Author Archive
New merger guidelines in the UK and the US/ Upward Pressure on Price Index
The OFT and the Competition Commission released their joint merger guidelines yesterday. Perhaps the most significant novelty brought by the guidelines is the explicit move towards the direct assesment of effects on competition to the detriment of the classic detailed assessment of market definition.
This shift, which is logically most apparent in sections 5.4.6 to 5.4.12 of the guidelines, which deal with the analysis of unilateral effects in markets with significant product differentiation, is in line with the prevailing trend in the U.S, as reflected in the new DOJ/FTC merger guidelines (also released less than a month ago; see particularly section 6.1). Both the US and the UK guidelines seem to be strongly inspired by, and leave ample room for the application of, the “Upward Pressure on Price” index proposed by Joseph Farrell and Carl Shapiro, the leading economists at the FTC and DOJ respectively (pictured above).
In essence, the UPP index moves away from the rigidness of structural analysis (which ignores the degree of actual substitutability between heterogeneous products) towards a greater focus on diversion ratios and the value of diverted sales. A detailed explanation about this tool doesn´t belong here, but for those interested in learning some stuff about it, here are some links to the original 2008 proposal by Farrell and Shapiro as well as to an interesting paper by Joseph Simons and Malcolm Coate proposing certain refinements. Unfortunately for non-Spanish speakers, the best short summary for non-economists that I´ve read on the UPP index -authored by Eric Gippini (who has a remarkable ability to identify hot topics)- appeared in the last number of the Gaceta Jurídica de la UE y de la Competencia (not available online). We´ll certainly be hearing a lot about the “UPP” index from now onwards.
Back on track + yet another discussion on LLMs
Last Monday I returned to real life (i.e. the office) after a great year in the U.S. and a more or less sabbatical summer.
Since my return, I´ve read several discussions regarding competition lawyers and LLMs (see e.g. Nicolas´ tweet a couple of weeks ago). Several people have asked me for an opinion, so I though it could be interesting to share some very personal advice for those considering enrolling in an LLM.
If you can, do it. If you have the possibility and the means (there are plenty of scholarships and other sorts of financial aid) to take one year off work to pursue an LLM, do it. Whether you´re interested in deepening your knowledge on one area; in exploring diverse fields; in acquiring a taste of common law; in experiencing other teaching methods; or plainly in profiting from an extraordinary personal experience, do it.
Be real about what you expect. An LLM will help you broaden your horizons (as I´ve written here earlier: the world is much larger than our desk at a firm); it might open new doors; it should provide enormous personal enrichment; and you would surely learn a lot. However, it won´t transform you, professionally speaking. In my experience, excellent lawyers come back as they were, and crappy lawyers do too.
Don´t take admission decisions too seriously. If you´re admitted by a top-notch school, that doesn´t mean you´re any better than those who are not there (I´ve met a surprisingly high number of people who think that way): most truly brilliant people do not even have the possibility of applying to these programs. On the other hand, if you are rejected, be conscious that there are random elements unrelated to your skills that influence these decisions and don´t quit trying.
Don´t look for “THE best LLM”. Choose a particular program depending on your interests. Ivy League schools offer incredible “brand recognition” and generally have superb faculties. However, the quality of teaching is very similar in other places (at least in my case learning mostly takes place reading and reflecting, and you can do that anywhere) which also offer complements such as specialized programs or the possibility of living in particular cities. At the end of the day, what really matters is the people that surround you; good schools make a great filter, but not the only one. I am very satisfied with the path I chose, but naturally, and fortunately, we all tend to argue that our decisions are the best, and to some extent we´re all right.
To those who wish to pursue a career as competition lawyers: If you´ve never studied EU competition law before, a European program (College of Europe; Liège; King´s; BSC…) could be of greater use. Personally, I learnt much more competition law at the CoE than in the US. I would advise anyone to remain in Europe to “focus” first, and to go to the US to “expand” later.
P.S. For full disclosure: I decided to return to Garrigues, where I will be working at the Madrid and Brussels offices. You can now reach me at: alfonso.lamadrid@garrigues.com
Lost
A year ago, Nicolas resorted to the series “Lost” to note that one year after the inception of the settlement procedure, no settlement decision had been adopted. That decision still took some more time to see the light: only a month ago was the first settlement decision issued in the DRAMS cartel case. It’s interesting to note that whereas one of the purported objectives of the introduction of settlements in EU competition law was to “help the Commission deal more quickly with cartel cases” (Kroes dixit), this particular case had been under investigation pursuant to a leniency application lodged 8 years ago!
Season 2: this week marked the “second anniversary” of the oral hearing in the air cargo cartel case (that’s easy to remember since the hearing took place in the same dates where Spain won the Eurocup…), and a decision is yet to be adopted. Have these airplanes also been “lost”?
Btw, in a flight to the US a couple of days ago I accidentally happened to read how the last chapter of the series ended. There was no “spoiler alert” so beware of magazines in transatlantic flights.
The Massacre of the innocents
In “Fine Arts in Brussels“, an article written by Luis Ortiz, Angel Givaja and myself last year, we used Bruegel´s “Massacre of the innocents” to illustrate the idea that the progressive increase of the amount of fines could eventually undermine the financial situation of many companies, thereby damaging the innocent (workers and shareholders), while leaving those responsible for the infringement (the managers) unscathed.
I just came accross a very recent study by Oxford Economics on the “follow-on effects of cartel fines on investment and employment” which seems to confirm our fears about the inadequacy of disproprotionately high fines. The study concludes that “a large fine on a cartel member will have a knock-out effect accross the economy as a whole, impacting on firms and workers who were not involved in the original cartel“.
Thanks to J.M Panero for the pointer!
HLS Seminar discussion on refusals to licence.
Continuing with the series of posts written by Harvard Law students for the seminar on Antitrust, Technology and Innovation, you can find part of the discussion on refusals to licence in the comments to this post.
As explained earlier, some of these comments refer to the readings available in the syllabus.
Competition Law and Sport (IV)- The US Supreme Court’s decision in American Needle v NFL
On May 24th the US Supreme Court issued its most important antitrust decision of the term in the case confronting American Needle and the NFL. As we expected, the Court unanimously rejected the NFL’s contention that its 32 teams should be treated as a “single entity” for antitrust purposes.
The last opinion authored by Justice Stevens reverses a previous decision by the 7th Circuit and holds that NFL’s teams “are still separate, profit-making entities, and their interests in licensing team trademarks are not necessarily aligned”. The Court rejected a formal analysis by ruling that the single entity created by the NFL to manage teams’ IP rights was merely an instrument at the service of its teams.
In essence, the Supreme Court’s Judgment preserves the status quo, thus fully subjecting agreements entered into by sport leagues to a rule of reason analysis. However, some have pointed out that American Needle could have wider implications affecting other ventures between competitors outside the sports world.
The Supreme Court showed some sympathy to the idea that leagues have a “legitimate and important” interest in “maintaining a competitive balance among athletic teams.” Nevertheless, the weight that shall be accorded to such interest in balancing the pro and anti-competitive features of a given agreement remains unclear. In any case, the Supreme Court appears to legitimize competitive balance as a potential redeeming virtue for Section 1 purposes. Whether Article 101 TFEU allows or not to consider similar interests remains highly controversial. What’s your take?
Re: I love my job
I recently took some time off to put to put an end to my stay in the US, and during those days I gave some thought to Nicolas’ recent post about competition lawyers disliking their job. Since I’m told that he had me in mind when referring to the 1% of lawyers that do “love their job”, I feel I should share my views on the issue:
It’s true that after a yet very brief experience I can say that I enjoy what I do (and apparently this turns me into a weird specimen..). I must however admit that I have been enormously fortunate with regard to the people with whom I’ve worked and the cases that I’ve dealt with, and so I cannot fully rule out that my opinion might change in the future. I would like to think that I’d quit if this ever happened, or if I eventually felt that I could make a wider positive contribution elsewhere.
The way I see it, practicing competition law at a law firm offers constant and varied challenges as well as a privileged insight into a wide array of markets and business practices or strategies. It also generally implies working closely with a multinational group of highly skilled colleagues to an extent that can hardly be matched by any other jobs outside international institutions. Moreover, in parallel to the strictly legal stuff there is a great business component to working at a firm (finding, managing and preserving clients) that distinguishes this job from other law-related jobs and that I find most appealing. Finally, the job is generally quite well paid too.
Of course there are downsides to it, but I agree with Nicholas that us lawyers are, to a certain extent, part of the problem. We have a noticeable tendency to believe that our job is the most important thing in the world (and it surely is important, it’s challenging, it’s interesting, and sometimes is very visible, but no doubt there are many more important things), and we also often tend to talk about how stressed and busy we are (if what we do is soo important and we are soo busy, then we should be really important people, right?) Nonetheless, the world is much larger than a lawyer’s desk, and passion for our job should not make us lose focus. Greater consciousness about this could perhaps contribute to mitigating what seems to be a constant competition about who’s busier.
To be sure, I do think that long hours or lack of flexibility do pose a significant problem that is yet to be satisfactorily addressed by many law firms. Failure to do so implies turning the back to brilliant people who could love their job but who also value other aspects of life (precisely the people with whom most of us would be more comfortable working with). In my view, the best example of this can be found in the limited number of women making a career in law despite the fact that they tend to perform better academically (and, in my view, often have a greater common sense…). Favoring unhappy and narrow-minded “robots” over brilliant and motivated people can hardly do any good. One should avoid thinking that a client is better served by people who execute tasks without any engagement, no matter how many hours they devote to their work. Most of us would agree that firms which strive to keep their lawyers happy and motivated are better positioned to attract talent and to thereby excel in their service. At the end of the day, whether we’re talking about lawyers or about their firms, there can be no real success without satisfaction.
Some recent news
The European Commission published yesterday the new Block Exemption Regulation for vertical agreements. New guidelines will follow soon.
Also yesterday, the DOJ and the FTC started circulating their new draft horizontal merger guidelines.
One more thing: at this time of the year some of our readers will be looking for a job. You might be interested in knowing that a prestigious anonymous law firm is hiring new associates. The ideal profiles they are looking for are outlined here.
Competition Law and Sport (III)-Sale of Football TV Rights: One size fits all?
The rise of the three-year rule to dogma status may be explained by the “complex economic assessments” involved in establishing rigorously the anticompetitive effects of agreements on a case-by-case basis…
PS. Thanks go to Pablo Ibañez for very valuable discussions on this issue.
HLS Seminar discussion on “Pay-for-delay settlements”
We start the series of posts from Harvard Law students with a great introduction to the antitrust issues that arise in connection with “pay-for-delay settlements”/”reverse payments” in the pharma industry. The post is authored by Paul B, and builds on the relevant readings in the syllabus. We have also included other students’ reactions in the “comments section”.
For those short on time and already familiar with the topic, go ahead and click on the link below to skip to “Questions for discussion”.
Pay-for-delay (PFD, “reverse payments”)
The issue is tricky because it lies at the intersection of patent, food/drug and antitrust (AT) law, and its unclear to which of these we should look to address abuses that arise from the US generic drug regime. In short, when a pharmaceutical company develops a new (branded) drug, it first seeks a patent. The initial problem is that the PTO grants patents fairly generously, in a largely non-adversarial process, so in many cases the branded drug will be patented even though it is arguably not novel, non-obvious, etc. The drug then goes through a lengthy and expensive testing and Federal Drug Agency approval process (a New Drug Application, or NDA), which may eat up a sizable share of the patent protection period.
Once the drug is FDA approved and hits the market, the Hatch-Waxman amendments to the Food, Drug and Cosmetics Act kick in. Consistent with the themes we’ve discussed throughout the term, Hatch-Waxman attempts to balance the fostering of innovation (by protecting the patent-granted monopoly for truly innovative new drugs) against the desire to foster competition by allowing low-cost generics on the market as soon as possible. For a normal (i.e., non-pharma) patent, the way to challenge a disputed patent would be for an alleged infringer to place his product on the market, and for the patent holder to sue for infringement damages and an injunction against future sales. If the parties settle, the infringer might pay the patent holder part of the alleged damages (a higher share the more likely they are to get an adverse verdict, based on the probability that a court will find that the disputed patent was both valid and infringed by the defendant) and/or there may be some sort of licensing or contract manufacturing agreement. Such agreements typically do not raise serious AT concerns.
In the case of pharmaceuticals, by contrast, Congress decided in Hatch-Waxman for various reasons to set up a regime in which the legal challenge comes before the infringement. So a company which develops a generic version of a branded (and patented) drug begins by filing an abbreviated new drug application (ANDA), which is much easier to approve than an NDA (the company must only show that the drug is bioequivalent to the branded drug). As part of the ANDA, the generic company informs the branded drug manufacturer that it intends to challenge the legitimacy of its patent. Assuming the branded company wishes to defend its patent and challenge the ANDA, a 30-month delay is automatically imposed before the generic can go to market, during which the companies may litigate the claim. If (as happens surprisingly often) the generic wins, it is granted a 6-month exclusivity period to market its generic version (creating a market duopoly) before other generics may enter the market. During that period, the generic will typically price its drug below the price point of the branded drug (which has been charging the monopoly price) but well above the competitive market price which will obtain once other generics enter the market (roughly 15% of the monopoly price, on average). This system (1) rewards the first firm to challenge potentially weak patents which are wrongly imposing monopoly pricing on consumers (2) allows the issue to be resolved prior to costly commercialization of a potentially infringing product, (3) preserves and expedites the patent monopoly of truly innovative drugs, and (4) ensures that market pricing is achieved within 4 years of the filing of a legitimate pharma patent challenge.
UNLESS, the parties settle. Here, because no infringement has yet occurred, proper settlement damages will in theory be “reverse”; that is, if there is a 50% likelihood that the generic has been kept off the market by an invalid patent, the branded drug holder may offer to pay the generic 50% of what it could have made by marketing the drug during that period (rather than the normal process of the infringer paying the patent-holder 50% or some other share of what it actually did earn from infringing). The concern here is that both parties have an incentive for this payment to reflect more than just their best estimates of patent validity, damages or litigation costs (all legitimate considerations in a settlement), but rather to split up the monopoly profits. That is, if there are 6 years remaining on the branded drug’s patent, and the parties agree it is 50% likely that the patent is invalid, they could agree to a settlement that the generic would just wait 3 years to enter the market. When the branded company instead pays the generic “reverse damages” in return for an agreement to stay off the market for the full 6 years, there is a concern that the firms are essentially maintaining a bogus monopoly at the expense of consumers. If, say, BrandX sells for $100 per pill, and the market price under full competition is $20, brand and generic may agree to a pay-for-delay settlement in which brand pays generic $30 for each unit of BrandX sold for the remainder of the patent life. This allows them to split monopoly rents: brand makes $70 per pill, still well above the market price, for a drug that arguably should not have patent protection, and generic earns $30 per pill for doing nothing, much better than it could have done at market. This same sort of agreement can be done with generic performing some contract manufacturing for brand, also at those prices.
Chillin'Competition 
