Chillin'Competition

When reading the General Court’s renvoi judgment in Intel, I immediately thought that the annulment of the Commission decision is, above all, a reliable sign that the European Union has an effective competition law system. If administrative action were never quashed, it would mean either that the authority is too risk-averse (and therefore that there is insufficient enforcement across the board) or that judicial review is overly deferential (and therefore that there are insufficient checks in the system).

In this particular instance, moreover, it is difficult to see how, in spite of the inevitable footballising takes (‘upset’, ‘big win’, ‘blow’), the outcome represents anything other than a victory for EU competition law and policy.

It is true that the original decision was annulled. It is also true, on the other hand, that the judgment shows (just like the Court’s ruling on appeal) that the law is in line with the Commission’s enforcement priorities as outlined in the Guidance Paper and with the economic consensus (which has long emphasised that anticompetitive effects are not an inevitable outcome of exclusive dealing and conditional rebates). The institutional setup has delivered a legal outcome that comes a step closer to the optimum.

Some may retort that the case has taken too long and may even go as far as to suggest that the length of the proceedings (the original decision was adopted when I was still working on my PhD) is a sign of dysfunction in the system. I struggle to agree with this take.

The pace of law is not, and should never be, the pace of policy. The law, as interpreted by the Court of Justice, evolves slowly and incrementally. Those in favour of moving fast and breaking things may find it frustrating. In my view, however, the cautious process that characterises the EU legal order is a manifestation of the ‘Union of law’ and as such an effective check against arbitrary whims (it is also superior, for many of us, to a system based on administrative discretion).

The renvoi judgment: the implementation of an ‘arrêt cadre‘

As I have mentioned a number of times before, the Court’s 2017 judgment in Intel is an arrêt cadre: it was confined to providing a set of principles to be fleshed out when engaging with the facts in a particular economic and legal context. Because the judgment was relatively brief, it opened the door to some speculation about its exact meaning. This week’s ruling clarifies a few crucial points:

First (para 124), the ‘by object’ status of exclusive dealing and loyalty rebates is based on a presumption that these practices are capable of restricting competition (that is, of foreclosing equally efficient rivals). This presumption can be rebutted by a dominant undertaking. As a result, the Commission had erred in law by arguing that it was not necessary to evaluate the rebates’ capability to foreclose competition (para 145).

Second (para 165), where the Commission’s case is based on the ‘supposition’ that the behaviour under consideration cannot be explained on grounds other than the restriction of competition, the decision will necessarily be annulled where the dominant undertaking provides evidence casting the facts in a different light. This point is particularly important in relation to ‘by object’ abuses (unsurprisingly, para 165 cites two Article 101 TFEU cases).

Third (paras 119 and 125), the evaluation of the foreclosure effects of the rebate scheme must be based on all five criteria identified by the Court of Justice in para 139 of its judgment, namely: (i) the extent of the dominant position; (ii) the coverage of the practice; (iii) the conditions and arrangements for the award of the rebates; (iv) the length and amount of the latter; (v) and the existence of an exclusionary strategy.

Fourth, the ‘as efficient competitor’ test is not an indispensable ingredient of the analysis (para 126). However, such test will be a relevant factor where the Commission has carried it out as part of its assessment of the foreclosure effects of the rebate scheme.

One is tempted to add that, in practice, the ‘as efficient competitor’ test will feature prominently. As the General Court explains in paras 152-159, this test may show that an equally efficient rival would be able to match the dominant firm’s prices and is therefore likely to be advanced by any dominant firm in a case involving conditional rebates.

The assessment of anticompetitive effects is a meaningful one

A fundamental lesson to draw from this renvoi judgment is that the assessment of anticompetitive effects in EU competition law is a meaningful one. It is not a formality. What is more, merely showing that rivals are placed at a disadvantage is clearly insufficient to establish actual or potential foreclosure to the requisite legal standard.

If you read the various sections devoted to each individual scheme, you will see the detail into which the assessment goes. The additional factors need to be robust enough to cast doubt on the prima facie findings resulting from the ‘as efficient competitor’ test. Similarly, the nature and operation of the rebates will be subject to a detailed analysis.

More generally, the judgment confirms the importance of the coverage of the practice to evaluate its impact. In this regard, it notes that the contested decision failed to determine this factor (para 499), which would place the said decision at odds with the Court’s judgment in Intel and, importantly, with the Commission’s own Guidance Paper.

Final thoughts

It would be very difficult to argue that the many lessons to draw from the renvoi judgment apply exclusively to rebate schemes. Some points are relevant across the board, and certainly beyond price-based conduct. This is obviously true of the factors in light of which actual or potential foreclosure is assessed. For instance, it would be difficult to credibly claim that the coverage and/or the nature of the practices would not play a role non-price-based cases.

The possibility for firms to provide evidence showing that a practice can be explained on grounds other than the restriction of competition is also obviously applicable across the board. This point would be of particular relevance in relation to the so-called ‘naked restraints’ in Intel. These restraints were assumed to have an anticompetitive object. However, they always seemed to me like exclusivity obligations by another name, and thus capable of being rationalised on pro-competitive grounds.

I very much look forward to your comments (as always, nothing to disclose). Have a wonderful weekend!

Every year Fernando Castillo de la Torre (Director of the Competition team at the Commission’s Legal Service) and Eric Gippini-Fournier (recently appointed as Competition Hearing Officer) coordinate a high-level, one-afternoon seminar in the context of the IEB competition law course. They always make sure that this is one of the top-quality seminars in our field.

Unfortunately for those of us who were planning to travel to Madrid, we have now decided to move the discussion online. This should nonetheless be good news for those of you interested in joining remotely.

For more information and registrations, please write to competencia@ieb.es

The program is the following:

16:00 – 17:45: The review of the horizontal guidelines and block exemptions, and “sustainability agreements”

–Georgiana Capraru Ianus. DG Competition, European Commission.

–Belén Irissarry. Clifford Chance.

–Giorgio Monti. Tilburg University.

–Ekaterina Rousseva. Legal Service, European Commission.

Chair: Fernando Castillo de la Torre. Legal Service, European Commission.

18:00 – 20:00: The meaning and relevance of competition “on the merits”

‐Helmut Brokelmann. MLAB Abogados.

‐María Pilar Canedo. Comisión Nacional de los Mercados y la Competencia and Deusto University.

‐Damien Geradin. Geradin Partners.

‐Viktoria Robertson. University of Economics and Business, Vienna.

Chair: Eric Gippini-Fournier. Competition Hearing Officer, European Commission.

In a very questionable use of his free time, Nuno Carrolo dos Santos (Vieira de Almeida) has spent years compiling a themed Spotify playlist of 101 songs that might be appealing (or maybe not) to competition experts.

You can check out this work of a lifetime here: Spotify – Antitrust Music

The playlist includes (real) songs like “Oligopsony Sucks”, “Cartel Swag”, “Short Form and/or long Form”, “Monopolistic Industry”, “Deadline and Commitments”, “State aid Blues” and “Predatory Impalement”.

Nuno has made the list collaborative so that other people might be able to add new songs. The geekiness bar is high, but no such bar is too high for the readers of this blog.

All featured musicians should be honoured and humbled to have made it to such a prestigious playlist. Given the Bob Dylan Nobel prize precedent, however, they will surely be left wondering why there are no writing award categories for the best lyrics in a sort-of-antitrust-themed song (subdivided by area of competition law and type of music, of course).

Oxford University Press has just published the 4th edition of the procedural bible in EU competition law. EU Competition Procedure (edited by Luis Ortiz Blanco) is, as you know, an essential facility for anyone active in our field.

My very first task as an intern, in my first contact with competition law some 17 years ago, was to do research for the 2nd edition of this book. Since then I have been fortunate to join a distinguished team of authors that, in this edition, includes Corneliu Hödlmayr (European Commission), Johannes Holzwarth (European Commission), Konstantin Jörgens (Garrigues), Manuel Kellerbauer (European Commission), Luis Ortiz Blanco (Garrigues), Ralf Sauer (European Commission), Ailsa Sinclair (European Commission), Maria Luisa Tierno Centella (CNMC), Marcos Araujo Boyd, Nicolas von Lingen (European Commission), José Luis Buendía (Garrigues), Jean-Paul Keppenne (European Commission), Carlos Urraca Caviedes (European Commission), Kieron Beal, (Blackstone Chambers) and Gordon Blanke (Blanke Arbitration).

Readers of Chillin’Competition interested in buying the book will receive a 30% discount, courtesy of OUP. The discount will apply automatically if you click on this link.

The story of competition law is, above all, a story of eternal returns. It is a story of well-established doctrines that are progressively eroded until it becomes clear they were right all along and repentant authorities return to them. A story of disdain for economic analysis that is followed by enthusiastic embrace and subsequent abandon in favour of other approaches.

Against this background, I thought it would be fitting to start the blogging year exactly where I left it at the beginning of 2021 (see here). In that post, I explained that the case law distinguishes between abuses ‘by object’ and ‘by effect’. In other words: some behaviour is deemed abusive without it being necessary for the authority or claimant to show that it has an actual or potential impact on competition.

Almost exactly a year later, in this Groundhog Day of sorts, we have gone full circle. The issue has come to the fore again and I find myself writing about it. The Google Shopping judgment is part of the reason why. In a particularly interesting (but wholly inconsequential for the outcome of the case itself), the General Court touches upon the question (see paras 435-437 of the judgment).

Advocate General Rantos’s Opinion in Servizio Elettrico also addresses the point, and goes as far as to claim, uncontroversially, that there is no such thing as a per se abuse in the EU legal order (see para 55 of the Opinion).

So, coming back to the question: are abuses ‘by object’ a thing? There should be no doubt about it, in my view. This said, it makes sense that I spend some time on legal terminology to avoid misunderstandings.

A practice is said to be prohibited ‘by object’ (whether under Article 101 or 102 TFEU) where two conditions are met. First, the breach of competition law can be established without it being necessary to demonstrate the actual or potential anticompetitive effects in the relevant economic and legal context. Second, the behaviour in question is prohibited because its object, or its ‘precise purpose’, is anticompetitive.

Under that definition, it seems clear that some conduct amounts to a ‘by object’ infringement under Article 102 TFEU (if there was any doubt: other potentially abusive practices are firmly ‘by effect’). The best example of ‘by object’ behaviour, and the one I often use, is that of predatory pricing within the meaning of AKZO.

If prices fall below average variable costs, the behaviour is deemed abusive. There would be no requirement for the authority or claimant to demonstrate the anticompetitive effects of such conduct. In fact, the Court expressly rejected, both in Tetra Pak II and Wanadoo, the need to establish the dominant firm’s ability to recoup its losses (which amounts, in essence, to establishing its likely impact on consumer welfare).

What is more, pricing below average variable costs is abusive because it can be safely presumed to have an anticompetitive object. As the Court puts it, such conduct makes no sense other than as a means for the dominant firm of ‘eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position‘.

AKZO is just one of several examples (for more, see here). If a practice is restrictive of competition by object under Article 101 TFEU, it is also deemed abusive by its very nature in the context of Article 102 TFEU. This point was explicitly addressed in Sot Lelos in relation to conduct aimed at partitioning the internal market (paras 65-66 of that judgment).

If, in light of these examples, it seems difficult to dispute that abuses ‘by object’ are a thing, why is the issue still controversial? I can think of two main reasons:

• The fact that a finding of abuse presupposes anticompetitive effects.
• The confusion between per se and by object infringements

Anticompetitive effects and allocation of the burden of proof

A finding of abuse presupposes that the practice is liable to produce anticompetitive effects (as the Court held in Generics). This (well-established) point of law is probably the most important source of misunderstandings.

Contrary to what is sometimes suggested, the above principle does not say anything about whether there is such thing as an abuse ‘by object’. It simply states that, for a practice to be prohibited under Articles 101 and 102 TFEU, it must be capable of producing anticompetitive effects. If it is not liable to producing such effects, it does not amount to an infringement.

The principle applies irrespective of whether we deal with ‘by object’ or ‘by effect’ conduct. In T-Mobile, the Court clarified that, for an agreement to restrict competition by object, it must be capable of having anticompetitive effects. In Murphy, we learnt that, where an agreement of that nature is not liable to produce such effects, it falls outside the scope of Article 101(1) TFEU.

The difference between ‘by object’ and ‘by effect’ conduct does not hinge on whether the practice can have anticompetitive effects. Such effects are a precondition for intervention. The difference between the two categories is another one. It has to do with the fact that anticompetitive effects are presumed in the case of ‘by object’ conduct and therefore need not be proved by the authority or claimant.

Since it is a presumption, firms can produce evidence showing that, in a specific economic and legal context, the behaviour is incapable of having anticompetitive effects. This is true of ‘by object’ conduct under both Articles 101 and 102 TFEU.

As far as Article 101 TFEU is concerned, the point was made explicit in Murphy, and the case law provides several examples (think of E.On Ruhrgas). In the context of Article 102, the clarification in Intel addressed this very question.

The confusion between ‘by object’ and per se

Another source of misunderstandings comes from the tendency to use per se and ‘by object’ as synonymous, or to believe they work in the same way.

It has been said many times (this article by Eric Gippini Fournier does so particularly eloquently) that per se infringements do not exist in EU competition law and that per se is a category that does not find easy accommodation in that legal order.

One key difference between per se and ‘by object’ (that is, the possibility to provide arguments showing that the practice is incapable of having anticompetitive effects in the specific economic and legal context) has been identified above. A second key difference between these two concepts is that it is always possible, both under Articles 101 and 102 TFEU, to provide arguments showing that the behaviour is on the whole pro-competitive.

If these differences are ignored, and ‘by object’ is assumed to mean ‘per se’, it is easy to see how one can be tempted to claim that there is no such thing as an abuse ‘by object’. Such positions, in any event, have little to do with the reality of the case law and the actual operation of the category.

Last year, LSE Law School launched the first edition of two Short Courses, one on Advanced EU Competition Law and one on State Aid and Subsidies Regulation. These courses are part of the activities organised around the Jean Monnet Chair that I am proud to hold.

I could not have asked more of the first edition: it was most productive and enjoyable. The format chosen (the courses run online and take place on Friday afternoon over four weeks) allowed professionals to take part in it and contributed to creating a unique atmosphere.

Along with the New Year (Happy 2022!), the Second Edition of the two Short Courses has now gone live. This second iteration is particularly timely, with both competition law and State aid undergoing major transformations almost by the minute. We will discuss these developments and provide a framework to help you make sense of them in their broader context.

For detailed information on each of the two courses (including on the schedule of the sessions and on how to register), please click on the relevant webpage below:

Advanced EU Competition Law (Friday 29th April 2022, 6th May 2022, 13th May 2022 and 20th May 2022).

This course is designed with experienced competition lawyers and economists in mind. It goes beyond the basics and provides the necessary tools to think about, and put in context, recent case law and administrative practice. We will be addressing the ongoing transformations by reference to the fundamentals of the field. The short course is structured around four sessions on agreements, abusive practices, mergers and digital markets.

State Aid and Subsidies Regulation (Friday 27th May 2022, 10th June 2022, 17th June 2022 and 24th June 2022).

Very few institutions offer a dedicated module on State aid, and most officials and practitiones have no choice but to learn the craft along the way. This short course is designed to fill this gap by providing a comprehensive framework. I would very much welcome participants who wish to expand the range of their expertise as well as postgraduate students. This short course covers the key aspects of the EU regime (both substantive and procedural) and also covers the UK subsidy control regime.

Both Short Courses will be delivered online again this year. The times remain unchanged: sessions will take place on Friday afternoon (2pm-6pm London time).

An LSE certificate will be available upon completion, along with CPD points for practitioners.

If you have any questions about the organisational aspects of the two courses, do not hesitate to contact my colleague Amanda Tinnams: A.Tinnams@lse.ac.uk.