Chillin'Competition

On 15 June the General Court (“GC”) annulled the Commission’s decision imposing a close-to-1-billion euro fine on Qualcomm in relation to alleged exclusivity payments made to Apple in breach of Article 102 TFEU. [For some helpful background on the Commission’s decision see this guest post from Max Kadar that we published in 2020].

I have no involvement in the case (beyond good friends on both sides), but I followed it closely and attended the public part the oral hearing. As I told many colleagues then, I left with the impression that Qualcomm could win based on a mix of interrelated procedural and substantive arguments.

The case is unique for various reasons. First, it concerns a single agreement with a single customer, Apple, which happens to be the largest company in the world. Second, the case appears to have been very largely based on information and documents provided by Apple itself (see e.g. ¶222). Third, it is quite extraordinary to see a full annulment in an abuse of dominance case. Fourth, it is a rare case where the procedural errors identified by the Court take center stage and have a material impact on the outcome of the case.  

At the same time, however, my view is that this Judgment does not materially move the law in any way, certainly not in a way that may hinder the Commission’s ability to bring and win future cases. The Judgment simply requires the Commission to fulfill its (post-Intel) obligations regarding both procedure and substance. There is no attempt to create new law, no extravagance, no adjectives, no unnecessary obiter dicta; just a clear, logical and thorough application of the law to a unique set of facts. For those reasons, I very much doubt the Commission will contemplate an appeal.

This first post deals with procedure; I will discuss substance and other general comments in a second post.

Procedure

The Judgment is a must-read for anyone interested in competition procedure. It contains interesting discussions on admissibility of evidence, the practical application of measures of organization of procedure, and the Commission’s procedural obligations; it also provides details on Qualcomm’s smart move of resorting to a Section 1782 discovery request to obtain the evidence that might have been decisive to win the case:

On Section 1782. This is a provision that authorizes U.S. Courts to order persons in the US to provide information or documents “for use in a proceeding in a foreign or international tribunal.” It has attracted EU competition attention before, mainly when AMD tried to use it to gather information to boost its complaint against Intel (see here). [Side note: only two days before the Qualcomm Judgment the US Supreme Court severely restricted the use of this provision in arbitration proceedings; the SCOTUS has done much worse lately, though)]. Qualcomm brought its Section 1782 application after the Decision was adopted, in anticipation of judicial proceedings (see ¶140).

Rights of defence: Minutes and meeting notes. The CJEU already clarified in Intel that the Commission is required to take minutes of all meetings with third parties, and that Article 19 of Reg. 1/2003 makes no distinction between formal and informal meetings. In the Qualcomm case, the Commission argued that it is only required to draft “succinct notes” of meetings where parties provide inculpatory or exculpatory evidence. The Commission also acknowledged that:

• it had regrettably and inadvertently failed to provide any notes of one meeting and 3 conference calls (two competitors and two customers) prior to the adoption of the Decision (¶166; by the way, the last sentence in that paragraph may help you identify the most important of those third parties);
• it had held another meeting and another conference call with a third party which were never disclosed to Qualcomm and for which, regrettably, no notes existed. It appears that the Commission acknowledged this meeting in the context of litigation before the GC after Qualcomm learnt about it via Section 1782 discovery proceedings (see ¶231 in combination with ¶¶121, and 241-243). The identity of that party is confidential, but para. 234 appears to give a hint and reduce options to essentially two.
• before the opening of proceedings there had been a meeting with an anonymous third-party informant who provided inculpatory evidence; the Commission had taken no records of this meeting, which was only disclosed to Qualcomm during the litigation proceedings following a GC inquiry (¶¶269-273).

The Qualcomm Judgment clarifies that conference calls and meetings all fall within the scope of Art. 19 of Reg. 1/2003 (which is hardly controversial), and also that minutes must give meaningful “indications of the content of the discussion” (¶190), and “indicate the information gathered” (¶200). The Judgment acknowledges the recent case law indicating that Art. 19 does not apply to interview held before the formal opening of proceedings (¶276, citing the questionable judgment in Casino, currently under appeal). Regardless of that, the GC finds in this case that Commission’s obligations to ensure companies’ rights to access the file cannot be bypassed by resorting to the use of inculpatory information provided orally and require the Commission to draw notes and place them in the file (¶279).

Impact of procedural breaches on the outcome of the case. Pursuant to the case law cited at ¶160, procedural breaches may infringe rights of defence where a company shows that it would have been better able to defend itself absent the procedural error. [Longtime readers may remember that we had a panel debating these issues: “And so what? Procedural violations in EU competition law”: at our 2018 conference].

In Intel the Commission’s failure to take adequate minutes did not result in a violation of rights of defence. In Qualcomm the GC does consider that this error warrants the decision’s annulment. Why? First, because of the identity of the parties at issue (notably the one customer and the allegedly foreclosed rivals; ¶¶203-207). Second, because the sparse notes, or the absence of any notes, made it impossible to ascertain the possible relevance of the meetings (¶¶207-209, also 256-259 and 291-294). Third, because all these contacts related to the case and to Qualcomm’s business practices (¶¶210-211 and 239-245, 290).

Fourth, (and pay attention, because this is what ties procedure with substance and what may largely explain the outcome of the case), the Court repeatedly insists that the likely relevance of those meetings is also confirmed by “the content of the contested decision and the specific circumstances of the present case” (¶213; other references to the specific circumstances of the case can be found at ¶¶202, 221, 223, 224, 252, 266, 288, 291-292, 295-296). Despite redactions, ¶¶216-218, 223-224 and 263, 265 might help you understand what the Court has in mind; essentially: it cannot be ruled out that Apple the customer and competitors could have provided info as to whether competitors could truly have satisfied Apple’s requirements absent the exclusivity provisions. As discussed below, it turns out they could not have satisfied those requirements; it would appear that the Commission was somehow misled into believing otherwise, or in any event failed to verify it adequately. We will come back to this when we discuss substance.

Differences between the SO and the Decision. While the SO related to an alleged abuse on the markets for UMTS and LTE chipsets, the Decision’s scope was narrowed down to LTE chipsets alone. While this was to Qualcomm’s benefit, the narrower scope of the case meant that the evidence put forward by Qualcomm to deny that its practices were capable of foreclosing competitors (a critical margin analysis concerning both the UMTS and the LTE chipset markets) was no longer relevant (the GC notes that the decision itself also relied on a revised version that was no longer relevant; ¶328).

Following a summary of the case law on the relevance of SOs (¶¶307-310), the GC preliminarily notes that (i) abandoning objections does not imply a procedural error (¶¶313-314), and (ii) the Commission was not required to provide Qualcomm with the opportunity to comment on the reasons leading to that view (only on the matters of fact at law at the basis of that decision) (¶315). The GC, however, observes that “the possibility for an undertaking to submit that conduct is not capable of restricting competition, and in particular, of having foreclosure effects by relying on an economic analysis such as the critical margin analysis (…) is of no practical effect if the scope of the conduct concerned is modified by the Commission after the [SO] (…)” (¶352, developed in ¶¶333-337). The GC rules that the principle of observance of the rights of defence requires the Commission to bring to companies’ attention any modification of the scope of its objections that may be relevant for them to be able to make their views effectively and, where necessary, to adapt their analysis and evidence (¶¶338-340).

Comments

If you made it this far down the post, you will have realized that the case concerns a pretty unique set of facts. The Judgment shows, once again, that the GC takes rights of defence seriously. What is remarkable is that the GC goes beyond the usual slap on the wrist and finds that procedural irregularities suffice to annul the decision in its entirety. The GC does not attribute any relevance to the number of procedural errors nor to their seriousness; instead, it finds that the link between these procedural errors and the decision’s theory of harm makes the infringement of Qualcomm’s rights of defence particularly problematic.

Looking forward, it will not be difficult for the Commission to avoid repeating these errors. I see nothing in the Judgment that would place a heavy or disproportionate burden on the Commission’s case management; the Judgment is not too demanding, nor is it too harsh.

In my personal view, this Judgment should mainly be taken as a call for greater awareness. We come from a time when reliance on cooperation/negotiation proceedings (commitments, settlements, cooperation procedures, etc) may have relaxed attitudes vis-á-vis procedural matters, fundamental rights and rights of defence. That this relaxation may happen naturally (and not be matter of bad faith) is only one more reason to make an extra effort to prevent it. This Judgment reminds us, perhaps at the right time (I also have the DMA in mind now), that procedure and rights of defence should not be afterthoughts, for they are what make public enforcement sound, effective and legitimate.

We are delighted to announce the Third Edition of the writing award in the memory of our friend and colleague, Rubén Perea Molleda. As in previous editions, the winning paper will be published in a special issue of the Journal of European Competition Law & Practice, together with a selection of the very best submissions received (have a look at the special Issues of March 2021 and April 2022).

The winners of the two previous editions received their awards from Executive Vice-President Vestager on 22 March 2022. EVP Vestager will also deliver the award to the winner of the upcoming 3rd edition.

Who can participate?

You may participate if you have not reached the age of 30 by the submission date (i.e., if you were born after 15 September 1992). Undergraduate and postgraduate students, as well as scholars and practitioners are all invited to participate. If you are too old reading this and do not fulfil the criteria, please feel free to promote this opportunity among your junior colleagues or students.

What papers can be submitted?

You may submit a single-author unpublished paper which is not under consideration elsewhere. The paper may be specifically prepared for the award or originally drafted as an undergraduate or postgraduate dissertation.

The paper must not exceed 15,000 words (footnotes included; no bibliography needed).

Prior to submission, please make sure your paper follows the JECLAP House Style rules, which can be found here.

How to submit?

Please submit the paper via this link: https://mc.manuscriptcentral.com/jeclap.

IMPORTANT: As you go through the submission process, make sure that in Step 5, you answer YES to the question ‘Is this for a special issue’? and indicate that it is for the Rubén Perea Award.

What is the deadline?

Papers will have to be submitted by 23.59 (Brussels time) of 15 September 2022.

I have uploaded on ssrn (see here) a new paper, which deals with the application of Articles 101 and 102 TFEU to sporting activities. There is no need to point out how topical and important the issue has become, given that the Court hearings in International Skating Union and Super League are around the corner.

The paper builds on some posts shared on the blog (see here and here) and, in particular, a seminar delivered in the context of the mardis du droit de la concurrence at ULB.

It would be wonderful to hear your views on the piece, the main points of which can be summarised as follows:

First, it would be incorrect to see participants in a sports tournament (such as a football team) exclusively as competitors. The worth of participants depends on their ability to rival each other. In addition, cooperation between them allows them to offer something (a tournament, a championship) that is more than the sum of its parts (a collection of disparate games).

The consequence, for the purposes of competition law, is that organised sport is best understood as a joint venture in which participants both compete and cooperate (‘co-opete’) under the umbrella of a governing body. From this perspective, they are analogous to franchising and selective distribution systems.

Second, frictions of a horizontal and a vertical nature are bound to arise in organised sports. Frictions are said to be vertical when they involve governing bodies and individual participants. As recent cases show, opportunism is a potential source of vertical frictions.

Some participants may be tempted to undermine the joint venture (for instance, by setting up competing tournaments) while simultaneously trying to benefit from it. This behaviour is common, and a fact of business life. EU competition law has form dealing with opportunistic conduct (think of cases like Remia or Cartes Bancaires).

Third: what cases like Remia and Cartes Bancaires tell us is that measures aimed at tackling opportunistic behaviour (for instance, a seller setting up shop next door to the business it has just sold) are not restrictive of competition by object.

However, these measures may have anticompetitive effects. Ordem dos Técnicos Oficiais de Contas provides a comprehensive framework for the assessment of the restrictive impact of regulatory measures such as those laid down by sports governing bodies.

Fourth, controversies in the most recent cases can be primarily explained by a tendency to conflate (i) the question of whether an agreement is objectively necessary and (ii) that of whether it has a restrictive object.

Fifth, and in the same vein: some of the most recent developments appear to have introduced a fundamental transformation. What used to be a safe harbour (a set of conditions under which the agreement escapes the prohibition altogether) is now being transformed into strict requirements that sporting organisations need to satisfy to avoid a finding of infringement.

This transformation from safe harbour to minimum requirements seems to be the consequence, at least in part, of the influence of Article 106 TFEU case law. MOTOE has been cited as a precedent in support for this stricter stance vis-a-vis sports governing bodies.

However, these references to MOTOE miss a crucial aspect of this case: the preliminary reference from the Greek court concerned the lawfulness of national legislation under Article 106 TFEU. The case was not about the legality of regulations set by an autonomous body. Accordingly, MOTOE is only of limited relevance (if at all) in the latter scenario (at stake in the most recent developments).

The application of Article 106 TFEU standards into the case law would fundamentally change the approach of competition authorities to sports governance. Inevitably, competition authorities would be frequently asked to strike the right balance between cooperation and competition. Legal considerations aside, this shift would have major consequences from a policy-making standpoint.

Finally, I draw some lessons for some of the most interesting pending issues in sports regulation, including the following:

• Salary caps, which limit how much teams can spend, do not seem to be restrictive by object; what is more (and as per Wouters and Meca Medina), they do not necessarily have anticompetitive effects. The object of salary caps is to enhance competitive balance betwen the joint venture (see, by analogy, Cartes Bancaires, where the contentious clauses were a response to a similar concern).
• Transfer restrictions, which would limit whether, and how, often, some teams can hire players from other participants, would not be restrictive of competition by object either. Again, the object would be to preserve competitive balance and accurately reflect interdependence.
• Finally, competition law is agnostic about open and closed championships. Nothing in the case law suggests that Articles 101 and 102 TFEU mandate a particular model. A system of promotion of relegation, which is a key feature of the European sports model, does not flow inevitably from EU competition law.

Please do not hesitate to reach out and share your thoughts with me (via the blog or email).

And: I have nothing to disclose.