Chillin'Competition

Following my first post on the Android judgment, in which I addressed some of the issues that have become clearer after the General Court’s analysis, here is the second part, discussing those where further clarity will be needed. As ever, I really look forward to your comments (and, as ever, nothing to disclose).

What needs to be clarified after the Android judgment

The point at which an anticompetitive effect can be said to exist.

As mentioned in the first post, the judgment is valuable in that it confirms what an effect is not. It is not just a competitive advantage, and it is not merely a limitation of a firm’s freedom of action. If these factors alone are not enough, what is the point at which an anticompetitive effect exists? How to differentiate it from a mere competitive disadvantage? This is one of the issues where the Android judgment fails to shed enough light.

Suffice it to focus on the MADA aspects of the decision to illustrate this idea. The judgment covers at length the main competitive advantage identified by the Commission, namely the ‘status quo bias’ from which Google’s products would benefit and which would derive from the pre-installation of these products in smartphones.

Claims of ‘status quo bias’ raise a number of factual questions, in particular whether rival applications can be pre-installed alongside Google’s (thereby nullifying any competitive advantage) and how pervasive pre-installation was.

What matters, in any event, is that the ‘statu quo bias’ is as such insufficient to show that a practice leads, or has the potential to lead, to foreclosure. Decades of experience – including in technology markets – show that even a significant competitive advantage does not necessarily result in exclusion and that it may well be compatible with thriving competition (one needs to look no further than the Microsoft/Skype decision).

In this regard, the judgment does not offer anything by way of an approach to distinguish between advantage and effects within the meaning of the case law. It touches upon the issue, but ultimately leaves it open and unaddressed (see para 565, which ends up speaking of a ‘significant competitive advantage’). This is one of the blind spots that will hopefully be explored in the near future.

This point is not a minor or esoteric one. The development of a comprehensive toolkit to evaluate anticompetitive effects (and tell them apart from mere competitive advantages) is a necessity if the assessment is to be meaningful. In the absence of effective analytical tools, establishing foreclosure would be a mere formality, not an actual informed scrutiny of the impact of potentially abusive conduct in the relevant economic and legal context. It would be sufficient, in practice, to point to a competitive advantage.

As things stand, a toolkit exists, but only in relation to some practices. As a result, distortions will persist unless the issue is directly addressed by the EU courts. If gaps remain in the case law, the evaluation of anticompetitive effects will only be meaningful for some categories of conduct, not others. The meaning of foreclosure – and the nature and depth of the scrutiny – would therefore vary depending on the practice. It would be difficult to justify or rationalise this reality.

As far as price-based conduct is concerned, for instance, the EU courts already rely on an operational toolkit (including the ‘as efficient-competitor test’). As a result, the potential impact on competition can be meaningfully ascertained. In addition, the coverage of the behaviour has emerged, since Intel, as a helpful tool with regard to both pricing and non-pricing strategies, and it has proved particularly illuminating in some recent cases.

The Android judgment shows that an operational toolkit is missing in relation to other conduct, including tying. As a result, there is some way to go to achieve consistency within Article 102 TFEU case law (and, indeed, EU competition law at large – for instance, it has long been acknowledged in EU merger control that a significant competitive advantage is insufficient to establish foreclosure).

The benchmark against which effects are assessed

One of the reasons why this case is so fascinating is that the but-for world (the famous counterfactual) is not straightforward to establish. This is so for at least two reasons.

First (and as mentioned above), the practices at stake in the case create competition, in the sense that they sustain an ecosystem that provides opportunities for rivals to expand their business. Second, it is far from clear that alternative monetisation strategies would have given rivals more opportunities to thrive (look no further than the iPhone to realise what may happen when other business models are relied upon).

In the specific circumstances of the case, accordingly, it may well be that, in the absence of the contentious behaviour, there would have been less, not more, competition. If this is so, it would not be possible to argue that the practices have exclusionary effects. If it appears that they allow for more competition relative to the counterfactual, they fall outside the scope of Article 102 TFEU.

Fascinating as this issue may be, it was avoided by the General Court. Even though it concedes that the Android platform is pro-competitive, in the sense that it opens opportunities for rivals, it fails to consider the counterfactual.

In paras 587-596, the judgment merely points out that the Commission decision only challenged some aspects of Google’s monetisation strategy, not the business model as a whole. Which, if there was any doubt, does not address the question of what the conditions of competition would have been in their absence.

The attributability of anticompetitive effects

It is well-established case law that the effects of a practice must be attributable to the contentious practice for Article 102 TFEU to come into play. In other words, there must be a causal link between the behaviour and the impact on competition. In many respects, Android provides an ideal scenario in which to test the question: are Google’s market shares the result of its conduct or are they the consequence of the fact that its products are superior?

Inevitably, these questions emerge in the case, but, again, there is no definitive answer from the General Court. It is worth reading paras 546-558 and 570-584 in this regard. The judgment describes the evolution of market shares and explains that other competing applications are not downloaded by users. Whether or not the observable consumer behaviour can be attributed to the conduct is not something that is addressed directly.

In fact, the General Court notes at some point (para 574) that the figures outlined in the judgment are in themselves sufficient to establish harm. In this sense, the judgment suggests that attributability may be established by proxy. It remains to be seen whether this is enough to show a causal link between conduct and effects.