Author Archive
Information Exchange and Cartels – Dangerous Liaisons?
Are information exchanges really = cartels under EU competition law?
The issue has triggered many discussions on the blog lately. I just thought I’d post my own ruminations on this.
The Guidelines do not really say that information exchanges are cartels. Let’s take a close look. There are four references to cartels in the guidelines that concern information exchanges. The first one, which is general in scope, can be found at §9 and expressly says the contrary: “Although these guidelines contain certain references to cartels, they are not intended to give any guidance as to what does and does not constitute a cartel as defined by the decisional practice of the Commission and the case-law of the Court of Justice of the European Union”. The three other references, which can be found at §§59 and 74, do not quite say that information exchanges are cartels. It is stated there that exchange of information, in particular on future prices, “with the object of fixing, in particular, prices or quantities” will be “considered and fined as cartels”, which is quite different from saying that they are cartels (and which is in line with the existing case-law on “concerted practices”). Moreover, in so doing, the Guidelines accurately indicate that only a subset of information exchanges may be treated as cartels (am a “glass half-full”, optimistic person) . Those are information exchanges that have the object of fixing prices or quantities. It is thus incumbent on the Commission – or on the complainant, applicant, whatever – to prove that the information exchange has an anticompetitive object, which I understand here as purpose (or intention). Not all information exchanges are thus treated as cartels.
From an economic perspective, what the Guidelines say is not illegitimate. Moving beyond the possibly unfortunate semantics of the Guidelines (why not stick to the good old concept of a “hardcore restriction”), exchanges of information on future prices in the market place are, from an economic standpoint, quite a bad thing. First, such practices are known to facilitate tacit collusion on tight oligopolistic markets. Second, in many cases, exchanges of information on future prices are just the tip of the iceberg: they serve as the adjustment mechanism of an otherwise unproven, but explicit collusion.
Are the Guidelines really tougher on information exchange? On this blog and elsewhere, it has been argued that the reference to cartels could signal a tougher regime for information exchanges. On this, a counterintuitive reflection springs to mind: from a defense counsel perspective, equating information exchange on future prices with cartels may actually mark a relaxation of the legal regime applicable to such hardcore restrictions. Think about it: the culprits now can benefit from leniency and enjoy the penalty discounts afforded under the settlement notice. To me, this does not really sound like an aggravation of the legal regime applicable to exchange of future information (which as I said were treated in the case-law as egregious restrictions of competition).
Where the concerns really are. Don’t get me wrong: I am not a fan of the Guidelines’ infuriated semantics. But I think there are other, more important areas of concern in relation to information exchange. I regret in particular that the Guidelines espouse a checklist (or “laundry list”) approach to information exchanges, which provides little, if no, legal certainty to firms willing to self assess proposed agreements. To assess such agreements, firms must review a long range of factors of seemingly equal importance, and the calibration of pro v. anti-collusive factors is notoriously daunting. Given that the theory of harm ascribed to information exchange is tacit or overt collusion, the Guidelines should have subordinated a finding of incompatibility under Article 101(1)TFEU to proof of the 3 cumulative Airtours condition (there’s a discrete reference to Airtours at fn61). This would have been sensible from both a legal certainty and an economic standpoint. Moreover, this solution would have ensured legal consistency across the various areas of EU competition law.
Microsoft v. Google – Clash of the Titans
On Behalf of the Antitrust Community, A Big Thank You – Antitrust law professors should be grateful to Microsoft (hereafter, “MSFT”). As a repeat offender of the competition laws, MSFT has provided scholars with loads of research and educational material for the past 20 years. Now, since yesterday, MFST is trying to turn the tables. In its complaint against Google, MSFT seeks to endorse the role of the victim of anticompetitive conduct. Food for thought in upcoming lectures, articles, and so on.
My Initial Reaction, and the Timing of MSFT’s Complaint – I have on several occasions criticized the Commission’s MSFT decisions (and some might have thought that I had a tiny bias for the Redmond giant). Given that I try to be am consistent with myself – and that I do not, or no longer, work in a law-firm advising one of those firms – I’ll be blunt: from a legal perspective, yesterday’s complaint against Google looks fragile. Its chief, and maybe sole merit is to throw some mud at Google in the press, at a moment when (i) Google has been reported to be close to a settlement with the Commission; and (ii) Google has suffered a major setback last week, when its settlement with US publishers and authors was annulled by a NY judge.
The Essential Facility Allegations – For this first post on the MSFT complaint, let’s focus on two of the new allegations described in MSFT’s General Counsel’s post. The first couple of allegations involve a conventional refusal to supply case, with input foreclosure effects. Google is a vertically integrated operator with upstream activities (media content) and downstream interests (search, mobile phones, etc.). The complaint focuses on the media content which Google provides through Youtube. Through a range of technical measures (e.g., refusal to disclose the site map of Youtube which prevents indexing), Google would allegedly restrict rival search engines and mobile phones’ access to Youtube content (e.g. indexing of Youtube links on Bing would not be satisfactory). Since Youtube content is an essential input for rival firms downstream, Google’s conduct would lead to foreclosure effects. This scenario has been described in the December 2010 Opinion of the French Competition Council at §313.
Smartphones and Search Engines are Multifunctional Products – I have my doubts on those allegations. Remember: three cumulative conditions must in principle be met to prove an unlawful refusal to deal under Article 102 TFEU. The first of them involves proving that the input is “indispensable” for rival firms to operate in the downstream market. On cursory examination, this condition is unlikely to be met in the present case. This is because Youtube content represents (i) only a tiny share of what end-users look for on the web; and (ii) one of the very many parameters which buyers consider when they purchase smartphones. Rival search engines/phone manufacturers foreclosed from access to Youtube may still compete with Google out of search efficiency on other types of data (news, blogs, whatever). Similarly, rival smartphone manufacturers may still compete with Google’s Android phones on other types of apps, on genuine technical performance (screen, battery, etc.), and so on. Search engines/smartphones are multifunctional products. As such, they can operate viably around the content function – as premium as it may be – provided by Youtube.
Replicability? – In addition, the indispensability condition is not met where the firm requesting access can replicate the alleged essential facility, or start its own production of the alleged essential input (e.g, through investments or upwards vertical integration, for instance). Here again, one should not forget that the financial costs required to create a database similar to Youtube are not that significant. This is because content is posted primarily by users, and those do not have to pay for this. The crux of the matter for a new entrant thus lies in attracting users to the media platform and incentivizing them to upload their content. And to do this, the only thing needed is an ergonomic platform and, first and foremost a nice and original idea. Back in the day, Youtube had it, Microsoft not. Tough luck.
Magnitude of the Alleged Unlawful Conduct – To prove an abuse, one must also establish that the conduct has anticompetitive foreclosure effects. On this, it must be stressed that Youtube belongs to the list of websites which most workers cannot visit during day-time. Hence, access to Youtube content is irrelevant to many of the Internet searches made across the world during working hours. Rival search engines that do not index any Youtube content can thus perfectly provide adequate search functionalities to worker, and have thus a lot of space to expand on the market. If there’s a foreclosure effect, it is likely to be limited to a fraction of the searches made on a daily basis.
Caveat – Of course, all of this remains subject to further discussion, but those are a few preliminary ideas that sprung to mind yesterday in reading the press release. I will try to post more on the other allegations in upcoming weeks.
A Wish – To conclude, let’s just pray that MSFT stays in business for the next years. Should MSFT be forced off the market through anticompetitive tactics, many antitrust scholars would face dramatic input foreclosure issues.
A Weird Coincidence – The MSFT complaint comes timely. A day after I published with my assistant a paper entitled “Back to Microsoft I and II – The Art of Secret Magic”. See here for a link to the paper (http://jeclap.oxfordjournals.org/cgi/content/abstract/lpq080?
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Press Coverage – I am quoted in a Bloomberg report yesterday. See here.
ULg – New Full English Version of the LL.M. in EU Competition and IP Law
To many people, Liege is an old industrial city which has little to offer.
But Liège has a great geographical position. It is just a 100 kms away from Brussels. Thanks to this, it is close from many brainy competition (and IP) professionals. This is what prompted my predecessor Prof. Geradin to create a bilingual LLM in EU Competition and IP law.
Now that we have a 8 years track record, I think I can modestly pretend – pardon the bias – that we have the best, and most likely the cheapest – several hundred € – LL.M in competition (and IP) law of Europe :).
Obviously there’s a downside with cheap tuition fees: little money for my research centre. But there’s a big upside: in Liege, we are not bound to award degrees to poor LL.M students that should be failed. Put differently, our evaluation process is not influenced by the risk of losing money out of a decrease in prospective applications [on second thoughts, it may not be good advertisement to say publicly that we fail students: we do not fail that many].
Now, our LL.M has been increasingly successful in the past years, attracting students from everywhere in Europe and outside (Peru, China, Russia, etc.). I trust the many conferences we organize in Brussels and the opportunities for publication in e-competitions are interesting for prospective students.
This year, we’ll open a full-english version of the LL.M programme. It will be opened to students from far-away countries, who have no background and no professional interest in the French language. The programme of this English-based LL.M can be found hereafter.
Internet Players v. Communications Carriers
Mammoth firms like Google, Facebook, Microsoft, Sun, IBM, etc. are not those threatening the future of the Internet.
Over the past decade, those firms have fueled growth and spurred innovation. In fortcoming years, they will likely continue to bring vibrant competition on Internet markets.
In his latest piece on the future of the Internet, Farhad Manjoo (Slate) incriminates another group of market players, the big American telcos:
This future [the future of the Internet] depends on fast and ubiquitous broadband, which, in the oligopolistic American telecom market, isn’t guaranteed to happen soon. Over the next few years, major American mobile carriers will adopt faster “4G” wireless Internet systems—but will they be fast, cheap, and reliable enough to spur the sort of innovation I’m describing? I don’t know. Honestly, I’m pessimistic.
And a question: with their increased, some would say obsessive, focus against Google, Microsoft, IBM, etc. are Western antitrust enforcers shooting the right target(s)?
Competition Law and Free Riding
A common line of defense for companies subject to antitrust scrutiny is to argue that the complainant seeks to free ride on their investments.
With my assistant Norman Neyrinck, we explore in a recent working paper (in French) whether firms can instrumentalize the competition rules to free ride on others’ efforts. See link hereafter.
We come to the conclusion that attempts to free ride through Article 101 TFEU allegations are likely to fail. In contrast, Article 102 TFEU offers a more promising legal avenue to wanna-be free riders.
As usual, we apply the first footnote acknowledgment to comments.
Droit de la concurrence et instrumentalisation parasitaire – PETIT et NEYRINCK _24 03 11_
JV
I attach hereafter the slide deck presented jointly by J. Rattliff (WilmerHale) and C. Gauer (COMP) at our GCLC lunch talk last week.
A somewhat unusual, but welcome joint venture between DG COMP and a law firm
On a related issue: I was puzzled to learn that all the Article 102 TFEU cases dealt with by the Commission in 2010 concerned the energy sector… but less surprised of their outcome: all of them gave rise to Article 9 decisions.
Terrorist Competition Law
… is the reaction that I triggered from a participant at the APRAM’s conference yesterday. See my presentation below. A paper on trademarks and competition law is in the making.
The APRAM is a famous French association that gathers practitioners active in trademarks and designs law.
And now a question: will the French APRAM urge international colleagues to start bombing raids over the Institute for European Legal Studies?
GCLC Lunch Talk on Competition Enforcement in Energy Sector
Will keep it brief for today. I am VERY busy (and so is Alfonso).
We have a GCLC lunch talk tomorrow, with C. Gauer (COMP) and J. Rattliff (WilmerHale).
There’s still a few seats available. Please drop a line to Tarik Hennen, should you wish to participate.
AT Quote of the Day
Wanna look eloquent at your next antitrust conference? Here’s a good, catchy antitrust quote:
“While the law [of competition] may be sometimes hard for the individual, it is best for the race, because it insures the survival of the fittest in every department”.
A. Carnegie, Wealth, from the North American Review (June 1889 vol. 148, issue 391).
A New Theory of Harm
I attach below a presentation I delivered yesterday at the Amsterdam Center for Law & Economics (UvA). This presentation summarizes and updates my PhD work.
In substance, It shows that Article 102 TFEU may provide a workable ex post remedy against certain types of oligopolistic conducts. The concept of abuse of joint dominance may be applied to the artificial tactics which oligopolists adopt to protect an observed collusive equilibrium from the natural, disruptive effect caused by an external shock (entry, natural disaster, change in tax rate, etc.). In this sense, it is different from the proposals of Prof Whish re. excessive prices and Korah, Monti & Stroux re. facilitating practices.
A related aspect of my work challenges the over-optimistic, and naive view that the merger regulation is the ultimate preventive instrument against tacit collusion.
The good news is: my hosts in Amsterdam – very bright economists and lawyers – were quite attracted by the idea. They advised me to send it to officials within competition authorities.
A paper will shortly follow.
Presentation ACLE – 14 March 2011 – N Petit
A big thank you to Maarten Pieter Schinkel, Carmine Guerriero and all the other ACLE nice guys I met yesterday.
PS: With yesterday’s post on the Dutch competition authority, Alfonso’s taste for dirty stories is now public. Unlike him, I have decided to spare our readers from stories on coffee shops and other infamous districts of Amsterdam.
Chillin'Competition 