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NEW PAPER | Indispensability and abuse of dominance: from Commercial Solvents to Slovak Telekom and Google Shopping

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Under certain circumstances, Article 102 TFEU can only be triggered if it can be shown that an input or platform is indispensable for competition on a neighbouring market. There is some controversy, however, about what these circumstances are. Sometimes (e.g. CBEM-Telemarketing, Bronner) indispensability is required; sometimes, it is not (e.g. Telefonica, TeliaSonera).

The question is so intriguing that I have written a paper on it (available on ssrn, see here). Many of you will be familiar with my take: the case law is clearer than most commentators tend to concede. As I have explained in past papers, it is all about the remedy.

Where intervention under Article 102 TFEU would demand the administration of a proactive remedy (either a structural remedy or a prescriptive obligation that necessitates monitoring), indispensability becomes an element of the legal test (and thus a precondition for intervention).

Why the remedy determines whether indispensability is an element of the legal test

Support for this position can be found in the case law. In fact, the EU courts were explicit about the point in Van den Bergh Foods. According to this ruling, indispensability would be an element of the legal test where intervention would require the firm to ‘transfer an asset or enter into agreements with persons with whom it has not chosen to contract’.

The case law makes a lot of sense. Proactive remedies are notoriously difficult to design, implement, and monitor – the experience with Microsoft I and Microsoft II is there for all to see. Therefore, it makes sense to limit to exceptional circumstances the instances in which competition law institutions (courts, authorities) are exposed to this particular stressor.

This is all the more sensible if one considers, in addition, that weighing the ex ante and ex post dimensions of competition is as difficult an exercise, if not more.

From an ex post perspective, any refusal to deal restricts competition. Why is a refusal to start dealing typically abusive only in exceptional circumstances, then? Because the ex ante dimension of competition – the counterfactual, again – also matters. In this regard, indispensability is a valuable proxy to avoid a difficult balancing exercise (even if one ignores the difficulties, mentioned above, around the design, implementation and monitoring of proactive remedies).

Implications for ‘grey area’ cases

Indispensability is a controversial issue in some pending ‘grey area’ cases. What is interesting about these is that they come across as being somewhere in between two lines of case law.

Slovak Telekom is one of these cases. Some of the practices at stake in the case were labelled as a refusal to supply. Does it follow that indispensability should be required? Not necessarily, the Commission argued. I concur with it (and the General Court, which has already examined the question).

Why? In the circumstances of Slovak Telekom, the infringement could be brought to an end without resorting to proactive remedies. The usual reactive intervention (a cease-and-desist order) was more than enough.

The issue arose again in Google Shopping. Unlike Slovak Telekom, the infringement could only be brought to an end by means of proactive remedies (in essence, a redesign of Google’s products). The difficulties that come with the design, implementation and monitoring of such measures have become apparent in the aftermath of Google Shopping (and as far as I can tell, these difficulties have not yet been solved; see here).

In Google Shopping, the Commission refers to the principle laid down in Van den Bergh Foods.

Why does it conclude that indispensability is not required? It is all about its interpretation of the principle.

Google Shopping suggests that, so long as the Commission does not formally mandate a proactive remedy, indispensability is not an element of the legal test. According to this view, if the Commission simply requires that the infringement be brought to an end, Van den Bergh Foods would not be relevant.

As I explain in the paper, I am not sure this is the most reasonable interpretation of Van den Bergh Foods, and this, for two main reasons.

First, the interpretation advanced in Google Shopping would give the Commission the discretion to decide when indispensability is an element of the legal test and when it is not.

In other words, this interpretation would turn an issue of law (the conditions to establish an infringement), subject to full judicial review, into one left to the discretion of the authority (and thus subject only to limited review).

Second, the EU courts have always placed substance above form. As a result, I fail to see how the relevance of indispensability can depend on what a decision formally requires – as opposed to what it entails in substance.

It remains to be seen whether the case law will prove resilient. The pressure to circumvent and/or abandon the consistent doctrine since Commercial Solvents is strong. I claim in the paper that, if the case law is to survive, the underlying principles would probably have to be spelled out more clearly.

Before I forget: I am delighted to clarify that, in accordance with the ASCOLA declaration of ethics, I have nothing to disclose.

I really look forward to your comments!

Written by Pablo Ibanez Colomo

16 December 2019 at 11:05 am

Posted in Uncategorized

Google Shopping Decision- First Urgent Comments

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google-shopping

 

Today is an important day for EU competition law. For various reasons I have not commented publicly on Google’s cases for over two years now (for our previous extensive coverage, see here) The most recent of those reasons is that whereas I used to be a neutral observer (like Pablo still is) I have recently started advising Google in some competition matters, although as of today not directly on the Shopping case.

Today seems like an appropriate day to break that silence. Pablo and I were both invited by CCIA to participate in a press briefing call in which we explained the case and gave our views about it to a bunch of journalists. In anticipation of that call I hastily drafted the urgency thoughts that are the basis of this post. By the way, Pablo and I will again be speaking about this case on 11 July at this forthcoming Queen Mary University of London event, and, for the sake of neutrality, he will be the one covering the case here and elsewhere afterwards.

DISCLAIMER: Before you continue reading, please bear in mind that, even if I’m not working on this case, and even if my views have not changed, I am certainly not neutral (as I once was). So please take what I say with as many pinches of salt you wish and judge it only by its merits. To be sure, my preliminary opinions might very well not coincide with Google’s, as it may have other views and certainly has other lawyers who will surely have more views.

What the case is about

The case is not about manipulation or skewing of organic search results, as some have wrongly stated. It is about the display of product results and product ads. And it is only about the so-called comparison shopping market, of which most EU consumers had probably never heard about. The very assumption that such a market exists is far from straightforward, but there are other more profound and far-reaching concerns that we will try to very quickly outline in this post.

Google provides a free search service to consumers and it monetizes this service via advertisements. Today’s decision states that Google cannot favor its own product ads –the very same ones that make its services possible- over those of competitors. This is remarkable and wholly unprecedented.

To illustrate what this means, a useful analogy may be to think about a newspaper (a business models that is also funded via ads). What the Commission is doing is the equivalent of asking this newspaper to carry/publish the advertising service of competing newspapers and in equal conditions whatever that means (same placement, length or size, possibly even almost for free) and without getting the revenue. Another valid analogy is that of a supermarket obliged not to favor its own products, even if it is not the only supermarket around. The implications for vertically integrated companies in virtually every industry are potentially enormous.

Searching for the harm

Searching for the harm to competition and consumers is particularly challenging here. The Commission stated today that Google deprives consumers of choice to buy and compare prices online. That is the very fundamental idea at the foundation of the case. In my view, however, consumers could hardly have more choice when it comes to comparing prices and buying online. Whatever Google does cannot affect that. If you now want to buy any product you can search in Google, but you can also do so via apps, all merchant sites, platforms like Amazon, ebay, visit directly price comparison websites, outlets like Zalando, etc. Consumers have choice within Google and outside of Google. Even if Google price comparison results are more visible on a Google site, there is nothing precluding consumers from visiting any other site.

Tellingly, the Commission is indeed not claiming that there is direct harm to consumers but only assuming that somehow consumers will suffer from a decrease of traffic of price comparison websites even if the latter are not foreclosed. The Commission is thus equating any sort of alleged competitive advantage or disadvantage with anticompetitive effects; in my view, this is a very loose notion of consumer harm and a very long shot.

The facts and the evidence

In order to build this case the Commission focuses on a very small number of shopping comparison sites (aggregators) and concludes that they constitute a relevant market of their own. In my personal opinion this is quite counterintuitive and problematic. First, because it ignores hundreds of other aggregators. Second, because it also ignores that consumers do not only buy online through price comparison sites; indeed, the decision remarkably ignores the role of merchant platforms that also enable consumers to compare prices and buy. The players active in online sales, be it Google, Amazon, ebay, Zalando, any store or any individual merchant or manufacturer all face fierce competition. Third, the decision ignores that even if Google’s results enjoyed better display, consumers are not locked in, they can and do visit other websites other than Google before buying on the internet. The Commission says there is a link between visibility in Google and number of clicks received, but, again, this ignores the fact that consumers do not just buy online via Google. Even if Google’s results were more visible, there is nothing precluding consumers from visiting another site. There are certainly no technical or economic barriers for that, and this is what matters according to the most recent case law Third, and importantly, the Commission’s concern in this case is that some price comparison websites have lost traffic. In that case the Commission would have to prove with convincing evidence that this loss of traffic is due to Google’s display of product ads. This is certainly not easy, as there are many other more plausible, and indeed more likely, explanations (like the fact that consumers now prefer to buy directly on the merchants’ sites, in apps or in other platforms). The UK High Court and Justice Roth understood this perfectly in the Streetmaps Judgment with regard to a very similar theory of harm (see here).

The Law

But what I mostly care about is the law. Commissioner Vestager –whom you know is well-liked by this blog- explained today that DG Comp has reviewed 5.2 Terabytes of information. I do not doubt for a second that the smart people in the case team dealing with the case worked hard and thoroughly, but 5.2 Terabytes of information is meaningless if the law is then discussed quickly in just a few paragraphs and if the legal test is wrong.

From a legal standpoint, this case is unprecedented; there has never been a case like this, in Europe or anywhere else, and the implications are incredibly far-reaching. This is perhaps why for many years the Commission tried to avoid an infringement decision and rather preferred to settle with Google.

The first reason why the case is unprecedented is because it establishes the principle that a company may not favor its own services over those of competitors. Companies everywhere –dominant or not- logically favor their own services when they buy and sell goods or services even if this does not result in foreclosure. Vertical integration is everywhere, and it is in the very nature of multi-sided platforms.  Hampering their ability to promote their services (in spite of no evidence of rival foreclosure) implies not allowing them to decide how to best provide their services. Legally, a firm can only be obliged to deal with or assist competitors when this is indispensable for competition to exist in a different market. This is the test that has consistently been used in EU Law. But the Commission considers this case law not to be applicable and wants to extend the scope of the law. The implications are incredibly far-reaching (actually, I think I said that already…)

Indeed, the Press Release suggests that the Commission does not argue indispensability, but merely that Google grants itself a convenient advantage. So the Commission does not label Google as an essential facility (because that would be pretty hard to do given the high legal standard), but it does treat Google as if it were, thus bypassing that legal standard. I fail to see how what is the logic or consistency of this reasoning against the backdrop of the relevant case law. In my view, and not having yet read the decision, this suggests a possible bypassing of established legal rules and standards with ad-hoc case specific theories and remedies, thereby risking turning the prohibition of abuses of dominance into the realm of the arbitrary.

The second reason why the case is unprecedented is because the alleged abuse is at its core a product improvement. The combination of specialized and general results (what Google is accused of) is something that is also done by other search engines, including Microsoft’s Bing and Yahoo! Everyone does it because it is best for users to get a direct response (if you search for an address, you get a map; if you search for a product, you are taken directly to the product, not to another intermediary). A product improvement that disadvantages rivals is not anticompetitive. Or at the very least one would have to trade off pro and anticompetitive effects, which is something that I very much doubt the Commission has done, essentially because no one knows how to do it. And in the face of doubt a sanction is not appropriate. This wall very well explained in Streetmaps and it was understood by all other competition authorities who have had the chance to examine these practices.

The remedy

The Fine: The Commission has imposed today the largest fine ever imposed on a single company doubling the previous record. What is remarkable is that this fine has been imposed after years of negotiating commitments (which are only possible in cases where “the Commission does not intend to impose a fine”), in relation to conduct that had never been found unlawful, that is actually considered lawful in other jurisdictions, that no lawyer would have anticipated to be unlawful and that takes place in a relatively small and competitive market. In previous cases, the Commission declined to impose a fine when its case was novel and had no precedents. This is actually the first case in which conduct that was found suitable for a commitment decision receives a fine (see the Motorola/Samsung and Mastercard/Visa precedents).

Future compliance: I do not know how this is framed in the decision. The Commission has stated today that it has not given any precise indications and that it is up to Google to come up with a solution that does not have the same effect.

In competition cases remedies need to fit the Commission’s theory of harm. In this case, however, there is no clear remedy fitting the unprecedented theory set out in the decision. Having ordered a remedy in the decision would have probably exposed the flaws in its reasoning. Possibly to avoid that risk the Commission has stated that it is up to Google to craft a remedy that is neutral –whatever that means- and that removes the problem. I preliminarily see two problems here:

  • The first is, how can Google remove effects that it arguably did not cause in the first place? If Google is right and the loss of traffic on the part of the companies considered by the Commission is attributable to something other than Google’s conduct, how can Google fix that? And how can the Commissioner assess whether the remedy is effective? It would seem as if the Commission were requiring Google to artificially maximize the traffic received by some specific category of its rivals (price aggregators) which certainly would not be neutral.
  • The second problem is wider. The Commission says whatever Google does must be neutral, but it does not define what neutral means. This undefined notion is particularly problematic when applied to a business which by definition has to rank search results.

Admittedly, Google could simply decide to shut down the service and not offer product results in Europe. This would be perfectly plausible and legal, and is actually what Google did with Google News in Spain back in the day, only to show that this benefited no one.

Effect on other Google products.

The Commission has stated that this decision is now a precedent and the starting point to look at other Google’s services. Firstly, this implicitly means that there was no earlier precedent and thus confirms the novel nature of the case.  Secondly, the Commission could have run a case comprising all verticals, but it didn’t, and it must be because it thought this was the easiest to run for some reason. That may have to do with market definition, or because evidence in other verticals did not match the theory. If the Commission decided not to run those cases, it must be for a reason. My personal view is that this technique of picking the preferred sample to then extrapolate results would not be an acceptable shortcut.

Conclusion. In order to make this case possible the Commission first had to change the stance it held for years during the commitment negotiations and now has had to craft a new legal theory without clear legal foundations, prohibit a conduct validated in every other jurisdiction, assume dominance against the indications of the case law, define a relevant market ignoring the main actors active in online shopping, ignore the fact that consumers are not locked-in Google, assume that the loss of traffic of some specific companies is due to Google not considering other plausible scenarios and avoid spelling out a remedy. In my non-neutral view, it is a remarkable decision indeed.

Written by Alfonso Lamadrid

27 June 2017 at 8:18 pm

Posted in Uncategorized

What to make of the fresh charges against Google

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Making habits

The Commission is making a habit of sending Statements of Objections to Google. There should be little doubt that Google has become the most emblematic saga of the decade (and one cannot exclude at this stage that it will also dominate the coming one). Yesterday, it brought additional charges relating to the Search case and fresh ones concerning its ‘AdSense for Search’ platform. Neither of the two moves is particularly surprising, as they have been expected for a while. Yet they reflect very well the current trend and the remaining open questions. ‘How many more Statements of Objections?’ is of course the one that springs to mind immediately. I can also think of the following:

All Google-related cases are essentially variations on the same theme: When reading about the AdSense case, it became pretty clear to me that it raises the same fundamental issue as Google Search and Android. The question is whether – and why – it is an abuse for an integrated firm to favour its own activities. The case law does not support the idea that dominant firms are bound by a general duty of non-discrimination. Thus, the Commission will have to articulate a coherent legal test and to explain how its interpretation of Article 102 TFEU is consistent with prior case law and its overall approach to the enforcement of the provision.

Clarity in this sense is indispensable, as the positions hinted at by the Commission in the press release are potentially far-reaching. For instance, they suggest that a TV channel could be abusing its dominant position by keeping its advertising space and revenues for itself, or that supermarkets may be bound by a duty of non-discrimination when placing goods on their shelves.

The industry has changed a great deal since 2010: The Google Search case has been going on for a very long time. This is always dangerous in EU competition law, and even more so in dynamic industries. It is obvious that end-users’ habits have changed a great deal since 2010. Firms’ behaviour and strategies have also changed. As the press release shows, this is something that promises to be contentious in the case. Amazon and eBay look more like price comparison websites. And Google Shopping looks more like them. As a result:

  • The credibility of the case depends, by and large, on market definition: If one assumes that Amazon and eBay compete with Google on the same market, the Google Search case certainly sounds far less problematic. Can one credibly argue that Google’s practices are an issue where it faces rivalry from two giants? Unsurprisingly, the press release refers to this point of contention. The Commission acknowledges that the market may be broad enough to encompass Amazon and eBay. Still, it believes that these two firms do not compete with price comparison sites. In any event, it clarifies, Google’s practices would still be abusive under a broad definition of the market.
  • It is not clear that there is a causal link between Google’s practices and the abuse claims: When the industry changes significantly during a period of time, the exclusion of some firms may very well be the natural consequence of the evolution of the market. In Post Danmark II, the Court emphasised that Article 102 TFEU applies where the effects are ‘attributable’ to the dominant firm, that is, where there is a causal link between the practice and the alleged effects.
    Irrespective of how the market is defined, the Commission would have to show, accordingly, that the alleged decline of some price comparison sites is the consequence of Google’s behaviour, and not the consequence of the rise of Amazon and eBay and/or of changes in end-users’ behaviour. You will certainly remember that this is where Streetmap failed. Mr Justice Roth concluded that the decline of that firm would have happened anyway, and was not attributable to Google.

Is Google Search an object or an effects case?: I wrote last year that it was not entirely clear to me whether Google’s practices were deemed abusive by their very nature or only insofar as they are likely to have exclusionary effects. The issue is not any clearer after reading yesterday’s press release. Google’s practices have been under investigation for so long that we should know by now whether they had exclusionary effects. But maybe this fact does not really matter that much.

There are references to exclusionary effects in the press release, of course, but I am not sure that they are decisive. Bloomberg echoes the statements made by the Commissioner, which suggest that what really matters is the fact that Google discriminates in favour of its own services, and that evidence in this sense may point to a broader ‘pattern’. If Google Search is indeed being pursued as an object case, what I wrote above is irrelevant. A ‘by object’ approach could allow the Commission to start new cases (concerning travel and local search, for instance) very soon. Which is, I understand, exactly what the Commissioner has suggested.

Written by Pablo Ibanez Colomo

15 July 2016 at 10:49 am

Posted in Uncategorized

More on Google (Streetmaps)

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google-maps-logo

Pablo commented last week on the Streetmaps/Google Judgment issued a couple of weeks ago and written by Peter Roth. I thought Pablo’s points were, as always, very interesting, but I confess I had not yet read the Judgment. Now that I have, here are some of my impressions:

In spite of what many think, there are very sensible Judges out there who can do a great job dealing with complex competition law issues. The Judgment is a pleasure to read; it is comprehensive, concise, honest (e.g. “both [economic experts] have undoubted expertise in this field, but I found that each displayed a tendency to become an advocate for the party by which he was instructed” (…) “I find it somewhat surprising that there should be such a sharp clash between the experts, each with a duty to assist the court”), clear, nuanced, solidly based on precedent and evidence, very well and very transparently reasoned (which is what I expect, and often fail to get, from a Judgment); I wish EU Courts always wrote like that. Actually, I wish I wrote like that.

The issues covered in the Judgment are very similar, if not idenical, to some of the ones currently examined by the Commission; other than in our posts and in the case study I ran last year at the BSC 😉 I had never read such an accurate description of the arguments at play in the Google case And the Judgment goes to the crux of the issue: how to deal with conduct that is procompetitive in the market of the dominant player but that is alleged to harm competition in an adjacent one?

Mr. Roth first assesses the matter of foreclosure in the adjacent market; as explained in Pablo’s earlier post, he first explains that the likely effect should be “appreciable” (which is not an unimportant statement), and then goes on to assesses in great detail evidence and expert testimonies (which included a hot tub session), which leads him to conclude that the “appreciable effect” was not “reasonably likely”. Some may perhaps disagree with the finding, but I don’t believe anyone can criticize the detail and transparency of the reasoning.

In Roth’s words: “that is sufficient to dispose of the allegation of abuse. However, in case I should be wrong in that conclusion, and as it was extensively argued, I proceed to consider the issue of objective justification”.

And he goes on to undertake the most serious, objective and persuasive objective justification assessment I have read, thoroughly assessing possible “less restrictive alternatives”, after having importantly noted (at 149) that “the question of alternatives obviously cannot be  considered only with respect to competitive impact. Proportionality is inherently a matter of fact and degree. Where the efficiency is a technical improvement, proportionality does not require adoption of an alternative that is much less efficient in terms of greatly increased cost or which imposes an unreasonable burden”.

The bottomline: in case you had not noticed it, this one is clearly among the best written competition law Judgments I have read. 

But don’t take what I say for granted, I strongly suggest that you read it too and check it yourselves. It’s available here.

Written by Alfonso Lamadrid

24 February 2016 at 1:00 pm

Posted in Uncategorized

Streetmap v Google: lessons for pending Article 102 TFEU cases (including Google itself)

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Streetmap

On Friday last week, the High Court of England and Wales ruled on the dispute between Streetmap and Google (see here). It is a really interesting read, and one that shows that – whether or not one agrees with the outcome – courts can deal effectively with complex competition law matters (I am told that I should not jump to conclusions too readily: apparently Mr Justice Roth, author of the decision, is an active member of the Association of European Competition Law Judges and attended in that capacity the seminal lecture on two-sided markets that Alfonso gave in Uppsala 😉 ).

The obvious appeal of Streetmap v Google is that it raises pretty much the same issues that the Commission will have to address in its own – and pending – Google case (see here and here). In essence, Streetmap argued that Google’s prominent presentation of its mapping services amounted to an abuse of a dominant position. As many people have argued, the combination of Google Maps and the search results is a form of abusive ‘bundling’.

Mr Justice Roth did not seem very impressed with the arguments brought by Streetmap. He concluded that Google’s practice was not reasonably likely to have an appreciable anticompetitive effect and that, in any event, it was objectively justified. I, on the other hand, am very impressed with the decision. Mr Justice Roth’s analysis is penetrating and creative. Here and there, I have found arguments about which I had not thought before.

The decision provides particularly interesting lessons for Google and other ongoing Article 102 TFEU cases. I can think of the following:

  • Effects need to be showed for some practices, not simply assumed. Post Danmark II made it clear that, as far as some practices are concerned, a likely anticompetitive effect must be shown. In such cases, assuming that the practice is capable of having such an effect is not enough. It would be necessary to examine the features of the relevant market and how, in that context, the practice would lead to foreclosure. Mr Justice Roth applies this principle and concludes – rightly in my view – that Google’s conduct is a ‘by effect’ practice.
  • There must be a causal link between the abuse and the anticompetitive effect. This is one of the fundamental aspects of the ongoing Google case, and one that is often ignored. In fast-moving markets, the exclusion of rivals is not necessarily the consequence of an abusive practice. Rivals may not be able to adapt to changes in consumer demand. Their business model may be the relic of a past era. As a result, they would have been driven out of the market irrespective of the behaviour of the dominant firm (the counterfactual, again!).
    Post Danmark II was clear in stating that a ‘by effect’ practice is only contrary to Article 102 TFEU where the ‘anti-competitive effects’ are ‘attributable’ to the dominant firm (para 47, emphasis added). Mr Justice Roth applies this principle and appears to take the view that Streetmap’s decline is not attributable to Google’s practice. He seems to suggest that it would have happened anyway.
    The Commission faces a major challenge in this regard in the pending Google case. Assuming there has been a decline in the traffic towards some price comparison websites, the Commission would have to show, to the requisite legal standard, that this is the consequence of Google’s practices – as opposed to the consequence of the evolution of markets and, in particular, the rise of Amazon, eBay and others.
  • There is confusion about the legal test that should apply to Google. Unsurprisingly, Streetmap argued that Google’s practice was a form of bundling. This position is controversial (see here). These days, consumers expect more than the proverbial ten blue links when they perform a search on Google. Consumers’ assumption is that, where relevant, other affiliated services (including maps, images and youtube videos) will also be displayed.
    Is it possible to argue, against this background, that Google’s practice is a form of abusive bundling and/or that the practice is not objectively justified? The Commission conceded in its Guidance that two products are distinct only where ‘a substantial number of customers would purchase or would have purchased the tying product without also buying the tied product from the same supplier’.
    Where, conversely, consumers would only obtain the tying product with the tied product, the practice is most probably objectively justified and as such a source of efficiency gains that benefits consumers.
    Will the Commission depart from the Guidance in Google? What are the implications? Nicolas Petit has recently written an interesting paper on the impact of the Guidance on administrative discretion. The conclusion that would follow logically from Nico’s paper is that the Commission cannot depart from the approach to tying and bundling sketched in the document. I have written elsewhere that the Guidance is a pre-commitment device – a promise to act in a certain way – that cannot simply be disregarded.
  • The rejection of the de minimis doctrine does not mean that it is not necessary to show an effect. In Post Danmark II, the Court of Justice refused to set a de minimis thresholdSome people interpreted this passage of the ruling as meaning that there is no need to show an anticompetitive effect in the context of Article 102 TFEU. This position is not correct, as I explained elsewhere. What the Court held in Post Danmark II is that, where an anticompetitive effect is shown, this effect will be appreciable. In any event, the anti-competitive effect – and the causal link between the practice and the effect – will have to be established, and not simply assumed.
    Mr Justice Roth adds an interesting twist to this question. He claims that the conclusion of the Court in Post Danmark II is only valid where the abuse and the exclusionary effects take place on the same market. In the case of leveraging, it would be necessary to show that the anticompetitive effects on the non-dominated markets are appreciable. Not everybody will agree with this position, but the underlying reasoning and approach are, in my view, correct.

 

Written by Pablo Ibanez Colomo

17 February 2016 at 8:23 pm

Posted in Uncategorized

Summertime developments in EU competition law (tax rulings, cement, Section 5 of the FTC Act and more on Google)

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Lots of things happened while this blog was closed for holidays; here are a some comments on a selected few of those developments:

The news: On 20 July the European Parliament issues its Draft Report on tax rulings unusually pre-concluding that “without prejudice to the outcome of the Commission’s ongoing state aid investigations” there has been a breach of State aid rules (MEPs appear to be getting into a habit of giving ex ante opinions in competition cases…) and –perhaps more understandably- suggesting the Commission to adopt guidelines on State aid and transfer pricing.  A comment (and a bet): We have commented on these cases before, but this time I’m willing to bet a round of beers on the prediction that the Commission will not order any recovery in these cases and will rather use them to send a signal for the future. Any takers?  [By the way, those interested in the subject should attend the Brussels School of Competition’s Morning Briefing about State aid and Tax Rulings on 16 October].

The news: On Friday 31 July the Commission announced the closure of its longstanding investigation into the cement sector explaining that the evidence gathered was not “sufficiently conclusive”. A comment: As you might also remember some companies (including my client in the case) appealed the information requests sent out by the Commission. As explained in the Judgment, as part of the judicial proceedings in our specific case we managed to have access to, and to exceptionally lodge observations on, the Commission’s evidence at a pre-SO phase (for my comments on these Judgments, click here). Some parties appealed the General Court Judgments (not all, for, understandably, practical realities often trump theoretical interest) and the ECJ may say interesting things, so keep an eye open for those.

The news: On August 13 the U.S Federal Trade Commission issued a Statement of Enforcement Principles that will guide its application of Section 5 of the FTC Act, a provision against “unfair methods of competition” that goes beyond the prohibitions in the Sherman or Clayton Acts. Essentially, the FTC has committed to align the enforcement of Section 5 with that of the Sherman Act, effectively adopting a rule of reason analytical framework. Comment 1: the Statement explains that the FTC is “less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm”. Well, isn’t that stating the obvious? Also, the language (“is less likely”) shows some convergence at both sides of the Atlantic when it comes to sort-of-soft law: the FTC seems to have learnt from DG Comp’s guidance in this respect… Comment 2: I always thought that Section 5 was the U.S. way of making up for a sometimes inconvenient strict interpretation of the antitrust rules that does not cover practices that could be challenged with a wider, also sensible interpretation. Just to give you to examples: the Ethyl case, concerning a Section 5 challenge against facilitating practices could perhaps have been brought under Section 2 if US antitrust law had a notion of individual abuse of collective dominance like we do in the EU following the Irish Sugar Judgment. Also, the Intel case under Section 5 would seemingly also have been equally possible to challenge if we had a more nuanced approach to refusals to deal concerning interoperability.

The news: Google’s  lawyers didn’t rest during the holidays either. A few days ago Google sent its response to the Commission’s Statement of Objections (and its General Counsel wrote a blog post about it, available here). All this generated yet another news cycle; journalists don’t get tired of this story, as don’t lawyers, who keep jumping in at the smell of possible blood. The non-comment: We have no real new info on the case so we have no comment beyond the many written in the past.

And now, a quick look to the future and to some forthcoming events:

  • On Friday, 4 September, the Liège Innovation and Competition Institute is holding, in Brussels, an interesting event on the Huawei/ZTE Judgment (for my hasty first comments and some interesting, more well thought-out comments by others, see here).
  • On September 29 a new edition of the 9 month LL.M course will start at the Brussels School of Competition. Registrations are still open and the program is available here.
  • And on Thursday 24 September ERA and the European Data Protection Supervisor will be hosting a must-attend event (at least for me since I’m chairing part of it) titled Competition Law rebooted: Enforcement and personal data in digital markets“. For more, see here.

Impossible is nothing (or some thoughts on the statement of objections in Google)

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Impossible is nothing

Today, just a few hours after the Commission sent a statement of objections to Google, I have received a book I ordered a couple of weeks ago, called Do Great Cases Make Bad Law? What a wonderful coincidence. The author addresses the question, profound and fascinating, in light of 22 landmark US Supreme Court rulings. This is definitely a research exercise one could replicate by examining Article 102 TFEU case law and administrative practice.

The statement of objections in Google has just been sent, but the case has already secured its place in the hall of fame. After more than four years speculating about the legal aspects of the case, the documents issued yesterday by the Commission (see here and here) finally give a more accurate idea of the reasons why the authority has taken the preliminary view that Google has breached EU competition law. The memo is remarkable in many respects. As Alfonso explained earlier this week, it makes little sense to take a guess at this stage, but, from what I can read, the case could transform the way we think about Article 102 TFEU. The underlying issues are so fundamental, and some of the tentative theories of harm so unprecedented, that its consequences are, at least potentially, far-reaching.

What is particularly interesting is that the underlying issue is a basic one. It is in fact strange that it has not been addressed many times already. The case seems to revolve around whether, and if so, under what circumstances, a dominant firm is entitled to discriminate in favour of its own services. The Commission memo seems to take the view that, indeed, such behaviour may violate Article 102 TFEU, but it is not very clear about the conditions under which this may be the case (which is not surprising; after all, it is just a memo). In any event, one can think of three possible legal approaches to the question:

Discrimination is prima facie prohibited absent an objective justification: At times, the memo suggests that favouring one’s services is abusive by its very nature. This would make Google a by-object case. Absent an objective justification, discriminating in favour of an affiliate would be prohibited under Article 102 TFEU. According to the Commission, the prominence and growth of Google’s service since 2008 do not reflect its relative quality or its relative relevance for end-users. The document suggests, in other words, that it is not the outcome of competition on the merits.

I have explained elsewhere that it is controversial to state that dominant firms are under a general duty not to discriminate against rivals. Discrimination of the kind outlined in the memo is ubiquitous (supermarkets may give more prominence to their brands, media groups favour their own outlets and electronic equipment is often designed in a way that it only works with affiliated products). More importantly, such discrimination is more often than not pro-competitive. Trying to thrive in the marketplace by exploiting one’s advantages is what competition is all about. Similarly, it is a banality to state that markets sometimes work better when different activities are integrated. I do not know whether the Commission intends to follow a by-object line of reasoning, but it is easy to think of the far-reaching consequences for the future of Article 102 TFEU if it does. The scope of the provision would expand very significantly. Just think of the many practices that could be labelled (or re-labelled) as exclusionary discrimination.

Discrimination is abusive if it leads to anticompetitive foreclosure: The Non-Horizontal Merger Guidelines are based on an idea that contradicts the above approach. Following a vertical merger, the new entity may have an incentive to favour its own services. This is not problematic in and of itself, even when one of the merging parties holds a dominant position (and Alfonso knows a thing or two about this). Favouring an affiliate by restricting access to inputs or outlets is only an issue if it leads to ‘anticompetitive foreclosure’. This is an approach that could also be followed in Google. It would not be entirely uncontroversial – I spare you the details of why I am not entirely convinced – but it would have the advantage of consistency. Like issues would be treated alike across competition law provisions. Arguably, it would also be the logical approach for the Commission to endorse. After all, the Guidance is a pre-commitment device intended to confine administrative action to instances where anticompetitive foreclosure is likely. In this sense, it is remarkable that the word ‘foreclosure’ is not used in the memo. Not even once. The rhetoric of foreclosure is equally difficult to find in the document. This conspicuous absence raises a number of questions. Does the Commission believe that the Guidance is not relevant in Google? Is the Guidance no longer a reliable indicator of the Commission’s approach to the enforcement of Article 102 TFEU?

Discrimination is abusive if it harms consumers and innovation: The memo suggests that foreclosure is not the only source of anticompetitive effects that can trigger the application of Article 102 TFEU. The Commission seems to imply that, even in the absence of anticompetitive foreclosure, administrative action could be justified if it can be shown that discrimination harms consumers and competitors’ incentives to innovate. If the Commission chooses to follow this third approach, it would be venturing into unchartered territory. Instead of inferring harm to consumers and innovation (these effects are typically assumed to result from the exclusion of rivals), harm would be established in a direct way. I can think of several reasons why, in theory, it would make sense to do so. The questions I have in this regard are more practical than theoretical, however. For instance, I wonder whether it would be possible for the Commission to provide cogent and convincing evidence of harm to innovation (as opposed to discussing the plausible mechanisms through which innovation could be negatively affected). Similarly, I am not sure whether a dominant company would be able to challenge or disprove claims that a practice is harmful to innovation.

As usual, we very much welcome your views on the above.

Written by Pablo Ibanez Colomo

16 April 2015 at 8:33 pm

Posted in Uncategorized

Anything is possible (on the anticipated Google SO)

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It has been reported today (see here) that Commissioner Vestager may announce tomorrow that the Commission will be addressing Google a Statement of Objections.

This move, that many (including ourselves) would not have anticipated only a few months ago, has been the subject of rumors for some weeks. We have been asked about our opinion a myriad times these past days, and, frankly, we cannot say much more than what we have said in our many posts on the subject (too many to be linked to now), all written in the light of the very scarce publicly available information.

The good news of this whole story is that the law may now take center stage. I wrote recently that this was a perfect case study to discuss the limits of Article 102 (see the end of this post for my own recent case study on the subject for the Brussels School of Competition), but it is also a perfect case study on the huge importance of non-legal factors in competition cases in which the law is unclear (as it’s arguably always the case, save in -some- cartel cases) (for our previous reflections on this, see here or here).

The decision to pursue the case, at least for now, is likely to bring to the fore some fascinating legal questions. The arguments of both parties are by know well known, but it will be interesting to see how the Commission will frame its theory of harm. The stakes couldn’t be higher for Google, for the complainants resorting to competition law as a major competitive tool, and for the Commission, which was left in an uncomfortable position by the last minute decision to halt the commitment negotiations, which generally has the winning hand in these cases and which has, until know, always succeeded in all its 102 cases, including all previous high-stakes tech ones.

Whereas the parties’ submissions will, in principle, not be made public, their arguments have recently been publicly championed by commentators who give us a good taste of what is to come. The latest round of comments has been made by two reputed experts who have held some of the highest possible roles in the competition community, namely President of the General Court (Bo Vesterdorf) and Emeritus editor of Chillin’Competition (Nicolas Petit).

Mr. Vesterdorf’s piece (based on research done for Google but expressing his own views) has very recently received a reply from Nicolas (his research has been financed by iComp, a complainant in the case, but he also expresses his own views). We suggest that you read both.

Pablo and myself -who, believe or not, for better or worse, and despite the hours invested, must certainly be among the few who haven’t made any money out of this case in over 4 years…- are most curious about the many conceivable scenarios that now open up, but we won’t give our take on what is to happen. Why? Because as the recent evolution of the case shows, in proceedings with so many non-legal ancillary factors, predictions are doomed to fail; anything is possible.

Written by Alfonso Lamadrid

14 April 2015 at 11:36 pm

Posted in Uncategorized

Non-working papers (on two-sided markets, object/effect, cartel evidence and Google)

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writingI recently had to devote most of my non-billable work to finishing a few publications (the fact that after a few missed deadlines I was almost under death threat from editors also played a role) and preparing some courses. As if there weren’t better things to do with one’s time…

Anyway, since I did the work, I thought that it could perhaps be useful to post it or refer to it here, both to justify myself and in case any of you might find them interesting or have comments. These “non-working” papers include:

– A paper on “The Double Duality of Two-Sided Markets” which, to a large extent, is a beefed up version of my speech (the ppp is available here) at the Swedish Competition Authority’s Pros and Cons Conference back in November. The editors of Competition Law Journal have kindly offered to publish it, so it will appear there soon. The paper posits that competition law enforcement regarding multi-sided platforms may have not always accounted for the ambiguity of business practices carried out in these settings and attempts to identify the causes at the root of this problem and to propose some solutions. In essence, my take is that multi-sided platforms raise old questions but with renewed intensity, and that this must force us to go back to basics and recall some general principles that we should never lose sight of.

– A presentation on the Cartes Bancaires Judgment (here: Some additional reflections on Cartes Bancaires_Lamadrid ). It’s titled “some additional reflections” because it followed previous interventions at a seminar on the part of Javier Ruiz Calzado (Latham&Watkins; his very good ppp is also available here: Cartes Bancaires_Ruiz Calzado ) and Nicholas Khan, from the European Commission’s Legal Service. It was a privilege to share the panel with them.

– An absurdly lengthy not so succint paper I’ve co-written with my colleague Ana Balcells on cartel evidence in Spain: La prueba de los cárteles en España (Lamadrid_Balcells), forthcoming in JM Beneyto y J Maillo (Dirs): La lucha contra los cárteles en España, Aranzadi, 2015.

– Also, a few days ago the founder of this blog, Nicolas Petit, asked me (with a most kind anticipation of less than 24 hours…) to conduct a case study on the Google investigation at the Brussels School of Competition. It was a very interesting exercise. I only directed the debate asking questions and linking issues together and it was the students who brilliantly taught themselves and arrived to their own conclusions (I’m being nice to them because I told them that suscribing to the blog is a prerequisite for passing, so I assume they’re reading this). The legal issues underpinning the case (which have not always received the necessary attention) are very well-suited to reflect about some basic concepts of Article 102. In fact, Pablo also did this with his students at LSE a few days ago. Just in case any of you is interested in conducting a similar exercise, here is the (very hastily drafted) list of questions I used: Google Case study – BSC_Lamadrid.

Written by Alfonso Lamadrid

19 February 2015 at 3:01 pm

Forget about the European Parliament: foreclosure is the crucial aspect of the Google case

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Foreclosure - Price reduced

I tried (hard) to write something about the European Parliament’s non-legislative resolution on various aspects of the digital economy, including search engines (in plural). But I could not. I kept thinking about foreclosure. My fixation with the concept is most probably due to the fact that I am slowly becoming an old curmudgeon. The self-serving answer with which I fool myself (quite successfully for the time being, may I add) is that all the fuss about the EP’s resolution (largely irrelevant) is a distraction from the crucial aspect of the Google case.

In the Guidance, the Commission committed to give priority to cases leading to anticompetitive foreclosure. This is a very sensible position. The experience accumulated over the years (just think of Michelin II, British Airways or the Microsoft saga) shows that potentially abusive practices do not always harm the competitive process. As a result, it makes sense to ensure that the limited resources of the Commission are devoted to cases where negative effects are likely. Equally sensibly, it is explained in the Guidance that ‘if the conduct has been in place for a sufficient period of time’ the authority would consider ‘evidence of actual foreclosure’.

After 4 years (I know because the investigation is about as old as my tenure at LSE), I am ready to guess that, if Google’s alleged discriminatory conduct were really exclusionary, there would already be overwhelming evidence in this sense. If there is not, that fact alone should be a sufficient reason to close the investigation. Surprisingly, foreclosure has so far been mentioned only very sparingly in the context of the case. As an academic, I would want debates in future months to address this question.

In particular, it would be desirable if the Commission clarified whether the investigation is really driven by foreclosure concerns. The statements made by the former Vice-President suggest that evidence of exclusionary effects is not a precondition for intervention. Concerns with innovation as such or with choice as such (that is, not resulting from rival foreclosure) could, it would seem, trigger administrative action under Article 102 TFEU. In other words, intervention would be justified not so much because the alleged discriminatory strategies are likely to harm the ability and the incentive of Google’s rivals to compete but because they would limit choice for consumers or reduce companies’ incentives to innovate.

Relying on innovation and/or choice alone in Google would entail a paradigm shift in enforcement. This is not necessarily bad per se. After all, ideas and priorities evolve. Flux is competition law’s second name. However, if the case is no longer about foreclosure as such, the Commission should be crystal clear about the matter and acknowledge it openly. The consequences of a paradigm shift cannot be ignored and should not be taken lightly. In spite of the growing popularity of the concept (more about it in the coming weeks), I have not seen anything close to a fully-fledged and internally coherent analytical framework based on choice. Very much the same could be said in relation to innovation. Relying on a standard that lacks clear boundaries would harm legal certainty and would make it difficult for firms to anticipate the outcome of administrative action. These are, let us not forget it, the reasons why the Guidance was adopted in the first place and why it was made to revolve around foreclosure.

And now from foreclosure to disclosure, which is quickly becoming as popular as choice and innovation: nothing to disclose.

Pablo

Written by Pablo Ibanez Colomo

5 December 2014 at 10:05 am

Posted in Uncategorized