Chillin'Competition

(Note by Nicolas: We have received a funny and interesting competition-related post from the Blogbuster (who is also a good friend of ours). In this guest post, the blogbuster makes a number of original points on IP and competition, a possible exclusionary abuse committed by the Court of Justice of the EU, and judicial review under Article 102 TFEU).

Remember 28 November 2008?  On that day, the European Commission published the preliminary report on its inquiry into the pharmaceutical sector.  The preliminary report found pretty much everything to be wrong in the sector.  There was still some time before the Commission would release the final report. Yet, all seemed to indicate that the Commission would adopt far-reaching measures to bring back life to the life sciences sector.  But things eventually turned out differently.[1] In the end the final report was pretty tame, if not lame, compared to the preliminary report.  One of its main recommendations was, however, that the EU should create a EU-wide patent –at the moment, there are only national patents, even though the EPO provides for common procedures and recognition across Europe.

Draft rules for a EU patent have floated around Brussels for some time and on 8 March Luxembourg had a word to say, too.  Upon request by the Council, the European Court of Justice examined whether the proposed establishment of a European patent court was compatible with EU law.  The background was that the new patent court would (technically speaking) be an international, not EU, tribunal because – oh, horrors! – non-EU members such as Croatia, Norway or Switzerland would also be subject to the patent court’s jurisdiction.

The question was a tough one for the ECJ, which had in the past objected to making the EU and member states subject to an international tribunal –that’s clear from the Laying-up Fund and EFTA decisions.  What made the new case difficult was that, unlike the Laying-up Fund and EFTA cases, the EU acquis was not directly affected.  Precisely, the main problem with the patent law saga is that this is not an EU, but member state, competence.  In addition, the draft patent court treaty lays out a few rules to address some of the concerns the ECJ had in those previous cases –for example, the requirement upon the patent court to apply EU law, and the possibility for the patent court to refer a case to the ECJ, being bound by the ECJ’s ruling in that scenario.

Still, the ECJ killed the patent court initiative.  It did so on the basis of a line of reasoning reminiscent of the US Supreme Court’s decision in the case of The U.S. Supreme Court v. Everyone Else.[2] The ECJ found the establishment of the patent court to be unlawful as a matter of EU law because, well, it ruled itself:

“80. While it is true that the Court [ECJ] has no jurisdiction to rule on direct actions between individuals in the field of patents, since that jurisdiction is held by the courts of the Member States, nonetheless the Member States cannot confer the jurisdiction to resolve such disputes on a court created by an international agreement which would deprive those courts of their task, as ‘ordinary’ courts within the European Union legal order, to implement European Union law and, thereby, of the power provided for in Article 267 TFEU, or, as the case may be, the obligation, to refer questions for a preliminary ruling in the field concerned.”

In a separate but related development, Nicholas Forwood[3], judge at the ECJ’s subordinate court –the General Court– spoke out in favor of a specialist competition court at the EU level.  At first sight, this proposal may be surprising, as one of the main reasons for creating the GC, despite its name, was to have a court more specialized in competition cases than the ECJ.

The proposal is also surprising because the GC’s track record in some types of competition cases is remarkably good.  In cartel cases, the GC subjects Commission decisions to scrupulous scrutiny; around half of all cartel decisions that are appealed are at least partially annulled.  In the merger arena, too, the GC puts the Commission under intense oversight.  You will surely remember the Sony/BMG and Schneider/Legrand sagas where the Commission’s merger decisions were annulled by the GC.  So the only area ‘under construction’ is abuse of dominance (for more, see the recent paper of one my host bloggers).  An ‘under construction’ might even be an understatement.  Just take a read at the latest ‘margin-squeeze’ judgment in TeliaSonera (an ECJ ruling though):

“54 TeliaSonera maintains, in that regard, that, in order specifically to protect the economic initiative of dominant undertakings, they should remain free to fix their terms of trade, unless those terms are so disadvantageous for those entering into contracts with them that those terms may be regarded, in the light of the relevant criteria set out in Case C‑7/97Bronner [1998] ECR I‑7791, as entailing a refusal to supply.

55 Such an interpretation is based on a misunderstanding of that judgment. In particular, it cannot be inferred from paragraphs 48 and 49 of that judgment that the conditions to be met in order to establish that a refusal to supply is abusive must necessarily also apply when assessing the abusive nature of conduct which consists in supplying services or selling goods on conditions which are disadvantageous or on which there might be no purchaser.

56 Such conduct may, in itself, constitute an independent form of abuse distinct from that of refusal to supply.”

Compare this to the US Supreme Court’s finding in linkLine, in very similar circumstances (ie, local loop access for telecom services):

“[A] firm with no duty to deal in the wholesale market has no obligation to deal under terms and conditions favorable to its competitors. If AT&T had simply stopped providing DSL transport service to the plaintiffs, it would not have run afoul of the Sherman Act. Under these circumstances, AT&T was not required to offer this service at the wholesale prices the plaintiffs would have preferred.”

Which of these two statements makes more sense?

The TeliaSonera decision is not an isolated case, of course.  In British Airways, the ECJ (in)famously found exclusionary conduct to exist, even though the rivals supposedly being foreclosed gained market share during the relevant period.  And, in Deutsche Telekom, the GC’s and ECJ’s rulings effectively ‘ordered’ DT to raise retail prices –although there was no claim that they were below cost– and the German telecoms regulator had actually signed off on DT’s pricing structure.

The ECJ’s failure to grasp the basics of abuse of dominance cases is all the more striking as, by eliminating its rival in the market for court adjudication –the patent court–, it showed it knows very well what exclusionary conduct is all about!

In this light, therefore, let’s take up Judge Forwood’s proposal but establish a specialized “abuse of dominance court”, not a competition court.  Still– it’s a pity that the patent court deal was killed.  Otherwise, transferring jurisdiction over abuse of dominance cases to an international tribunal might also have been a –perhaps safer– option!

The Blogbuster