it forward
Article 102 TFEU judgments have clarified, as you know, that ‘not every exclusionary effect is detrimental to competition’. Some effects are not ‘attributable’ (Post Danmark II) to the behaviour of the dominant firm but to the fact that rivals are less efficient and thus less attractive.
Evaluating whether any effects are ‘attributable’ to the dominant firm involves, by definition, considering the counterfactual.
And Generics would only reinforce the point: I cannot think of a good reason why the analysis of effects would be performed differently under Articles 101 and 102 TFEU. How can competition and effects have different meanings depending on the applicable provision (in particular taking into account Generics and van den Bergh Foods scenarios)? Would make no sense to me.
I do not question the special responsibility of dominant firms, but bringing it up is really useful.
It allows me to rephrase my point differently: I do not believe dominant firms’ special responsibility means that they do not have the right to monetise their assets. Accordingly, one cannot assume as given that, absent the contentious practices, they would give up the profit-making motives of any firm in a system based on undistorted competition.
The last questions do not seem to relate to any point I was making. Are business models sacred and untouchable? Certainly not. Does the special responsibility of dominant firms mean that their business models will sometimes be found to be abusive? Of course.
The point I was making is far more modest (and, I would have thought, uncontroversial): evaluating the counterfactual when the core of a business model is challenged is more difficult than when it is not.
I develop the argument in this paper. Your comments would be most welcome: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3925396
Pablo Ibanez Colomo
29 September 2021 at 8:43 am
I will not entertain the readers any longer, so that they can follow Lewis’ tweets. Your comment “fait abstraction” of the evidence in the file (including internal documents) or the text of the decision. The issue is “how” to monetise an asset, as the means to achieve an objective are important. If the “core” of a business model were to eliminate competitors (general statement here, not necessarily related to the case), I am afraid there is nothing uncontroversial in saying that the core could well be incompatible with 102. The last queries relate to your narrative of comparing pro-competitive and anti-competitive aspects of a conduct (in the context of 102, which is structurally different from 101), a point dear to your heart. But maybe too high level to discuss it here. Anyway, I take it that you have not been able to find any 102 judgment referring to the counterfactual (or rather your version of it) either.
Joan
29 September 2021 at 10:08 am
Dear Pablo,
I guess what got a (first) answer today (376-378):
“378 Therefore, in the context of the allocation of the burden of proof referred to in
paragraphs 132 to 134 above, for the purpose of demonstrating an infringement of
Article 102 TFEU, particularly as regards the effects of practices on competition,
the Commission cannot be required, either spontaneously or in response to a
counterfactual analysis put forward by the undertaking being challenged,
systematically to establish a counterfactual scenario in the sense referred to above,
contrary to Google’s contention. That would, moreover, oblige it to demonstrate
that the conduct at issue had actual effects, which, as will be noted in more detail
in paragraphs 441 and 442 below in the examination of the first part of Google’s
fourth plea, is not required in the case of an abuse of a dominant position, where it
is sufficient to establish that there are potential effects.”
The General Court did not appear very impressed by your “business model” arguments either.
Joan
10 November 2021 at 4:39 pm