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NEW PAPER | EU merger control between law and discretion: when is an impediment to effective competition significant?

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Merger control and mobile phone operators, or the limits of competition law  and sector-specific regulation | Chillin'Competition

A new paper, entitled ‘EU merger control between law and discretion: when is an impediment to effective competition significant?’ is available on SSRN (see here). It is an attempt to make sense of the different approaches to define the substantive test under Regulation 139/2004 and of the choices made by the General Court in its landmark CK Telecoms ruling (the appeal against which is currently pending before the Court of Justice). Your comments on the draft would be most welcome (as usual, nothing to disclose).

The fundamental point the paper makes is that the Commission, in its Guidelines and administrative practice, has interpreted the substantive test in merger control in a way that it would be fulfilled, in principle, pretty much always and everywhere (at least in relation to transactions involving actual or potential competitors). This is the key reason, it is submitted, behind the annulment of the Commission decision in CK Telecoms (if anything, the standard of proof and the role of quantitative evidence come across as side issues that follow from this core question).

Suffice it to take a look at Hutchison 3G UK/Telefonica UK (Three/O2), which is at the origin of the ruling. The crucial passage is to be found in paragraphs 310-314 and 320-326 of the decision, where the Commission advances its interpretation of Article 2 of Regulation 139/2004. According to the authority, the compatibility of horizontal transactions with the internal market is to be evaluated in light of an unstructured set of factors, each of which may or may not be relevant in the context of a particular case.

Thus, the understanding advanced by the Commission in its decision would give it the leeway to decide the exact criteria against which compatibility of a given transaction would be assessed and how the said factors are weighed against one another. What is more, the decision suggested that an ‘important competitive force’ need not stand out from rivals.

If this approach to the substantive test were to be embraced, any undertaking in a given market would qualify as an ‘important competitive force’ (something noted by the General Court itself in CK Telecoms, para 174). For the same reason, virtually any transaction involving actual or potential competitors could be declared to be prima facie incompatible with the internal market. After all, horizontal mergers lead, by definition, to the elimination of a source of competitive pressure.

Two consequences follow from the interpretation of Article 2 of Regulation 139/2004 favoured by the Commission in Three/O2. First, it is an understanding of the substantive test that does not make it possible to draw a clear line between significant and insignificant impediments to effective competition.

Second, an approach that relies on an unstructured set of criteria (the relevance and weighing of which cannot be anticipated by the parties) is not only a source of legal uncertainty (as noted by the General Court in CK Telecoms, para 175) but amounts, for all intents and purposes, to giving de facto discretion to the administrative authority. One should note, in this regard, that the case-by-case evaluation of the likely effects of concentrations is the privileged realm of ‘complex economic assessments’ in relation to which the authority enjoys a margin of appreciation.

It is submitted that an interpretation of Article 2 that gives the Commission such leeway is not obvious to square with Regulation 139/2004 and, more generally, the division of powers between the administrative authority and the EU courts. Pursuant to Article 2 of the Regulation, the substantive test is an issue of law.

In addition, the approach favoured by the Commission would not allow the EU courts to review administrative action in an effective way. If the substantive test were interpreted in a manner that does not impose meaningful boundaries defined ex ante, judicial control would be confined, in practice, to ‘manifest errors of assessment’. Such a reality would not be easy to reconcile with the fact that the interpretation of issues of law is subject to full review.

This is the background against which the CK Telecoms judgment must be understood. The General Court crafted a substantive test that defines a set of clear legal boundaries to administrative action and that makes it possible to draw the line between significant and insignificant impediments to effective competition. These legal boundaries can be found in the Table below.

CK Telecoms is no different from Airtours in the above regard. In the latter, the Commission had also defined the notion of collective dominance in a way that the test would be satisfied in pretty much any oligopolistic market (by focusing on the incentives to collude and neglecting the ability to do so on a sustainable basis, the authority identified a set of conditions that would rarely ever, if at all, fail to be met).

As was true of Airtours, the interpretation of Article 2 embraced in CK Telecoms ensures that the EU courts can perform their core function.

Written by Pablo Ibanez Colomo

8 July 2021 at 4:48 pm

Posted in Uncategorized

When did the rule of law come to be seen as an inconvenience?

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Rule of law (2020) - Multimedia Centre

The attitude towards competition law enforcement has changed significantly over the past two years. For a fraction of our community, the focus should be on prohibiting conduct, and this, as fast as possible. This approach is behind proposals to reduce the constraints on administrative authorities (by means, inter alia, of presumptions and the reversal of the burden of proof) and to limit (even do away with) judicial review.

It is an attitude that has had a substantial impact on the way rule of law ideals are perceived. Not so long ago, there was little dispute about the importance of ensuring that the law is clear and can be anticipated by stakeholders, that firms have the means to defend themselves and that there is a robust mechanism for the review of administrative action (if you are curious about the rule of law in competition law, by the way, I very much recommend Ryan Stones‘ PhD thesis).

In the EU legal order, in particular, there was wide consensus about the improvement brought about by the changes which, over the years, infused the competition law system with principles associated with the rule of law. Such ideals were deemed valuable not only in and of themselves, but also insofar as they enhanced the quality of decisions. The perception (at least until recently) was that administrative action had become more robust and less prone to substantive and procedural errors.

Nothing is forever, alas, and many of the tenets we took for granted are questioned these days. We have read, with a great deal of interest, a number of pieces sowing doubts about some core aspects of the system (including the role of advisers). We have also heard claims suggesting that judicial review delays decision-making and frustrates ambitious enforcement.

According to an emerging view, the ideals of the rule of law are little more than a luxury, if not an inconvenience, that the competition law system cannot afford (or that it can only afford at the price of slower, less decisive intervention). For the same reason, it is occasionally suggested that the system would be better-off if some in-built guarantees were curtailed.

I do not intend to discuss here whether or not these views would change the system for the better (any moderately attentive reader of the blog knows where I stand). I am more interested in identifying the moment when these ideas, marginal until not so long ago, reached the mainstream and enriched the intellectual landscape of our field (definitely less uniform than 10 years ago).

I have the impression that there are two crucial factors behind the rising scepticism vis-a-vis rule of law ideals:

  • First, judicial review and procedural guarantees have come to be seen by some as devices to protect the rights of firms subject to competition law investigations. Contrary to this view, however, these mechanisms are there, first and foremost, to advance the public interest.
  • Second, there is a clear shift in the priorities of enforcement. What seems to matter is swift action. Enforcement errors are, if at all, a second or third order concern. What justifies intervention, according to this view, is intervention itself.

Judicial review and procedural guarantees advance the public interest

Judicial review has come to be seen with scepticism (and occasional hostility) by some in our community. I have the impression that this position stems from the perception that the control of administrative action by the independent judiciary (as much as procedural guarantees) is a concession that is made to firms subject to an investigation. From this perspective, judicial review would be about balancing the protection of individual rights and the general interest.

This is an understanding of judicial review that has featured prominently in influential documents, including the Furman Report. The idea that the scope and/or the intensity of the control of administrative action should be revisited has emerged as a relatively popular one. Some have even floated the idea of making some administrative decisions ‘unappealable’ (a proposal which, while definitely interesting, seems at odds with primary EU law and the general principles on which it is based).

If this understanding of judicial review is accepted, it makes sense to limit (even do away with) the control of administrative action. It would also make sense to see legal challenges against decisions as dispensable dilatory tactics that, on balance, do more harm than good. The sacrifice would be minimal where judicial involvement is seen through these lenses: does it really matter that large and powerful corporations are not allowed to protect their rights? Is it not better to intervene swiftly to preserve competition and protect consumers?

The problem is that this interpretation of judicial review does not reflect its purpose and importance for the system (and particularly so in continental legal traditions). It is often forgotten that the primary aim of the control of administrative action is to protect the general interest, not the interest of individual firms (juger l’administration, c’est encore administrer, as the old saying goes).

A judgment annulling a decision for misconstruing, say, the notion of restriction by object, or the SIEC test enshrined in Regulation 139/2004, benefits society as a whole, not just (not even primarily) the firms challenging the decision. Similarly, the error-correction role of judicial review advances the general interest by ensuring that administrative action is predictable and consistent (and thus aligned with the ideals of the rule of law).

Is rapid administrative action the goal of rapid administrative action?

The scepticism with which the error-correction function of courts is viewed signals a different attitude vis-a-vis administrative action. According to an emerging school of thought, swift and decisive intervention is what really matters, much more than getting it right. Enacting change, more than carefully pondering whether change is warranted, is seen as the priority. And, the argument follows, the institutional setup should adjust to meet this very vision.

Of course, if one accepts that rapid intervention is to be prioritised, even if it comes at the price of enforcement errors, all the institutional mechanisms to correct the said errors (including judicial review and, more generally, rule of law ideals) become superfluous and/or suspect. In itself, this understanding of administrative action is indicative of a reinterpretation of competition law (its objectives, the rationale underpinning decision-making). As such, it deserves to be widely discussed and analysed.

It would seem that enacting change (namely altering market structures, changing business models and redistributing rents) is, according to this view, the very objective of the system. In other words, remedies would not serve a wider goal (such as the protection of the competitive process); remedies are now seen (at least by some) as the goal itself. The moment administrative action is justified by the fact that it takes place, the possibility of an enforcement error disappears (for how administrative action can be erroneous if it is warranted by its very existence?).

Written by Pablo Ibanez Colomo

30 June 2021 at 6:02 pm

Posted in Uncategorized

New podcasts in town: Jammin’Digital and Monopoly Attack

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Jammin’Digital is a new podcast aimed af fostering debate on all things digital in Brussels and beyond. As an exception to a series of excellent interviews conducted by Evelina Kurgonaite, its latest episode features my views about the DMA and competition law enforcement in the digital world. Nothing new to readers of this blog, but in a different format and without typos. It is available here.

There is also a great new entrant in the podcast field: Monopoly Attack (by Kay Jebelli and Friso Bostoen). It focuses specifically on tech antitrust policy. In only its first week, Monopoly Attack has already released 5 episodes, offering an overview of the enforcement landscape in the digital field and discussing the DMA proposal in detail. If you are interested in these topics, make sure to subscribe.

MONOPOLY ATTACK | Podcast on Spotify

Written by Alfonso Lamadrid

22 June 2021 at 4:57 pm

Posted in Uncategorized

Scale Effects – What We Can Learn From National Football Teams (by Stephen Lewis)

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by Stephen Lewis

What determines the quality of a national football team?  Other things being equal, we would expect countries with a large population to produce stronger teams than those with a smaller population.  They have more people to select from. It is therefore quite intuitive that football team quality must, to at least some extent, be positively impacted by population size.

This intuition seems to be borne out if we consider pairs of countries that have markedly different population sizes but are similar along other relevant dimensions.  For example, take Italy and San Marino. Italy has a population of 60 million, while San Marino has a population of less than 50,000.   The countries are otherwise (broadly) similar with respect to other factors that might determine football team quality, such as length of football tradition, the cultural significance of football, the relative popularity of alternative sports, climate, etc.  Italy last played San Marino in 2017 and won 8-0 (having won all previous encounters on record).  Results like this certainly cast doubt on any claim that there is no link between population and football team quality.  There may even be a “minimum efficient scale” below which a national football team cannot credibly compete with leading football nations (and perhaps San Marino is below that scale).

But the question is how strong is the link between population size and football team quality and how small is any minimum efficient scale?  Answer: surprisingly weak and surprisingly small.  This is obvious from a cursory review of the international football landscape.  The two most populous countries on the planet, China and India, have qualified for one world cup between them (China in 2002).  Meanwhile, Croatia has achieved an all time FIFA ranking high of 3rd (in 1999) and reached the World Cup final in 2018.   Croatia’s population is 4 million – smaller than the United Arab Emirates (10 million), which recently beat India 6-0.

Even ignoring the high leverage outliers of India and China and considering clusters of countries in relatively close geographic proximity where football has a similar level of cultural significance, the effect of population on performance seems remarkably weak above a certain size.  Uruguay (population: 3.5 million, FIFA ranking 9), is a match for much larger Argentina (population 45 million, FIFA ranking 8), which in turn is a match for much larger Brazil (population 220 million, FIFA ranking 3).  Similarly, Belgium (population 12 million, FIFA ranking 1) is evenly matched with France (population 65 million, FIFA ranking 2).  Indeed, today’s top 10 ranked teams include four countries with populations under 12 million (Belgium, Portugal, Uruguay and Denmark), while Germany (population 84 million) for the time being languishes in position 12.

And even amongst those countries with a very low population there are some standout national football teams, suggesting that if there is a minimum efficient scale, it may be very small indeed.  With a population of around 300,000, Iceland knocked England (population 55 million) out of Euro 2016, and reached an impressive FIFA ranking of 18 in 2018.

Quantitative studies support the view that population has weak explanatory power for football team quality.

A 2010 PWC study performed a statistical analysis in which total World Cup points were regressed against population, average income levels and a count variable based on the number of times a country has hosted the competition (with values 0, 1 or 2).  This included only 52 countries that have played at least 5 World Cup finals matches (so excluded China and India).  Even among this football-playing-country sample, population is insignificant once these other variables are included. 

Gelade (2007) finds that the relationship between FIFA ratings and (linear) total population is “vanishingly small”, finding in a sample of 204 countries that only 1% of variation in FIFA Ratings is explained by total population, and notes that this counterintuitive finding has also been reported by other studies.

The discussion above has focused on the Men’s game but considering the relative performance of teams in Women’s football reinforces the idea that factors other than population size are important for explaining football team quality.  For example, the US is ranked 1st in the Women’s FIFA ranking and 20th in the Men’s, whereas the comparative advantage arising from having a large total population to select from is equivalent for both the Men’s and Women’s teams.

Now imagine a strange parallel universe where the only two countries are Brazil and Australia.  Brazil is 10 times bigger than Australia and consistently wins when they play football.  In this parallel universe, researchers are tempted to conclude that the relationship between population and football team quality is very strong.  Not only are there sound a priori grounds for believing a larger population should translate into better football team quality, but this seems to be borne out by the only two observations available.  But this inference is not valid.  Brazil and Australia differ along various dimensions that are critical determinants of football team quality, such as footballing tradition and competition for athletic talent from other sports (football is the national sport of Brazil but football in Australia has to compete with other ball sports such cricket, Aussie rules, rugby league and rugby union).  Of course, this would be obvious in a world with hundreds of observations available; far less so in our parallel universe with two.

What has this got to do with online search engines?  

I should start by making clear that I make no claim that the apparent weakness of population scale effects in national football has any bearing at all on the strength or otherwise of any scale effects affecting search engine quality.  The lesson from the football analogy is that researchers could be fooled into thinking that they can see a strong scale effect if they compare a small number of subjects that differ in scale and quality and do not take account of other factors that also affect quality.  

My claim is that when it comes to analysing the effect of scale on search quality, competition authorities have not got far beyond the following reasoning:

Query data is used to produce search results (people are used to produce football teams).  More query data is better than less query data (more people to select from is better than fewer people to select from).  Google has many times more queries than Bing (Brazil has many times more people than Australia).  Google has much higher search quality than Bing (Brazil has a much better football team than Australia).  Therefore, query scale is a crucial determinant of search quality (population is a crucial determinant of national football team quality).

Some competition authorities have gone deeper than others, for example, by examining query level datasets to gain a better understanding of differences in the range and volumes of the distinct queries each search engine sees.    But a query level comparison of Google and Bing just confirms the obvious – Google has a scale advantage over Bing.  This, entirely unsurprisingly, implies that for any given distinct query, Google is likely to receive higher query volumes than Bing.  It follows that queries that are rare for Bing are not rare for Google, while the converse tends not to be true.  But this just supports the existence of a scale advantage.  It does not shed light on how this translates to quality and the relative importance of scale compared to other factors.  This would be like a researcher going to some lengths to establishing that not only does England have a higher population than Iceland, but also that for every left-footed person who can run fast (and who would therefore on paper make a good left wing back) in Iceland, there are 100 such individuals in England, and that for every tall agile person (who would on paper make a good goalkeeper) in Iceland, there are 100 in England.  This deeper assessment of the nature of the scale advantage should not be confused with an assessment of the explanatory power of scale for performance.

Yet the reasoning in italics above is clearly faulty. 

Companies, much like countries, differ in their histories, cultures and priorities.  Just as national football team quality may be better explained by length of football tradition, cultural factors and presence of competing sports than by population size, the quality of a company’s search engine may be better explained by length of time trying to make incremental improvements to search algorithms, the importance of experimentation and measurable improvement in a company’s culture, and the general strategic centrality of search to the company as a whole, which impacts among other things investment and hiring priorities.

These factors clearly cannot be assumed to be similar across Google and Microsoft.  This means that the extent to which scale advantages drive quality requires some unpicking.  But no competition authority to date has made a serious attempt to do this unpicking. 

So why is Google better than Bing in a given national market for search, say, Belgium?  Of course, data-scale could in principle be a factor that explains the difference in quality, and it could be an important factor.  But there’s another plausible story: it is about how many engineering hours the company has poured into improving its search engine. 

Google entered Belgium in March 2002, launching a localised version of its search engine with French and Dutch language capabilities.  Bing entered Belgium in October 2013, over 11 years later.  If search engine quality in Belgium is a function of how many Wednesday-morning-meetings search engineers have had to discuss improving search quality in Belgium, then Google might be better than Bing simply because its engineers have had about 600 more Wednesday-morning-meetings than Bing.  

So there are competing theories as to why Google is better than Bing in Belgium – is it data or is it the number of Wednesday-morning-meetings?  Both are consistent with a scale gap (under one theory the scale gap drives a quality difference and under the other it is caused by a quality difference).  Analysis of the extent of the scale advantage, even when based on granular query level data, cannot distinguish between these two competing theories.

Indeed, trying to unpick which theory is more plausible (or how much weight to place on each) is an area where competition authorities have yet to really scratch the surface.  They are still trying to make inferences on the importance of population for football team quality by comparing Brazil and Australia.

Written by Alfonso Lamadrid

21 June 2021 at 4:30 pm

Posted in Uncategorized

2nd Edition of the Rubén Perea Award | How to participate

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We are delighted to announce the Second Edition of the writing award in the memory of Rubén Perea. If you are a young competition lawyer under 30 (whether you work as a practitioner, official, academic or in any other capacity) we very much encourage you to apply. If you are reading this and do not fulfil the criteria: it would be great if you could ensure that your junior colleagues are made aware of the opportunity.

As last year, the winning paper will be published in a Special Issue of the Journal of European Competition Law & Practice, together with a selection of the very best submissions received (see here for the Special Issue and here for the announcement of this year’s winner and finalists).

Who can participate?

You may participate if you have not reached the age of 30 by the submission date (i.e. if you were born after 15 September 1991). Undergraduate and postgraduate students, as well as scholars and practitioners are all invited to participate.

What papers can be submitted?

You may submit a single-author unpublished paper which is not under consideration elsewhere. The paper may be specifically prepared for the award, or one originally drafted as an undergraduate or postgraduate dissertation.

The paper must not exceed 15,000 words (footnotes included; no bibliography needed).

Submissions will have to observe academic conventions. Prior to submission, make sure your paper follows the JECLAP House Style rules, which can be found here. If you do not find exactly what you are looking for, please follow OSCOLA’s rules (see here).

How to submit?

A paper, will have to be submitted via this link: https://mc.manuscriptcentral.com/jeclap.

IMPORTANT: As you go through the submission process, make sure that in Step 5, you answer YES to the question ‘Is this for a special issue’? and indicate it is for the Rubén Perea Award.

What is the deadline?

Papers will have to be submitted by 23.59 (Brussels time) of 15 September 2021.

Written by Pablo Ibanez Colomo

17 June 2021 at 10:16 am

Posted in Uncategorized

Why the DMA is much more than competition law (and should not be treated as such), by Agustín Reyna

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[Chillin’Competition is publishing a series of posts featuring the views of various experts and stakeholders in relation to the European Commission’s proposal for a Digital Markets Act. We have received several contributions and will also be inviting some experts to ensure a plurality of informed views from a variety of perspectives. For our previous posts on the DMA see here (by Pablo), here (by me), here (by Cani Fernández, originally published in JECLAP), and here (by Tim Lamb, Facebook). Today we bring you some reflections by Agustín Reyna, Director of Legal and Economic Affairs at BEUC, The European Consumer Organisation)]

Following a non-football(istic) exchange via twitter (see here), Alfonso invited me to share some thoughts about why I think it is neither necessary nor desirable for the Digital Markets Act (DMA) to allow for an efficiency defence in the compliance process with the do’s and don’ts included in Articles 5 and 6 of the Commission’s proposal. However, before sharing our reasons, I think it is important to briefly reflect about three elements closely related to this discussion: the nature and objective of the DMA; its legal basis and, its interplay with competition law.

Nature and objectives of the DMA                                                                                                                                               

The DMA’s objective is to ensure contestable and fair markets in the digital sector by laying down a list of obligations and prohibitions that would apply to designated gatekeepers in relation to a list of core platform services (CPSs). While it is possible to argue  – especially amongst those who consider that EU competition law is much more than allocative efficiency (see our thoughts on this issue here) – that the DMA shares the similar objectives as competition law, the way of achieving these objectives is different. Competition law addresses, case-by-case, business conduct that disrupts competition in the internal market by applying the rules laid down in Articles 101 and 102 TEFU whereas the DMA seeks to pre-empt certain practices or impose specific obligations with a view to increasing market contestability, reducing entry barriers, stimulating innovation from rivals and companies who depend on the gatekeeper to reach consumers and, ultimately, to ensure consumers enjoy a healthy digital environment (we wrote more about this here and here). Whether a company designated as a gatekeeper could have breached Article 102 TFEU, or not, is simply irrelevant for the DMA because, by its very essence and nature, the DMA is not competition law.

The DMA is (pre-emptive) regulation under Article 114 TFEU

Article 114 TFEU has allowed the EU to intervene by means of approximation of laws in multiple sectors and areas of law from horizontal consumer protection law to energy, telecom and pharmaceutical legislation. As such, the choice of Article 114 TFEU as a legal basis does not depend on the sector that is regulated but on whether the measure is necessary to achieve the objective of “establishing or ensuring the functioning of the internal market” in the terms of Article 26 TFEU. Even if one could argue that the use of Article 114 TFEU can be at times arbitrary due to the broad scope of intervention of Article 26 TFEU, I think there is a clear case for 114 TFEU as the legal basis of the DMA for three good reasons. First, the companies to be designated as gatekeepers are providing cross-border services and as such are likely to impact the functioning of the internal market. Second, the proposal introduces proxies in the designation of gatekeepers that would exclude purely domestic scenarios (i.e. requiring presence in at least 3 Member States) therefore ensuring to capture cross-border practices. And third, all parties concerned namely the gatekeepers, business users and end-users would benefit from a set of common rules regulating the provision of services to consumers in different countries contributing to the well-functioning of the internal market by on one side facilitating cross-border operations and, on the other side, reducing risks of fragmentation. 

Interplay with EU competition law

The DMA does not replace competition law. It rather complements it by pre-empting certain practices by companies some of which might also be prohibited under Article 101 or 102 TFEU. Furthermore, as mentioned above, dominance in the competition law sense is not a requirement for the application of the DMA, which follows a different path to designate gatekeepers (based on the combination of pre-established quantitative and qualitative criteria). It is, however, known that many of the companies to be designated gatekeepers have been, or are currently, subject to competition law proceedings. While it could be considered that there is a risk of friction between the two regimes, one needs to be mindful of the fact that once the DMA comes into force, competition agencies would have to take into account the DMA as part of the legal context in each specific case, thus reducing the risk of inconsistent outcomes.  

Why should efficiency defence not be allowed under the DMA?

While assessing compliance with competition law an efficiency defence is relevant, I do not think the same should apply to the DMA for the following reasons:

  • The DMA, unlike Article 102 TFEU, provides for well-defined obligations which would apply to well-defined gatekeepers in clearly identified services or markets (CPSs) to deal with clearly identified problems. Any possible trade-offs between efficiencies and the DMA objectives would have to be taken into account by the European legislation when designing the obligations of Articles 5 and 6.  This means that each obligation would have already internalised such efficiencies. Therefore, there is no reason why further flexibility should be introduced.
  • Since the DMA is not competition law and has a different legal basis (Article 114 TFEU), there is no need to apply competition law principles in terms of either substance or procedure. Think for example of consumer protection rules, which have been harmonised at EU level on the basis of Article 114 TEFU. The enforcement of these rules does not give any scope to companies to argue why a certain unfair term or practice is beneficial (or efficient) for consumers.
  • In the hypothetical scenario where there would be a competition case involving one of the designated gatekeepers on the basis of Articles 101 or 102 TFEU (or the national equivalent), the scope to bring efficiency defences would be framed by whether the concerned practices were covered or not by the DMA. This is something that would have to be taken into account in any case even before the opening of proceedings by the competition authority.
  • More practically, not allowing efficiency defences will make the DMA swiftly applicable and therefore operational as soon as the parties are designated as gatekeepers – or shortly thereafter – subject to specifications if needed for those obligations included in Article 6. Permitting gatekeepers to claim efficiencies would imply delaying the application of the rules when, as said before, this is simply not needed because any possible efficiencies would have been considered by the legislator when defining the scope of each obligation.  

To conclude, I do not see the legal or procedural need to add a new layer of complexities in the DMA by allowing efficiency defences. The DMA is much more than competition law. It is (and should become once adopted by the legislator) regulation precisely defining the limits of what gatekeepers can or cannot do when operating their CPSs in the internal market, in the same old-fashioned way other pieces of EU law in other sectors have defined the boundaries of private initiatives to safeguard clearly defined public policy goals. Competition law will continue to apply in tandem with the DMA. However, taking into account that competition law cannot provide all the answers (e.g. regarding scope of intervention) in the most optimal timeframe (e.g. the Android case is a good example, the case started in March 2013, the decision was adopted in July 2018 and only last week the remedies were amended in a positive manner), there are good reasons for the legislator to step in.

The DMA has the potential to become a blueprint for regulating digital markets, but its success will depend on its swift and effective application and enforcement. The very same companies that would be regulated by the DMA have asked for many years for legal certainty about what they can or cannot do. And this is exactly what the DMA is aiming at.

Written by Alfonso Lamadrid

16 June 2021 at 4:31 pm

Posted in Uncategorized

The Legal Question(s) That All Platform Competition Cases Have In Common

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Previous posts –mostly by Pablo– have already discussed many of the recent or ongoing platform-related cases (including Apple’s Epic lawsuit, the Commission’s investigations into App Store rules for music streaming apps and Amazon’s marketplace, the Google Shopping and Android decisions, the Italian Android Auto decision or the German Booking.com case). We have also discussed cases involving non-digital platforms, like Amex, Cartes Bancaires, Mastercard or Budapest Bank.

When you read the information that is publicly available about these cases or, even better, Pablo’s comments, you immediately realize that they share many commonalities. That might explain why Pablo’s views on all those cases are consistent, regardless of the companies affected by each investigation (and for that reason, somewhat of an anomaly among antitrust influencers).

Now, the usual disclosure: I am involved in several of the cases identified in the first paragraph, which is why I do not comment about them on the blog. In this post I will try to show that there is a fundamental legal debate that cuts across all of these various cases, and on which my position is also the same regardless of whether they may affect my clients, their competitors, or other parties.

Within the non-legal community, attention often focuses on questions on market definition and competitive relationships. This is understandable given (i) the very narrow market definitions in these cases, and (ii) that most commentators have a more defined view on the competitive relationship between many of these companies whereas they do not have a view on competition between, say, chemical by-products. This question is certainly of great interest, but it is a very context and fact-dependent one. The relevance of market definition questions in all these cases is no doubt a commonality, but it is one not exclusive to platform cases and, despite technical challenges (e.g. market definition in multi-sided or zero-price markets, multi-homing, etc), it is more an economic than a legal one.

What I have in mind now is a different commonality, or rather set of related commonalities:

First, all of the platform-cases identified in the first paragraph of this post concern vertical intra-platform rules. We know from our experience with vertical restraints that these are generally deemed not restrictive of competition when they enhance inter-brand (in this case inter-platform competition). This argument, of course, only works when we define a market in which platforms compete amongst themselves, which is not the fashionable thing to do and, as explained above, may or may not be the right thing to do depending on the case. This explains why, dominance thresholds aside, market definition is pivotal in these cases, but this is only part of what I wanted to discuss.

Second, while the platform-cases identified in the first paragraph of this post concern different practices/rules and different business models, all of them are about platform rules that restrain freedom of action on at least one side of the platform, generally to protect or maximize the value of the platform itself (think, for instance, of the justifications based on combating free riding common to all the MFN, app store, and payment system cases identified in the first paragraph of this post). This is unsurprising, as the very role of any platform sponsor is precisely to create value by harnessing positive externalities and preventing negative externalities via the design of platform rules.

This commonality also has a great impact on the legal analysis. As the Court has consistently emphasized in recent years, the question of whether a restriction exists in the first place, or whether such restriction is justified is independent of market definition, and it is also not one that can be addressed (one way or another) in the abstract. Answering this question in each case requires a comprehensive and context-dependent and multi-sided analysis, because very often the same practices will restrain competition on one side and will stimulate competition on the other. It is generally understood that practices enhancing a platform’s value may, depending on the circumstances, benefit not only the platform’s sponsor, but also consumers and business users in the aggregate. But sorting out and balancing the direct effects of a practice on multiple interdependent markets is complicated in practice. The recurring question then is how the legal arguments are framed  who needs to prove what, and at what stage? That was the key question in the US Amex case, it was the key question in the EU payment system cases (Cartes Bancaires, Mastercard, Budapest Bank), and, for the reasons recently explained by Pablo here and here, it arguably should have been the key question in other platform cases including ISU and the German Booking.com case. Concerns about carrying this burden are precisely what explains the remarkable proposals to shift the burden of proof in platform cases, which have now made it to the DMA proposal. Like in the case of market definition, this is a question that will systematically arise in these cases, so it is certainly a meaningful legal commonality but, again, this is only part of what I had in mind.

The observation that triggers this post has to do with the very meaning of the notion of anticompetitive effects:

Third, if you think about it, all of the cases identified in the first paragraph of this post seek to fine-tune (sometimes second-guessing) different platform arrangements in situations where there is no apparent risk of anticompetitive foreclosure. Few would argue, for example (and I will leave my cases aside, because my belief that they are the best examples might not be objective) that Amex, Visa or Mastercard foreclosed anyone, that Amazon is likely to exclude or marginalize merchants or that Apple will ever have the hope of driving Epic or Spotify out of the market.

Most business users benefit from the opportunities offered by these platforms (otherwise platforms would not prosper), but would like to enjoy better conditions (can’t blame them; who wouldn’t?). This is why the concern in these cases is often about competitive (dis)advantages, fairness, or about the situation of specific business users, and not so much about actual or potential foreclosure (as understood in the case law). This is also why, as observed by the DMA’s Impact Assessment Report, some Member States wish to address these situations via laws on abuse of economic dependency. And this is also why the DMA Explanatory Memorandum (p.8) argues that competition law “is not sufficient to deal with all the problems associated with gatekeepers, given that [practices will not be captured] if there is no demonstrable effect on competition within clearly defined relevant markets”.

At the end of the day, regardless of market definition, regardless of business models, and regardless of the specific theory of harm, all of the platform-cases identified in the first paragraph are mostly about the optimal distribution of rents (or, as Pablo put it here, a fight for a larger slice of the pie). Commentators that strongly support some of these cases, and who observe that these have been transplanted into the DMA’s proposed obligations, have also identified the reallocation of rents as one of the DMA’s key goals (which necessarily means that the same applies to the cases from which these obligations originate). Depending on your views and perhaps also on your business interests this may be a positive or a negative development (we can leave that debate for another day), but it does mark an important paradigm shift in competition law. This question appears to have featured prominently and very explicitly in the Epic v Apple trial, but perhaps has not received enough attention and reflection in the EU. Hence this post.

Written by Alfonso Lamadrid

7 June 2021 at 6:03 pm

Posted in Uncategorized

Against the Fragmentation of EU Competition Law: A Proposal for Reform

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Not so long ago it seemed like we had arrived to the end of history in competition law. The level of substantive convergence at the international level was remarkable and unique by reference to most other areas of the law. The level of substantive convergence within the EU (and the EEA more generally) was even more impressive. All national competition authorities and judges understood and respected the European Commission’s role as primus inter pares, the Commission exercised this role flexibly but responsibly, and politicians had not yet shown an interest in transforming the discipline.

But things have changed, and EU competition law enforcement is now facing a fragmentation threat. This post seeks to (A) demonstrate the existence of this threat; (B) identify the reasons why the existing safeguards may not be working; and (C) throw out there a proposal intended to spur some debate

A) Is there a risk of fragmentation of EU competition law?

Let me give you some very recent examples (for full disclosure: I have worked on some of them so I tend to view them critically, but I will leave aside the question of whether individual cases are right or wrong and, instead, will focus on the wider trend):

  • Last week the German, French and Dutch Government asked for “leeway” to craft and apply different national competition rules going beyond EU law. In parallel, several other Member States (like Italy or Sweden) are considering the adoption of additional national rules inspired by the DMA.
  • Also last week Germany already announced new investigations under its reformed Competition Act, which the European Commission itself has consistently invoked (e.g. here, p. 111) as a source of potential fragmentation so troubling that it would justify the adoption of the DMA.
  • A couple of weeks ago the German Supreme Court confirmed the prohibition of Booking.com’s narrow MFN clauses, a conduct accepted by competition authorities in other EU jurisdictions. In spite of the risk of divergent interpretations of EU law, this is a case where the European Commission had not intervened and where the German Supreme Court decided not to submit a preliminary reference to the CJEU.
  • Earlier this month the Italian Competition Authority adopted its Android Auto decision which, as discussed by Pablo, has little to do with EU case law as we know it (the decision in fact admits –para 315– that it relies on a “gatekeeper” theory of harm that cannot be traced back to the case law but to recent reports…).
  • A few months ago the European Commission recently opened a formal investigation into Amazon but carved out Italy from the legal effects of the initiation of proceedings, thereby enabling parallel proceedings to take place at the EU and national level in relation to the very same conduct.
  • Last October the Polish Competition Authority imposed the highest fine ever imposed under competition law (6.7 billion on Gazprom, a figure slightly higher than that imposed by the Commission) without, as explained by EVP Vestager, ever informing the European Commission about its intentions.

B) Why aren´t the existing safeguards working?

Most people would agree that regulatory fragmentation is a serious problem. The DMA proposal, in fact, is based on the premise that this is a serious problem threatening the proper functioning of the internal market. The concern is not new; the uniformity in the application of EU competition law has always been a priority; ensuring effectiveness and uniformity were in fact the two drivers behind the adoption of Regulation 1/2003 and of the ECN+ Directive.

To be sure, differences and divergent outcomes are partly inevitable in a decentralized system, and there should be some margin for authorities to innovate and even perhaps explore the boundaries of the law. But if we truly believe in an internal market governed by common rules, there need to be limits or safeguards. And while we currently do have tools and safeguards to ensure the uniformity in the application of the rules, these do not appear to be working as intended. Until now, those tools were mainly:

  • The obligation to apply EU law in parallel with national law whenever there is a likely effect on trade between Member States (an obligation that may arguably not have been strictly complied with in the German Facebook case or in the Polish Gazprom case). This is a problem that has also been discussed by Wouter Wils in this interesting paper. As Wouter explains, the Commission could theoretically take action against Member States breaching EU Law on this point but, for various reasons, that is extremely unlikely.
  • The obligation not to prohibit under national law conduct that would not be prohibited under EU Law (an obligation diluted by the possibility for Member States to apply stricter national laws in relation to unilateral conduct under Article 3 of Regulation 1/2003; a crack in the system of increased interest to Member States, as illustrated by the joint German/French/Dutch position paper from last week);
  • The possibility for the European Commission to comment on draft national decisions under Art. 11(4) of Reg. 1/2003. This, however, is something that the Commission often does cautiously, mostly orally, and always confidentially, even vis-à-vis the parties to each case. In addition, the Commission does not have sufficient resources to deal with almost 100 draft decisions every year. The Commission, moreover, has political and legal priorities of its own, and it is also an enforcer of the of the very same rules it is called upon to interpret (and so has a stake in the interpretation of such rules). There might be a certain tension between the missions of advancing a certain interpretation of the law and promoting its uniform and consistent interpretation. There are recent examples of cases where the Commission intervened at the national level to advance an interpretation of the law that was later (too late?) corrected by the CJEU (e.g. compare para. 82 of Budapest Bank with the Commission’s amicus curiae observations here). To be sure, this is no criticism; it is simply a natural result of a system in which the Commission is placed in a privileged, yet tough, spot (and, as we often hear nowadays, dual roles may result in conflicts of interests). At the end of the day, in my view, the Commission may not always be in a position to privilege the uniform application of the law over other perhaps equally legitimate interests.
  • The possibility for the European Commission to resort to Article 11.6 of Reg. 1/2003 to open proceedings and deprive NCAs of their competence. As the Commission has explained (here, Chapter 3, Section 5), the Commission would do this when, for example, where “network members envisage a decision which is obviously in conflict with consolidated case law”, or where “there is a need to adopt a Commission decision to develop European competition policy in particular when a similar competition issue arises in several Member States”. The examples identified above, and the experience of the past 17 years, also confirm that the Commission is very unlikely to make use of this power.
  • The main tool conceived to ensure the uniform interpretation of EU law (the preliminary reference procedure) is not available to national competition authorities, because these are not “Courts” (see here). This is of course correct as the law currently stands but, in a way, it is also an anomaly. There is arguably no other area of the law where a public authority can impose cuasi criminal sanctions pursuant to a direct application of EU law, but cannot request guidance from the EU Courts. In practice, this means that, in the best case scenario, decisive questions will only be raised before the EU Courts several years into an investigation and only once an administrative decision is final (like in the German Facebook case). This is far from ideal.

C) A proposal for (some) improvement

Unfortunately, growing political interest in competition enforcement means that Member States will continue to maintain enforce and enact national competition rules going beyond EU competition law as regards unilateral conduct. Again, this is the very risk that the Commission invokes to justify the adoption of the DMA but, as explained here, the content of the DMA Proposal does not prevent, but rather encourages, fragmentation. I suspect, however, that some stakeholders will prefer a legally vulnerable EU instrument if that means strong national powers.

Beyond harmonization, improvements could also come from a more effective use of the powers that Reg. 1/2003 vests on the Commission but, for the reasons explained above, the Commission may not be ideally placed to put the uniformity of the law above all other relevant interests.

My proposal would be to preserve the Commission’s powers, but to give national competition authorities the power to consult also an independent and well-resourced judicial body interested only in the correct application of the law, namely the General Court.

Enabling NCAs to pose questions to the General Court would, in my view (i) lead to the creation of a new and welcome body of authoritative guidance not constrained by the limitations inherent in actions for annulment; (ii) avoid legal disputes dragging on for years without the possibility to get to Luxembourg; (iii) ensure that the case law can come in time and decide on present, not past issues (we are still discussing Intel’s rebates); (iv) liberate Commission resources, which could be devoted to running more cases; (v) make a good use of the increased resources of the General Court; and (vi) free up CJEU resources at a time when its workload continues to increase.

There has been a debate for quite some time about whether to grant the General Court the power to render preliminary rulings in certain areas. As a matter of fact, the Treaties already open the door to this possibility. Article 256(3) TFEU provides that “the General Court shall have jurisdiction to hear and determine questions referred for a preliminary ruling under Article 267, in specific areas laid down by the Statute [of the Court of Justice]”. The transfer of this competence has, however, never materialized, possibly due to the CJEU’s arguably understandable reluctance to have a “first instance” Court deliver a final interpretation on the law of the land. There are, I think, ways of alleviating such concerns in addition to those already envisaged in Art. 256.

For example, one could conceive a system under which the General Court would issue Opinions (as opposed to “preliminary rulings”) on those questions. These could even be delivered by a judge appointed as Advocate General (the possibility of appointing AGs among the judges is also already envisaged in the existing rules). These Opinions would only be delivered in the context of administrative proceedings. Since the administrative decision resulting from those could always be appealed before national Courts, the latter would still enjoy the possibility of requesting a preliminary ruling from the Court of Justice. This, in turn, would enable the Court of Justice to retain the last word and correct the General Court’s approach if necessary. If not, the CJEU could simply validate the GC’s Opinion, possibly via an expedited procedure resulting in an Order.

In my view, some kind of solution along these lines would be good for the law, for NCAs, for the General Court, for the CJEU and for all those interested in an effective, uniform and faster application of the law. This proposal could be a small step in the direction outlined by General Court President van der Woude at our last conference (see here, min. 25-28.42), but a great leap for substantive competition law.

Written by Alfonso Lamadrid

31 May 2021 at 11:07 am

Posted in Uncategorized

The Italian Competition Authority in Enel v Google: will Bronner and Magill survive common carrier antitrust?

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Hit the road with Android Auto's new look

Earlier this month, the Italian Competition Authority (AGCM) adopted a remarkable decision, which deserves close attention, in a dispute involving Enel (the Italian incumbent in the electricity sector) and Google. You will find the decision here (in Italian) and a press release (in English) here.

The decision stands out from others in the digital sphere in that it is expressly framed as an outright refusal to deal. While in other cases it is genuinely open to question whether the ‘exceptional circumstances’ tests laid down in Magill and Bronner are applicable, there is no doubt on this point in Enel v Google. The complainant requested access to Android Auto and the authority applies the case law on refusals to deal.

That Magill and Bronner provide the relevant tests is also clear in light of Slovak Telekom. Intervention in Enel v Google amounts to requiring the defendant to redesign its product. On this point, the decision goes beyond an obligation to negotiate access with a would-be rival, which is the typical remedy in a refusal to deal case. The Italian authority has asked Google to release a version that can accommodate the functionalities of Enel’s product.

What is the case about? Android Auto and Enel’s JuicePass

The case is about Android Auto, which is an application that gives access to some of Android’s features on a car’s dashboard. Thus, instead of accessing these features (say, Google Maps) via the smartphone, they can be accessed, more conveniently, via the car’s own display.

Enel’s complaint concerned Google’s refusal to allow one of its applications (JuicePass) to feature on Android Auto. JuicePass provides assistance to drivers of hybrid and electric vehicles: more precisely, the application allows car users to search for charging stations, book charging slots and pay for the electricity.

According to the complaint, Google’s refusal to allow JuicePass into the Android Auto ecosystem amounts to an abuse of a dominant position. The claim raises a number of interesting issues. I will only focus on two of them: whether Android Auto can be said to be indispensable and whether the refusal would result in the elimination of all competition on the adjacent market. These are the two key conditions that are common to Bronner and Magill (and which are notoriously difficult to establish in practice).

Establishing the indispensability in the case would involve showing that it is not possible to compete on an adjacent market without featuring in Android Auto and that there are not any economically viable alternatives to the said application. The elimination of all competition condition, as the law stands, demands evidence of the certainty, or quasi-certainty, of anticompetitive effects absent access.

The reasoning in the decision is interesting in two major respects. First, the adjacent market is never defined by the authority. It identifies a ‘competitive space’ (‘spazio competitivo‘) instead. Second, the interpretation of the indispensability condition is not obvious to square with the definition provided in the case law (in particular IMS Health, which is the most explicit on the point).

This approach, which departs from that followed in Magill and Bronner, seems to mark the comeback of a doctrine of ‘convenient facilities’ (as opposed to essential). If one pays attention to the remedy, on the other hand, it becomes apparent that the decision is unprecedented in another fundamental respect: the duties imposed on Google go beyond an access obligation. These questions are examined in turn.

Indispensability in Enel v Google: towards tailored access to ‘convenient facilities’?

A look at the facts in Enel v Google suggests that access to Android Auto is not indispensable within the meaning of Magill and Bronner. After all, the application (JuicePass) can be readily downloaded and used (and has been readily downloaded and used since it was launched) on smartphones (via both Play and AppStore). Insofar as there are alternatives around Android Auto, a plain reading of the case law would reveal that the indispensability condition is not met.

The Italian authority hints at a different interpretation of the condition. According to the decision, the indispensability element of the test is met because access to JuicePass via smartphone is not comparable to access via Android Auto. This is so, according to the authority, for safety and/or convenience reasons (using JuicePass on the smartphone is said not to be as safe as using the car’s dashboard; and stopping the car to use the application would not be convenient).

It is difficult to square this understanding of the notion of indispensability with Bronner, which makes it explicit that the condition is not met where there are alternatives around an infrastructure, irrespective of whether they are ‘less advantageous’. The decision, in this sense, is indicative of the return of a ‘convenient facilities’ doctrine that would substantially lower the threshold for intervention in refusal to deal cases. Indispensability, under this new approach, means the ability to use apps in an ‘easy and safe way’ (‘in maniera facile e sicura‘).

The passage addressing the remedies suggests that the indispensability condition is also expanded in a different direction: Google has been required to ensure that JuicePass has access on the terms and conditions that Enel deems indispensable. From this perspective, the decision marks a move from an objective understanding of the notion to a subjective interpretation: what is indispensable depends on what each specific firm demands and deems necessary.

Will Bronner and Magill survive common carrier antitrust?

Many disputes in digital markets concern the terms and conditions of access to an input or platform. Therefore, it was only a matter of time before the Bronner and Magill case law would be directly challenged in an outright refusal to deal case: it is not a secret that indispensability is very difficult to establish in practice and thus acts as a limit to how much digital ecosystems can be refashioned by competition authorities.

Given the obvious and substantial tension between the Italian authority’s decision and the relevant case law, there is a chance that the issue is eventually brought before the Court of Justice, which has recently reaffirmed the principles of Bronner and Magill (including the importance of preserving firms’ incentives to invest and innovate) in Slovak Telekom.

It remains to be seen whether the case law, including Magill and Bronner, survives common carrier antitrust. In this regard, it is interesting to note that Enel v Google applies, avant la lettre, some of the concepts underpinning recent legislative proposals (and in particular the notion of gatekeeper). Future law, rather than existing law, appears to drive and shape enforcement. Fascinating times indeed.

As usual, I have nothing to disclose.

Written by Pablo Ibanez Colomo

27 May 2021 at 5:28 pm

Posted in Uncategorized

The German Federal Court of Justice rules on MFNs: object, ancillarity and the fragmentation of the EU legal order

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Solving mass data fragmentation problem should be a top CIO priority | CIO

The post published on Monday (see here) sought to explain the tensions that tend to emerge in relation to the interpretation of Article 101(1) TFEU. The experience of the past few years shows that the analysis of the objective necessity of a practice and/or of the ancillarity of some clauses are occasionally conflated with the evaluation of the restrictive object of an agreement.

As the ISU judgment shows, it is sometimes claimed that, unless an agreement is objectively necessary to attain a pro-competitive aim, it is restrictive by object. This interpretation of Article 101(1) TFEU is at odds with decades of consistent case law, but it is still relatively commonplace. I was reminded of this understanding of the provision when the German Federal Court of Justice announced its ruling on Most Favoured Nation Clauses (MFNs) earlier this week.

The document of the judgment is not yet available, but a press release explains the key points here. The case concerned the so-called ‘narrow’ MFNs. Even though these clauses have less restrictive potential than the so-called ‘wide’ ones, the German BGH ruled that they are restrictive of competition under Article 101(1) TFEU and do not fulfil the conditions set out in Article 101(3) TFEU.

While we wait for the judgment, there are three salient aspects of the press release that are worth discussing at this stage:

  • First, how the case was framed and approached, which is most unusual in contemporary competition law: at least in light of the press release, it looks like the discussion revolved around the application of the ancillary restraints doctrine and of Article 101(3) TFEU.
  • Second, the BGH may have departed from the case law of the Court of Justice on a key point: contrary to what the press release appears to suggest, the pro-competitive aspects of an agreement are relevant (and must be considered) under Article 101(1) TFEU.
  • Third, the BGH did not refer the case to the Court of Justice for a preliminary ruling. To the extent that the judgment may have departed from the case law on the abovementioned point, it raises the issue of the fragmentation of the EU legal order.

Ancillarity, object and Article 101(3) TFEU

The press release issued by the BGH suggests that the compatibility of narrow MFNs with Article 101 TFEU revolved around two questions: whether the clauses can escape the prohibition in accordance with the ancillary restraints doctrine and whether they fulfil the conditions defined in Article 101(3) TFEU.

There are two key intermediate steps that are nowhere to be found in the press release: first, whether the narrow MFNs are restrictive of competition by object and, second, whether they have, or are likely to have, anticompetitive effects. The judgment jumps (or so it seems from the information available) from ancillarity to Article 101(3) TFEU.

This approach comes across as unusual for a number of reasons. To begin with, the BGH seemingly accepted that ‘narrow’ MFNs may be explained as a means to address free-riding. This point would have been central to the assessment of whether the clauses are restrictive of competition by object. Suffice it to remember that free-riding considerations determined the outcome in, inter alia, Cartes Bancaires.

There are, however, no traces of the question of whether ‘narrow’ MFNs amount to a restriction by object in the press release. There is a chance that, just as in ISU, the ancillary restraints doctrine was conflated with the evaluation of the object of the clauses.

Judgments like Cartes Bancaires and Budapest Bank show that the above are two separate inquiries. More precisely, the fact that the ancillary restraints doctrine does not apply in a given case does not mean that the agreement is necessarily restrictive of competition, let alone by object. It simply means that the assessment under Article 101(1) TFEU has to move to the object and, if needed, the effect stages.

The case law makes it clear that an agreement may escape the ‘by object’ qualification irrespective of whether it is objectively necessary within the meaning of the ancillary restraints doctrine. There was no objective necessity test in Delimitis, Asnef-Equifax or Cartes Bancaires. However, in all these cases, the Court expressly ruled that the object of the agreement was not anticompetitive and that an analysis of its effects was necessary.

The BGH judgment, just like ISU and the CMA decision in Ping (to mention another salient example in which the same error of law was committed), suggests that some ideas about the operation of Article 101(1) TFEU are not easily abandoned, even when they are clearly at odds with the case law. Several factors may potentially explain this reality. In this sense, the judgment suggests that how cases are framed and argued before courts may well contribute to it.

The role of pro-competitive effects under Article 101(1) TFEU

The press release is notable in that it appears to suggest that, according to the BGH, the pro-competitive aspects of the MFN clauses (namely, the fight against free-riding) can only be considered under Article 101(3) TFEU, where they would be weighed against any anticompetitive effects.

On this point (and while we wait for the judgment), it is important to emphasise that, after Generics, there should be no doubt that the pro-competitive aspects of an agreement are relevant under Article 101(1) TFEU. More precisely, the Court made it clear that, as elements of the economic and legal and economic of an agreement, they ‘must’ be considered under the first paragraph of the provision (Generics, para 103).

What is more, the Court expressly ruled that the above should not be construed as meaning that there is such thing as a rule of reason under Article 101(1) TFEU (Generics, para 104). Thus, and contrary to what the press release appears to suggest, there was a role for the pro-competitive aspects of ‘narrow’ MFNs under Article 101(1) TFEU in the case (just as there was in Cartes Bancaires and Budapest Bank) and that such role does not necessitate any balancing assessment.

Suffice it to remember, in this regard, the centrality of the pro-competitive aspects of the agreement in Budapest Bank. The fact that the agreement is capable of leading to pro-competitive or at least ambivalent gains is, the Court confimed, a key consideration to establish a restriction of competition under Article 101(1) TFEU (Budapest Bank, paras 82-83).

The risk of legal fragmentation and the role of the Court of Justice

Regulation 1/2003 sought the decentralisation of EU competition law. The flurry of enforcement across the EU attests to the resounding success of this landmark piece of legislation. At the same time, some developments show that with decentralisation comes (inevitably) a real risk of legal fragmentation.

The risk of the fragmentation of the EU legal order originates from two main sources. On the one hand (the BGH judgment hints at this) some interpretations of Articles 101 and 102 TFEU are not abandoned, even when they are at odds with a plain reading of the case law.

There are, on the other hand, developments at the national level that are exploring (when not stretching) the outer boundaries of the EU legal order. Just last week, for instance, the Italian Competition Authority adopted a decision in a dispute involving Enel and Google that substantially expands the ‘exceptional circumstances’ case law (see here) and ventures into uncharted territory.

It was always clear that, in a decentralised model, the Court of Justice would play a central role in preserving the uniformity of the EU legal order. The evolution of the enforcement regime suggests that, as things stand, it will be called upon to intervene more frequently that some might have anticipated in the wake of the adoption of Regulation 1/2003.

Written by Pablo Ibanez Colomo

20 May 2021 at 3:16 pm

Posted in Uncategorized