Chillin'Competition

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Groovy, baby

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groovy-baby-38mm

Pablo’s exhausting, never-ending, coma-inducing, comprehensive and certainly influential posts on Post Danmark II (see here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, and here) [the fever has passed and he has moved on to a new obsession, Lundbeck (mercy, please!)😉 rightly emphasized the importance of establishing in any situation a link of causality. Events such as a market share increase may well be attributable to the superior quality of a product but also to non-merit based actions.

When this morning we awoke to a sudden increase in traffic on the blog we first thought that it was attributable to the great interest of our most recent posts. Wrong. The real reason was the traffic diverted to Chillin’Competition by Politico’s  Playbook.

Today’s issue of the must-read daily briefing of EU news included a link to our interview with Judge Marc van der Woude (just appointed Vice-President of the General Court; congratulations!) (btw, this in turn has led to quite a few people discovering THE RAID).

And in passing, the Playbook (Ryan Heath) referred to “groovy antitrust blog Chillin’Competition”😎

Most kind!  Politico now joins a rare short-list of people who think Pablo is groovy (a list that until today included only a Greek lawyer). My situation is worse, as not even my wife would remotely think that…

P.S. Busy day at work; tomorrow we’ll be back with something more substantial (and groovy).

 

Written by Alfonso Lamadrid

22 September 2016 at 5:25 pm

Posted in Uncategorized

As seen in the news

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When asked about what it takes to be a good lawyer (you know my take on that one), the former Chairman of my firm likes to say that lawyers must absolutely read newspapers. I think that he might have had in mind the pre-online era press, but anyway, he had a point. This post is about some things I read in the press over the past couple of days.

During a very long night flight on Saturday night I was able to read something not work related, namely the last issue of The Economist and the book How Children Succeed: Grit, Curiosity, and the Hidden Power of Character. I very much recommend the latter, but for the purposes of this post (and since this blog is not about important matters), I will comment only on the former:

The Economist issue places the spotlight on the role played by a handful of very large corporations in today’s economy, arguing that their rise threatens both competition and the legitimacy of businesses (see here). Not surprisingly, after citing interesting figures on increased levels of concentration in the economy, the piece turns its eyes to antitrust. I have often agreed with the way that newspaper has considered antitrust as a means of ensuring “radical centrist” policies (see here and particularly here) to which equality of opportunity is key, but this time I think they may have got it wrong.

The Economist claims that “prudent policy makers must reinvent antitrust for the digital age and welcomes efforts to prevent “tech firms from unfairly privileging their own services on platforms they control” praising the Commission’s pursuit of Google (a couple of paragraphs earlier it criticizes the Institution for using State aid to go after Apple).

In my view, what prudent policy makers should do is not meddle with a stable –if somehow inconsisent- set of judge made case law that applies across the spectrum to all sectors. It is a defining feature of antitrust law –for the good- that its adaptability comes precisely from its relative isolation from small politics (as I too often say here, it is a distillation of common sense infused with mainstream economics). Also, and as The Economist knows and often claims, legal certainty does have great value, also in economic terms, so changing the rules in the middle of the game might have a cost.

I share the newspaper’s credo of equality of opportunity, but they may have fallen into the tempting trap of equating that with some vague sense of perhaps-not-so-thought-through neutrality. Such reflexes, which are common, nevertheless comfort us in the decision to devote our upcoming Chilling Competition conference precisely to the role of neutrality in competition law. There are plenty of issues in need of fewer assumptions and greater and finer discussions. Even the press, by the way, is also finding out about the perils of ill-conceived neutrality (re, for instance, Brexit or Trump; see e.g. here).

On top of that, I’m not so convinced that some of our current “policy makers” are ideally-suited to “reinvent antitrust”.

Let me give you an example of why I’m saying this, and one that also features in the news today:

As I skimmed this morning through the Financial Times (admittedlty in search of this story quoting my views on State aid law and Brexit) I came across a piece in which the FT criticizes the Commission’s copyright reform initiatives (“The EU takes a backward step on digital copyright”).

As you know, the Commission plans “forcing” news publishers to demand a fee from news agreggators when they show snippets of content. When that happened in Spain (and the Commission took no action; the national competition authority did say something, though) aggregators closed their sites, with the result that news publishers received much less traffic and even claimed that the shutting down of those aggregators could amount to an abuse of dominance.

The Financial Times – a would-be beneficiary of the initiative- argues today that “the kindest interpretation one can place on these proposals is that the commission has simply misunderstood the marketplace. A more cynical view is that it has caved in to fierce lobbying by a number of powerful European publishers”.

When the Spanish law was enacted, the world’s leading IP scholar Mark Lemley said on Twitter: “Quite possibly the dumbest law enacted anywhere this century”. I’m just not sure that putting an EU seal on it may be good thing. In addition, and regardless of political and IP-issues, this initiative raises interesting antitrust issues too: the world’s leading an obscure antitrust scholar said on Chillin’Competition, this initiative could be regarded as the public creation of a watertight cartel.

In sum, if some of our policy makers don’t respect competition law, I’m not that sure that they are well-suited to “reinvent it”. I,for one, like it as it is.

 

P.S. It did not feature that much in the news, but new judges were sworn in at the General Court yesterday (and Marc Jaeger has been re-elected President). New judges include Paul Nihoul and Alexander Kornezov, a contemporary of Pablo at the College of Europe (which will force Pablo to re-assess his precociousness, professionally speaking)

Written by Alfonso Lamadrid

20 September 2016 at 8:15 pm

Posted in Uncategorized

More on Lundbeck v Commission: some comments on the comments #ourreadersask

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Image result for "schrodinger's cat"

I really appreciate that people took the time to comment on my last post on Lundbeck. The point of the blog is after all to encourage discussion. As I write this, five readers have posted their thoughts on the blog. Xavier Boutin did so via our Linkedin group.

This time, I felt I would not to justice to these comments by replying to them one by one, as I usually do. I thought it was a better idea to address the main issues in this format.

The point of my post

A few of the comments discussed potential competition in general and uncertainty in general. These comments were interesting, and I agree with what I read. However, they do not really address the specific issue I raised in my post. Allow me to go back to the initial question:

Can one really say that a generic producer is a potential competitor if it needs to infringe a patent in order to enter a market?

The discussion that followed must be understood as relating to this narrow point of law. Kiko’s comment (thanks!) defines a useful framework. Potential competition presupposes the (i) ability and the (ii) incentive to enter a market. These are the two preconditions for potential competition to exist. Thus, the question can be rephrased as whether a generic producer has the ability and the incentive to enter a market when it would need to infringe a patent. One can think of at least two answers:

  • No potential competition: The exclusive right (i.e. the patent regime) precludes market entry and thus the ability of the generic producer to do so. This answer is consistent with E.On Ruhrgas (in which the regulatory framework also precluded market entry) and with the principle according to which EU law does not question the existence of intellectual property rights. The decision in Lundbeck suggests that the Commission (para 632) and the General Court (para 628) have endorsed this approach in the past.
  • Potential competition: The exclusive right does not preclude the generic producer’s ability to enter the market because the patent may be declared invalid, or because the patentee may choose not to bring an action against the alleged infringer. As I understand the decision, these are the arguments that the Commission advanced in Lundbeck.

I explained in the post that I am not persuaded by the second answer. Think in particular of the following:

  • Substantive reasons: Because EU law does not question the existence of intellectual property rights, patents are presumed to be valid. If the existence of intellectual property rights is not questioned, I fail to see how considerations about the outcome of a potential challenge should play a role in the analysis. For as long as a patent is deemed valid, a generic producer would lack the ability to enter a market if doing so requires the infringement of a patent.
  • Certainty and probability: Some passages of the judgment suggest that a generic producer is a potential competitor because it may be a potential competitor. In other words, potential competition is said to exist even though there is uncertainty about one of the preconditions (i.e. the ability to enter the market). It is not clear to me how a 50% or 60% probability of potential competition can be equated with the certainty of potential competition (i.e. a 100% probability). [note: uncertainty in my post refers to potential competition, not to uncertainty about entry, as some have suggested. The difference is important!].
  • Economic and legal context: If the probability of potential competition is equated with the certainty of potential competition, a fundamental layer of complexity pertaining to the economic and legal context of the agreements is removed. It seems to me that the legal analysis that follows is inevitably affected. I had this specific issue in mind when I referred to the evaluation of the economic and legal context in the judgment.

‘Yes, but they were process patents’

Xavier suggests that the outcome might have been different if the case had concerned a basic patent, as opposed to a process patent. This is an interesting and plausible reading of Lundbeck. However, it is important to think about its implications. If the outcome of a case depends on the perceived strength of patent protection, competition law be second-guessing the patent system. The competition law system would become a parallel regime for the protection of intellectual property, which would refine and evaluate the merits of protection. Intervention in this sense would entail a fundamental departure from the case law.

‘Is it just that you dislike the outcome?’

I have already explained in the blog (in a post on which Joan also commented!) that I am not interested in the outcome of individual cases. As an academic, it does not matter who ‘wins’ or who ‘loses’ a particular case. What matters to me is the consistency of the system and the evolution of the law. To me, the legal route through which a given outcome is reached is as important, if not more, than the outcome itself. I believe the posts reflects this perspective well.

Someone who has carefully read Lundbeck can credibly claim that the points of law I discussed in the post are not even decisive for the outcome of the case. Arguably, the outcome could have been the same had the discrete points of law I raised been decided differently. I am sure other people will elaborate on this question. But it is not the one in which I am interested.

‘Is it maybe that the judgment does not reflect your understanding of the case law?’

Kiko’s comment is very timely. Alfonso and I have just completed a paper on the notion of restriction of competition. We will upload it soon on ssrn and look forward to your comments. In this paper, we build on some of our previous work.

I would say Lundbeck is in line with my understanding of the case law. As I point out in the post, if one considers that generic producers are potential competitors, it seems inevitable to conclude that the agreements are restrictive by object. A payment to a potential competitor to stay out of the relevant market has no plausible explanation other than the restriction of competition. But please note that, if a generic producer is not a potential competitor, then this explanation becomes implausible (as competition would not have existed even in the absence of the agreements). Interestingly, Lundbeck appears to be somewhere in between.

Perhaps because I actively seek to develop a global understanding of the case law, I may be more inclined to refer to rulings that others may not see as obviously relevant. Coditel II, Erauw-Jacquery or BAT spring to mind immediately when thinking about the scope-of-the-patent test or the restrictions that are inherent in the exploitation of an intellectual property right. More than the opposite, this exchange made me think that I should put together some thoughts and contribute to the ongoing discussions.

Thanks again!

 

Written by Pablo Ibanez Colomo

19 September 2016 at 2:24 pm

Posted in Uncategorized

GC Judgment in Case T-472/13, Lundbeck v Commission: on patents and Schrödinger’s cat

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schroedingers-cat

Last week, the General Court delivered its judgment in Lundbeck. It is the first ruling on the pay-for-delay saga. As most of you know, the GC dismissed the action for annulment. It confirmed that, in the specific circumstances of the case, the payments to generic producers amounted to a restriction of competition by object. It also confirmed that generic producers were potential competitors on the relevant market.

The judgment is very long. I will certainly not try to summarise it in around 1,500 words. A substantial part of the analysis is devoted to factual questions. I will thus focus on the issues of law that may feature in an appeal and which are more relevant to draw conclusions that go beyond the peculiarities of the case.

Most readers will remember that the Commission claimed in its decision that Lundbeck had paid generic producers to delay the launch of their version of the drug once the basic patent had expired. At the time of the agreements, Lundbeck still held related process patents.

The fundamental question, against this background, is whether the generic producers were ‘potential competitors’ within the meaning of the case law. If these producers are indeed found to be potential competitors in the relevant economic and legal context, it is inevitable to conclude that the agreements are restrictive of competition by object. They would be cartel-like arrangements without a plausible explanation other than the restriction of competition.

My impression, however, is that the General Court may not have fully appreciated the complexity of the economic and legal context. Accordingly, the qualification of the agreements as restrictive by object seems controversial.

Were generic producers potential competitors?

The judgment correctly defines the applicable legal test in this regard. The relevant question is whether there would have been ‘real concrete possibilities’ for generic producers to enter the market (paras 98-99). This question, as many others, must be assessed against the counterfactual. What would have happened in the absence of the agreements?

One can think of various reasons why a firm may not have the ability and/or the incentive to enter a market. For instance, the applicable regulatory framework may preclude actual or potential competition between the parties to the agreement. This is the issue considered by the General Court in E.On Ruhrgas, which is abundantly cited in Lundbeck.

Potential competition and patent protection

Pay-for-delay cases are peculiar in which the pharmaceutical company typically benefits from patent protection. As a result, these cases often involve an instance in which market entry by a generic producer is precluded by an intellectual property right. In this sense, they are similar to E.On Ruhrgas. In the latter, exclusive rights (ie a legal monopoly) also precluded market entry.

Can one really say that a generic producer is a potential competitor if it needs to infringe a patent in order to enter a market?

According to the General Court, even when market entry depends on the use of a patented process, a generic producer that enters the market without the authorisation of the patentee would be a potential competitor.

It is worth summarising the reasoning of the General Court. It notes (para 120) that generic producers in Lundbeck were potential competitors because it was not certain (i) that they would necessarily have infringed the patent(s); (ii) that the patent(s) holder would have brought an action for infringement and (iii) that the patent(s) would have been found to be valid.

As I understand the ruling, the General Court suggests that a generic producer is a potential competitor so long as there is uncertainty around any of the above three points. For instance, the generic producers may not see the prospect of an injunction as realistic, either because they believe they would be successful in the event of a challenge (para 125) or because they do not believe that the patent holder would bring an action in the first place (para 126).

I admit I struggle with this part of the judgment, having read it a few times. I believe it is premised on a contradiction. To use a graphic example: the position taken by the General Court is tantamount to saying that Schrödinger’s cat is alive because it may be alive. A generic producer is a potential competitor, in other words, because it may successfully enter the market.

The General Court equates probability with certainty. As a result, it draws a somewhat simplified picture of the economic and legal context of which the agreements are part. Coming to the analogy used above, it is a bit like applying the logic of classical physics to quantum phenomena. Inevitably, this simplification leads to errors in the analysis. I can think of two main inconsistencies:

  • Presumption of validity: The General Court accepts that patents are presumed valid. On the other hand, it emphasises that they may be declared invalid at a subsequent stage (para 122). These two statements cannot be reconciled. I struggle to see why the latter should play a role in the analysis. EU law does not dispute the existence of intellectual property rights. As a result, the assessment of a restriction should be based on the assumption that the patent is valid.
  • Temporal aspects: The General Court seems to conflate ex ante and ex post considerations. It suggests that the generic producer is a potential competitor because it may appear, ex post, that it was able to enter the market without infringing the patent. These considerations seem to ignore that the very point of a genuine pay-for-delay agreement is to deal with ex ante uncertainty. By the same token, the nature of an agreement of this kind must be evaluated in an economic and legal context of uncertainty, not in light with an ex post reality that may or may not be manifested at a subsequent stage.

The Lundbeck judgment against the applicable case law

I have already pointed out that pay-for-delay takes place in a very peculiar economic and legal context. Traditionally, the Court of Justice has addressed similar issues in a way that differs significantly from the approach taken by the General Court in Lundbeck.

As the case law stands, an agreement is not restrictive of competition by object if it remains within the substantive scope of the intellectual property right. Think of a few examples, which I analyse in detail in this article of mine:

  • Generally, an export prohibition is restrictive by object. This is not the case, however, where it remains within the substantive scope of the relevant intellectual property right (Erauw-Jacquery). Interestingly, the Commission submission in Erauw-Jacquery made exactly this point.
  • Similarly, an agreement providing for absolute territorial protection is not restrictive by object when the licence does not go beyond the scope of the relevant intellectual property right – right of communication to the public (Coditel II).
  • In the context of technology transfer agreements, an open exclusive licence, which remains within the substantive scope of the intellectual property right, is not restrictive by object (Nungesser).

I have to confess I do not understand why these cases are not discussed at length in the judgment. The most relevant of these precedents is perhaps BAT v Commission. The case concerned a trade mark delimitation agreement. These agreements are used to address the risk of confusion. In many ways, the underlying issues are the same as those found in pay-for-delay agreements.

In BAT v Commission, the Court of Justice held that such delimitation agreements cannot be compared with a market sharing cartel. Thus, they are not restrictive by object. They would only infringe Article 101(1) TFEU by their very nature when they fall outside the substantive scope of the trade mark. This is precisely what happened in BAT v Commission. The Court found that the agreement was restrictive by object because it gave BAT protection that it would not have enjoyed by virtue of the trade mark. In other words, it went beyond the substantive scope of the intellectual property right.

Another major ruling is Ideal Standard. In that case, the Court held that the assignment of a trade mark is not necessarily restrictive by object. It is also a judgment that shows that there is no potential competition where an intellectual property right can be invoked to prevent market entry.

What I would like to see in an appeal

As I was drafting this post, I was thinking that it would be great if legal academics were given the chance to challenge General Court judgments to clarify certain points of law. These are the issues of principle that I would love to see addressed in an appeal:

  • Confirmation of the existence/exercise dichotomy: It would be important if the Court confirmed the long-standing principle according to which EU law does not question of the existence of an intellectual property right. In the same vein, considerations about the probability of a successful challenge should not play a role in the analysis.
  • Article 101 TFEU and scope of intellectual property protection: Lundbeck departs from the principle whereby an agreement is not restrictive by object where it remains within the substantive scope of an intellectual property right. This principle, which explains the case law discussed above, is based on a venerable legal doctrine: qui peut le plus, peut le moins. If the holder of an intellectual property right can bring an action against a third party, it should by definition be able to settle with it.
  • The notion of potential competition: The relevant precedents (Coditel II, Ideal Standard, BAT v Commission) suggest that potential competition does not exist where market entry depends on the infringement of an intellectual property right. The fact that the right in question may be declared invalid at a subsequent stage is not a relevant consideration under this case law.
  • The analysis of the counterfactual: The Court of Justice has long taken the view that the analysis of the nature of the agreement and of the relevant economic and legal context must consider the counterfactual. In line with this case law, the General Court evaluates the counterfactual at various stages. Strangely enough, the General Court also denies doing what it does. It suggests in para 473 that the analysis of the counterfactual is only relevant for the analysis of the effects of an agreement. The Court of Justice should be given the chance to address this misunderstanding and clarify – in line with its long-standing case law – that it is impossible to determine whether an agreement restricts competition by object without considering the counterfactual.

Written by Pablo Ibanez Colomo

13 September 2016 at 5:17 pm

Posted in Uncategorized

The Brussels School of Competition

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cape-iplaw-brussels-school-of-competition

From this year onwards the Brussels School of Competition’s programme in competition law will be jointly organised with the University of Liège (ULg) and Saint-Louis University (USL-B).  Students who pass their exams and dissertation will receive an ‘Interuniversity Certificate in Competition Law’ (for more info, click here).

Vey importantly, students will also get to do my simulation of case AT. 98765  Intergalactic droids  ;)

On top of the annual programme, the BSC also organizes some of the best conferences in Brussels (second only to the upcoming Chillin’Competition conference…). The next one (on Wednesday 14 September) is about the implications of Brexit for competition law, and the line-up of speakers is remarkable: Richard Whish, Trevor Soames, Robert O’Donoghue, Sir Nicholas Forwood and Jacques Steenberger.

For more info click here:  What does Brexit mean for EU Competition Law?

 

Written by Alfonso Lamadrid

12 September 2016 at 2:42 pm

Posted in Uncategorized

Android and Microsoft: similarities and differences (I) #ourreadersask

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android-and-microsoft

Our readers have asked me a few times about the similarities and differences between Android and Microsoft. The question makes a lot of sense. If Microsoft was a resounding victory for the Commission, and Android is also about tying (and about software), should we waste time and paper discussing it? Is the outcome not going to be exactly the same? I believe that there are genuine differences between the two. This first post addresses some of them.

Allow me to start with a hypothetical that captures, I believe, the essence of the Android case.

A 24-hour news channel is immensely successful. It is so successful that all pay TV operators (cable, satellite, IPTV) see it as indispensable for their business. This channel does not carry advertising and is offered for free. However, pay TV operators wishing to carry the channel must also carry two tele-shopping channels, which are used to raise advertising revenues. In addition, pay TV operators are required to place these two tele-shopping channels immediately before and after the news channel, to ensure that the largest possible number of viewers watches them.

Is this behaviour anticompetitive and, assuming dominance, contrary to Article 102 TFEU? I do not think so, even though there is tying involved and even though the firm would insist on giving more prominence to its tele-shopping channels. Why? For two reasons that are also key to make sense of Android.

  • In this example, the existence of the tying product (the 24-hour news channel) cannot be understood without the existence of the tied product (the tele-shopping channels). The tying of the two products, in other words, is what allows for the viability of the 24-hour news channel. Again, it is all about the counterfactual. It looks like the practice does not restrict competition that would have existed in its absence. As a result, it is not capable of having exclusionary effects.
  • What is more, prohibiting the tie-in in this case would allow rivals to take a free ride on the investments of the firm. If a 24-hour news channel is immensely successful, rivals would probably want to place their channels immediately before, or immediately after it. Because it does not carry advertising, prohibiting the tie-in would allow rivals to make money at the expense of the company running the news channel. This firm would develop the channel, and rivals (alone or together with the firms’ customers) would benefit from these investments by reaping the advertising revenues.

These two features were not present in the Microsoft (Media Player) case. It is not very credible to argue that the tying product (the operating system) would not have been created without the tied product (the media player). The operating system existed well before the media player. The analysis of the counterfactual shows that the tie-in was at least capable of restricting competition that would have existed in its absence (whether it was likely to restrict competition is of course a different question). Similarly, it is difficult to say that an obligation to seek a version of Windows without the media player would allow Microsoft’s rivals to take a free-ride.

Consider now Android. I do not believe anybody seriously disputes that the Android ecosystem exists because Google Search exists. The mobile operating system was only developed because of the prospect of making money via advertising (ie, via Google Search). The same is true of Google Play and Google Chrome (after all, a web browser is also a way of performing searches).

This point is intriguing and important. Essentially, it reveals that the Android case turns the logic of Microsoft on its head. In Microsoft, the tied product owed its existence to the tying product. In this respect (but not in others), it was a plain-vanilla tying case. In Android, it is the other way around. The tying product owes its existence to the tied product.

As I understand Android, the Commission appears to argue that the tying product is Google Play and the tied product is Google Search. Can one argue that this practice is capable of having anticompetitive effects? Sure, but it would be necessary to show (i) that, when Android was launched, it was possible to enter the market with a different business model and (ii) that Google had the incentive to enter the market with a different business model.

In other words, it would be necessary to show, against the counterfactual, that the practice restricts competition that would otherwise have existed. If Google would not have entered the market for operating systems in the absence of the alleged restraints, we know from the case law (STM, Post Danmark II) that the threshold of ‘capability’ is not met. I am curious to see how this issue will be considered.

Next time, I will address the second point I identified above, which has to do with free-riding and the remedy. In this respect, I believe there are similarities between Android and the Microsoft saga. A taster: this second point reveals, in my view, none of these cases are really about tying at all. Stay tuned!

A new paper on Android, by Damien Geradin and Ben Edelman

A while ago, we invited our readers to send our way their thoughts and comments on the Android case. With some delay😉, Damien Geradin has sent us a paper he has written with Ben Edelman, from Harvard Business School. Here it is: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2833476

Written by Pablo Ibanez Colomo

7 September 2016 at 12:52 pm

Posted in Uncategorized

SAVE THE DATE- 2nd Chillin’Competition Conference

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Chillin'Competition Conference

We have a date for the 2nd Chillin’Competition conference:

21 November 2016

We are working on the programme and will be contacting speakers throughout the week. Hold your breath; it may be you😉

We nevertheless have invited one speaker so far, and she very kindly agreed to deliver a keynote. Many thanks to @vestager !

If your law firm or company may be interested in sponsoring the conference please drop us a line (we want to keep it accessibe and ideally not lose money….)

Registrations will open on 14 October (more info on this soon). Last year all available slots were gone in 36 minutes…

Written by Alfonso Lamadrid

5 September 2016 at 7:00 pm

Posted in Uncategorized