Chillin'Competition

The year is coming to close and, true to form, there is still plenty of fear and uncertainty in the air (even more so if, like myself, you happen to be in the UK).

The above said, looking back to the things we have done over the past twelve months always manages to bring a kernel of satisfaction amid the exceptional circumstances. I was recently reminded of a few of these when I was notified that two of my papers have been released by the journals to which I submitted them.

My paper on Self-Preferencing (see here for the pre-edited version available on ssrn) has recently come out in this year’s last issue of World Competition (see here), which is a great one. Giorgio Monti‘s paper on CK Telecoms definitely deserves a read. The editorial team was lovely and efficient (I am, in fact, proud that a paper of mine finally comes out with them).

My paper on Anticompetitive Effects in EU Competition Law (see here for the pre-edited version) is already available as an advanced article on the website of the Journal of Competition Law & Economics (see here), alongside some inspiring pieces (this one by Stavros Makris was a discovery). The team was not any less amazing (and my paper, full of figures and tables, was admittedly not the easiest one to handle).

My thanks go again to all among you who provided comments on these two pieces (I certainly welcome more). I look forward to sharing more ideas in the coming year (if anything because it is one of the things that keeps us sane).

For around 10 years (between 2004 and roughly 2014) the competition community spent countless hours discussing how commitment decisions could pursue stretched theories of harm and obtain remedies that went well beyond what would have been possible in standard infringement decisions. By the way, I gave an overview of all this in this 2014 presentation (Lamadrid- Overview of competition decisions).

Commitment decisions (after Alrosa) probably made us all think that intervention under competition law could reach where it had not reached before. The Commission was able to intervene very effectively in many markets with forward-looking, far-reaching remedies agreed by the parties. This improved the functioning of many markets and arguably reduced clarity in the law. We became accustomed to remedies that were not necessarily proportionate to the concerns triggering investigations.

In the past few years, however, recourse to commitment decisions has become relatively rare. A positive aspect of the new enforcement trend was that infringement decisions and subsequent Court judgments would provide greater clarity on the law. Perhaps we did not anticipate that greater clarity as to where real boundaries lie might also lead to frustration which, in turn, would propel calls to replace the law and bypass Courts, but that is another story (or is it?)

Coincidentally, as the use of commitment decisions started to decline, the debate completely shifted. We suddenly discussed less about the far-reaching scope of competition law, and more about the alleged insufficiency of competition law. There may not be causality, but there is certainly some correlation. [Btw, it’s amazing how the world, incluiding competition law, has changed in these past 6 years].

One of the main reasons that made Art. 9 commitments less popular is that they could not lead to the imposition of fines, let alone huge fines. But, contrary to what used to be the case, proponents of more aggressive antitrust enforcement now argue that large fines are meaningless and don’t do the job, and that it’s only remedies that matter. From this perspective, at least, perhaps commitment decisions did the trick after all?

Others, including myself, were not necessarily in favor of commitment decisions becoming the standard enforcement tool because that would lead to all actors operating in the shadow of the law, not really knowing what the real law was. Commitment decisions, however, were case-specific, evidence-based, preliminary assessments, followed existing procedures and entailed a somewhat “participative” process, including negotiations with the affected companies and market tests). The Commission was also very smart in using commitment decisions while ensuring legal certainty in parallel infringement decisions (see e.g. the Samsung and Motorola decisions on SEPs, or the Visa and Mastercard decisions on MIFs). One could argue that commitment decisions already addressed some of the concerns voiced out against the new tool under consideration (a single instrument combining the NCT and the ex ante regulatory instrument).

Some might also argue that commitment decisions were also too slow. But were they? It would be interesting to explore the reasons why some cases dragged on for longer, and whether that may have been related to external factors and third-party strategies.

It might also make sense to spend some time negotiating remedies in advance, rather than impose impractical remedies that might then need to be continuously reviewed and updated. As the Commission itself explained, “due to the more consensual mode of concluding the case, the commitment path may result in more efficient proceedings and more effective remedies; it allows for a more fine-tuned tailoring of the commitments and swifter implementation”. In a way, this was participatory antitrust avant la lettre.

Be that as it may, the welcome revival of interim measures should dispel or alleviate timing concerns. The recent Broadcom case is the perfect example.

The history of EU enforcement under Article 9 is, from the authority’s standpoint, an unquestionable story of success. It allowed for rapid, strong and far-reaching intervention subject to fewer constraints than in standard cases. By the Commission’s own admission, having companies give their views in the process also ensured that remedies were workable and reduced the risk of disproportionate / undesired outcomes. Perhaps commitments were not entirely satisfactory for anyone (authorities and rivals could want more, affected companies would want less) but that is probably why the tool resulted in an equilibrium that worked well. Commitment decisions did require the Commission to show that it could build a prima facie credible case (credible enough, at least, to force a company to make concessions to avoid the risks and harms that come with prolonged investigations), but that was not a problem, rather a safeguard to mitigate discretion.

Take a look again at the theories of harm pursued in Art. 9 cases and at the remedies that the Commission was able to obtain (summarized in slides 6-7 of the 2014 presentation). Does it feel like there was an enforcement gap? There also does not seem to be any dissatisfaction as to the outcomes that were secured by virtue of commitment decisions.

The Commission’s successful intervention in the Broadcom case shows that commitment decisions (combined with interim measures in the face of genuine risks of irreparable harm) could actually be the old new competition tool that many were looking for.  I guess sometimes we want new things, perhaps forgetting that what we already have might be even better.

[Disclosure: I have no professional interests in, and no detailed knowledge of, the Broadcom case. I do have clients that could be affected by the new digital enforcement tool under consideration (full disclosures are available in my posts on those, see notably here). Like practically all competition practitioners, I also have a very large number of clients that could be potential addresses of commitment and/or interim measures decisions].

We have not yet had time to read  carefully analyze the Servier Judgment rendered today by the General Court and I’m afraid we’ll need the weekend to process a few hundred pages in French and to comment on the many interesting points it surely raises. Expect to hear from us about this case early next week.

For now, and as an appetizer, I’ll just say that the outcome of the case and a mere read of the press release confirms something we had been saying for a while: Courts do carefully review market definitions when asked to, and are open to annulling them when justified.

The perception that applicants have low probability of success in overturning the Commission’s decisions on the point of market definition is (was?), in my view, based on a mere statistical analysis of the cases in which the GC was receptive to the applicants’ arguments.

There is certainly a surprising paucity of precedents in which market definition had played a significant role, but that is not the Court’s fault. Sousa Ferro observed, in a 2015 piece, that within a universe of 608 annulment proceedings concerning substantive competition issues, the issue of market definition was only raised in 134 cases (22%). Within those, the Commission decision under appeal was only wholly or partly annulled in 5 cases (3.75%) on the basis of an incorrect or insufficiently justified market definition, whilst in another 4 cases the Court expressed some dissatisfaction with the market definition but without annulling the decisions at issue.  The article concluded that “applicants have only succeeded in persuading the Court that the Commission erred in its delineation of the market in 6.7% of the cases where the issue was raised”.

Whilst interesting, the figures presented in this recommendable article (one among the very few on the subject) may not provide the full picture. The selection of cases considered includes all types of competition cases, including those in which market definition was not required from the Commission (e.g. cartel cases) as well as, admittedly, the “very large number of cases” in which a precise definition would not have altered the Commission’s findings and that, consequently, failed to be examined by the Court.  The analysis understandably also fails to account for the way in which arguments were pleaded or substantiated.

Other commentators – including experienced Commission litigators in high-profile abuse of dominance cases (remember Eric Gippini’s “It’s the dominance stupid!” intervention at one of our workshops) coincide in underlining the paucity of challenges to market definition and dominance in many of the abuse of dominance cases litigated within the past 20 years.

Note, for example, that market definition – and dominance – were not contested in a number of the leading abuse of dominance cases in the EU, including Intel, Tomra, Deutsche Telekom and Michelin II. And we haven’t had many other abuse of dominance cases brought before the Courts in the past few years.

Full annulments of market definition are certainly rare, although not unprecedented, as shown long ago by Continental Can, some time ago in Tetra Laval (merger case), more recently in CEAHR (concerning a decision to reject a complaint) and today in Servier. But the objective reality is that the Court has most often (albeit admittedly not always) undertaken a very thorough review of market definitions, and this regardless of the outcome of the case. If one looks closely at the case law, this has happened both in cases where the GC referred to the manifest error of assessment standard (e.g. Clearstream or Astra Zeneca) and in cases where it did not (see e.g. Wanadoo or Telefónica). And the same is true of merger control cases, such as Tetra Laval or NVV.

So don’t let labels such as that of the “manifest error” standard fool you. A careful read of the formulation of the Tetra Laval standard of review (what President Jaeger has called “the forgotten paragraph”), and particularly an analysis of how it has been implemented in practice, reveals that Courts have a wide margin of review and that they can intervene whenever they are persuaded about possible gaps in the Commission’s analysis. [Btw, this confirms what our friends Fernando Castillo and Eric Gippini say in their excellent book, that “practice shows that the manifest error concept captures much more than a decision that is facially or self-evidently wrong. In a way, manifest is whatever the judges consider to be manifest”].

The trend is much more evident in recent years, and my take is that it is here to stay, particularly after  KME and Chalkor and perhaps even more following the Court’s enlargement.

And this makes sense, for if everyone were easily found dominant in a narrowly defined market, then the special responsibility would become ordinary and one could easily abuse the notion of abuse. Servier’s lawyers, who clearly did not buy the myth, actually made this point at the oral hearing citing the Bicycle Repair Man Monty Python sketch, showing how ordinary it would become if everyone were superman.

The bad news is that we may run out of material to continue this saga of posts….  😉

It is only fair that I start this post by thanking those who have congratulated me on my recently announced promotion – including Alfonso, who could not have used nicer words.

Now that the announcement is behind us, it makes sense to go back to what really matters: weekly blogging. Few things have given me more satisfaction in my academic career.

And what a better way to do so than to comment on a recent speech of an academic-in-exile. Tommaso Valletti is one of the most articulate, thoughtful and entertaining speakers around. So when he takes part in a conference, we can be pretty sure something exciting and topical will have been discussed.

Last week he addressed one of the big issues of the day: the introduction of innovation considerations in merger control – and more precisely horizontal mergers.

In essence, Tommaso argued that there is nothing new, unusual or exceptional in recent mergers (such as Dow/DuPont) that have looked at the effects on innovation. In this sense, recent criticism of the Commission practice would not be justified.

I agree with this point of view. These cases – as far as I can tell – are competition law as usual. What is more – and perhaps more importantly – there is nothing parameter-specific about innovation. If cases like Dow/DuPont are criticised many cases concerning parameters other than price could also be criticised, and for the same reasons.

The Commission need not show harm to innovation – or any other parameter – in EU competition law

There is a key point which, I believe, has never been given the importance it should have – which is why I think it makes sense to insist on it.

A lot of criticism of the Commission practice seems to be based on the assumption that the Commission, when evaluating the likely effects of a merger, needs to show, to the requisite legal standard, its impact on innovation – or price, or quality, or output.

This assumption is not supported by the case law (the opposite is true, in fact). The Commission can show that a transaction will give rise to a significant impediment to effective competition without – just to mention an example – quantifying the price increases in the post-merger scenario.

It is clear from the relevant rulings that an impediment to effective competition can be established by proxy – in light of the nature of the product, the features of the relevant market and so on.

In other words: if it can be shown that a significant source of competitive pressure will disappear after the merger, and that nothing suggests that this loss of competitive pressure will be corrected by the behaviour of competitors, suppliers and/or customers, a finding of significant impediment to effective competition will naturally follow.

Thus, the Commission does not need to enter into discussions about whether the rate of innovation will go up or down after the merger. All that it would have to show is that two competitors were exercising significant competitive pressure on each other. Just remember the GC judgments after Ryanair/Aer Lingus and Deutsche Borse/NYSE Euronext are challenged.

A proxy is a proxy is a proxy

If the above is – I think – clear from the Guidelines on horizontal mergers and the case law, why so much controversy?

This controversy is in part explained by the fact that the Commission may take action without there being a market in the strict sense of the word. According to some views, this shift would represent a major development in merger control. There would be a difference between intervening in cases where competitive pressure does not revolve around a distinct product that can be readily identified.

Again, I am not sure I am convinced. We have always known that the definition of the relevant product and geographic market is not an end in itself – it is just a tool (or proxy) to identify the competitive pressure faced by firms.

If that is the case, it is difficult to argue that the definition of the relevant market is, as a matter of law, a prerequisite for intervention. In other words, there has never been anything sacred about market definition.

If the degree of competitive pressure can be identified by means of other proxies – research poles, or capabilities and so on – this should be perfectly acceptable. This, I believe, is one of the key points that Tommaso Valletti is making. And it is not even a new one: the Guidelines on horizontal co-operation agreement have suggested that these alternative proxies can always be used.

As can be seen, I fail to see what is really new under the sun.

Well, perhaps there is something new. The argument some stakeholders are making, which amounts to suggesting that a reduction of competitive pressure is not necessarily problematic in innovation-intensive industries.

That claim is not implausible and is worth debating. But the EU merger control regime is already equipped to deal with it. The efficiency defence is the appropriate forum in which to advance such claims. Would it be difficult, if not impossible, for them to suceed in practice? Of course. But such difficulty is in line with the exceptionality of the claim itself.

On 20 October 2009,  Chillin´Competition opened for business.

In the two years that have gone by since then, this blog has taken up a considerable part of our “free time”, but it has taught us a lot and it has rewarded us with a great deal of  satisfaction as it has introduced us to many new  friends and opportunities.  As we replied in an email to one of you last week, as most parents we´re very proud of our baby, but we are ambitious parents and we want it to get better and better in every possible way.

One year ago, we confessed to be “frankly surprised by the reach of this tool” because we´d had nearly 70.000 visits and an average of 350 visits a day.    As of today, we´ve had 177.000 visits and our daily average has constantly increased to the extent that this week we´ve had over 1 , 000 visits a day. Over 450 of you receive our daily posts via subscriptions or via our LinkedIn group.  

Over the lifetime of the blog, we have been lucky enough to receive some really excellent input, from both guest contributors and from you in the form of your comments.  

W hen we stated out, we couldn’t have imagined the interest that Chillin’ Competition would generate. Thanks so much!!  

Nicolas & Alfonso

The idea of this post came while having lunch in the centre of Brussels (I am definitely a competition geek).

Until recently, Noordzee (on the left side of the picture) enjoyed a local monopoly on the market for fast fish-seafood standing meals in the centre of Brussels (my shot at this somewhat original market definition). Their business concept was simple: you eat and drink outside, standing.

I was, with loads of other customers, a great fan of Noordzee. Yet, ordering there  involved queuing, eating in uncomfortable conditions,and possibly supra competititive pricing.

A while  ago, a restaurant located on the other side of the street (ABC on the right side) decided to replicate Nordzee’s business concept. ABC installed tables on the outside and started to serve customers just as Noordzee had done in the past.

Everyone, including Noordzee seems to withdraw benefits from this expansion/entry. Noordzee has reduced queuing time and increased consumer satisfaction. In addition, the optics of having an increased number of people around the restaurants is good in terms of brand image and advertisement. I am not sure, however, that prices have plummeted. Tacit collusion may be the reason there.

(Picture subject to copyrights. Source: taken with my mobile phone earlier in the day)