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The Commission sends an SO to Apple: common carrier antitrust picks up speed

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A Short History of the Spotify–Apple Music Beef - The Ringer

As readers will know, the Commission sent a Statement of Objections to Apple last week (for the press release, see here). The investigation focuses on the firm’s practices in relation to the conditions under which it provides access to its app store; it is confined to music streaming services. Most of you probably remember that the case traces its origins back to the complaint brought by Spotify, which concerned the 30% commission Apple ask on sales taking place via its app store.

According to the press release, the Commission has reached the preliminary view that the abovementioned practice amounts to an abuse of a dominant position. The document also mentions the ‘anti-steering provisions’ whereby app developers are restricted in their ability to inform users about alternative purchasing options.

The case has long intrigued the competition law community. The theory of harm that the Commission would pursue was not immediately obvious to infer from the publicly available information. Was the investigation really about exclusion, considering that Spotify is by some distance the market leader on the relevant market? If so, what are the conditions to assess the legality of the conduct? Was the case about exploitation instead?

The press release hints at some answers in this regard. Generally speaking, it suggests that common carrier antitrust (an emerging interpretation of competition law provisions and a new approach to enforcement) is picking up speed. I would note three aspects in this regard:

  • First, the press release suggests that the lawfulness of potentially exclusionary conduct does not depend (or, rather, no longer depends) on an assessment of anticompetitive effects.
  • Second, the press release signals that the Commission is ready to question firms’ business models in the digital sphere: what EU competition law, for decades, was reluctant to challenge absent exceptional circumstances, has now become a central feature of enforcement.
  • Finally, the press release hints at an additional feature of common carrier antitrust: it would seem that each ecosystem is deemed a market on its own.

A farewell to anticompetitive effects?

Modern EU competition law, as interpreted by the Court of Justice, is based on the idea that the vast majority of potentially abusive practices are unproblematic where they are unlikely to have anticompetitive effects (in refusal to deal cases, the test is even stricter). This is the interpretation underpinning the most recent case law (including Deutsche Telekom, TeliaSonera, Post Danmark I and II, Intel, MEO) and the Commission’s Guidance Paper (in which the authority committed to prioritising cases that would likely lead to anticompetitive foreclosure).

The principles of contemporary EU competition law are not obvious to reconcile with the Apple investigation. In this sense, the case hints at the rise and consolidation of common carrier antitrust.

Rulings like Deutsche Telekom and MEO show that a raising rivals’ costs strategy is not anticompetitive in and of itself. An evaluation of the likely impact of the conduct is a precondition for the application of Article 102 TFEU (or, indeed, merger control and Article 101 TFEU). According to this case law, the Commission would need to establish the anticompetitive effects of Apple’s app store-related behaviour.

A cursory look at the relevant market suggests that showing the exclusionary impact of Apple’s practices on the market for music streaming services is anything but an easy task. The fact that the original complainant in the case is (and has been for a while) a market leader one of the factors in this regard. The fact that music streaming is accessible in many ways (that is, not only via Apple’s app store or, more generally, Apple devices) is another one.

The press release is interesting in that it suggests that the Commission believes that it can establish an abuse of an exclusionary nature without showing that the practice is likely to have anticompetitive effects. It would seem that the case is predicated on the idea that the Commission can discharge its burden of proof merely by showing that the practices distort competition by raising rivals’ costs. In this sense, it signals a move away from Deutsche Telekom (with all the implications and/or complications that follow).

The move away from anticompetitive effects does not seem to be an isolated instance. I have the impression that other cases in the digital sphere will be conducted following the same approach. One can think, in particular, of the Amazon case (which I discussed here). As is true of the Apple investigation, the use of non-public data by Amazon cannot be assumed to lead to the exclusion of rivals on the relevant markets (and might very well inject competition in Amazon’s marketplace).

This new approach to the assessment of practices comes at a time when the fundamental tenets of modernisation are being challenged. It has become relatively frequent to read that the effects-based approach has gone too far, or that it would place an undue burden on authorities in digital markets.

The move away from anticompetitive effects raises a number of fascinating questions. I will mention just two here. The first is whether the Court will agree to depart from the case law mentioned above and embrace the Commission’s expansive interpretation of its powers. The second is whether this new approach makes it possible to meaningfully constrain administrative action. To the extent that it equates a competitive disadvantage with harm to competition, its scope of application seems to lack clear boundaries (it is a criterion that seems fulfilled pretty much always and everyweher).

In this sense, the post-modernisation approach reminds one of the pre-modernisation times, when the Commission had a tendency to equate a limitation of a firm’s freedom of action with a restriction of competition.

Competition law and business models: what is the counterfactual?

The Apple investigation is also an example of another aspect of the emerging approach to enforcement: the Commission is no longer reluctant to challenge firm’s business models. Traditionally, the EU competition law system was deferential to firm’s strategies. It did not question, absent exceptional circumstances, a company’s decision to produce exclusively in-house. Similarly, the core of distribution methods like selective distribution and franchising are deemed prima facie lawful irrespective of their effects.

Common carrier antitrust is much less deferential to the central aspects of a firm’s business model. This approach to enforcement is fraught with challenges for an authority. First and foremost, one cannot simply assume that the undesirable aspects of a company’s core strategy can be removed without consequences. For instance, one cannot take for granted that a manufacturer will rely on franchising if it is required to accept competing products in the franchisees’ premises. Similarly, one cannot simply assume that forcing a company to deal with third parties will have no impact on incentives to invest and innovate.

Generally speaking, tweaking a firm’s business model via competition law enforcement requires a careful evaluation of the counterfactual. When it is said that a business model restricts competition, the question should be: compared to what? What would the world look like if the business model was a different one? How are the different aspects of a business model (both the desirable and undesirable) intertwined? I was reminded of these questions when reading the press release in the Apple case.

The press release suggests that a central aspect of the Commission’s case is that Apple’s 30% fee leads to higher prices for consumers (as the fee is passed on to subscribers). It is unlikely that challenging Apple’s ability to charge a fee to app developers will come for free; it will most probably be compensated elsewhere (possibly in the form of more expensive devices and/or services for end consumers). Once again: one cannot assume that the undesirable aspects of a business model can be removed without consequences.

I look forward to seeing how these central questions are addressed in the case. And I look forward to your comments, in particular if you see things differently. As you know, I have nothing to disclose in this or indeed in any other matter.

Written by Pablo Ibanez Colomo

3 May 2021 at 2:09 pm

Posted in Uncategorized

A New Kid on the Block: How Will Competition Law Get along with the DMA? (by Cani Fernández)

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I was privileged to speak, yesterday, at the conference jointly organised by UCL and White & Case, which was devoted to the Moving Boundaries of Competition Law. With James Killick as chair, I discussed the institutional aspects of the Draft Digital Markets Act alongside Cristina Caffarra, Cani Fernández, Peter Freeman, Georgios Gryllos and Andriani Kalintiri. I learnt a great deal about procedure and the potential challenges that may result from the adoption of the new regime.

It was not the first time I benefitted from Cani Fernández‘s unique insights as President of an authority that deals with both competition law and sector-specific regulation (on top of a lifetime as a leading practitioner). She kindly accepted our invitation to write an editorial for JECLAP on the relationship between the Draft DMA and Articles 101 and 102 TFEU. The editorial is now available as an advanced piece, and free of charge, here.

As you see, Cani considers the potential impact of a new instrument that would overlap with existing provisions, and pleads in favour of the adoption of coordination mechanisms to ensure not only that Articles 101 and 102 TFEU continue to play a role in digital markets, but also to avoid discrepancies and preserve legal certainty. Enjoy!

Written by Pablo Ibanez Colomo

23 April 2021 at 3:03 pm

Posted in Uncategorized

LSE Short Course on State Aid and Subsidies Regulation (July 2021)

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As mentioned last time, LSE Law is organising a Short Course on State Aid and Subsidies Regulation in July 2021. This course is part of the activities organised around the Jean Monnet Chair in Competition and Regulation.

More information about the short course can be found here. Do not hesitate to contact my colleague Amanda Tinnams at A.Tinnams@lse.ac.uk for registration and fees (or for any other queries).

This area is undergoing substantial change: EU State aid law keeps growing in complexity and the EU-UK Trade and Cooperation Agreement provides the basis for the development of a subsidies regime in the UK.

The idea behind the course is to get you up to speed in the field. It is intended for (i) practising lawyers that are or may be exposed to State aid law and/or subsidies regulation but have not studied the subject in any formal or in-depth way; (ii) in-house lawyers who would benefit from a greater understanding of the risks involved in the award of subsidies and similar measures; and (iii) professionals and students with an interest in developing an expertise in the field.

The course will be run online (via Zoom) over four Fridays in July (2nd, 9th, 16th and 23rd) To maximise interaction, the short course will be capped at 25 participants.

The meetings will run from 2pm-6pm (London time) and will cover both the EU State aid law system and the subsidies provisions enshrined in the EU-UK Trade and Cooperation Agreement (including on enforcement) and will be structured as follows:

  • Day 1 (2nd July): Scope of provisions on subsidies and State aid.
  • Day 2 (9th July): Advantage and selectivity/specificity.
  • Day 3 (16th July): Special focus on tax measures (tax rulings, digital taxes and beyond).
  • Day 4: (23rd July ): Procedure and enforcement.

A certificate will be available on completion, along with CPD points for practitioners. Once again, it would be wonderful to get to meet some of you for the occasion!

Written by Pablo Ibanez Colomo

22 April 2021 at 11:39 am

Posted in Uncategorized

The notion of undertaking after AG Pitruzzella’s Opinion in Sumal (case C-882/19). Towards (eventual) ‘downward’ liability for competition law breaches? (by Marcos Araujo Boyd)

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On 15 April 2021, AG Pitruzzella issued his much awaited Opinion in Sumal (not available in English at the time of writing, see here for the text in various language versions), which concerns the question of whether damages may be sought from affiliates of the entities identified in a previous public enforcement decision.

Sumal is one of the four preliminary references submitted by Spanish commercial courts in the context of the flurry of claims following the Trucks decision of the European Commission, together with case C-30/20 Volvo seeking clarification on territorial jurisdiction and Article 7(2) of Regulation (EU) No 1215/2012,  case 267/20 Volvo and DAF Trucks on the retroactivity of the Directive 104/2014 and the recently submitted case 163/21, PACCAR, on rules of evidence. These claims have been followed by multiple authors in Spain, notably Fernando Díez, Francisco Marcos and Juan Ignacio Ruiz Peris and raise many issues of interest in the field of private enforcement.

The interest on these matters of course goes beyond this country. Back to affiliate liability, as reported by Caroline Caufmann, a Dutch court has enforced a decision against an affiliate. In Germany, Christian Kersting has discussed in D’Kart a decision pointing at that direction from the Dortmund Landsgericht. I refer the curious reader to my article published earlier this year by the Journal of Competition Law & Practice (draft available on SSRN).

This post provides a brief introduction to the Opinion. The comments follow the document’s structure.

Procedure (paras 4-10). The initial paragraphs of the Opinion recall the context of the preliminary reference and the main procedural steps at the Court, which will hear the case in Grand Chamber, the observations formulated by two Member States (Italy and Spain) and the decision not to hold an oral hearing, replaced by written submissions on specific questions placed by the Court. (para 10).

Admissibility (paras 11-18). AG Pitruzzella opines that the admissibility objections raised by the defendant in the original case, Mercedes Benz Trucks España, S.L.(MBTE) should be dismissed, save in respect of the fourth question, for lack of sufficient information. That question (‘If the answers to the earlier questions support the extension of subsidiaries’ liability to cover acts of the parent company, would a provision of national law such as Article 71(2) of the Ley de Defensa de la Competencia (Law on the Protection of Competition), which provides only for liability incurred by the subsidiary to be extended to the parent company, and then only where the parent company exercises control over the subsidiary, be compatible with that Community doctrine?’) may arguably be responded anyway through the general principles on primacy and direct applicability of EU law.

General observations (paras 19-22). The Opinion proposes to address the three questions jointly and then summarises the main arguments of the parties. The interesting bit there is in paragraph 21, where AG Pitruzzella notes that the initial position of the Commission in the case was contrary to affiliate liability, a position that evolved in the last written statements, where the Commission would have conceded that the subsidiary could be made liable (i) if there is a ‘link’ between its conduct and an essential element of the infringement or (ii) if a direct claim against the parent company was impossible or excessively difficult. This second element is not discussed further in the Opinion.

The notion of undertaking (paras 23-31). This section recalls the case-law on the doctrine of ‘economic unit’ under EU competition law, starting with ICI (case 48/69, EU:C:1972:70) and stressing its functional nature. This part hovers around the idea that an ‘economic unity’ or undertaking is based on organisational, economic and legal links defined by control. A good summary, but nothing revolutionary.

The foundations of upward liability (paras 32-47). This part looks at the parental liability doctrine. This might surprise, given that this is clearly not an issue in Sumal; it could be said it would be the exact opposite. The intention is clearly to discuss ‘downward’ liability by contrast to the established notion of ‘upward’ or parental liability.

At the outset, the Opinion notes that parental liability as found in case-law might be understood to be based on two constructions (para 33). One would be that parent companies are liable because of their capacity to determine the conduct of an affiliate. Another is based on the idea that all legal entities form an economic unit.  AG Pitruzzella notes that the answer to the questions formulated in this case may determine the answer to be given, and resolutely opts for the second alternative (para 36), finding support in the recent jurisprudence of the Court which has stressed that the principle of personality applies to the undertaking, not to each legal entity (para 46). This section ends with candid comments on the evolution that is perceived in various fields of law towards some form of ‘enterprise liability’ or similar tools based on the true economic nature of groups of companies (para 47).

Economic unit and ‘descending’ liability (48-53). The discursive section on upward liability contrasts with the brief comments on the downward dimension. That is understandable, since the latter is built on the prior section. However, two elements in this part of the Opinion deserve a mention.

One is the four-step intellectual process proposed to impute a legal entity in both upward or downward situations, aimed at presenting them as identical (paras 48-52). It ultimately defends that the identification of the legal entity is just a last step in the logic process of attribution.

The other is the reliance on the General Court decision in Biogaran (case T-677/14, ECLI:EU:T:2018:910), for want of a better (ie, from the CJ) precedent. That case had been mentioned by the referring court and is helpful in defending the liability of subsidiaries with unproven knowledge of the infringement. At the same time, however, is a remarkably weak foundation for a principle with the importance of the one at stake here.

In the end, and this should be stressed, the discussion does not address ‘why downward liability exists in law’ but rather ‘whether there are logical reasons to discard it’ (para 52). By so doing, Sumal evades addressing the question as an obligation based on EU law, but as a tool that EU law would tolerate in certain conditions. It is difficult to overestimate the importance of that approach for the solution proposed to this case.

The conditions for declaring joint liability of the affiliate (paras 54-59). This is arguably the most interesting part of the Opinion. In it, AG Pitruzzella notes that, in ‘upward’ (parental) liability scenarios, the fact that the parent company determines the conduct of the affiliate suffices to impute the conduct to the former; however, in ‘downward’ liability cases, the mere existence of control would not suffice, it being necessary that the activity carried out by said legal entity is necessary for the implementation of the conduct. That would be the case where the affiliate is involved in the specific economic activity under consideration, for example, by selling the goods object of the cartel (para 57). In this respect, the Opinion relies on several UK cases starting with Provimi (fn 70) and ENI (case T‑39/07, EU:T:2011:356). As mentioned above, this link had been required in the written submissions filed by the Commission.

When explaining this logic, the Opinion argues that a subsidiary carrying activities in other areas would fall outside the functional notion of undertaking for these purposes. The consequences of this logic are difficult to anticipate and will require further reflection.

Extension of these principles to private enforcement (60-69). Paragraphs 60 ff of the Opinion move away from logic of public enforcement and build on Skanska (case C-724/17, ECLI:EU:C:2019:204). AG Pitruzzella recalls that the determination of the liable entity is directly governed by EU law and notably that it may not have a different meaning in public and private enforcement, linking the discussion in the prior sections to the case, and concluding that downward liability is as acceptable in private as it is in public enforcement.

The reliance on Skanska is understood; it is however noted that, unlike Sumal, that case was based on the principle of effectiveness, displacing national rules when it would stand in the way of EU law. In contrast, as above noted, the Opinion discusses if EU law would permit, not require, such ‘inverse’ claims. In other words – the Opinion does not advocate that EU law would impose downward liability, treating an eventual failure to do so as a breach of EU principles (as in Skanska), but proposes confirming that EU law would not impede such attribution of liability within certain conditions. Consequently, the procedural obstacles faced by claimants are acknowledged (para 68), but in no way considered a barrier that would stand in the way of the rights granted by EU law and that national courts should disarm.

While this logic is understandable, it leaves unanswered the question of what principle of law, either EU or national, would require affiliates to be held liable for these damages, despite offering a construction that would ultimately impose legal obligations on legal entities. That, of course, is just one out of many questions that arises from this case and will require further reflection.

Binding nature of the determination in the public enforcement decision (70-76). The last section of the Opinion discusses whether the determination of the legal entity made in the public enforcement decision would bind the referring court. If so, national courts would, out of respect to the decision of the Commission under Art 16 of Regulation 1/2003, be prevented from imposing liability in a follow-on case on entities other than those specifically identified in it.

This is a tricky issue on which there is limited authority. In Martinair (case T-67/11, ECLI:EU:T:2015:984, 37) the GC declared noted that the identification of an entity in the public enforcement decision would bind national courts. AG Pitruzzella does not mention that case and moves swiftly to proclaim that the national judge can determine a different legal entity, provided that that entity meets the above criteria of participation in the infringement (para 74). At this point, the Opinion quotes the Commission as having accepted this logic in its written submissions, creating the impression that these statements may have played a role.

Conclusion The Opinion concludes that, in a claim for damages as that before the national court (ie, a follow-on claim), a legal entity may be held liable despite the fact that only its parent company has been sanctioned by the Commission provided that the economic, organisational and legal links at the time of the infringement have been established, and that the conduct of the controlled entity has contributed in a substantial manner to the illicit behaviour and to the effects of said infringement.

The matter is now laid before the Grand Chamber of the Court of Justice. An eventual acceptance to the proposals formulated by AG Pitruzzella would facilitate private enforcement claims. Some additional clarity on the requirements that affiliates must meet to be liable in these situations will be needed over time. The potential weakening of the binding nature of the identification of the liable entity seems a price the Commission is happy to pay. However, questions shall be raised on the legal basis for this solution. Time, and indeed the Court, will tell.

Written by Alfonso Lamadrid

16 April 2021 at 9:35 am

Posted in Uncategorized

W@ Mentoring Programme

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Women AT recently announced a cross-disciplinary, cross-organisation and cross-border Mentoring Programme for women competition professionals spanning geographies from the North, Central & South Americas, to Europe, to South Africa.

This is a great opportunity for women professionals, which we are most happy to support.

If you or your female colleagues might be interested, please apply and/or encourage them to apply by 23 April.

Apply now

 

Written by Alfonso Lamadrid

14 April 2021 at 10:57 am

Posted in Uncategorized

Why The Proposed DMA Might be Illegal Under Article 114 TFEU, And How To Fix It

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At the end of 2020 I wrote a post here titled “The Key to Understand the Digital Markets Act: It’s the Legal Basis“, noting how, in my view, this is the single most important legal and political issue when it comes to the design and adoption of the Digital Markets Act.

That post already sketched my thinking, but given the interest and importance of the subject, and the remarkable absence of a public discussion about it, I have now fleshed out those ideas in a paper co-written with my colleague Nieves Bayón.

The paper is available here:

Here is a summary of its content and main findings:

The Commission’s DMA Proposal seeks to create a new regulatory instrument including new ex ante rules applicable to “gatekeepers” and a new set of far-reaching powers. Like any EU legislative initiative, the DMA must be grounded on a legal basis provided for in the EU Treaties. The choice of the legal basis determines both the relevant legislative procedure and the scope for EU action. Recourse to an inappropriate legal basis has in the past led to the annulment of various pieces of EU legislation.

The current DMA Proposal is based on Article 114 TFEU. This legal basis empowers the EU legislature to adopt measures that are designed to approximate national rules and to prevent regulatory fragmentation in the internal market, provided that these measures are proportionate to the objectives pursued. 

An analysis of the DMA Proposal in light of the relevant EU case law suggests that the current text could be incompatible with primary EU Law.

First, the DMA Proposal does not appear to be designed to prevent regulatory fragmentation. On the contrary, the current text of the Proposal, and in particular Articles 1(5) and 1(6), would enable Member States to enact and maintain in force national rules overlapping with, or going beyond, EU rules. Some Member States have in fact invoked the DMA as a reason to adopt parallel “supplementary” national rules. Absent a real harmonization effect, the DMA Proposal could result in increased regulatory fragmentation, and even give rise to ne bis in idem concerns. The EU Courts have made clear, in this regard, that Article 114 TFEU is not a valid legal basis for measures which do not approximate or harmonize national rules because they aim at introducing new legal instruments and/or leave unchanged the different national laws in existence.

Perhaps the best illustration that the DMA Proposal falls short of its declared objective of preventing regulatory fragmentation is the fact that none of the existing or likely sources of regulatory fragmentation identified in the Commission’s Impact Assessment to justify the adoption of the DMA would actually be affected by the DMA. The recent reform to the German Competition Act exemplifies how Member States could adopt new obligations simply by defining a scope of application that is not limited to “gatekeepers” as defined in the DMA and/or by presenting those obligations as an extension of their national competition rules. 

Second, the definition of the DMA’s scope in Article 3 and some of the obligations and prohibitions listed in Articles 5 and 6 would appear to risk breaching the principle of proportionality, and impinge on the fundamental rights of the companies subject to its obligations. To ensure the proportionality of the DMA’s scope of application and content, the EU legislature would be required to set adequate limits on the Commission’s discretion, and verify that, in the light of the available evidence, the limitations on gatekeepers’ freedom to conduct their business and right to property do not go beyond what is necessary to ensure the proper functioning of the internal market.

For these reasons, the paper submits that the DMA Proposal would require important adaptations in order to validly rely on Article 114 TFEU and avoid the unanimity requirement applicable under Article 352 TFEU.

We identify 10 constructive solutions that could enable the EU legislature to achieve its goals while complying with the substantive requirements flowing from Article 114 TFEU and other general principles of EU law.

Absent these changes, the DMA would, in our view, be vulnerable to an eventual legal challenge before the EU Courts.

Written by Alfonso Lamadrid

12 April 2021 at 6:56 pm

Posted in Uncategorized

Rubén Perea Award: 1st Special Issue published in JECLAP

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We are delighted to announce that the Special Issue devoted to the Inaugural Rubén Perea Award is now available on JECLAP’s website.

The issue opens with Rubén’s LLM dissertation and with a lovely editorial (freely available), Competition Law and Friendship, where Lena Hornkohl and David Pérez de Lamo pay tribute to Rubén and introduce the first of (we expect and hope) many editions of the award.

The compilation of articles is the result of the hard work of the jury (namely Alfonso, Lena and David together with Damien Gerard, Michele Piergiovanni, and Gianni De Stefano).  

The articles included in the Special Issue are the following:

The ECN+ Directive and the Next Steps for Independence in Competition Law Enforcement, by Rubén Perea Molleda

Abuse of Dominance in Digital Markets: Can Amazon’s Collection and Use of Third-Party Sellers’ Data Constitute an Abuse of a Dominant Position Under the Legal Standards Developed by the European Courts for Article 102 TFEU?, by Vladya M K Reverdin (Winner of the Inaugural Award).

The Selective Advantage Criterion in Tax Rulings: The Path Towards a More Coherent and Thorough Analysis of Selectivity, by Nieves Bayón Fernández

When Does Algorithmic Pricing Result In an Intra-Platform Anticompetitive Agreement or Concerted Practice? The Case of Uber In the Framework of EU Competition Law, by Hubert Bekisz

At the Mercy of the Gatekeeper: The Theory and Practice of Undertakings’ Fundamental Rights in the EU Cartel Settlement Procedure, by Ştefan Ciubotaru

Which Sustainability Agreements Are Not Caught by Article 101 (1) TFEU?, by David Wouters

We will provide via the blog the details on how to take part in the Second Edition of the Award. Do not hesitate to come back to us for any questions about it.

Needless to say, we very much welcome, in the meantime, your contributions to JECLAP. More information for prospective authors can be found here.

Written by Pablo Ibanez Colomo

8 April 2021 at 1:08 pm

Posted in Uncategorized

Indispensability in Google Shopping: what the Court did, and did not, address in Slovak Telekom

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Google Announces Free Google Shopping Listings | Onefeed

Slovak Telekom was eagerly awaited, to a significant extent, because of its impact on Google Shopping, currently pending before the General Court. The question of whether the legality of the behaviour in the latter should be assessed in light of the Bronner conditions is arguably the most important aspect of the case.

Last month’s judgment provides some valuable clarifications concerning the conditions under which the Bronner conditions apply. A careful and dispassionate assessement of Slovak Telekom reveals, however, that some issues remain open.

It does not seem possible to claim, categorically, that the judgment unequivocally supports one conclusion or the other. Depending on how some open questions are interpreted, both outcomes (i.e. that indispensability is required and that it is not) seem in principle defensible.

What the Court held in Slovak Telekom

Dominant firms are in principle able to engage in self-preferencing: In paras 45-46, the Court holds that, at least in principle, there is nothing inherently abusive in the fact for a dominant firm to develop an infrastructure for its own needs. In particular, it is not unlawful for a dominant firm to favour itself by refusing to conclude an agreement with a rival.

The indispensability and elimination of all competition conditions are required where intervention would force a firm to conclude a contract: In line with the relevant case law since Commercial Solvents (see here) the Court confirms that the Bronner conditions are relevant where intervention would require a firm to conclude a contract (paras 46-47). The applicability of the indispensability and elimination of all competition conditions depends, in other words, on the nature of the remedy required to bring the infringement to an end. If intervention demands a duty to deal with third parties with which the dominant firm had chosen not to deal, the lawfulness of the behaviour would be assessed in light of Bronner.

Freedom of contract and long-term incentives to invest and innovate explain the ruling: The Court is explicit about the reasons why the Bronner conditions are sometimes required. Forcing a firm to conclude a contract interferes with firms’ freedom of contract and their right to property, and should therefore be confined to exceptional circumstances.

Open questions in Google Shopping

Is it for an authority to decide when the Bronner conditions are applicable?

Interestingly, the Google Shopping decision shared the point of principle summarised above: the Bronner conditions are applicable where intervention would require a firm to ‘transfer an asset or enter into agreements with persons with whom it has not chosen to contract‘ (para 651 of the decision, which refers to Van den Bergh Foods).

More controversially, the Commission argued that the above question hinges on what the decision formally requires. The first open question is therefore whether this is an appropriate interpretation of Van den Bergh Foods and Slovak Telekom.

I have explained elsewhere why the Commission’s interpretation of the case law is not wholly uncontroversial. If it were followed, it would give a competition authority the discretion to decide when the Bronner conditions are applicable and when they are not. Insofar as it turns an issue of law into one of discretion, it does not find easy accommodation in the EU legal order.

Similarly, if one were to follow the Commission’s approach, a competition authority would be able to circumvent the Bronner conditions simply by avoiding the specification of the remedy.

As I have already argued, a more satisfactory understanding of Van den Bergh Foods and Slovak Telekom is to focus on what a decision requires in effect (as opposed to what it formally demands). This interpretation would be consistent with the role of the Court of Justice in the EU legal order and would place substance above form (a key leitmotif of EU competition law since its inception).

Do organic search results count as ‘access’ within the meaning of Slovak Telekom?

There is an important, and potentially decisive, difference between Google Shopping and Slovak Telekom. The technology behind Google’s search engine does not require the firm to deal with rivals. Accordingly, the display of Google’s generic search results involves strictly unilateral conduct (the underlying technology is explained, by the way, in paras 15-17 of the Commission decision).

In this sense, Google Shopping is different from the practices at stake in Slovak Telekom. In the latter, the provision of services by downstream rivals necessitated an access agreement between new entrants and the incumbent. In Google Shopping, on the other hand, the concerns related to the fact that comparison shopping sites only aspired to feature as ‘generic search results’ (para 344 of the decision).

Against this background, the question is whether featuring in Google’s generic search results counts as ‘access’ within the meaning of Slovak Telekom. In one sense, one could argue (as I presume the Commission and the complainants will) that it does. There are, on the other hand, reasons to take the opposite view, and claim that ‘access’ within the meaning of Slovak Telekom presupposes an agreement between the dominant firm and its rivals. These reasons are sufficiently compelling to make the issue interesting from a legal standpoint.

As explained by the Court in para 51 of Slovak Telekom, the question is whether intervention would interfere with the firm’s freedom of contract. Action under Article 102 TFEU would not interfere with such freedom where there is an ongoing contractual relationship with third parties (whether this is the result of voluntary dealing or of a regulatory obligation).

No such ongoing contractual relationship would exist, on the other hand, where the dominant firm unilaterally operates a service such as a search engine. In fact, only following intervention by the Commission in Google Shopping did the firm conclude an agreement with third parties. Which takes me to the last open question.

What about remedies that are effective alternatives to a duty to conclude an agreement?

In Google Shopping, the Commission did not specify a remedy. One may thus be tempted to argue that, even though intervention led to Google concluding agreements with third parties and granting them access to a feature it had reserved for its own use, such an outcome was not mandated by the decision. According to this view, Bronner would not be relevant. Shared access to a feature was the choice of the firm, not a requirement.

One may reach a different conclusion, however, if one considers that there is a gap in the case law, which Google Shopping exposed. Cases like Bronner and Slovak Telekom focused on one possible way in which refusal to deal cases can be remedied: by requiring the firm to provide access.

However, such cases can be remedied in two other ways, which are equally effective. First, by mandating the structural separation of the two activities (separating, for instance, the infrastructure and the services running on the infrastructure). Second, by asking the dominant firm to close a division (for instance, by no longer providing the services and merely operating the infrastructure).

Since all three remedies (mandating access, structural separation, closing down of a division) are functionally equivalent, and since they all intrude with firms’ freedom of contract and their right to property, I struggle to think of a reason why they should be treated differently from a legal standpoint.

In the same vein, one could define the scope of Bronner as follows: the indispensability and elimination of all competition conditions are part of the legal test where intervention would amount, in effect, to any of the three remedies above. Whether the remedies are spelled out in the decision would be immaterial. The relevant question would be whether bringing the infringement to an end would require, in effect, either a duty to conclude an agreement, the structural separation of two adjacent activities or the closing down of one of the activities.

I very much look forward to your thoughts on how best to make sense of Slovak Telekom, in particular if you see things differently. As you know, I have nothing to disclose.

Written by Pablo Ibanez Colomo

2 April 2021 at 6:06 pm

Posted in Uncategorized

‘Chinese Antitrust Exceptionalism’: a book by Angela Zhang

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[We are delighted to announce the launch of Chinese Antitrust Exceptionalism, the book Angela Zhang has recently published with Oxford University Press. As you all know, Angela is an Associate Professor of Law at the University of Hong Kong (she was previously based at King’s College London). Over the years, Angela has emerged as a leading Law & Economics scholar with an incredibly broad range of interests. We are pleased to see that competition law is still among the core areas of her research. She has been kind enough to share with us a taster of her monograph. Enjoy!].

Chinese Antitrust Exceptionalism explores the unique ways in which China regulates and is regulated by foreign countries, revealing a ‘Chinese exceptionalism’ that is reshaping the global antitrust regime.  

To help us understand this new force, I dive deep into unique Chinese political and economic institutions, examining bureaucratic politics, the power imbalances between businesses and the government, the highly decentralized economic system, and state-led governance. This allows me to explain the dilemmas foreign multinationals have faced in complying with Chinese antitrust law, as well as the difficulties Chinese firms have encountered overseas as U.S. and E.U. antitrust regulators tighten their scrutiny over Chinese businesses. 

My book consists of three parts—how China regulates, how China is regulated, and regulatory interdependence.  In Part I, I explore the first major dimension of Chinese antitrust exceptionalism by delving into Chinese political and legal institutions that have posed significant challenges for foreign firms operating in China.  I explain the rise of Chinese antitrust regulation by analysing the incentives of the antitrust enforcers, as well as the path dependent nature of the bureaucratic performance.  Then I try to unravel the myth behind the paucity of appeals against antitrust agencies in China. I specifically focus on the immense administrative discretion possessed by antitrust authorities and the media strategies that they can use to advance difficult cases.

Contrary to the popular western perception that the Chinese government is a monolith, I show that a key defining feature of the Chinese bureaucracy is that power is highly fragmented. For instance, Chinese merger control is a consensus-building process involving the antitrust authority, sector regulators, industrial policy planners, and occasionally local governments. And when it comes down to the regulation of large state-owned enterprises, the interaction between the different bureaucratic players has resulted in serious disagreements.

In Part II,  I explore the other dimension of Chinese antitrust exceptionalism by focusing on the antitrust challenges that Chinese firms experience overseas. I detail the unique way that Chinese firms have been treated by Western regulators and how such regulatory outcomes are also deeply rooted in China’s distinct political economy, particularly its decentralized economic structure and state-led model of governance.

Indeed, the European Commission has had a hard time assessing the independence of Chinese SOEs when dealing with acquisitions from China. The EU is used to applying a bright-line test in deciding whether an SOE is an independent entity, but this test does not work well when it is applied to Chinese SOEs.  Although the Chinese state has voting power to influence SOEs, it may lack both the incentive and the ability to coordinate competition between them. As a consequence, the formal corporate control of the Chinese state over SOEs is a poor indicator of the anticompetitive effects such control might produce.

Paradoxically, while this bright-line test can lead to an over-inclusion problem, it can simultaneously lead to an under-inclusion problem. The EU merger review only acts on acquisitions of controlling interests. This means that Chinese SOEs can bypass EU antitrust scrutiny by making minority acquisitions in Europe. Because there is a blurred line between SOEs and privately-owned enterprises in China, a Chinese SOE could escape antitrust scrutiny entirely by employing a non-controlling subsidiary as a vehicle to acquire European assets.

As the EU’s existing antitrust regulatory framework is not fully equipped to handle Chinese investments, I urge the Commission not to deploy competition policy too broadly when reviewing Chinese SOE acquisitions. I suggest that the Commission instead seek alternative regulatory tools such as investment review to tighten their scrutiny over Chinese takeovers. This appears to be exactly the direction the EU is heading towards, especially with the  recent promulgation of the White Paper targeting state-backed acquisitions.

In the last part of my book, I return to the analysis of China’s antitrust law, albeit in a different context, showing that there exists a close interdependence between the regulatory moves of the United States and those of China. In addition to launching a trade war against China, the United States is aggressively claiming extraterritorial jurisdiction over Chinese technology companies and executives, and China is now emulating this practice by wielding its antitrust law to demonstrate its own extraterritorial regulatory capacity. 

In my book, I have tried my best to present a neutral, balanced, and honest view of regulatory conflicts between the East and the West. I sincerely hope Chinese Antitrust Exceptionalism can facilitate dialogue between the two sides in dealing with some of the thorniest regulatory issues that have beset their relationship.

This book has proven to be incredibly timely.  In the past few months, China has taken unprecedented action to enforce antitrust regulations against its leading firms, such as the fintech conglomerate Ant Group and its affiliate Alibaba.  Based on insights from this book, my responses to these events have been quoted by numerous media outlets and my commentaries have appeared   in   Project   Syndicate, Nikkei Asia, Fortune and Bloomberg.  Recently, I was featured on CNBC, as well as the Economist’s virtual event on balancing innovation and regulation. For more details, please visit the book’s website: Chinese Antitrust Exceptionalism | Angela Zhang 

I very much look forward to hearing your feedback! (twitter @AngelaZhangHK)

Written by Pablo Ibanez Colomo

29 March 2021 at 4:25 pm

Posted in Uncategorized

Thoughts on today’s judgments in Lundbeck and Slovak Telekom: expected and valuable clarifications for the future

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Just as expected - Photos | Facebook

The Court of Justice has delivered an important set of judgments in the Slovak Telekom and Lundbeck cases (see in particular here and here). As widely anticipated, all appeals have been dismissed. This fact does not deprive the cases of interest, which always lied in the points of principle at stake in them.

The Slovak Telekom case raised issues relating to the scope of Bronner and the indispensability condition. The Court confirms that Bronner is alive and well and defines the scope of the ruling in a manner that is consistent with its spirit and logic (today’s judgments are very much in line with the Advocate General’s Opinion, which we discussed here). Crucially, the judgment also provides a valuable template for the evaluation of cases in digital markets.

The issues raised in Lundbeck, in turn, concerned the notion of restriction by object. It was an occasion to test the meaning of the ‘robust and reliable experience’ test laid down in Budapest Bank. Unsurprisingly, the Court concludes that the lack of experience in pay-for-delay cases is of no assistance to avoid a finding of a ‘by object’ infringement. As I explained here, cartel-like conduct is cartel-like conduct, irrespective of whether it is disguised as a pay-for-delay arrangement. And we have decades, if not centuries, of ‘robust and reliable’ experience concerning cartels and analogous practices.

In addition, the Court dismisses, in Lundbeck, the interpretation of the counterfactual advanced by the appellants. Again, this is hardly surprising. I explained in this post why the appellants’ understanding of the notion was not obvious to reconcile with the case law and why, in all likelihood, it would be rejected by the Court (in the same way it was rejected by AG Kokott).

Slovak Telekom: Bronner is alive and well, and has a definite scope of application

Following AG Saugmandsgaard Øe’s Opinion in Slovak Telekom, some commentators expressed concerns about the demise of Bronner. We can now safely say that Bronner is alive and well: in fact, its scope of application and the rationale underpinning it have never been clearer.

In essence, the Court has ruled that the indispensability and elimination of all competition conditions are part of the legal test where intervention would force a dominant firm to conclude a contract with a competitor. As the Court explained in the Slovak Telekom judgment:

’45. The imposition of those conditions [indispensability and elimination of all competition] was justified by the specific circumstances of that case [Bronner] which consisted in a refusal by a dominant undertaking to give a competitor access to infrastructure that it had developed for the needs of its own business, to the exclusion of any other conduct’.

In other words: the key lies in the remedy (in what a finding of infringement would entail in effect). By the same token, where intervention in a competition law case does not necessitate a duty to deal, indispensability would not be an element of the legal test. Such was the case in Slovak Telekom (and TeliaSonera, which is also confirmed), where remedial action only required the Commission to tackle the unfair nature of the practices involved.

The rationale behind the definition of the scope of Bronner is twofold. First, the Court explains that intervention mandating shared access to a facility interferes with the right to property and with freedom of contract (para 46). Second, it concludes (in para 47, and in line with AG Jacobs’ Opinion in Bronner) that promoting short-term competition by means of shared access may be harmful in the long run insofar as it would negatively impact firms’ incentives to invest and innovate.

These clarifications provide a useful template for the evaluation of cases in the digital arena. We now know that, when intervention interferes with a firm’s right to property and/or its freedom of contract, indispensability (and the elimination of all competition) will be a precondition for intervention.

What are the remaining pieces in the puzzle? Mandated shared access to a facility is not the only way in which intervention might interfere with a firm’s right to property. Such interference would also occur when a firm is asked to cease an activity or to sell its assets to a third party (a structural divestiture). Consistency would demand that such forms of intervention, which intrude as much as a duty to deal (if not more) with the right to property, be treated in the same way.

Where does this leave us for the future? My impression is that indispensability would be an element of the legal test, inter alia, in the following scenarios:

  • Intervention requires, in effect, a firm to remove some features from a product (say, a camera from a smartphone).
  • Intervention requires, in effect, a firm to redesign its product so that rivals have shared access to it (for instance, an interoperability duty).
  • Intervention requires, in effect, a firm to change its business model and adopt one that requires dealing with third parties with which it has chosen not to deal (for instance, by forcing a firm to start licensing a product).

Lundbeck: some refinements, and more clarity, about the scope of restrictions by object

Entire libraries have been written about the notion of restriction by object in the past couple of decades. Lundbeck confirms that we may be reaching the ‘end of history’ in relation to the notion. Most controversies have now been addressed and future rulings will provide, if at all, incremental refinements to the concept. Today’s judgments confirm the fundamentals about the Court’s approach. First, considering whether an agreement is restrictive by object demands a case-by-case, context-specific inquiry (see para 115 of Lundbeck).

Second, the fundamental question in this regard is whether the agreement can be explained on grounds other than the restriction of competition. If there is an alternative rationale for the practice, its treatment as a ‘by object’ infringement would not be warranted. In the specific context of pay-for-delay agreements, the analysis would revolve around the size of the payment (see for instance para 115 of the Lundbeck judgment). The qualification of the agreements in Lundbeck was particularly straightforward, as no plausible pro-competitive rationales had been advanced (para 118).

At the margin, however, the judgments provide useful clarifications. Reasonably, Lundbeck argued that there was no experience about the agreement and that, at the time of the infringement, it was not clear whether they were in breach of Article 101(1) TFEU. As a matter of substantive law, this argument was not deemed persuasive.

The Court’s reasoning comes across as sensible. There is certainly a great deal of experience about ‘naked’ market-sharing arrangements. Accordingly, once it is shown, to the requisite legal standard, that the object of the agreement is to restrict competition by paying a potential competitor to stay out of the market, we are in the realm of cartel-like conduct, which has long been known to be harmful, by its very nature, to the competitive process.

A second point concerned the counterfactual. Lundbeck argued in the case that the qualification of the agreement as a restriction by object demands the evaluation of a ‘counterfactual scenario’. This argument failed. According to the appellants, this analysis would have revealed that the generic producers would not have entered the market.

As explained in the judgment, the case law cannot be interpreted as supporting such an interpretation of the notion of restriction ‘by object’. Showing that a firm is a potential competitor is not the same as showing that its entry into the market would have occurred. In this sense, Lundbeck’s argument was found to relate more to the evaluation of the restrictive effects of the agreement than its ‘precise purpose’ (para 140). If such an interpretation of the ‘counterfactual scenario’ were embraced, the divide between object and effect would become blurred (ibid).

The above seems uncontroversial and fully in line with the case law. The point of the counterfactual at the ‘by object’ stage is not to assess the impact of the agreement, but its object. It is already well-established case law that the counterfactual can be relevant, at the ‘by object’ stage, in the following scenarios:

  • To show that there are ‘insurmountable barriers to entry’ and therefore that the generic producer is not a potential competitor (see in this sense Generics). In such circumstances, the agreement would not restrict competition, whether by object or effect.
  • To show that the agreement is capable of having pro-competitive (or at least ambivalent) effects and therefore its object is not the restriction of competition (see in this sense Generics and Budapest Bank).
  • To show, more generally, that the agreement is not liable to restrict competition in the economic and legal context of which it is a part (see in this sense Murphy).

Nothing in Lundbeck challenges the above aspects of the case law. Accordingly, these are factors to consider when evaluating whether an agreement is restrictive by object. Whether these steps are labelled counterfactual or otherwise, seems immaterial. As we have said many times here, fortunately competition law places substance above form.

I very much look forward to your comments. And please stay tuned for a more in-depth analysis of some aspects of the judgments.

Written by Pablo Ibanez Colomo

25 March 2021 at 2:09 pm

Posted in Uncategorized