Chillin'Competition

The Android judgment was widely awaited, not only because of its implications for the Commission’s policy, but because the underlying legal issues were intriguing and, in many respects, completely new. It was anything but a run-of-the-mill tying case.

In its decision, the Commission ventured where it does so only rarely: the core of a company’s business model. It did not question a peripheral aspect of the company’s strategy, but the central mechanism through which it appropriated the value generated by its activity.

In addition, there were some practices (such as the so-called AFA) for which there were no obvious precedents (at least not in the context of Article 102 TFEU enforcement).

The General Court’s ruling had thus the potential to clarify (and address for the first time) a number of issues. The impression one gets is that only some of them have definitely become clearer, and confirm the trend of the past few years. Others (perhaps the most novel and exciting ones) might require additional fine-tuning.

The points where the judgment brings clarity (if only because it confirms past trends) include the following:

• Tying is subject to an effects analysis (at least sometimes).
• The judgment confirms what an effect is not.
• We know that the coverage of a practice must be significant for an effect to exist (and this is different from appreciability and de minimis).

The points that remain to be clarified, in my view, comprise:

• The point at which an anticompetitive effect can be said to exist.
• The benchmark against which effects are assessed.
• The analysis of the attributability of anticompetitive effects.

What is clearer after the Android judgment

Tying is sometimes subject to an effects analysis

If I had been asked, before the Android judgment, whether tying is a ‘by object’ or ‘by effect’ practice, I would have replied that it is abusive irrespective of its impact on competition (that is, by object). The cases that made it all the way to the Court of Justice may be old, but they state what the law is.

Now, I would be more cautious when making statements about the legal status of tying. If the Court of Justice were to be asked about it (and it may not take very long for this to happen), it is more likely than not that it will hold that an effects analysis is a precondition for a finding of infringement (at least so in some instances).

The General Court openly acknowledges that, in the specific circumstances of the Android case, the anticompetitive impact of the tying conduct could not simply be presumed, and had to be established in light of the relevant economic and legal context (para 295, where it concludes that the Commission had been right to assess the effects of the practice it its decision and draws analogies with Microsoft).

The judgment confirms what an effect is not

The past decade gave us clarity about a key aspect of the analysis under Article 102 TFUE: an anticompetitive effect is more than a competitive advantage (or disadvantage) and more than a limitation of a firm’s freedom of action. In this sense, paras 280-282 of the judgment are particularly instructive.

These paragraphs are consistent with the case law, which has long suggested that an exclusionary effect exists where the impact of a practice is such that it hinders the ability and incentive of rivals to compete (and ‘thus allow[s] that [dominant] undertaking negatively to influence, to its own advantage and to the detriment of consumers, the various parameters of competition, such as price, production, innovation, variety or quality of goods or services‘, as explained in para 281).

This clarification marks a welcome departure from the tying aspects of the Microsoft case (and one that seemed inevitable, given the evolution of the case law). In that ruling, the General Court famously held that the mere fact that tying gives a competitive advantage to the the dominant firm is sufficient to establish foreclosure.

The Android judgment confirms that Microsoft does not reflect the case law. Thus, an authority would have to dig deeper to establish foreclosure to the requisite legal standard. How much deeper, you may be asking? This is precisely one of the points where we need more clarity. At least in relation to tying, drawing the line between a mere competitive advantage and an anticompetitive effect remains an exercise for which we have few tools.

My sense is that we need a set of workable proxies to spot anticompetitive effects in relation to several non-pricing behaviours, including tying. A meaningful assessment of the impact of a practice can only be conducted in light of proxies like coverage, which are both clear and administrable. In their absence, the whole evaluation is shrouded, by and large, in mystery. Which takes me to my next point.

The coverage of a practice must be significant for an effect to exist (and no, this is not about de minimis)

As was true in the Intel renvoi, the General Court ruled that the Commission decision had failed to appropriately consider the coverage of the exclusivity-like practices in Android (the so-called RSA restraints). The judgment, in fact, is incredibly valuable in this respect.

The General Court concludes that, properly considered, the coverage of RSAs was far from significant, in that they merely encompassed [10-20]% of the national markets for general search services. Such figures would be insufficient to limit rivals’ ability and incentive to compete.

At this point, you may be asking: is the requirement of significant coverage not an endorsement of the de minimis doctrine, which the Court expressly (and rightly) rejected in Post Danmark II? If so, is the General Court deviating from the case law? I do not believe so, for the reasons explained, a while ago, in this paper.

What Post Danmark II held is that, where an anticompetitive effect is established in an Article 102 TFEU case, such an effect will by definition be appreciable. Since the de minimis doctrine has always been about the market power of the firms involved in a practice, it has no place in scenarios that presuppose a substantial degree of market power.

What Post Danmark II did not hold, however, is that anything that dominant firms do amounts to an effect. This is where the confusion lies.

Holding that the effects, if established, will be appreciable, does not say anything about what an effect is. The latter is a separate question, and one that precedes the issue of de minimis. Thanks to the Intel saga, Android and Qualcomm, we know that (i) not everything is an effect and that (ii) if the coverage is insignificant an effect does not exist (and therefore appreciability does not even come into the picture).

I will follow up with a second part, since this post is already too long. In the meantime, please let me know your thoughts (nothing to disclose, by the way).

On September 19th 2022 EU Law Live launched its new Competition Corner, a section exclusively devoted to developments in the field of EU competition and state aid law. EU Law Live is a project devoted to the promotion and research of all areas of European Union law that has become a must-read for those interested in legal developments spanning beyond one practice area.

Chillin’Competition will be cooperating with this new project and with the driving forces behind it (namely ELL’s Editor-in-Chief Daniel Sarmiento and Competition Corner Editors Lena Hornkohl, David Pérez de Lamo, Lewis Reed and Pablo Solano).

Specifically, we will contributing to ELL’s Competition Corner with blog posts, op-eds and suggestions for symposiums. The first symposium is devoted to judicial review in EU competition law. In addition to our opening op-eds (here and here), the symposium will feature contributions from José Luis da Cruz Vilaça, Judge Alexander Kornezov, Paul Craig, Or Brook, Barry Rodger, Jorge Padilla, Assimakis Komninos, Fernando Castillo de la Torre and Silvère Lefèvre.

Stay tuned!

It is always a pleasure to share are recently completed paper (which can be accessed here) and invite comments. I am particularly delighted to do so today, as this piece is the first of my entries to be posted simultaneously via EU Law Live, which had the great idea of organising a symposium (the first of many, I hope) around it.

This particular entry, as much as the paper itself, is devoted to a topic that is close to my heart: judicial review in EU competition law. Some of you may remember that I presented these ideas at Cambridge back in March (see here for the post I prepared at the time). The end product, now available as a working paper, will be coming out before the end of the year in the Cambridge Yearbook of European Legal Studies.

Working on the paper gave me the chance to revisit the topic in light of some recent developments. Anyone who has devoted some thinking to the subject knows how hard it is, from a methodological standpoint, to determine whether judicial review is truly effective.

My suggestion – and my main argument here – is that this question that is best approached obliquely, that is, by identifying the techniques that the EU courts have developed over the years and that allow them to meaningfully scrutinise administrative action.

I call these techniques the ‘hallmarks’ of effective judicial review (hence the image accompanying the post). The analysis of these hallmarks is useful not only to understand how the EU courts operationalise an abstract remit, but also as a benchmark to identify individual instances where the intensity of judicial review may have varied.

I find it useful to divide the ‘hallmarks’ around three main themes or areas.

Some of the techniques relate to the way in which the EU courts engage with substantive law. There is no need to explain at length that the Commission enjoys no discretion when interpreting primary (and indeed secondary) EU law. Full review of issues of law has to be meaningful, in the sense that it has to go beyond a mere declaration or abstract commitment.

The case law suggests that, in practice, the EU courts go about implementing their mandate by crafting clear legal tests that are capable of constraining administrative action and against which the lawfulness of future decisions can be evaluated.

The four conditions set out in Magill are arguably the canonical example in this sense, and the one that comes to mind immediately. More recent examples include the (by now famous) five criteria laid down by the Court of Justice in Intel, and CK Telecoms, where the General Court introduced a structured set of factors akin to the Airtours conditions (yet another classic).

This technique would not be effective, however, if the Commission were allowed to disregard the applicable legal test in subsequent cases (that is, if the relevant criteria were only relevant to assess the legality of a single decision). Thus, another ‘hallmark’ of effective judicial review – at least as relevant as the preceding one – is the ‘stickiness’ of legal tests over time: the scrutiny of administrative action cannot meaningful if the law is allowed to fluctuate too much from one case to the next.

A second theme or area relates to the theoretical and empirical evidence on which administrative action relies. The case law suggests, in this regard, that effective judicial review implies verifying whether Commission decisions are grounded on the best available evidence. There are two dimensions to this ‘hallmark’. One of them has to do with the role of non-legal expertise. It would be impossible to meaningfully review administrative action if an administrative authority were able to disregard the expert consensus of a non-legal discipline that informs the interpretation of the law (including, to be sure, economics).

Another dimension relates to the need, for the Commission, to pay due regard to the relevant economic and legal context. It is not difficult to think of examples in which administrative action has been quashed for not fully considering the circumstances surrounding the case. For instance, there is a long line of Article 101 TFEU decisions that were annulled for failing to assess the effects of the practice against the counterfactual. Cartes Bancaires, where the Commission did not draw the legal consequences from the two-sided nature of the relevant market, is another wonderful example (not to mention Intel again).

Finally, some ‘hallmarks’ of effective judicial review have to do with the policy positions expressed by the Commission in Guidelines and other soft law instruments. It follows from the principle of good administration that an authority must behave in a manner that is consistent with the positions declared in one such instrument. If it ever deviates from them, one would expect, at the very least, an explanation of why it is appropriate to do so in a particular instance.

It is interesting to note, moreover, that both the Court of Justice and the General Court have expressly relied on the Commission’s Guidance Paper on exclusionary abuses in some of the most recent judgments (including, again, the Intel renvoi and Servizio Elettrico Nazionale). This last factor suggests that soft law instruments are valuable not only as a check for intertemporal consistency, but for another reason.

Typically, Guidelines and similar documents are an encapsulation of the expert consensus. This is true, inter alia, of the Guidance Paper itself or, say, the Guidelines on horizontal and non-horizontal mergers (both of which reflect the relevant advances in economics). If one takes this factor into consideration, it becomes clear that soft law can become an effective means to ensure that administrative authorities remain committed to the best available evidence (and not just to the policy positions declared in them).

I would very much welcome your comments (if there was any doubt: nothing to disclose, as usual). And remember that, thanks to the great crowd at EU Law Live, there will be a symposium where some of these ideas will be discussed (including a post by Alfonso). Do not hesitate to join the crowd of discussants!

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You can now register online (see here) for our Panel Discussion on (EU and UK) Subsidies Regulation (22nd September, Thai Theatre, 54 Lincoln’s Inn Fields), followed by a drinks reception.

We very much look forward to seeing many of you in person at LSE. if you have any questions about the event, do not hesitate to contact me or my colleagues at law.events@lse.ac.uk.

I will be discussing all things subsidies regulation (UK regime, EU foreign subsidies) with Claire Froitzheim (CMA), Natura Gracia (Linklaters), Thorsten Käseberg (German Federal Government) and Conor Quigley QC (Serle Court).

If, as we hope, you cannot join us in person on the day, you will be able to follow the panel online. Details will follow soon.

In a recent post I argued that “procedure and rights of defence should not be afterthoughts, for they are what make public enforcement sound, effective and legitimate”. That is a point worth emphasizing again, now in relation to the DMA.

The DMA gets rid of the constraints flowing from competition law as regards substance, but it largely mimics competition procedure, largely transplanting rules from Regulation 1/2003, only with higher sanctions and more discretion for the Commission. This means that procedural constraints, rights of defence and fundamental rights will be, at the very least, as relevant under the DMA as they are under competition law.

The Commission, of course, understands this and is fully committed to respecting fundamental rights (see e.g. page 11 of its legislative proposal). The DMA itself makes clear that “the rights of defence of the gatekeeper, undertaking or association of undertakings concerned shall be fully respected in any proceedings”.

But while this general statement is welcome, I fear that procedural issues may have been somewhat of an afterthought in the process leading up to the DMA’s final text. After all, the aim was to get rid of constraints, not about putting them in place (as D. Geradin has noted, “some of the companies supporting a strong DMA (because they are business users or rivals of large tech firms’ services) were quite effective in setting the agenda and shaping the DMA as it was negotiated“). On top of that, since procedural rules will be developed in a future implementing regulation, there may have been an assumption that someone will eventually think more in detail about those. That someone may not have an easy task; have you tried counting the number of different types of Commission decisions envisaged by the DMA?

The DMA will raise plenty of procedural challenges for enforcers, and at various stages. Gatekeepers may perhaps decide not to raise them (my sense is that companies are focused on ensuring compliance), but some of these issues will inevitably arise, perhaps via third parties. The following are only a sample:

— At the stage of designation, for example: how will the Commission interpret the rule (in recital 23 and Art.3(5)) that a gatekeeper designation can only be rebutted by reference to the quantitative thresholds in Art. 3(2)? This means that gatekeeper designations will ultimately be based on the qualitative criteria in Art. 3(1), but that companies will not be able to exercise their rights of defence directly in relation to those. So the Commission could rely on qualitative factor to designate gatekeepers not subject to the presumption, but companies could not rely on those same factors to rebut the presumption. Query: is this compatible with companies’ rights of defence?

— What procedural rights will third parties enjoy? Unlike competition law, the DMA is not so much about protecting consumers, but competitors/ third parties. It is not about market power, but about the importance of gatekeepers for third parties relying on them. Our experience under competition law shows that third parties play an important and active role at all stages of the procedure, perhaps particularly in relation to remedies. As noted above, third parties appear to have played a pivotal role in shaping the DMA, and they will no doubt make great efforts to have an impact on its enforcement; it would be important to establish a clear procedural framework for them too.

— As regards access to the file, will gatekeepers have access to all materials in the Commission’s file, including potentially exculpatory evidence, or only to those on which eventual decisions will be based (as one could arguably infer from the latest amendments to recital 88)? Will the file include non-confidential versions of all relevant documents and minutes of all contacts held with third parties as per the CJEU’s Intel and the GC’s Qualcomm Judgments?

— I am not sure that the indicative deadlines set in the final DMA text (e.g. 12 months to run full non-compliance investigations or 2 months for market investigations) may be realistic if parties (and third parties?) are to enjoy meaningful procedural rights. The anxiety about moving fast could perhaps create the temptation to take shortcuts. And since the DMA is partly born out of frustration with the length of the competition procedures, we should be particularly cautious about expediency. To give you just an example, Art. 30(4) DMA, provides that “delay caused to the proceedings” may be a relevant factor for the purposes of calculating fines (!). It would be important to clarify that exercising one’s rights of defence cannot be equated with causing undue delays.

— How will the Commission specify the obligations in Article 6? What criteria will it use to ensure equal treatment? What procedure will it use so that other affected gatekeepers might make their views known? It is easy for commentators to say that obligations should be specified on the basis of business models (typically in favour of one’s clients and to the detriment of their competitors), but it is much harder for enforcers to do this without interfering in competition between different business models.

— How will the Commission ensure the proportionality of remedies? Under the competition system and the Alrosa case law the Commission was able to accept commitments going beyond its preliminary concerns. Under the DMA, where commitments are only envisaged for systematic non-compliance proceedings, ensuring proportionality by reference to the alleged infringement and the gatekeeper’s fundamental rights will be of even greater importance (some of the recent commitments proposed by Amazon would arguably not have been attainable under the DMA). In addition, the Canal + Judgment also made clear that assessing the proportionality of remedies should take into consideration their impact on third parties’ contractual rights, and there is no reason why things would be different under the DMA.

These are only a few issues, but I can think of many others regarding, for example, transmission of evidence, the use of evidence previously gathered by the Commission under Arts. 101 and 102, the question of whether the Commission will hold oral hearings, the role of the hearing officer, the interaction with the competition rules and with other regulatory regimes and sanctions, etc.

For the DMA’s implementation to work well, the Commission will not only need additional resources, but also a sound system of procedural rules. In my view, these need to reflect the principle that the greater the discretion enjoyed by the authority, the greater the need to take procedure seriously. It is important for everyone to understand that procedural safeguards are not there to protect gatekeepers, but to uphold the rule of law in a democratic society. It is mainly on that front that the EU should lead the way.

In the brave new DMA world, in sum, we may not discuss anymore about market power, competition on the merits, effects or efficiencies, etc. but there remain fascinating issues to explore for anyone interested in the law.

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[Disclosure: I work for companies likely to be designated as gatekeepers, including for some directly targeted by the DMA. The views expressed in this post are strictly my own and have not been requested, nor paid for, by any clients. At the time of publication, I have not discussed this post with any of my clients].

The deadline to submit papers for the 3rd edition of the Rubén Perea Award is coming up (15 September, 23.59 Brussels time). If you are under 30, we would very much welcome your contribution (up to 15,000 words, including footnotes).

All relevant information about the award (including on elegibility, lenght, formatting requirements and procedure) is available here. Please remember that submissions are to be uploaded through the Journal of European Competition Law and Practice’s site (https://mc.manuscriptcentral.com/jeclap) indicating, in Step 5 of the process, that the submission is for a special issue.

Information about last year’s finalists, winner and awarding ceremony with EVP Vestager is available here.

We look forward to receiving your submissions and making the 3^rd edition of the Rubén Perea Award another success!

The rentrée has finally caught up with us, and with it, conferences and other events. I am delighted to announce that, on 22nd September, LSE Law School will be organising an afternoon panel (5pm-7pm) on (EU and UK) Subsidies Regulation. The event will take place in the New Academic Building (Thai Theatre). Please make sure to save the date!

We will be offering the event in hybrid format, but we very much hope you will be able to join us in person for the occasion (as a plus, there will be drinks afterwards).

With the UK Subsidy Control Regime up and running (the Competition and Markets Authority has recently been consulting on the implementation of the system) and the formal adoption of the EU Foreigns Subsidies Regulation around the corner, the timing could not be better. Coincidentally, the new edition of Conor Quigley’s legendary treatise on State aid will be coming out on the very same day.

I am delighted to confirm the superstar panel of experts with whom we will be discussing these topics:

Claire Froitzheim, Director at the Competition and Markets Authority

Natura Gracia, Partner at Linklaters

Thorsten Käseberg, Head of Competition Policy at the German Federal Ministry for Economic Affairs and Climate Action

Conor Quigley QC, Barrister at Serle Court

I will soon be following up with details on registration (for free, as usual) and others. In the meantime, do not hesitate to drop me a line if you have any questions about the event. We look forward to seeing many of you there!