Author Archive
Linkedln: A new book, a new case, and an “innovative” ground for exploitation claims
The new book: Lorenzo Pace is the editor of a forthcoming book on The Impact of the Commission Guidance Paper on Article 102 which features contributions by a bunch of truly outstanding academics, namely Pace himself, Valentine Korah, Ernst-Joachim Mestmäcker, Catherine Prieto, Richard Whish, and Luis Ortiz Blanco together with Pablo Ibañez Colomo. I´ve had the chance to read some of the contributions, and they are frankly excellent. Keep an eye open for its publication.
The new case: L. Ortiz and P. Ibañez´s contribution in that new book emphasizes that a significant difference exists between the enforcement of the almost identical provisions on abuse of dominance at the EU and Spanish levels. In particular, they show that, in remarkable contrast to the record of the European Commission, as much as half of the total number of prohibition decisions adopted by the Spanish authority were of a “regulatory nature”, in the sense that they concerned exploitative practices put in place by undertakings enjoying or having enjoyed exclusive rights or operating in regulated network industries.
An investigation formally initiated yesterday by the Spanish authority seems to prove their observations right, and not only retrospectively: Telefónica Móviles, Vodafone and Orange are being investigated for having allegedly set excessive prices for wholesale origination and termination services for short SMS and MMS messages on their mobile telephone networks.
As reported on this blog, Telefónica was also recently sanctioned for having abused the collective dominant position that it enjoyed together with Vodafone and Orange in the retail mobile telephone market. I am wondering whether the CNC will be attempting to bring this new case on the basis of a finding of collective dominance on the wholesale market (seems unlikely, but remember the Irish case where ComReg decared O2 and Vodafone collectively dominant in the whosale market; that decision recently commented and criticized in the August 2010 issue of European Competition Journal), or will rather act the “Magill way”, holding that each operator is dominant with regards to its respective network.
An innovative ground for complaint: As harsh as the CNC´s attitude in relation to claims of excessive pricing may seem, things can always be worse:
The Bolivian government has announced the initiation of a probe on the rise of 50 cents in the price of Coca Cola. The reason why the government is reacting as if the price of a 1st need product had skyrocketed and might even order CocaCola´s bottler to cease its activities is simple: last year the government launched its own drink with the aim of competing against Coca Cola. They named their product: Coca Colla. Subtle, isn´t it? .
Despite its appealing brand name the government-sponsored drink wasn´t a success, so Evo Morales´administration is now following an alternative path; i.e. investigating their direct competitor for having increased its prices (even if it only did so in response to the 23% increase in the price of sugar approved by the government..). Aside from the fact that forcing a producer to stop production seems an interesting remedy to excessive pricing (aka restricting output), this is a genuinely innovative ground for competitors to take action. Who would have guessed it? Bolivia at the avant-garde of antitrust..
I Started Something and Now I’m Not Too Sure? (or The Commission and Google)
(Note by Alfonso: Last week I announced that Pablo Ibañez, a great friend of ours, a co-author of mine, and a truly brilliant legal mind, would be writing a post on the Google investigation. Here it is. As lucid as always).
Thanks very much to Nicolas and Alfonso for giving me some space to share a few quick thoughts with their (numerous and growing in number) readers on the nascent Google case! I was looking forward to posting something as soon as I read the press release. For the many readers who do not know me, I am a Lecturer in Competition Law at the LSE (P.Ibanez-Colomo@lse.ac.uk).
My concern with the ongoing proceedings has less to do with the technicalities of the case, very well outlined by Alfonso a few days ago, and more with the future of Article 102 TFEU. More precisely, I wonder whether this investigation is in line with the spirit and purpose of the 2009 Guidance or whether it represents, again, a step back to the pre-Discussion Paper era.
Even though it is an imperfect document, the 2009 Guidance represented a great victory in at least two important respects: it promised consistency (i) across competition law provisions and (ii) within Article 102 TFEU itself. Put differently, the Guidance Paper gave us the hope that the standards of intervention would be the same regardless of the provision (in particular, Article 101 vs. 102 TFEU) or the formal label with which the case is brought. This means, for instance, that a ‘margin squeeze’ will from now on be treated as a ‘constructive refusal to supply’ (and, as a result, it will in most instances be necessary to establish that the access to the input in question is ‘indispensable’ within the meaning of the Bronner and Magill cases).
Why is the ongoing investigation in Google problematic from this perspective? Because the European Commission seems to suggest that it is justified to open an investigation on grounds that Google may be discriminating against its rivals in web searches.
– Is secondary-line discrimination a problem in and of itself under Article 102 TFEU? Clearly not, it would seem, in the light of the logic underlying the 2009 Guidance and the Non-Horizontal Merger Guidelines. What is more, secondary-line discrimination is not even an ‘enforcement priority’ for the European Commission (try to find the word ‘discrimination’ in the 2009 Guidance using Microsoft Windows’ built-in search engine!).
– Is a dominant undertaking obliged to provide non-discriminatory access to its inputs in the first place?
o Maybe, if, as in the case of a ‘margin squeeze’, the conditions set out in Bronner are fulfilled (i.e. if non-discriminatory access is indispensable to compete and non-discrimination is necessary to avoid foreclosure on the neighbouring market).
o Maybe, if it is a recently liberalised market (a decisive factor in the few precedents on secondary-line discrimination cases).
o Maybe, if there are concerns with market integration and nationality discrimination (the second crucial factor explaining the outcome of these precedents).
None of these ‘maybes’ seem to apply in the Google investigation. Suggesting that non-discriminatory access to Google (however powerful and dominant its search engine) is indispensable to avoid foreclosure in a neighbouring market is hardly a credible claim. In addition, Google has emerged as a market leader in a deregulated and fast-moving market.
In view of the above, I hope that, it the case is not dropped, the European Commission explains convincingly and at length (even though this seems to exclude the kind of reasoning displayed so far in ‘commitment decisions’) why secondary-line discrimination may in and of itself constitute an abuse of a dominant position in the specific circumstances of the Google proceedings (or, alternatively, that the conditions set out in Bronner are met). If this is not the case, the promise of the 2009 Guidance will not have been fulfilled (and this, only a year after its adoption).
To be honest, I also hope that, if the European Commission adopts a prohibition decision, Google decides not to appeal this decision before the General Court. I can already imagine the General Court stating, in a terse and unreasoned paragraph, that secondary-line discrimination is not a form of ‘competition on the merits’ and is therefore caught by Article 102 TFEU by its very nature (i.e. à la AstraZeneca).
Wrapping up the week / Case T-427/08, CEAHR v Commission
This week was full of news, some of which we didn´t echo here. This is a quick overview of what has happened since Monday:
The European Commission adopted its new guidelines on horizontal agreements and, as anticipated on this blog -aren´t we good at this? -, appointed Kai Uwe Kühn as DG COMP´s Chief Economist.
The General Court issued two important competition-related judgments. In case T-141/08 the Court upheld the Commission´s decision sanctioning E.ON with a 38 million euro fine for the breach of a seal during a dawn-raid. Of a greater substantive interest is the Judgment in case T-427/08, discussed below.
On the “Google front”, the Conseil de la Concurrence issued the formal opinion commented here; the Commission took over the investigation of two additional complaints that been lodged before the Bundeskartellamt (which, as stated by the Commission´s spokespeople, won´t change the nature of the ongoing investigation). Unrelated to the investigation, but equally interesting, is a blog post written by Google´s Deputy General Counsel replying to a call for stricter antitrust scrutiny over Google´s acquisitions.
Gossip column: Nico was undeservedly promoted to the category of Professor. Also, it became known yesterday that Damien Geradin, a longtime co-author of his, is leaving Howrey and joining Covington&Burling (and stay tuned: similar news will be coming soon..).
Case T-427/08, CEAHR v Commission
So much for the headlines, let´s move on to a most welcome substantive development from the General Court.
The complaint: The European Confederation for watch repairers associations lodged a complaint before the Commission alleging that watch manufacturers had engaged in agreements and/or concerted practices and/or abused their dominant position by refusing to continue to supply spare parts to independent repairers.
The Commission´s decision rejecting the complaint. Now, guess on what grounds the Commission rejected the complaint… yep: lack of Community interest. The rejection decision arrived at that conclusion noting that (i) the complaint concerned a market of limited size and economic importance; (ii) there was no evidence suggesting the existence of an infringement, and that it was likely that the selective distribution schemes were covered by the block exemption for vertical agreements; (iii) it had reached the prima facie conclusion that repair services and spare parts did not constitute independent relevant markets and rather had to be assessed within the wider market for luxury watches; (iv) the allocation of more resources to the investigation wasn´t likely to allow the Commission to identify an infringement; and (v) national authorities and courts are well placed to deal with such complaints.
The Judgment. The judgment starts by emphasizing that the Commission´s discretion in the examination of complaints is not unlimited, and undertakes the review, one by one, of the reasons put forward by the Commission to justifify the alleged lack of community interest. In doing so, the Court provides valuable guidance on various fronts.
(This will be a bit lengthy; if you´re interested, keep on reading) Read the rest of this entry »
European Commission vs Google
As anticipated, we will be devoting a series of posts to the investigation initiated by the Commission following allegations that Google discriminates against vertical search pages to the benefit of its own content.
The Commission’s announcement that it was formally initiating an investigation spurred all sorts of reactions. See here for Google´s reaction on its own blog and here for Microsoft´s.
I´m unfortunately not involved in the case, so I will express myself with no constraints. It will nevertheless be extremely interesting to hear from someone in the opposite situation: hopefully some of our colleagues in the blogosphere who are involved in it will eventually comment on the case.
Here are some general impressions which introduce various topics that we´ll be discussing in the coming weeks:
The inevitability of competition law: It was probably inevitable that Google would be facing such legal threats given its position as the de facto gatekeeper of the Internet, even if it has achieved its position via “superior product, business acumen or historic accident” or how we, more laconically, say here “competition on the merits”. A company certainly does something right when its name becomes a verb.
It was indeed predictable that antitrust authorities wouldn’t resist the temptation to act against them (in antitrust law, as in the laws of gravity, mass increases attraction). In fact, in a short period of time Google has faced investigations regarding its advertising agreement with Yahoo! (which could not be implemented precisely as a consequence of the antitrust concerns); the existence of interlocking directorates with Apple, and the GoogleBooks project. For my comments on the last two see here and here
In a sense, the investigation might even be good news for Google, since it affords it the chance to prove once and for all that it does not engage in unlawful behavior. Moreover, and in the case that Google did discriminate, the competition community would be provided with a great opportunity to shed light on the status of discriminatory practices under EU competition law and to make clear that not all discrimination is illegal. However, I´m also afraid of the truth that may lie in the aphorism “big cases make bad law”.
An attack against U.S. companies? Some have, once again, argued that this investigation is another illustration of the fact that U.S. firms constitute the Commission’s favorite target. Against such contention, one should note that also the complainants in this case have rather strong links with the US… If anything, what the investigation confirms (once more) is that the European Commission has certainly taken the lead, and a much harder stance, in the prosecution of unilateral conducts.
An anti-Google alliance?-. I was told this summer that several law firms in Brussels were closely working together with the aim of putting pressure on Google on as many angles as possible. If true, is this their first success?
If you can´t beat them..sue them! What this case does illustrate is that the resort to antitrust/competition law has certainly become one of the preeminent competitive tools at the service of competitors willing to obtain on a “court” what they weren’t able to do on the marketplace. Surely Microsoft learned this through its own suffering.
Market definition-. Last week we were discussing market definition teasers: what about online search advertising vs online advertising? what about online search vs a much wider content search market?
Is Google really dominant? The relevance of scale/network effects-. As in most major case of the past few years, allegations on the existence of network effects seems to instantly turn on competition watchdogs. Once again, a positive externality is viewed as a negative market failure justifying antitrust intervention and the instrumentalization of remedies in order to pursue regulatory goals Furthermore, can there be a dominant position as a result of network effects when, as often reminded by Google, “competition is just one click away”? To what extent is antitrust intervention in network/two-sided markets driven by old reflexes and insufficient understanding? This stuff (which is of particular interest to me) will also be covered on an specific post.
Should/ can we require neutrality from dominant companies? The conditions under which a dominant company is required to grant non-discriminatory access to its competitors under EU competition law are extremely narrow. There´s much to be said on this, but we leave the floor to Pablo Ibañez, a very good friend and one of the most brilliant and promising competition scholars, currently at LSE.
How can discrimination be proved/ remedied? Proving that Google´s algorithm is discriminatory appears to me like a herculean task. Not everyone sees this way, though (see here). As Nicolas mentioned on his post below, it is most likely that the Commission will be aiming for commitments on the part of Google, in which case it will be freed from this task. However, how could a commitment resolve the Commission’s doubts as to the existence of discrimination? Could we end up with another “must carry” remedy pursuant to which Google should advertise and link competitor search portals on a prominent part of its results page? Come on.
In sum, and in my view, the investigation implies departing from the Commission´s stated priorities when, moreover, there is no clear dominant position; there is no abusive conduct; how Google harms consumer welfare is certainly hard to see; and there does not seem to be an adequate remedy (which in itself should be an indication of the lack of a problem). A prediction: the Commission will most likely shelve the proceedings, the decision will be appealed by the complainants -who have the incentives and the means to go forward with this-, and we´ll find ourselves before another long legal battle before EU Courts…
*Sources: Every comment used for writing this post -both in favor of and againts Google- was found through Google. Something tells me that the Commission´s staff and, I would bet, the complainants too will resort to Google in order to obtain much of the information they will use in the course of the case (and eventually so would the Judges).
(Image possibly subject to copyright).
How are we doing?
For the first time ever, DG COMP has posed this question to stakeholders and citizens by carrying out a comprehensive survey about the perception of its activities.
In the framework of this exercise, two independent companies have undertaken both a qualitative survey targetted to professional stakeholders and a quantitative survey of EU citizens from all Member States.
The aggregate stakeholder report is available here, and the individual reports for the various collectives interviewed are available in the following links (companies, lawyers, economic consultancies, consumer associations, national ministries, and national competition authorities). All of these reports cover issues such as legal and economic soundness of decisions, integrity, economic effectiveness, and external communication. There are tons of interesting comments on DG COMP´s activities, too many to be summed up here. I very much recommend taking a look at these if you find time.
The survey on citizen´s perceptions about competition policy can be consulted in its full version, as well as in an abbreviated one. The results, once again, are also extremely interesting (and sometimes shocking; e.g: did you know that 29% of the Spaniards interviewed doubted that price agreements should be prohibited?).
Some curious data: in practically all Member States the percentage of citizens who believe they are sufficiently informed about competition policy is below 5%; more than 25% of Bulgarian, Slovak, Polish and Estonian citizens have no whish whatsoever in becoming more informed about this stuff; the proportion of citizens who gave a “don´t know answer or who did not consider themselves qualified to reply was highest in…Belgium!). When asked in what sector the lack of competition was causing problems for consumers, citizens pointed out at energy (44%), pharmaceutical products (25%), telecommunications and internet (21%), transport (19%), financial services (18%), and food distribution (16%).
PS. We´re not ignoring the elephant in the room (the opening of a formal investigation about Google´s allegedly abusive practices); there´ll be plenty to come on this case.
The beginning of an enforcement paradigm?
As noticed yesterday by Nicolas, the Commission´s stance with regards to 102 TFEU cases has certainly evolved under Almunia, in the sense that the Commission is nowadays more cautious in pursuing cases where it may lack sufficiently convincing evidence. Nico referred to this as “the end of an enforcement paradigm”.
However, it seems like this approach could be confined to cases related to alleged abusive conduct. The reason: rumor has it that the Commission may be thinking about initiating a “test case”, in which it would attempt to prove a cartel by virtue of economic evidence. The Chief Economist and its team would be playing a major role in the case. Could this be the beginning of an enforcement paradigm?
Such approach is certainly not unheard of (it was in fact trendy in the 70s given the influence of the Chicago School), but managing to prove a cartel by resorting exclusively to economic analysis is far from being a piece of cake. Discussions on the possibility to follow this path have previously been held, for instance, within the framework of the OECD (a policy brief is available here). In the course of those discussions, the Commission acknowledged that its “past experience has shown that it is very difficult to base a decision imposing fines on undertakings relying exclusively or in a large extent on economic evidence” (see here).
If the opening of such case were to be confirmed, it could be a clear indicator of the fact that the Commission´s self-confidence is not at all at its lowest. Whereas I acknowledge that economics could possibly play a greater role regarding the detection of cartels (an interesting presentation by DG Comp´s staff on this issue is available here), I´m somehow more skeptical in relation to the sufficiency of economic evidence to prove their existence.
It´ll be interesting to see whether this rumour actually turns into a reality or not. And in case it does, would the Court be prepared to undertake a proper review of the Commission´s economic assessment in such a case?
PS. For anyone interested on these matters I recommend a brilliant article by G. Werden: “Economic Evidence on the Existence of Collusion: Reconciling Antitrust Law with Oligopoly Theory”, 71 Antitrust Law Journal 719 (2004).
An Antitrust Challenge to God
Almost 9 years ago a U.S. district judge issued a divesture order that, to my knowledge, has not yet been executed. As reported by The Onion, District Judge Elliot Schofield ordered God to break up into smaller deities arguing that HE had “willfully and actively thwarted competition from other deities and demigods, promoting His worship with such unfair scare tactics as threatening non-believers with eternal damnation (…) In the process, He has carved out for Himself an illegal monotheopoly.”
For more info on this case see here http://www.theonion.com/articles/judge-orders-god-to-break-up-into-smaller-deities,404/
It is not the first time that God faces a trial in the US. Some time ago a State Senator from Nebraska lodged a suit againts God arguing that he was responsible for a wide array of catastrophes. You can read the actual suit here, it´s hilarious. http://www.wired.com/images_blogs/threatlevel/files/chambersversusgod.pdf
But legal threats not only come from the States. Within the EU an earthly subsidiary of the ABOVE-mentioned was also sanctioned for abusing its dominant position in the market for funeral services. See here http://www.concurrences.com/abstract_bulletin_web.php3?id_article=520
Strikingly, no one seems to have considered the possibility of challenging God under Article 106. Pursuant to the “automatic abuse” doctrine stated in Hofner-Elser it could be argued that God has attributed himself exclusive rights and is manifestly unable to satisfy demand or prevent catastrophes.
Moreover, and according to Stephen Hawking´s new book that posits that God is not necessary to explain the creation, the conditions laid down in Article 106(2) would not be satisfied! http://www.usatoday.com/tech/science/columnist/vergano/2010-09-06-hawking-book_N.htm
The CNC and the Prisa/Telefónica/Telecinco/Digital+ merger
The Spanish Competition Authority decided last week to close the file related to the acquisition of joint control of Digital+ (the main satellite pay-tv platform in Spain) by Prisa (one of the largest media groups in Spain which prior to the merger enjoyed sole control of Digital+), Telefónica (you know this one) and Telecinco (a TV channel whose largest shareholder is Berlusconi´s Mediaset).
The CNC´s decision has made big news in the press in the past few days, and many have accused the Competition Authority of having been too sensitive to the government´s wish (yes, that was an euphemism) to avoid the bankruptcy of Prisa, which allegedly could have been declared had the merger not been authorized.
To make a long story short: The merger was initially notified to the European Commission, which, following the parties´request, decided to refer the case to the CNC. In its referral decision the European Commission expressed its fears that the merger could strenghten Telefonica´s position in broadband related markets. The CNC issued a Statement of Objections alleging that the merger could significantly impede effective competition. However, the Council of the CNC confirmed a change of views after the parties committed to modify the shareholders´agreements and other covenants in order to remove the veto rights that gave them the ability to exercise a decisive influence over Digital+. Technically, the operation would therefore cease to be a merger within the meaning of the competition rules (Prisa will retain sole control), so nothing to object…in principle.
The problem after the withdrawal of the notification in scenarios such as this one is that there could theoretically exist the risk that the parties who formally intented to exercise control could now do so informally. Query: How should a competition authority address these sort of situations?
From an ex ante perspective, the resort to the notion of de facto joint control may seem like too much of a long shot given its exceptional nature. And ex post control does not look like an easy path neither. In this case, the CNC has committed to remain vigilant with regards to any future agreements between these companies, but other operators (namely Mediapro) have argued that there is a most serious risk of coordination that will turn the audiovisual market in Spain into the least competitive in Europe. Mediapro has announced its intention to fight this decision on every possible ground and has asked for the European Commission´s immediate intervention. It will certainly be interesting to see how this evolves.
My take: a reliable indicator could be whether Digital+ will supply its channels to other competitors (which was, by the way, a commitment that apparently Telefonica was reluctant to accept).
Any opinions?
Remember: comments are anonimous.. 🙂
An intellectual somersault??
While reading last Friday an article written in a Spanish newspaper by Jesús Alfaro (who, by the way, has sometimes made comments on this blog), I came accross a reference to a Wall Street Journal piece that looked interesting. I checked it and thought that it illustrates pretty well the way in which EU competition law is perceived by many in the US. Check out this excerpt:
“So if you, as an executive, were to be so foolish as to ask your in-house counsel whether a particular action might run afoul of the EU’s increasingly complex and draconian competition regulations, both your question and your lawyer’s answer would become potential evidence against you.
Yet in the sort of intellectual somersault for which European competition law has become notorious, the Court declared that its ruling would not undermine businesses’ rights of defense. That’s because, according to the Court, “the rights of the defence is a fundamental principle of European Union law,” enshrined both in case law and in the Charter of Fundamental Right of the European Union.”
Aside from the fact that the second paragraph does not make much sense, the article reveals a misconception of EU competition law that I´ve observed many times in the recent past, particulalry on the other side of the pond. Antitrust/competition law is admittedly an area where legal certainty is sometimes the exception rather than the norm. However, are there really any reasons why EU competition law could be considered more of an”intellectual somersault” than its US counterpart? I truly don´t see them.
A thought on the Commission´s Air Freight Cartel Decision
As we announced last week , the Commission adopted its decision in the air freight cartel yesterday.
From a policy standpoint there´s one thing that strikes me:
The Commission has fined 11 companies, and all of them (except for Singapore Airlines) have been granted reductions pursuant to the Leniency Notice. At the same time, the Commission has left out of the Decision a significant number of airlines which had been included as addressees of the Statement of Objections. “Coincidentally”, the ones left out are the ones which had not asked for leniency (my guess is that many of them would´ve done it and didn´t because ten other airlines were ahead of them).
In my view there were many reasons for excluding some of the airlines from the decision. I´m also conscious that adopting a decision such as this one with regards to more than 20 companies would have implied a hell of a lot of work. However, and from a policy standpoint, what message does the fact that only leniency appliccants have been sanctioned convey to future potential leniency applicants? Isn´t the Commission shooting its own foot?
(For full disclosure: I participated in the case in representation of a company which is not amongst the ones fined. It´s one of those for whose exclusion there were good reasons).
Chillin'Competition 