Chillin'Competition

After Pablo’s post from last week it’s time to comment on something that is actually related to the law…

Today the European Commission imposed a record-breaking € 2.93 billion cartel fine on truck manufacturers.

That’s what you call a heavy load.

And this means that truck manufacturers have just overtaken Microsoft as the main historical contributors to the EU budget. [For a previous post outlining some absurd ideas on what the Commission could do with the almost 2 billion in fines paid by Microsoft, see here ] 😉

Whereas sky-rocketing fines are headline-grabbing and may contribute to future deterrance (not that they have provided so useful in the past), I have traditionally not been a fan, as suggested by my post on The massacre of the innocents. 

That post, by the way, referred to an article we wrote back in 2008 and which is available here Fine Arts in Brussels (text) [as you will see,  the arguments in this article are accompanied by Roman numerals; those numbers refer to paintings which graphically illustrate those ideas, you can see those here: Fine Arts In Brussels (pictures)].

A few days ago the General Court issued interesting Judgments in cases T-208/13, Portugal Telecom, and T-216/13, Telefónica that have gone fairly unnoticed (possibly because they are not available in English). For the purpose of this post I will discuss the Telefónica Judgment.

The annulment proceedings relate to a Commission decision sanctioning Telefónica and Portugal Telecom (“PT”) for having included a clause under which both parties committed “to the extent permitted by law” not to compete with each other in the Iberian market in any new projects or activities in the telecommunications sector (including fixed telephone and mobile telephone services, internet access services and television services) as part of the agreement for the sale of PT’s stake in Brasilcel to Telefónica during a certain period. The clause was meant to be in force between September 2010 and 31 December 2011 but was formally withdrawn following the opening of the case in February 2011.

The decision considered this clause akin to an outright market sharing agreement, and dismissed the arguments Telefónica put forward in relation to, among others, the fact that a qualification “to the extent permitted by law” had been introduced at the end of the negotiations; the absence of actual anticompetitive effects; the alleged ancillary nature of the clause; as well as the argument that the clause was in reality considered ineffective following an ex post self-assessment undertaken by the parties’ lawyers. For the purposes of the calculation of the fine, the decision took into account the value of sales made by the parties’ in their respective home countries and applied a 2% coefficient that resulted in almost 67 million euros for Telefónica and in roughly 12 for PT.

The General Court’s detailed Judgment validates practically all of the Commission’s substantive thesis with one notable exception related to the calculation of the fine. But don’t lose the interest yet; there is some very interesting legal debate here:

-On the one hand, the Judgment confirms that, having regard to the legal and economic context, the conduct was a “by object” restriction. Telefónica had claimed that the clause was ancillary to a complex deal and that it had been imposed by the Portuguese government, so that its only choice was to limit the impact of the clause by forcing a self-assessment of any future conduct by including the phrase “to the extent permitted by law”. The Court dismisses the argument observing that Telefónica’s behaviour was autonomous and not forced by the Portuguese government (¶¶ 111-120) and that the claim that the clause was considered indispensable by the Portuguese government had not been proved (¶¶ 123-166). The Judgment does not accept Telefónica’s contention that adding the “to the extent permitted by law” qualification conditioned the validity of the clause to a subsequent self-assessment. It essentially observes that the parties themselves did have doubts as to the legality of the clause and that no one had explained why it had not been possible to clarify the matter prior to the closing of the deal or to its entry into force (¶¶ 181-192). Moreover, the Judgment does not accept the statements of the parties’ lawyers made before a notary as those do not coincide with the content of the written agreement to suppress the clause; ¶¶ 187-200).

The counterfactual. In its fourth ground of appeal Telefónica had claimed that the Commission had failed to assess in detail the structure of the markets in order to verify whether there would have been real, concrete opportunities for the parties to compete during the period affected by the clause had the latter been absent (i.e. that the Commission failed to address the counterfactual). The legal logic is correct: an agreement cannot restrict competition that would not have existed, but the argument was lost on the facts. The Judgment responds to these arguments noting that in this case it was not necessary for the Commission to assess in detail the structure of markets or potential competition given that the non-compete clause itself implied an acknowledgment of at least potential competition, that its subject-matter consisted of market-sharing, that its scope was very wide and the affected services had just been liberalized (¶¶ 201-227).

-On the other hand, however, and this is the main novelty in the case, the Judgment rules that the Commission was nevertheless required to assess potential competition between the parties for the services affected by the clause when calculating the value of sales. Since this exercise was not conducted, the Commission is ordered to make a fresh finding with regard to the calculation of fines (see ¶¶ 295-310). This relates mainly to the sales made by virtue of activities that would not have been subject to competition even absent the agreement  (e.g. services provided under monopoly conditions or others where PT’s access was impossible; see ¶ 274). The Judgment provides that the Commission should have examined the parties’ arguments seeking to establish that there was no possibility of competition for certain services, and that only after it might determine the value of sales linked to the infringement for fining purposes.

So, effectively, the Court endorses the Commission’s stance not to assess potential competition for the purposes of determining the legality of the conduct but nevertheless requires it to conduct this exercise at a later stage, when calculating the fine. And you may wonder: Why? Is this right?

Here is my off-the-top-of my-head take subject to our usual disclaimer:

• Contrary to earlier case-law that may suggest the contrary, I do share the General Court’s underlying reasoning that the “by object” label is about the obviousness of an infringement, not about its impact or material gravity. That is in fact what I said in a previous post discussing the “bananas” case.

• My feeling is that the Court was also –rightly- seduced by the counterfactual logic, as it wouldn’t make sense to sanction a restriction of competition that would not have existed. However, the Court’s overall assessment of the nature of the clause and context to the case led it to conclude (like in Toshiba, also cited in the Judgment) that the agreement did restrict at least potential competition that would otherwise have existed. This is correct in general, but also ignores that the scope of the infringement would have been reduced by excluding those activities where competition was not possible (in fact, ¶ 221 seems to suggest this could have been done) (admittedly, I don’t know how the parties argued it so perhaps the Court wasn’t able to do more). Accordingly, it moves on to the next step and follows a similar logic at the stage of fine calculation.

• In doing so, the Court encounters a problem, as there is also case-law from the ECJ (cited in 306) stating, in the context of market sharing, that one cannot uphold an interpretation whereby the Commission would be, when calculating fines, subject to obligations to which it is not subject for the purposes of the application of Article 101 (C-543/07, Prym, ¶ 64).

• The Judgment appears to be aware of this tension and therefore observes that the ECJ’s Judgment in Prym was rendered at the time the previous Fining Guidelines were in force (306 in fine), and emphasizes that in this case it is not imposing different obligations on the Commission but merely extracting the necessary consequences of recital 13 of the current fining guidelines which was self-imposed by the Commission (and which provides that in determining the basic amount the Commission will take the value of the undertaking’s sales of goods or services to which the infringement relates). This is an interesting and certainly defensible argument; at the same time, some may claim that it does not fit squarely with other case-law (e.g. C-580/12 P, Guardian ¶¶ 57-58).

• In my personal view, and taking for granted the Judgment’s factual assessment, perhaps the “more correct” solution, and one that would have avoided this tension, would have been to rule, in the first place, that the clause restricted competition by object but only in relation to activities where there could have been viable competition between the parties. There is abundant case-law that would have supported this reasoning (STM, European Night Services, O2, E.On –discussed in the Judgment- and others). Should that have been done, the Court would not have found the above-mentioned obstacles. Now, this is only my hastily formed opinion; happy to think it through together in case you might have comments.

If interested in all of these issues (which must be the case if you made it this far), you should know that Pablo and I are (or rather he is and I should be) working on a paper that develops the views expressed here, particularly regarding counterfactual assessments.

My silence on the past few days has to do with several open fronts thanks to the Commission’s bad habits of summertime desk cleaning, but also to my bad habits of devoting  non-work time to conferences and talks (my only consolation is that Pablo has recently been by far the most active speaker in Chillin’ Competition’s flying circus).

-Some of you have asked for the presentation I used at the VUB’s very interesting debate on big data and competition law; here it is:

Competition-big-data_lamadrid 23 June

You know my views from quite a few previous posts (all links appear at the end of the ppp). The main addition this time was to discuss the joint French-German report issued last May which essentially makes general conjectures about how standard theries of harm could apply to big data (like they apply to any other asset) if the right facts were to arise in a given case. In sum, nothing new under the sun.

The change of attitude on the part of competition authorities is nevertheless remarkable. When I spoke at the EDPS closed-door workshop at the European Parliament in one of the first discussions on this matter my views were perhaps a bit anti-climatic for an audience pre-disposed to use competition law to tackle non-competition issues. But I did -logically- have the support of the only authority in the room, DG Comp. Now, however, we see not only the German Facebook case and the French-German report giving further visibility to a non-issue, but I also hear that some within DG Comp are pushing to do more on this front. That’s disconcerting.

-None of you have asked for the presentations I have used the past two Fridays at the College of Europe Summer Courses (where for the 4th year in a row I’ve lectured on Antitrust Procedure and Article 106). Lack of interest has never precluded me from posting stuff here, but since the two presentations are in Mandarin I’ll spare you the pain…

Below is the second part of Trevor Soames‘ excellent, original and very detailed narration of the Intel Hearing held yesterday in Luxembourg. Chapter 1 deals with jurisdictional issues; Chapter 2 with rebates; Chapter 3 with procedural issues and Chapter 4 with fines. Enjoy!

Prior to the commencement of proceeding the Court asked the parties to address their oral pleadings to three questions, as follows “Pursuant to Article 61(2) of the Rules of Procedure, the parties are requested to focus their pleadings on the Commission’s jurisdiction over the agreements concluded between Intel and Lenovo for 2006 and 2007. The parties are also requested to state their views regarding the impact of the judgment in Post Danmark (C-23/14) on the characterisation as loyalty rebates applied to agreements concluded by Intel and on the procedural handling of the interview conducted by the Commission with Mr D.”

The following report seeks to reflect fairly and as precisely as possible what the different parties said, dealing with each of the issues in turn (although, for the sake of brevity, the closing speeches are not recorded here).  As there is no Rapport d’Audience and as a result non-parties have no access to a summary of the pleadings, the oral argument provides an important insight into what each side has said to the Court in this very important case on a number of key issues.  Also, and importantly, the questions posed primarily to the Commission and the extensive Q&A by AG Wahl in particular perhaps gives some insight into the direction of travel he may be following in the preparation of his Opinion.  Will that Opinion provide a much hoped for clarification in this important area of competition law as well as a correction to the much-criticised judgment of the General Court in Intel?  Will AG Wahl’s Opinion have the same importance and impact of a number of his other Opinions in the competition law arena, such as in Cartes Bancaires.  We will have to wait and see.  And, of course, even after the AG opines we will have to wait to see the extent to which the CJEU follows his advice.

The report therefore seeks to provide a logically structured yet still verbatim account of yesterday’s hearing, with some commentary and observation contained in the final part (which will come tomorrow).

Read the rest of this entry »

Our call for Chillin’Competition special envoys to the Intel hearing caught the attention of  Trevor Soames, who volunteered to cover it for the readers of this blog. It’s a luxury for us to post his chronicle of the hearing held today. Below is a first teaser. A more complete report is literally on its way from Luxembourg:

***

In a dramatic and sometimes stormy hearing today the Grand Chamber of the Court of Justice held an oral hearing on Intel’s appeal against the General Court’s decision upholding the Commission’s Article 82 infringement decision.  The strong bench was led by CJEU President Judge Koen Lenaerts, with former CFI da Cruz Vilaça as Juge Rapporteur and Nils Wahl as Advocate-General.

The Court asked the parties to focus their oral pleadings on three specific questions and thereafter Commission counsel was peppered with multiple follow up questions, initially from da Cruz Vilaça and then Nils Wahl.  Judge Eugene Regan also asked a single but incisive question.  The hearing overran its allotted time and raised a number of important issues.

One had the sense that the Advocate General is preparing to deliver a profoundly important Opinion shedding light on numerous controversial issues, including the validity of the General Court’s tripartite categorisation and its consistency (or not) with case law such as Post Danmark II, issues of jurisdiction and due process.

A full report will be published later today.

Counsel at the hearing were Nicholas Khan for the Commission supported by a distinguished team from the Legal Service led by Theofanis Christoforou and senior officials from DG Competition including DDG Cecilio Madero. Intel was represented by Daniel Beard QC and for the intervener ACT, Jean-François Bellis.

-The ECJ Intel hearing will take place next Tuesday (21 June). Chillin’Competition would like to be there, and since Pablo and I have real works to do we are looking for Special Envoy to cover it for us. We offer the blog to anyone who is able to attend and wants to comment it for our readers. As compensation, a few beers or a lunch. If interested, drop us a line ! Our offer is open to lawyers, students, clerks who may prefer anonymity, professional journalists or other anonymous contributors. It’s about time that someone writes something serious in here…

–Wouter Wils  just published a new piece discussing the past 20 years of leniency policy in the EU. It’s available here. Some might think it’s an obituary given recent concern about its future… 😉

-Speaking of leniency, an ECJ Judgment rendered last Friday (mitigating my most recent cartel litigation stats) concludes that the fact that the Commission is in possession of a document implies that it has knowledge of the content of that document (even if it hadn’t really understood it or realized about it), so the fact that a leniency applicant made it aware of elements the Commission wasn’t aware of cannot be rewarded. I’m not exaggerating, para. 72 of the Judgment says “it must be held that the Commission’s possession of evidence amounts to knowledge of its content, regardless of whether that evidence was actually examined and analysed by its services”. Well, that is the logic I apply each time I buy a book (assuming its possession will automatically mean knowledge of its content regardless of whether I analyse it), and my experience tells me that may not be right. Btw, that reasoning may open some interesting new doors (e.g. for determining what is a notification under State aid law or for companies accused of providing incomplete or incorrect info…).

-Many of you have asked in private about our opinion concerning competition issues in Microsoft’s acquisition of Linkedin. Not that I have given it much thought, but since Microsoft is a shareholder in Facebook, this could perhaps be a nice test case for Elhauge‘s “Horizontal Shareholding” theories.

-Instead of writing on this blog I have been commenting on others. For an interesting discussion on the notion of beneficiary/advantage in relation to a case in which I’m directly concerned (and on which my litigation stats crucially depend given that we are acting in 25 proceedings against a tax State aid decision recently annulled by the General Court and now appealed before the ECJ), see the comments to this post on European Law Blog (seems my last comment is still awaiting moderation).

-Pablo has been busy as well, speaking to judges in Madrid, to College of Europe students in Bruges, celebrating his birthday and his against all odds successful marriage proposal (congrats to him, not so much to her), etc. 😉

-And for those of you wondering what happened with Commissioner Vestager´s Twittelphant, it seems like after a premature celebration we might NOT be the winners (even after resorting to the dirty tactic of leveraging the blog’s market power). Since my son had already given it a name I will now have to get him another elephant!

Dear readers of Chilling Competition. We need you.

The world recently movilized because of a gorilla. Some time ago this blog also movilized to help in the search of a parrot lost by Trevor Soames (see here). Today we are asking you to change the fate of a knitted elephant.

Commissioner Vestager has knitted an elephant (some wondered what the Commission was doing these days 😉 ), and she has offered it to however gets the most retweets in the comment to her tweet. I saw this while boarding a plane and gave it a try. Granted, my response is not elephantastic but this blog needs a pet, so we need your help. In case it helps (playing the cuteness card…) my 21 month son Edu (who already helps me prepare hearings) would be its custodian.

So please help us by retweeting (and asking your family, friends to do it or by creating fake Twitter profiles 😉 ) this :https://twitter.com/lamadridalfonso/status/740808558611189760

A colleague just congratulated me for an article included in an ebook that was recently published on Competition and Platforms. Interestingly, I did not know that the book was out nor that it included my piece!

In any case I suggest you download it and take a look. It’s sponsored by our friends at CCIA and edited by a former colleague Aitor Ortiz (now at Competition Policy International). It compiles a number of interesting pieces on multi-sided markets.

Mine (“The double duality of two-sided markets”) was initially written as a speech for the Pros and Cons conference in Stockholm and was later published in Competition Law Journal, so it is also multi-published and multi-used. Talk of multi-homing….

The ebook is available here. It features the following pieces:

-Understanding Online Platform Competition: Common Misunderstandings By Daniel O’Connor

-The Move to Smart Mobile and its Implications for Antitrust Analysis of Online Markets By David S. Evans, Hermant K. Bhargava & Deepa Mani

– Failed Analogies: Net Neutrality vs. “Search” and “Platform” Neutrality By Marvin Ammori

-Antitrust Regulation and the Neutrality Trap: A plea for a Smart, Evidence-Based Internet Policy By Andrea Renda

-Multisided Platforms, Dynamic Competition, and the Assessment of Market Power for Internet-Based Firms By David S. Evans

-The Double Duality of Two-Sided Markets by me.

-Should Uber be Allowed to Compete in Europe? And if so, How? By Damien Geradin (Juan M. Delgado & Anna Tzanakis, ed.)

-Online Intermediation Platforms and Free Trade Principles – Some Reflections on the Uber Preliminary Ruling Case By Damien Geradin

-Competition Policy in Consumer Financial Services: The Disparate Regulation of Online Marketplace Lenders and Banks By Thomas P. Brown and Molly E. Swartz

-Legal Boundaries of Competition in the Era of the Internet: Challenges and Judicial Responses By Zhu Li

-Can Big Data Protect a Firm from Competition? By Anja Lambrecht & Catherine E. Tucker

These days seem to be short on news on the competition front, as confirmed by several calls I have received from journalists asking whether we knew why nothing seems to be happening and when we expect something to happen. Well, no clue.

But what worries me the most about this apparent inactivity (a mirage in many ways, as I know for a fact that some Comp units are swamped) is that arguably there will certainly be less decisions to appeal. This is not news, but a clear tendency in our field as a result of less leniency (arguably related to the Damages directive?), more settlements, more commitments, etc. You may remember that I discussed all of this in a post titled “The diluted legality of competition law“.

That is worrying for many reasons (one of them being that the law should be driven by Courts, not political specialized agencies, who are primarily responsible for setting enforcement priorities), but today I’ll be selfish and underline the one that bothers me personally: it means that we are losing the most interesting, most legal and most fun part of this job, litigation. 

Last week I made a joke about how I would work for free representing the supermodels targetted in a cartel probe [by the way, you should know that none of the supermodels who called me last week were interested in my work; it is frustating when people only judge one by the looks…;) ]

But last week I also intervened in hearings at the General Court (my colleagues also participated in a high-profile State aid one this Tuesday before the Grande Chambre of the ECJ) and I kept on thinking how I really would do that for free (Note for clients: please ignore this).

I’m particularly fortunate to be in a place where litigation is a great chunk of the work (I’m currently involved in more than 40 ongoing EU Court cases -admittedly many are joined- and in the past alone year intervened in, I think, 8 hearings) and there is nothing like it. Without a doubt, it is in Court, and drafting Court submissions where I’ve learnt the most. In fact, many of the best lawyers I know have significant litigation experience.

Inevitably, sometimes you win (this very same morning we entirely won 8 Joined cartel cases in which we represented the Commission before the General Court; since you won’t read the 116 page Judgment, here is the press release) and sometimes you lose. However frustating the defeat, I’ve thoroughly enjoyed every Court case in which I have worked. Some advice for young competition lawyers: when choosing a firm, make sure they are involved in many Court cases!

By the way, given the nowadays scarcer cartel appeals and the practical impossibility of succesfully appealing a merger decision (which I learnt the hard way), litigation is now likely to focus eminently on many state aid decisions and on a handful of abuse of dominance cases. Hopefully, the quite controversial addition of new judges to the General Court will imply a relaxation of the very strict rules of admissibility in State aid and a more thorough and detailed scrutiny of abuse of dominance decisions in which companies decide to trust Courts rather than conceding (on this latter question, see AG Wathelet’s “Commitment Decisions and the Paucirty of Precedent“).

I offer my services for free to defend any individual affected by this investigation:

Supermodels colluded to fix prices, regulators say 

Happy also to participate in the “beauty contests” that I suppose will be held to retain lawyers. 

I’m also available and willing to meet informally to discuss the case in pre-contractual engagements.