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Archive for the ‘Everything Competition Lawyers should know about State Aids’ Category

ECJ’s ruling on France Telecom’s State aid case (Joined Cases C-399/10 P and C-401/10 P)

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Note by Alfonso: As some you may have noticed, I’ve taken an unusually long blogging break from which I’m now back. As every time I’m out of combat, Pablo IbaĂąez Colomo (who, by the way, has recently been fast-track tenured -major review- at LSE and has just received a major review teaching prize; congrats!) comes up with a replacement post that’s better of what I would’ve written (we have a luxury bench at Chilin’Competition…). A few days ago Pablo sent us this post on France Telecom that we(I)’ve been slow to publish due to the easter holidaus and to to the frenchy’s posting frenzy 😉 We leave you with Pablo:

Some readers wll remember that during my short-lived tenure as a substitute blogger a few months ago, I wrote about a pending State aid case involving France Telecom. I guess that at least a fraction on those readers will be interested in knowing that the Court of Justice delivered its Judgment in the case on 19 March.

Unsurprisingly, the judgment is in line with AG Mengozzi’s (very sensible) opinion. The General court annuled the Commission’s decision on grounds that the Commission had not identified a clear link between the advantage deriving from  a shareholder loan offer in favour of France Telecom and the State resources allegedly involved by virtue of the measure. As I argued in my previous post, the Court of Justice takes the view that the General Court’s interpretation of Article 107(1) TFEU would leave outside the scope of the provision measures suh as guarantees departing from market conditions (see paras 107-111). Such measures do not immediately place a burden on the budget of the State, but a ‘sufficiently concrete risk of imposing an additional burden on the State in the future‘. According to the Court, it is sufficient to identfy such a ‘sufficiently concrete risk‘ for State aid rules to come into play.

The broader picture is aguably more interesting than the outcome of this case. As I mentioned in the previous post, the Court of Justice has sided with the Commmission (thereby departing from the analysis of the General Court and the theses advanced y Mmember States) in some key cases revolving around the notion of selectivity. France Telecom, arguably the single most important case of the past years on the notion of State resources, seems to confirm this trend. The old principles of Article 107(1) TFEU case law, if anything, seem more solid following these high-profile disputes

State aid conferences: that’s where the fun is!

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(You’ll understand why we chose this pic if you keep on reading)

The European State Aid Law Institute held its 10th Experts’ Forum on new developments in European State aid law last Thursday and Friday.

I didn’t attend (as a means to reducing my current backlog I’m quitting conferences for a while) but some of my colleagues did. One of my bosses colleagues, JosĂŠ Luis BuendĂ­a, develivered a critical presentation on the State Aid Modernisation Initiative (“SAM”). Hopefully he will be able to turn it into a post for this blog once he manages to take some time off for this (he’s currently a bit busy representing the Spanish Fund for Orderly Bank Reestructuring, which will be borrowing 100.000 million euros from the EU rescue funds; see here or, actually, almost anywhere else).

I hear that there were other excellent sessions (e.g. there seems to be unanimous praise for Marc van der Woude’s presentation), but the session that will perhaps stick for longer in attendees minds was the Opinion Panel featuring Ryanair´s CEO (Michael O´Leary) and the Deputy Director General for State aid (Gert-Jan Koopman). As you may know, O´Leary has a reputation for being somewhat of an histrionic character, and he stood up to it.

The version of O´Leary’s CV included in the materials was already a bit different from the usual stuff (I promise I’m not making any of this up):

Michael O´Leary has served as Ryanair CEO since 1993. Born in a stable in 1961, he was a boy genius, who excelled both academically and at sports. Having represented Ireland internationally at bog snorkelling and flower arranging, he graduated from Trinity College in Dublin as soon as they could get rid of him. He then became another  boring KPMG accountant until divine inspiration sentenced him to a life of penal servitude in the airline business. Despite his best efforts, Ryanair is the World´s favorite airline, with 1,5000+ low fare routes accross 28 countries. (…) It is widely known that women find him irresistible“.

Some of the points he made in his speech that were most warmly received by the Commission were that (i) DG COMP has hired North-Korean economists to draft the guidelines on regional airports ; (ii) that no Commission official has ever set foot in Charleroi because they only fly on expensive tickets ; (iii) that he had woken up to fly at 6 a.m, something that the Deputy Director General does not even conceive has humanly possible; and (iv) that there are only two sorts of people that like the guidelines: flag carriers and Kim Jong Il. His last slide was actually of Kim Jong Il  saying “These guidelines are fab!”.

I’m so sorry I missed it…

Written by Alfonso Lamadrid

11 June 2012 at 1:01 pm

A turn of the screw (JosĂŠ Luis BuendĂ­a on SGEIs)

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[Note by Nicolas and Alfonso: Since we learnt the news that the Commission was preparing a reform of the State aid rules applying to services of general economic interest we have been trying to have our friend (also Alfonso’s boss) JosĂŠ Luis BuendĂ­a to give us his views on the reform. Apart from a  being a top-notch State aid lawyer and the author of the seminal (and perhaps only) book on Article 106 (a new edition is in the pipeline), he was heavily involved in the drafting of the original “Altmark package” at the time when he was working for the European Commission. In fact, a few months ago a member of the European Commission said at a conference that whereas some people call this package the “Monti package”, many Commission officials refer to it as the “BuendĂ­a package”. We are very thankful for him for having taken the time to write this insightful piece that we believe will be a “must” for anyone dealing with this subject. It’s a privilege for us. Enjoy!]

The editors of this blog have kindly invited me to comment the recently adopted ‘Almunia package’, in which the EC has revisited the State aid rules applicable as regards the financing of Services of General Economic Interest (SGEI).[1]

I have chosen the expression “a turn of the screw” to introduce this short comment for two reasons. The first and most obvious reason is that the new rules would – at least at first sight – increase the pressure and make life more difficult for the big operators of SGEI. The second relates to a Henry James novel, “The Turn of the Screw” (1898), subsequently adapted to cinema by Jack Clayton under the title “The innocents” (1961). The reference to the story seems pertinent to me because it has had very differing interpretations, often mutually exclusive.  The ambiguity of the story makes difficult to conclude whether the governess has actually seen the ghosts or whether she simply dreamed. “The Turn of the Screw” definitively looks like a ghost story but… is it really a ghost story? In any case it is a great story I can recommend.

As I will try to explain, when comparing it with the previous post-Altmark (or Monti-Kroes) Package, the Almunia package definitively looks as a turn of the screw as regards the rules applicable to the financing of SGEI.

In my opinion, and given the current political context, the most remarkable feature is the mere adoption of the package by the Commission.  One has to remember that some Member States wanted that the rules on SGEI were adopted, not by the Commission but by the Council and the Parliament, under the new legal basis introduced in Article 14 TFEU by the Lisbon Treaty. Despite this political pressure the Commission chose not to make a proposal under this new basis (probably for the same reason that turkeys do not vote for Thanksgiving). Instead, it revisited the package under its own powers under Articles 106 and 107 TFEU. This decision seems wise and legally well founded, in particular given the limits of Article 14, but is still quite courageous in this time of centrifugal tendencies at the EU level.

Obviously this small comment cannot cover all the interesting issues raised by the package. It is however fair to say that the content of the reviewed package does not look as particularly conciliatory with those who wanted more flexibility for SGEI. It is true that there are some changes going in that direction. This is the case for the small operators in charge of SGEI that are exempted from notification (in particular, there is a new exemption of some social services and a new draft de minimis specially conceived for SGEIs), but the story seems quite different for the bigger operators that remain subject to individual notification.  Under the Almunia package – and contrary to the previous Monti-Kroes package – the rules applicable to the big operators are going to be different and stricter from the rules applied to the smaller.

Read the rest of this entry »

Written by Alfonso Lamadrid

14 March 2012 at 2:21 pm

Death in Venice: The end of a Commission’s locus standi theory in State aid cases?

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[Note by Alfonso: Once again, it´s a pleasure to have our friend, State aid expert, and colleague of mine Napoleón Ruiz  (don´t be fooled by the picture, he´s real) informing us of what´s new in the world of State aids. We leave you with him].

Thanks again to Nico and Alfonso for inviting me to write a post on State aid matters. My previous post was devoted to explaining how “vaporous” some of the legal concepts which make up the notion of State aid are.  

As a sequel of my previous post, I would like to briefly refer to another interesting battlefield within the State aid area: the locus standi of the beneficiaries of aid schemes ( think, for instance, of tax measures) to challenge negative decisions of the Commission. In contrast with antitrust practice where undertakings are always the addressees of the Commission’s  decisions, in State aid cases the addressees of Commission decisions are –in theory- exclusively member States.

State aid cases brought before the European Courts by recipients of the aids usually begin with ferocious debates with the Commission on whether the  appellants fulfill, or not, the famous Plaumann test. Needless to say, the Commission is not precisely enthusiastic when it comes to accepting undertakings appealing its Decisions; that is true to such an extent that one could attribute it the nickname of  “Dr. No” (which is the answer one –almost- always gets when asking whether an aid beneficiary is individually concerned by a negative decision). The Commission’s argument in this regard is simple and sharp: in order for an undertaking to be individually concerned, it needs to prove that it has actually benefited from the aid, and that can only be demonstrated when the applicant has been addressed a recovery order from the Member State before lodging the appeal (and that does not happen so often). Otherwise, that undertaking must refer to the national  judge and pray request: (i) that the Court declares itself competent to rule the case and (ii) that it raises a preliminary reference of validity of the Commission´s  decision (which does not happen frequently either ).

Frankly, one does not need to be a constitutional law expert to find this argument at odds with the most basic conception of the right to access to justice under article 6 of the ECHR.

That was indeed the state of play in State aid cases until just a couple of weeks ago, when the ECJ issued an important ruling which has gone relatively unnoticed. I am referring to the so-called Hotel Cipriani (a very recommendable place to stay in Venice if one can afford it…) case (C-71/09 P). In that case, the ECJ upheld the GC’s ruling, dismissing the Commission’ pleas on admissibility and clarifying the boundaries of the Plaumann test in such cases. In particular, the Court states in paragraphs 55-57 of the Judgment that:

“The Court must dismiss at the outset the argument that the recovery obligation imposed by the contested decision did not sufficiently identify the applicants at the time that that decision was adopted. (…)

As the Advocate General has pointed out (…), the order for recovery already concerns all the beneficiaries of the system in question individually in that they are exposed, as from the time of the adoption of the contested decision, to the risk that the advantages which they have received will be recovered, and thus find their legal position affected. Those beneficiaries thus form part of a restricted circle (…), without it being necessary to examine additional conditions, concerning situations in which the Commission’s decision is not accompanied by a recovery order. Moreover, the eventuality that, subsequently, the advantages declared illegal may not be recovered from their beneficiaries does not exclude the latter from being regarded as individually concerned.

The Court must also dismiss the Commission’s argument that recognition of the admissibility of actions against a decision of the latter ordering the recovery of State aid had the ‘paradoxical and perverse’ effect of requiring the beneficiaries of the State aid to challenge that decision immediately, before even knowing whether it would lead to a recovery order concerning them. (…)”

It seems to me that the wording of the Judgment leaves little room for interpretation: the Court finds that the order for recovery imposed by the Decision is, by itself, sufficient to individually concern a beneficiary without any further requirements (i.e. individual order of recovery addressed to the beneficiary by the Member State). Thus, the ECJ definitely quashes the Commission’ position regarding the locus standi of beneficiaries and, in my view closes the debate.

In conclusion, although I would not insinuate that the Commission was as “fond” of the argument as was the character of Dr. Von Aschenbach of young Tadzio in Thomas Mann’ tale (masterly brought to the screen by Luchino Visconti), it is however true that this Judgment strikes a serious blow to the procedural strategy of the Commission, which from now onwards will have to focus much more on substance and less on admissibility.

Written by Alfonso Lamadrid

1 July 2011 at 4:03 pm

Brussels Urban Legends – Guest Post by P. Werner

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We are delighted to publish a post written by our friend and former colleague, Philipp Werner (McDermott Will & Emery in Brussels). Philipp devotes a considerable amount of his time to State aid issues. In his post, he kills a Brussels urban legend, and illustrates how State aid principles may be exported to other areas of EU competition law. We academics call this “cross-fertilization”.

Down here in Brussels, the talk of the town is that State aid law would not part of competition law. This, arguably, is because State aid law (i) often involves discretionary political bargains; and (ii) only occasionally draws on the insights of economic theory.

At best, any such contentions are Brussels’ urban legends. State aid law is just as rigorous (or not) as other areas of competition law. While political considerations may play a role in some of the biggest State aid cases, I doubt that this fundamentally differs from other areas of competition law (think of the Microsoft decisions or of mega-merger cases involving US firms). In addition, those who – like Nicolas – are interested in the economics underpinning competition law will find refined economic analysis in many State aid cases. To take only an example of this, State aid lawyers grapple almost daily with law&econ issues such as the market economy investor principle (MEIP). For more on this, check “The economic analysis of State aid: some open questions” or the 2009 “Study on counterfactual scenarios to restructuring state aid“.

Now, quite to the contrary, State aid law may constitute a source of guidance for other areas of competition law, where legal issues remain unsettled. Take the issue of access of third parties to the antitrust authority´s case file. Third parties willing to bring private damages actions in national courts may request, before the antitrust authority, to access to the leniency applications. Advocate General Mazak has recently delivered a somewhat Solomonic opinion in the Pfleiderer case (C-360/09) on this issue. On of the issues here is Regulation No 1049/2001 regarding public access to documents, and more specifically Article 4 (2) of Regulation No 1049/2001, which provides that “The institutions shall refuse access to a document where disclosure would undermine the protection of commercial interests of a natural or legal person, including intellectual property, court proceedings and legal advice, the purpose of inspections, investigations and audits, unless there is an overriding public interest in disclosure.”

Interestingly, this issue is well settled in State aid cases, and could arguably provide a good point of reference under Article 101 TFEU. In Technische Glaswerke Ilmenau GmbH (C-139/07 P), the ECJ ruled that there is a general presumption that disclosure of documents in the administrative file undermines the protection of the objectives of investigation activities. As a result, the Commission must not show, in principle, for every single document that the exception of Article 4 (2) of Regulation No 1049/2001 applies. The ECJ acknowledges that this does not exclude the right of an interested party to demonstrate that a given document disclosure of which has been requested is not covered by that presumption.

Looking forward to reading your views/ comments on this.

(Image possibly subject to copyrights: source here)

Written by Nicolas Petit

1 February 2011 at 8:00 am

Everything antitrust lawyers should know about State aids (but were afraid of asking)

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Note by Alfonso: We are inaugurating our new section on “Everything Competition Lawyers should know about State aids” with a contribution by NapoleĂłn Ruiz, a great friend and a great State aid specialist at Garrigues´  Brussels office. We asked him to write about a sexy topic and, well, this is what we got.. 

Everything antitrust lawyers should know about sex State aids (but were afraid of asking)

Thanks to Nicolas and Alfonso for giving me the opportunity -and the honor- of inaugurating this new section of their blog (which actually reminds me of the title of a well-known movie of Woody Allen…).

I believe that creating a new section devoted to State aid issues is indeed a good idea. Firstly because despite the fact that they target member States –and not companies- State aid rules play a fundamental role in addressing restraints of competition. Secondly, because State aid control  has lately become the “rising star” of the Commission’ competition policy. Since the beginning of the crisis, State aid practice has boomed within DG Comp in the attempt to control that the fabulous amount of money (around 4 trillion euros mainly in the financial sector) poured by member States into their economies does not distort -too much- competition. Quite a herculean task, I’d dare to say… 

One of the first things that antitrust lawyers should know is that, perhaps even more than antitrust or merger control, State aids is an incredibly dynamic practice, given that some of its main legal concepts have not yet been completely fixed. Many State aid lawyers would agree that one of the most (probably the most) raging debates amongst scholars, practitioners and enforcers, which has been going on for years now, concerns the notion of selectivity:

According to article 107 TFEU, a measure is deemed to constitute a State aid if it favours “certain undertakings or the production of certain goods”; in other words, whether the measure constitutes an exception deviating from the general rule.

Even though the concept appears to be conceptually clear -in theory-, in practice it has proven to be diabolically difficult and so far its boundaries remain unclear. In general (but not always), while member States and companies seek to clarify and restrict the application of selectivity, the Commission tries to expand its scope. Obviously, the larger the concept of selectivity, the easier it would be for the Commission to qualify as State aid virtually any State measure.

We, antitrust lawyers, are used  to expansive, non-determined, concepts, but this one is, in my experience, the most nebulous one of those with which I´ve worked.

Actually, one of the current cases regarding selectivity that may lead to a clearer definition of the concept is one in which I have the  fortune of being involved. The case, currently pending before the General Court (the Commission´s decision was appealed by a significant number of Spain´s flagship companies), concerns a provision in Spanish corporate tax law laying down the amortization of financial goodwill for the acquisition of significant shareholdings in foreign targets (a.k.a 12.5 TRLIS). Although the subject sounds like ancient Sanskrit for many non-tax lawyers, I believe it has the ingredients to become a landmark case, for instance:

 The case concerns the very substance of selectivity, since the appeal challenges not only the methodology used by the Commission to define the general rule and its exception, but also the interface drawn by the Commission between selectivity de iure and de facto; and

Since tax provisions are selective by nature, the judgement to be delivered by the Court will likely determine how much room for intervention the Commission has regarding member States’ tax systems. Taxation has been -and remains- one of the few fields where unanimity between member States is required in order to legislate. Therefore, many think that in case the ECJ “expands” the notion of selectivity, it will be difficult for the Commission to resist the temptation of using its broad powers as competition watchdog in order to intervene in member States taxation (especially now when voices requesting deeper tax harmonization in the EU are growing).

In any event, it would be desirable that the European Courts –be it in this one or in another case- shed some light into the debate, so that I don’t find myself quoting –again- the great Allen in the above said movie to [sadly] declare that: “When it comes to sex State aids there are certain things that should always be left unknown, and with my luck, they probably will be”.

Written by Alfonso Lamadrid

28 January 2011 at 12:01 am