Author Archive
Ménage à trois (part III; Makis Komninos): Case T-169/08 PPC v Commission
This third part of our inaugural ménage à trois discussion on the Greek lignite Judgment features (see part I and part II ) another good friend of this blog: Assimakis Komninos. Makis is a great guy, a partner at White & Case, and was a successful co-counsel in the case we’re they are discussing, so he was an obvious candidate for our triad of guests. As you will see, Makis sides with Marixenia Davilla in praising the Judgment. In doing so, he replies to José Luis Buendía’s more critical views.
To illustrate Makis’ post we have chosen the image of another famous lignite-related (look at gift in the middle) ménage à trois. 🙂
First of all, it is such a great pleasure to be invited to comment on the Greek lignites case. I should disclose at the outset that I represented, as co-counsel, the Hellenic Republic in its intervention in support of PPC during the written proceedings stage.
My personal view is that the General Court did the right thing and annulled a decision that was going a step too far. There is no doubt also, in my view, that the Commission was using this as a kind of “test case” against a carefully selected target.
The intellectual starting point is, I think, the very nature of Article 106 TFEU. This is a rather curious provision and I certainly agree with José Luis that it is essentially about State measures, but the sure thing is that the Treaty fathers wanted to give it a carefully circumscribed scope. A systematic interpretation of the Treaty does not support that there is general prohibition of all State measures that may – even indirectly – impact on competition and business activities. Article 106 TFEU restricts the behaviour of Member States only by reference to the scope of some other Treaty provisions, such as Article 102 TFEU. This is the provision that the Commission chose to rely on by reference.
Then, if one reads the Commission’s decision, one fails to see how Article 102 TFEU would come into play here, albeit by reference. Would the theory of harm refer to a leveraging abuse, to a refusal to supply, to a failure to satisfy demand (exploitation), to discriminatory treatment on the part of PPC? Not clear at all. The Commission thought that it did not have to specify this. By the way, I am not suggesting that in Article 106 TFEU cases, the Commission need to show anti-competitive effects etc. This is not what I argue. Instead, I submit that the Commission should be able to demonstrate with a sufficient degree of intellectual clarity that the State measures are connected with a specific kind of actual or potential abusive behaviour by the undertaking in question. This is all the Court says and I fully agree with Marixenia.
With respect, I do not agree that the previous case law gave the Commission leeway in not being obliged to identify a specific kind of actual or potential abusive behaviour. On the contrary, if we look at RTT and even Connect Austria, while we see references to “equality of opportunity” and to RTT’s “obvious advantage over its competitors”, that by no means leads to the conclusion that the mere existence of inequality of opportunity is sufficient for an Article 106 TFEU violation. In both cases, the Court spoke about specific anti-competitive phenomena. In Connect Austria, the problem was that the undertaking in question was allowed (through the inequality of opportunity) to expand its dominant position onto a related market and, in RTT, the Court is very clear and explicit as to the kind of abuse of dominance that was at stake: “an abuse within the meaning of Article [102] is committed where, without any objective necessity, an undertaking holding a dominant position on a particular market reserves to itself an ancillary activity which might be carried out by another undertaking as part of its activities on a neighbouring but separate market, with the possibility of eliminating all competition from such undertaking”.
In the PPC case, the Commission seemed to build its case on the grounds that PPC’s lignite rights are not sufficiently counter-balanced by significant deposits of its competitors, even though lignite is not an essential input to compete downstream. I am actually being kind to the Commission, when I say this, because this theory is not clearly articulated within the txt of the decision. The Commission then identified a remedy: PPC’s competitors needed to gain access to 40% of the total exploitable lignite reserves. In a nutshell, the Commission was seeking to use competition law to unbundle the Greek electricity generation market. However, this instrumentalisation of the law, in order to redesign a market structure, lacked both a legal and a sound economic basis. Moreover, it would lead to a dangerous precedent by permitting the Commission to attack market structures it dislikes by invoking the vague concept of “inequality of opportunity”.
The Commission misinterpreted the case law and its decision deserved to be annulled. I do not think this is the end of Commission enforcement under Article 106 TFEU, as some commentators have argued. It will only have to do a better job next time and articulate also a clear theory of harm that refers to an actual or potential abuse of dominance by a public undertaking or an undertaking with special or exclusive rights, as a result of certain State measures.
Ménage à trois (part II; José Luis Buendía): Case T-169/08 PPC v Commission (… and Jules v Jim)
For this second part of our first ménage à trois discussion we are proud to present you with José Luis Buendía’s view of the Greek Lignite Judgment in response to Marixenia Davilla’s earlier post. Aside from being the head of Garrigues’ Brussels office -where I happen to work-, José Luis is widely regarded as “Mr Article 106”. He also masters the art of illustrating all hiw views with metaphores and parables. Continue reading and you’ll see what we mean….
[For a contrarian view of José Luis’ arguments check our Makis Komninos post (which we will publish here tomorrow)].
It is a real pleasure to be invited to contribute to this blog. This is even more the case given the topic, the format, and the identity of my nice and learned counterparts – Marixenia and Assimakis. Even if I don’t share their enthusiasm about this judgment, it is clear that they have done an excellent job as lawyers. So, congratulations to them and to their colleagues who worked om the case.
Contrary to them, despite having been in the past an EC official, I have not had any involvement in this particular case. I am nevertheless very interested in it, since I am working on a new edition of my book on Article 106. Moreover as I have explained in a recent article, unfortunately there are not so many Article 106 cases to comment. So I am glad to have this opportunity.
This case made me think of François Truffaut’s film Jules et Jim about a genuine ménage à trois. The Catherine of the movie (Jeanne Moureau) had – simultaneously – a husband and a lover. As Marixenia rightly implies in her interesting comment, Article 106 also has simultaneous links with State aid on the one hand and with antitrust on the other hand. In my view the problem with the judgment is to assume that Article 106 is only married with antitrust and faithful to it. It is not. Article 106 is about State measures and is therefore essentially different from antitrust.
It is for this reason that, in my opinion, this judgment is not really consistent with the previous case law that it claims to be following. Indeed, previous judgments, like RTT, considered that the mere granting of an exclusive right to a public undertaking previously enjoying a dominant position was in itself contrary to Article 106 combined with Article 102 TFEU. This conclusion was based on the effects of the State measure creating the extension of a dominant position from one market to another one (effects that were similar to those of an abuse). The said conclusion did not require any actual abusive behavior.
In today’s judgment the General Court reads the previous case law in a different manner and finds that it does require the existence of an abusive behavior, at least a potential one. Since the EC decision did allegedly not established the abuse but relied only on the effects, it was according to the Court in breach of the Treaty. This reasoning seems to me clearly contradictory with the case law.
This reasoning seems also a little bit abstract. Indeed, the judgment itself concedes that the mere possibility of a future potential abuse would have been enough to satisfy the legal test. However, since according with the judgment, the decision did not explore this issue in an explicit manner, it had to annul it. It seems however obvious to me that a State measure extending the dominant position from one market to a neighbor one has, at the very least, the potential to lead to abusive behaviors. So, the Court seems to say that it is only the lack of an explicit reference to this obvious consequence that leads to the annulment.
I assume that the Commission may appeal the judgment before the Court of Justice in order to clarify the application of Article 106 with regard to special or exclusive rights. I also think that in the future the Commission should be more active and more coherent in the application of this provision.
In any event, I also know that my Greek friends would have a view different from mine, so I really look forward to the continuation of the debate.
Ménage à trois: The General Court’s judgment in Case T-169/08 PPC v Commission
A few posts ago we decided to follow the Commission’s example and launched a reform aimed at working less. Our plan is to do so by opening this blog to comments on recent Judgments on the part of three experts: one writes a “standard post” on the Judgment, and two others comment on it. As anticipated, our first ménage à trois deals with the Greek Lignite case (concerning the inteface between Arts. 106 and 102 TFUE). Our three inaugural guests are three good friends of this blog: two of them (Marixenia Davilla -Shearman&Sterling- and Makis Komninos -White&Case- and were actually involved in the case (on the winning side) and the third (José Luis Buendía -Garrigues-) is the author of the bible on Article 106 (of which a new edition is on the pipeline). Marixenia has written an excellent post to get the ball rolling. Comments will follow soon. Enjoy!
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First things first…Many thanks to Chillin’ Competition for ambushing giving me the opportunity to participate in my first ever platonic ménage a trois. This is so exciting that I am contemplating making an addendum to my curriculum. I am certain it will boost my chances of being promoted before I turn 50.
Let’s move on to the juicy stuff now, namely, the PPC judgment rendered by the General Court on 20 September 2012. Having worked on this case whilst at Howrey (RIP), I am particularly pleased to see PPC winning a very difficult battle.
This case concerns Article 106 TFEU, a provision that cannot be implemented on its own, but must be combined with another EU law provision, in this case Article 102 TFEU. Article 106 can also be described as a sort of transgender hybrid enforcement tool, existing in limbo somewhere between antitrust and state aid law, without really being any of the two. Commission decisions under Articles 106/102 are addressed to member states, but are not state aid decisions. They make findings regarding actual or potential abuse of dominance, yet the level of analysis required in such cases to prove an infringement is notably lower compared to that required for establishing a “pure” abuse of dominance under Article 102. Pursuant to Article 106(1)/102 case law, the Commission is not required to show that the company in question abused its dominance, but that it can be led to committing an abuse merely by exercising the state measure in question. In other words, Article 106 is not a bird, is not a plane, but does (still) fly, and has been a pretty handy weapon for the Commission, particularly in cases concerning network industries.
But the fun does not end there. The case law developed in relation to Articles 106(1)/102 predominantly comprises preliminary rulings by the Court of Justice, which are neither consistent with each other, nor that easy to categorise. That said, a broad categorisation is possible, and in PPC’s case the Commission relied upon the so-called “inequality of opportunity” case law (Raso and Others, France v Commission, GB-Inno-BM, and Connect Austria). According to the Commission, based on that case law, there is no need to identify a specific type of abuse; suffice to show that the state measure in question leads to an inequality of opportunity between market operators. Haha, piece of cake! Prove that, dear Commission official, and you’re done, you can close the shop and go on holiday!
This interpretation is somewhat unsatisfactory. In its appeal against the contested decision of March 2008 PPC invited the General Court to clarify this issue, and the latter bravely took on that challenge.
Marketing domination
In a previous post we explained why, in our view, the criticism that DG Comp only targets U.S. companies does not make much sense (see here) .
But now we have discovered -with the help of the above pic (thanks to Gil Ohana for sending it to us!)- that antitrust enforcement concerning U.S. corporations may be based on a big misunderstanding rooted on different terminology. Whereas in Europe we’re suspicious of any reference to dominance , in the States this term does not have the same connotations. By bragging about their dominance on the market (like S&M does in the photo), some firms might be unvoluntarily attracting antitrust scrutiny. The bottomline: there are no U.S. dominant firms, only marketing tricks.
[Yes, I know, this “theory” doesn’t pass the laugh test, but the pic is good anyway].
A piece of important advice: don’t make the same mistake I made, and don’t google SM domination (at least while at the office…). Really, don’t!
Expert economic evidence(?) in competition cases
On 21 November Concurrences, A&O and MAPP will be holding a worskshop on “Standard of Proof for Economic Evidence” (registration is free and still possible through this website).
The topic is very interesting. I don’t know whether I’ll be able to attend, so I’ll make a point in public here (or rathe repeat what I co-wrote on a piece published here) in relation only to the assessment of economic evidence in judicial proceedings. To me, it’s more appropriate to refer to “economic argument” than to “economic evidence”. Unless the expert is appointed by the Court (off the top of my head I can only remember this being done in Woodpulp) or comes from the Commission (which has the winning hand enjoys a margin of discretion in this regard), I do not see many differences between legal and economic argument put forward by the parties in competition proceedings, and no one would call lawyers´ pleadings “legal expert opinions”.
Certainly, in some cases there will be a hardcore of economic data which is not contested by opponents (be it the Commission, the parties, or complainants), but a great part of the “evidence” will be opinion and based on each one’s assumptions, not strictly evidential. An expert presenting evidence is supposed to act as a translator for the judge on areas on which the latter lacks the appropriate training. However, in real life, expert economic evidence has a “strong tendency” to favor the argumentation of one particular party, and is often contradictory with that presented by other parties.
In the end, economic evidence offered by the parties will be assessed by the European Commission and EU Courts as a friendly (former CFI Judge Huber Legal would call it “sisterly”) statement commanded by the interested party with a view to making its case more palatable to the deciding authority or court. Its value will depend on how persuasive the economist in question can be, just like lawyers and their plaidoiries. In the words of Hubert Legal at the 2006 Fordham conference “[T]he way we proceed is compatible with our Rules of Procedure because [economists] are not pleading under oath; it is only a part of the pleading, like you would have the possibility to ask a member of the board of a company to speak, or your sister or whoever is interested in the case”.
Best competition law course ever (?)
Ok, yes, I might perhaps have exaggerated a bit, but I needed a catchy title to call your attention to this one 😉
On a previous post we already referred to the competition law course that pays me a few weekend trips to Spain I’m co-directing at the IEB in Madrid. The brochure is finally now available: XVI_Curso_Competencia_IEB_2013.
We already have a bunch of students from the Spanish competition authority, Latin american competition authorities, as well as from several companies and law firms.
We would be grateful if you could please pass the brochure on to anyone who you think might be interested!
Antitrust and political imbecility
(The post below will perhaps be a bit more controversial than the stuff we usually publish here. I nonetheless bet that its title will draw some additional readers to it: insults -particular when linked to politics- are always good marketing tools! Please note that these are simply some Sunday afternoon ruminations that aren’t that well though through; they are rather “thoughts in progress”. Would be happy to further distill/refine them through public discussion, so feedback will be appreciated).
In The Revolt of the Masses, Ortega y Gasset wrote a phrase that I often quote:
“Aligning oneself with the left, as with the right, is only one of the numberless ways open to man of being an imbecile: both are forms of moral hemiplegia.”.
This quote has in the past got me into trouble long discussions. There can certainly be some nuances to be made to it (some issues traditionally defended by the left, or by the right, -extremisms aside- are certainly worth aligning with; the quote rather refers to all accross the board uncritical alignments), but, frankly, I think Ortega had a point.
Another great writer -Orwell- said that “to see what is in front of one’s nose needs a constant struggle”. Undertaking such exercise from a pre-defined right or left perspective makes things easier, for you know in advance about what stance to take on most issues. On the contrary, assessing all issues objectively and on their merits (to end up agreeing sometimes with the left, sometimes with the right, and often benefiting from a mixture of the two) is complex, tiring and some would say perhaps unfeasible.
Now, considering that you probably – and rightly- don’t give a damn about our views on politics, you might legitimately ask why on earth I’m telling you all this. Well, because I think that the expansion and consolidation of antitrust laws accross the world can actually contribute to mitigating political imbecility through the promotion -even if implicit- of sensible centrist attitudes (actually, I’m not sure I think it, but it’s an interesting thesis anyway). Let me try to explain what I mean, and please tell me what you think:
The widespread adoption of antitrust rules implies a recognition that (i) freedom of enterprise and free competition is positive; and (ii) for such freedom to be real market forces and excessive market power need to be effectively supervised and corrected through public intervention. This crucial paradox -to limit some sorts of freedom for the sake of freedom itself- might sound obvious to you (after all the laws themselves are “those wise restraints that make men free“), but it has not been a feature of the economic policies pursued in many places around the globe. As a matter of principle, the recognition of the need to strike a balance between the two principles outlined above through the very enactment of antitrust rules (unless purely cosmetic) around the world constitutes a giant step towards the construction of centrist economic policies.
The enactment of antitrust rules also obliges public authorities in many jurisdictions to make complex economic decisions (notably on when to intervene and when not to). To be sure, these decisions may certainly be (and often are) infused by different ideologies, and instrumentalized to pursue non-centrist political agendas. However, as experience, precedents, inter-relations and peer pressure consolidate, it will (I hope) become increasingly harder for decision-makers to adopt decisions on the basis of elements other than objective ecomomic and legal knowlegde. That, to me, would be sensible centrist economic policy too.
The underlying assumption that smart public intervention might not only restrict but also actually promote economic freedom could hopefully be extended to other economic domains. For instance, it would be nice if some (not only in developing countries, think of the Tea Party movement) who identify themselves as pro-individual freedom (a principle with which I agree) would realize that for freedom to be real (and not confined to a few) public intervention is required in order to provide effective and equal opportunities to actually exercise it.
I was positively surprised to see that I may not be sole one thinking this way. A recent editorial in The Economist (which I would very much suggest you read; available here) not only called for “radical centrist policies” (what the piece also referred to as “true progressivism”) to combat growing inequalities, but also attributed antitrust a primary role in the pursuance of a centrist agenda. (“The priority should be a Rooseveltian attack on monopolies and vested interests, be they state-owned enterprises in China or big banks on Wall Street. The emerging world, in particular, needs to introduce greater transparency in government contracts and effective anti-trust law“).
Btw, I have the feeling (no evidence though) that The Economist drew inspiration for some these ideas from a recent and truly great book: Why nations fail -which I’m trying to read when work allows-. This book also contains compelling arguments about why the promotion of competition through the application of antitrust rules is one of the most effective ways to contribute to the development of any given nation.
Ugly -at first sight- but interesting (on nullity under EU competition law)
Some time ago Nicolas Charbit (Concurrences) asked Luis Ortiz Blanco and myself to write a foreword for a special issue of e-Competitions on “Nullity/Voidness”.
Yes, at first I had the same reaction you just had; kinda “What?? Wasn’t there a less sexy topic? I bet they asked us because no one else wanted to do it!”. But we accepted the offer (partly because it was for Concurrence, and partly because we still haven’t learnt to say no). Then we started thinking about it. For some time our only thought was mainly “damn, damn, damn, why did we accept to do this?“.
But when we really undertook to work on this foreword (the weekend before the tenth deadline expired), we realized the reason why the theme of nullity does not rank high in the list of preferred topics of EU competition law commentators. Reflecting upon it requires an excursion into “terra incognita”. Making sense out of the various intellectual riddles that arise with regard to nullity/voidness requires not only a knowledge of competition law principles, but also a mastering of general principles of contract law, as well as of comparative law, that are all too rare in our narrow discipline. In other words, we found out that the topic demands not a foreword but a doctoral dissertation. In spite of the appearances, it’s as interesting as it is important.
In our view, the most interesting issues concern so-called “fruit agreements”, that is, agreements distinct from the one found in breach of the competition rules but that are instrumental to realise the profits sought therewith (e.g. the agreements between a company participating in a cartel and its customers). It is clear that a given anticompetitive clause within an agreement shall be deemed void. It is also well-established that the nullity of such given clause can possibly extend the nullity to the rest of the agreement of which it is part provided that the two are not severable, and that whether a given clause is severable from an agreement is to be decided by national courts in the light of the applicable legislation in each Member State and of the specific features of each agreement. And whereas the practical application of these principles may give rise to divergent results, the situation –at the level of EU law principles- is fairly satisfactory.
What is less satisfactory is the uncertainty surrounding the validity of agreements which do not directly breach the competition rules but which stem –and actually put into practice- another agreement that does. The case law of the European Courts states, on the one hand, that the “the nullity referred to in Article [101](2) (…) is capable of having a bearing on all the effects, either past or future, of the agreement” (Courage v Crehan, para. 22) and, on the other hand, that “[t]he consequences of such nullity for other parts of the agreement, and for any orders and deliveries made on the basis of the agreement, and the resulting financial obligations are not a matter for community law. Those consequences are to be determined by the national court according to its own law” (Kerpen & Kerpen, para. 12). In other words, EU law purports to deal with the nullity of the effects of the anticompetitive agreement, but not with the vehicles (ensuing contracts) that carry out such effects. Does this make sense?
Those interested in finding out our view on this issue, and on a few others, can read the full foreword here: Foreword eCompetitions Nullity/Voidness (It’s only 5 pages long; not long enough to bore you to death).
The rest of the special issue is available here.
Have a great weekend!
Case T-111/08, Mastercard. A priceless Art. 101(3) assessment
A while ago we wrote a post on The Slow Death of Article 101(3) TFEU, where we said that in recent European Commission, practice, only once the challenged agreeement was not deemed to be a restriction by “object”, and that only in that case the Commission had carried out a serious Article 101(3) assessment. This was the Mastercard Interchange fees case, and last May the General Court rendered its Judgment on it (btw, we have no interest whatsoever on this case).
Over time we have realized that the longer and more serious a post is, the less you guys read it (and this one will be quite lenghty). So, of the many complex and interesting issues raised by this case, we will only comment on a general point regarding the Court’s assessment of the interchange fee arrangements under Art. 101(3). Given that almost no Decision or Judgment delves into 101(3) analyses these days, the General Court’s assessment is priceless for anyone interested in exploring how this key provision is to be interpreted. In this sense, it’s surprising that the Judgment hasn’t received more attention.
I confess that I undertook the reading of the Judgment with a clear confirmation bias: I was looking for evidence that would support my point that it’s incredibly difficult to successfully argue that a given agreement can benefit from the legal exemption provided by 101(3). To my (positive) surprise, I found out that despite applying the “manifest error of assessment” standard of review, the General Court actually did carry out an assessment of the evidence put forward by Mastercard which is well more detailed than what I expected (see paragraphs 207-237). Right or wrong, it was acceptably thorough, specific, and even revealed that the Court had managed to understand the so-called Baxter model put forward by the applicants.
The Court’s application of the first condition of Article 101(3) nonetheless raises some interesting and debatable issues that relate to the fundamentals of Art.101(3), which are partly discussed below. I take responsibility for the opinions below, but I have taken a free ride benefitted from educative discussions with two of my favorite legal minds: Luis Ortiz (who has authored the best study on how Art. 101(3) is to be applied) and Eric Gippini (whose great Friday Slot interview is available here) (to make sure, they don’t necessarily agree with the views developed below)
Click here if you’re interested in reading more (spoiler alter: dense stuff ahead)
Anticompetitive (?) alumni networks, and more on credit rating agencies
[We were a bit inactive this week; Nico is at a conference in Hong Kong (lucky b…) and I had an important deadline to meet. We have some long and substantive geeky boring posts on the pipeline that we intended to post this week (on the MasterCard Judgment, on recent cartel case law and on Google), but have been unable to think/write them through properly. In the meanwhile, here’s an “easy” post to finish the week off]
A few days ago the Financial Times featured a piece (click here for a podcast) discussing a recent report from the Competition Commission (“CC”) that concludes that the alumni networks of the “Big 4” auditing firms (who have a practical joint monopoly over the auditing of publicly traded companies; 99% of the FTSE 100 according to the report) stiffle competition in the business.
According to the CC, 60% of audit committee chairs and 66% of Chief Financial Officers in FTSE 100 companies had previously worked for the Big Four firms. The report states that “it is possible that this familiarity will make them more favourably disposed to the appointment of a Big Four rather than a non-Big-Four firm” and that “it could make them less aware of the quality and experience of the non-Big-Four firms”, thus raising barriers to entry.
The Financial Times’ piece takes a different view. It argues that “alumni networks are not a problem at all – in fact they are a thoroughly good thing. Think about it. If you have worked somewhere, you know what it is like. You know exactly how hard people work, how straight they are, how often they screw up and, above all, whether they are charging a fair price for what they do (…) So an honest thumbs-up from a current employee means quite a lot. But one from a former one means even more. When you leave a company, it is human nature to pretend that the move was a success. That may mean bigging up the new place and littling down (to coin a useful new phrase) the old one. If, in the case of the big four, the alumni are prepared to spend huge amounts of their current employer’s cash on their ex-employer’s services, that suggests that the market is working rather nicely“.
So, is this an unavoidable fact of life or a market failure calling for intervention? Any views?
The truth is that this issue is not confined to the audit world. For good or for bad, there’s a lot of this, for instance, in investment banking, and even in the legal -academic and professional- world too (although the inferior level of concentration in the legal world certainly mitigates the issue to the extent that, if anything, it would be a de minimis concern).
What could actually call for intervention (if true) are the findings in this most interesting report “Bank ratings: what determines their quality” It argues that “rating agencies assign more positive ratings to large banks and to those institutions more likely to provide the rating agency with additional securities rating business (as indicated by private structured credit origination activity). These competitive distortions are economically significant and contribute to perpetuate the existence of ‘too-big-to-fail’ banks”. If interested on finding what could be the legal grounds for antitrust intervention in this sector, you really should read Prof. Petit’s award-winning piece on Credit Rating Agencies, the Sovereign Debt Crisis and Competition Law.
Have a great weekend!
Chillin'Competition 
