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Is the counterfactual relevant under Article 102 TFEU? How could it not?

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Is the counterfactual relevant when evaluating the effects of a potentially abusive practice? This is a post I did not anticipate I would write. Until recently, I thought it was self-evident that the evaluation of the counterfactual is required under Article 102 TFEU (as is true of Article 101 TFEU and EU merger control). I have come to understand (in part thanks to the lively and thoughtful discussions on this blog) that not everybody is of the same view.

There are several reasons why I assumed that the definition of the relevant counterfactual is a necessary step in the evaluation of potentially abusive behaviour. Some of these reasons relate to what we know about Article 102 TFEU. Other reasons have to do with what we know about EU competition law more generally.

Effects must be ‘attributable’ to the practice under Article 102 TFEU

As already explained before on the blog (see here), actual or potential effects must be ‘attributable’ to a practice for Article 102 TFEU to come into play. This is a principle that derives from Post Danmark II and that the General Court does not question in Google Shopping (in fact, in makes repeated references to attributability; see, inter alia paras 441, 456, 518, 541 and 543 of the judgment).

Establishing that any actual or potential effects are attributable to a practice means, in concrete terms, showing that there is a causal link flowing from the latter to the former (the Cambridge Dictionary defines ‘attributable’ as ’caused by’; if you are curious, the French word is imputable, which essentially gets you to the same place).

How does the EU competition law system go about establishing a causal link between practice and actual or potential effects? By evaluating the counterfactual, that is, the conditions of competition in the absence of the contentious behaviour.

It is not surprising, in fact, that the European Commission embraced this technique in its Guidance Paper on exclusionary abuses. In para 21 of the instrument, it explained that the assessment of anticompetitive effects (‘foreclosure’) ‘will usually be made by comparing the actual or likely future situation in the relevant market (with the dominant undertaking’s conduct in place) with an appropriate counterfactual, such as the simple absence of the conduct in question or with another realistic alternative scenario, having regard to established business practices’.

Do the terms ‘competition’ and ‘effects’ have different meanings depending on the provision?

A second reason that pleads in favour of considering the counterfactual under Article 102 TFEU has to do with established principles and practice under Article 101 TFEU and EU merger control. In these two contexts, this exercise has long been the standard technique to establish a causal link between the relevant practice (or transaction) and any actual or potential effects.

Take for instance the Visma case, decided by the Court a couple of weeks ago (see here). In para 74 of the ruling, the ECJ announces, uneventfully, that the analysis of the restrictive effects must consider the conditions of competition which would exist in the absence of the agreement. This is a long-standing principle that dates back to Société Technique Minière and that has determined the outcome of some landmark Article 101 TFEU rulings (see here for an exhaustive analysis).

As far as EU merger control is concerned, the ‘failing firm defence’, addressed in the Guidelines on horizontal mergers, is the most obvious example. That instruments captures the essence of the relevant case law and explains that the doctrine applies ‘where the competitive structure of the market would deteriorate to at least the same extent in the absence of the merger‘ (that is, where the evaluation of the counterfactual reveals the absence of a causal link between the concentration and any likely effects).

Arguing that the counterfactual is relevant under Article 101 TFEU and EU merger control but not under Article 102 TFEU amounts, in essence, to claiming that the notions of ‘competition’ and ‘effects’ have a different meaning under the latter provision.

I cannot think of a valid reason why the analysis of effects would be conducted differently under Article 102 TFEU. It is occasionally argued that the difference may be justified by the fact that dominant firms have a ‘special responsibility’.

It is undeniable that dominant firms have such a special responsibility. What this argument fails to acknowledge, however, is that Article 101 TFEU and EU merger control sometimes apply to dominant firms, which do not have any less of a ‘special responsibility’ when the latter two are enforced against them.

Generics, which engaged extensively with the counterfactual, is one case in which Article 102 TFEU was also at stake. Nowhere did the Court hold that the evaluation of the counterfactual under Article 101 TFEU changes depending on whether the firm is dominant.

Similarly, Kali+Salz, in which the Court accepted the ‘failing firm defence’ (and thus embraced counterfactual analysis in EU merger control), was about a transaction creating no less than a de facto monopoly in the German market (see here for the original decision). Tetra Laval and Microsoft/Skype are other examples of EU merger control applying to (super-)dominant firms.

The counterfactual in Google Shopping

In Google Shopping, the General Court dealt with the counterfactual. Paras 377-378 are perhaps the most interesting bits of this aspect of the judgment.

I am particularly intrigued by the claim that ‘identifying the events that would have occurred in the absence of the practices that are being examined and identifying the situation that would have resulted, may, in a situation such as that of the present case, be an arbitrary or even impossible exercise if that counterfactual scenario does not really exist for a market that originally had similar characteristics to the market or markets in which those practices were implemented‘.

I am not sure what to make of these passages, which (as much as large parts of the ruling) seemed confined to the specific arguments raised and the specific circumstances of the case, but which (if interpreted in some ways) could have far-reaching and paradoxical outcomes. Suffice it to say that there is scope for reasonable disagreement about this dimension of the ruling.

What matters, in any event, is that arguments relating to the counterfactual have now been raised in an explicit manner and that the Court may have the opportunity to answer crucial questions pertaining to the burden of proof (is it for the claimant or authority to establish the effects by reference to the counterfactual, as is true under Article 101 TFEU?) and the substance of Article 102 TFEU (are the notions of ‘competition’ and ‘effects’ defined in the same way across the board in EU competition law or are they defined differently depending on the applicable provision?).

PS: To those who have submitted an abstract for the Special Issue on Google Shopping – how great! We are both grateful and overwhelmed by the interest shown and the task ahead of us.

Written by Pablo Ibanez Colomo

3 December 2021 at 2:19 pm

Posted in Uncategorized

Call for abstracts | JECLAP Special Issue on Google Shopping

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End-of-year presents from JECLAP | Chillin'Competition

The Journal of European Competition Law & Practice (of which I am the Joint General Editor alongside Gianni De Stefano) will be publishing a Special Issue devoted to the Google Shopping judgment.

We have already received a number of fascinating proposals, and we would very much welcome more of them. You should email me (P.Ibanez-Colomo@lse.ac.uk) by Friday of next week (3 December) if interested in contributing.

The proposal should take the form of an abstract of max. 250 words in which you outline:

  • The aspect of the judgment on which you would like to focus; and
  • The contribution your piece is expected to make.

If you submit an abstract, we expect the final article (of around 7,000-10,000 words) to be submitted by mid-January (the idea is to make sure that the Special Issue remains topical). And, as usual, please clarify in your proposal whether you have any conflicts of interests.

We will select abstracts to maximise diversity and balance in the Special Issue. We would be particularly keen to publish new voices and perspectives.

In line with the above, we will be prioritising pieces that add value and enrich our understanding of law, economics and/or policy (and that do so by focusing on one particular aspect or dimension of the judgment).

In the same vein, we will not publish pieces that are eminently descriptive or that amount in essence to a case note covering the various issues raised by the judgment – we would love the Special Issue to work as a coherent whole and to avoid repetition.

We will contact all authors whose abstract has been selected in due course (if there was any doubt, do not hesitate to contact me with any questions, as some of you have already done).

Have a wonderful weekend!

Written by Pablo Ibanez Colomo

26 November 2021 at 4:03 pm

Posted in Uncategorized

Sports and Competition Law: recent developments (my presentation at the Institut d’études européennes)

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Institut d'études européennes de l'université libre de Bruxelles - Ville de  Bruxelles

As is always the case, it was a real pleasure to share my thoughts on the application of EU competition law to sports at the Institut d’études européennes. My slides can be accessed here (as usual, I have nothing to disclose).

One of the reasons why this topic is so interesting is that it forces us to think by reference to first principles. It is also one that challenges conventional wisdom. For instance, sporting activities provide many examples showing that a price-fixing agreement between competitors is not necessarily a restriction by object (let alone a cartel).

I would summarise the thrust of my presentation as follows:

Co-opetition in sports and system management through governing bodies

Participants in a championship or tournament (whether individuals or teams) are not competitors in the usual sense. They are more appropriately characterised as co-opetitors. Unlike the usual firms, a participant in a sporting competition needs its rivals. Without rivals, it is worth nothing.

Each of the participants is, in fact, a member in a joint venture that contributes an input to a good that is more than simply the sum of its parts. The UEFA Champions League, just to mention an example, is not merely a collection of matches, and the interest of the matches depends on them being part of a wider championship.

Two corollaries follow from the above. First, the word cartel seems inappropriate in this context. Any restraints imposed in this economic and legal context seem markedly different from the sort of naked restraints we witness around cartels.

Second, the creation of some governing structure seems indispensable for the appropriate organisation and coordination of competitions. The world around us confirms this conclusion. In this regard, I noted that the relationship between participants and governing bodies is not fundamentally different from the relationship that exists between franchisors and franchisees, or manufacturers and selective distributors.

Sporting activities that take place under the umbrella of an organisation is best understood as a system in which the governing body defines the appropriate balance between cooperation and competition among participants (for instance, how rivalry is limited in the name of competitive balance and ultimately the excitement that comes with the uncertainty about the outcome of a match or championship).

The application of EU competition law to sport: principles and common misconceptions

Some of the most recent developments get to the heart of the governing bodies’ activities. The case law of the Court is sufficiently developed to provide concrete answers to the issues raised. However, there are some common misconceptions that keep coming back.

Since Meca Medina, there should be little doubt that rules that are inherent to a legitimate objective fall outside the scope of Article 101(1) TFEU altogether. What if the rule goes beyond what is necessary? Meca Medina, again, provides the answer: in para 47, the Court explained that such a rule might have restrictive effects on competition and thus might be caught by Article 101(1) TFEU. In any event, an evaluation of its impact would be a precondition for the application of that provision.

Unfortunately, there is a tendency to conclude that, where a rule is not ancillary, it automatically amounts to a restriction of competition. Similarly, it is occasionally claimed that a rule that has an economic objective (say, protect an organisation’s economic interest) is ipso facto caught by Article 101(1) TFEU. The ISU case shows the extent to which these ideas (difficult to reconcile with the case law) return every now and then.

Having the cake and eating it: ISU, the Super League, and the lessons from Cartes Bancaires and Pronuptia

The central question that is common to ISU and Super League is as simple as it is exciting: is it anticompetitive for a governing body managing the system to limit competition to itself?

In essence, these cases are about participants that are interested in benefitting from the existing system while exploring opportunities elsewhere. Some participants do not want to sacrifice the positive aspects that come with participation in the incumbent championship even when they decide to take part in rival organisations. The good old (and very human) temptation to have the cake and eat it.

EU competition law has been here before and has addressed similar matters. In Cartes Bancaires, the Court ruled that a restraint aimed at fighting free-riding is not restrictive by object. In other words, measures that aim at ensuring the appropriate management of a system (and prevent imbalances within the system) are not in breach of Article 101(1) TFEU by their very nature.

In Pronuptia, the Court ruled that a franchisor may, without infringing Article 101(1) TFEU, take measures aimed at ensuring that the system and the underlying formula do not benefit competitors (or does not benefit the franchisee itself, which may be precluded from setting up a rival shop while benefitting from the system). Nothing fundamentally different, in other words, from the issues raised by the cases mentioned above.

I look forward to your comments, which will definitely improve the paper on which I am working. Thanks to all those who attended, whether in person or virtually!

Written by Pablo Ibanez Colomo

23 November 2021 at 10:45 am

Posted in Uncategorized

As efficient competitors in Case T‑612/17, Google Shopping: the principle and the conflations

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Learn English Words - CONFLATE - Meaning, Vocabulary Lesson with Pictures  and Examples - YouTube

It was inevitable that the Google Shopping judgment would require the General Court to engage with an illustrious principle of the case law: Article 102 TFEU is only concerned with the exclusion of rivals that are as efficient as the dominant firm.

As the Court put it in para 22 of Post Danmark Inot every exclusionary effect is necessarily detrimental to competition […]. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation‘.

The corollary to this principle is that only anticompetitive effects that are ‘attributable‘ to the dominant firm’s conduct can trigger the application of Article 102 TFEU. Post Danmark II made an explicit reference to attributability (para 47). Crucially, this point is acknowledged in para 441 of Google Shopping (‘in order to find that Google had abused its dominant position, the Commission had to demonstrate the – at least potential – effects attributable to the impugned conduct of restricting or eliminating competition‘).

Showing that the effects are attributable to the dominant firm’s behaviour (that is, establishing a causal link between the conduct and its impact) demands, by definition, identifying a counterfactual. There is no way around it (I have come to understand that this idea is controversial in some quarters; it is a topic for another post, but I will definitely address it).

The Google Shopping judgment reveals that the principle tends to be conflated with related matters. Two conflations deserve to be discussed:

  • The principle is sometimes interpreted as meaning that the Commision (or any other authority or claimant) needs to show that specific rivals are as efficient as the dominant firm. I do not believe that interpretation is correct, and I struggle to find support for it in the case law.
  • The principle is occasionally used as synonymous with the ‘as efficient competitor’ test. They are different, and the former should not be reduced to the latter.

The principle in practice: what needs to be proved?

In para 514 of the judgment, the General Court explains that one of the interveners argued that the Commission had not established the anticompetitive effects of the practice as it had ‘failed to show that comparison shopping services competing with Google that had experienced difficulties were as efficient as Google or that they had exerted significant competitive pressure on prices or innovation‘.

The General Court rejects the argument as described above. There seems to be no basis for it in the case law. What cases like Post Danmark I and II demand is that a causal link be established between the practice and the effects. If the effects are not attributable to the dominant firm, but to other factors, then there is no abuse (think by analogy of the ‘failing firm defence’ in merger control).

Put differently: the implementation of the principle demands comparing the conditions of competition with and without the practice. It does not demand, however, establishing the relative relative efficiency of rivals in a reality that has already been ‘contaminated’ by the practice. It would not be possible to establish a causal link in such circumstances.

Suppose that a practice denies rivals a minimum efficient scale. It should not be possible for the dominant firm to then claim that rivals are less efficient and therefore that the practice is not abusive. If such an argument were accepted, then effects that are attributable to the dominant firm’s behaviour would fall outside the scope of Article 102 TFEU. The General Court makes a point along similar lines in para 540.

Instead, the question should rather be whether rivals being denied a minimum efficient scale is attributable to the behaviour of the dominant firm or to other factors. Simply put, the appropriate benchmark should be the world in the absence of the practice.

The principle and the ‘as efficient competitor test’

There is a point in the judgment that is arguably more controversial. In paras 538 and 539, the General Court appears to conflate the principle as described above and the ‘as efficient competitor test’ as used in relation to pricing abuses (such as margin squeezes and rebates).

It is sufficient to read the relevant passages in Post Danmark I (then reiterated in Intel) to realise that the Court of Justice lays down a principle that is broader than the ‘as efficient competitor test’. It is emphasising that exclusion that is not attributable to the dominant firm’s behaviour does not amount to an abuse of a dominant position within the meaning of Article 102 TFUE.

This principle can find many incarnations and can be implemented in a number of ways. The ‘as efficient competitor test’ is just one of them, and one that is particularly apt in relation to price abuses: if it turns out that a ‘margin squeeze’ would not require rivals to sell below cost, any exclusion would not be attributable to the dominant firm, but to the fact that the former are less efficient.

The wording of the judgment, which seemingly conflates principle and test, can be interpreted as meaning that only pricing abuses are concerned with as efficient competitors. According to this interpretation, the principle would not apply to practices such as tying or exclusive dealing. Which takes me to the last point.

Is the principle only relevant for pricing abuses? How could it be so?

According to a current of opinion, the principle laid down in Post Danmark I would indeed only be relevant in relation to pricing abuses. I struggle with this interpretation of the case law, but insofar as it has been debated, it is worth discussing.

There are several reasons why the principle laid down in Post Danmark I is applicable across the board. To begin with, the Court (both in Post Danmark I and Intel) did not confine it to pricing abuses. It was a general pronouncement. What is more, it made an explicit reference to other parameters of competition, namely ‘choice, quality or innovation‘.

The most powerful reason, in any event, is that confining the principle to pricing abuses would lead to outcomes that seem difficult to defend from an intellectual standpoint. Taken to its logical consequences, such an interpretation of Article 102 TFEU would mean that it is necessary to establish a causal link between practice and effects in relation to rebates and mixed bundling, but not in relation to exclusive dealing and tying.

If this interpretation of the case law were accepted, the two sets of practices would be subject to different analytical framework for a purely arbitrary reason (the fact that one set of practices relies on pricing mechanisms) even though they are interchangeable (and have the same object and effect).

I really look forward to your comments on this point (or indeed any of the preceding ones).

Written by Pablo Ibanez Colomo

19 November 2021 at 12:41 pm

Posted in Uncategorized

The General Court in Case T‑612/17, Google Shopping: the rise of a doctrine of equal treatment in Article 102 TFEU

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equal treatment

The General Court’s judgment in Google Shopping (available here) is finally out. There is much to unpack, and much that will be debated in the coming days and weeks. In this regard: the Journal of European Competition Law & Practice is planning a Special Issue devoted to the judgment. More details will follow in due course, but we will be open to proposed submissions, as we want to make sure that the issue is as balanced and diverse as possible.

The above said, it is immediately possible to get a clear idea of the logic underpinning the judgment. It is remarkable in a number of ways, which, if appealed and confirmed by the Court of Justice, may lead to a substantial expansion of the scope of Article 102 TFEU.

The rationale behind the judgment can be summarised as follows:

  • The General Court’s develops a principle of equal treatment, which is inferred from the case law applicable to public undertakings (and public bodies) and is now expanded to other dominant firms (para 155).
  • There is an element of ‘abnormality’ in the differential treatment of a search engine’s affiliated services, on the one hand, and third party ones, on the other (paras 176, 179 and 616).
  • Google’s search engine is a ‘quasi-essential facility’; in any event, it is not necessary to establish that the platform is indispensable within the meaning of the Bronner case law.

Equal treatment, abnormality and competition on the merits

When reading the judgment, one cannot avoid the impression that the General Court viewed the practice at stake in the case as inherently suspicious, that is, as a departure, by its very nature, from competition on the merits. To quote the judgment itself: ‘the promotion on Google’s general results pages of one type of specialised result – its own – over the specialised results of competitors involves a certain form of abnormality‘ (para 176).

The judgment concludes that the behaviour at stake is ‘abnormal’ for two separate reasons.

First, the General Court infers, from the case law, a general principle of ‘equal treatment’, which would demand, also in the context of Article 102 TFEU, that like situations be treated alike unless objectively justified (para 155). This paragraph is remarkable. The Court judgments cited relate to the behaviour of public authorities. The General Court appears to imply that dominant firms are also subject to the same principle (in Deutsche Telekom, the Court of Justice did not go this far, and confined the obligation of equal treatment to instances where the input is indispensable).

It is interesting (in particular for those who study telecommunications regulation) that the General Court refers, in support of its position, to Regulation 2015/2120, which enshrined the principle of network neutrality in the EU legal order. While net neutrality applies to Internet Service Providers, the General Court is of the view that the Regulation ‘cannot be disregarded when analysing the practices of an operator like Google on the downstream market‘ (para 180). Once the principle of neutrality introduced at one level of the value chain, it was bound to be expanded elsewhere (firms that lobbied for net neutrality rules have been reminded in this judgment that we should all be careful what we wish for).

Second, the judgment explains that the conduct is inconsistent with the ‘role and value‘ of a search engine, which, in the words of the General Court ‘lie in its capacity to be open to results from external (third-party) sources and to display these multiple and diverse sources on its general results pages, sources which enrich and enhance the credibility of the search engine as far as the general public is concerned, and enable it to benefit from the network effects and economies of scale that are essential for its development and its subsistence‘ (para 178). In this sense, it is argued, a search engine differs from the infrastructures or input at stake in precedents like Bronner or IMS Health.

Paragraph 178 of the judgment will be discussed at length by commentators. The General Court goes as far as to suggest that favouring the firm’s own services is ‘not necessarily rational‘ for a search engine (or rather, that it is only rational for a dominant firm protected by barriers to entry). Alas, it is sufficient to take a look at the wider world to realise that the conduct at stake in the case is pervasive, even in industries where dominance is rare (such as supermarkets, which, one would assume, are also interested in offering the most attractive products to end-users but have long engaged in similar self-preferencing).

More generally, digital platforms (and search engines are not an exception) are partially open and partially closed. In this sense, the fact that some features in a platform are not open to third parties does not necessarily go against its interests (or is not necessarily irrational). In the same vein, business models evolve, and may become relatively more open (or relatively more closed) over time (think of Apple, which has followed the opposite path).

Indispensability and the Bronner conditions

The General Court also advances two arguments in support of its conclusion that the Bronner conditions (in particular, indispensability) are not applicable in the case.

First, the judgment introduces a doctrine of ‘quasi-essential facilities’. More precisely, the General Court notes that ‘Google’s general results page has characteristics akin to those of an essential facility‘. Even though several judgments are cited (para 224), there are no precedents supporting this position. It is, therefore, an innovation that would need to be confirmed by the Court if the judgment is appealed. It would seem that a facility is ‘quasi-essential’ where it cannot be duplicated (even if not objectively necessary to compete for firms on an adjacent market, which is the crucial consideration).

Second, the General Court engages with the Slovak Telekom judgment, which clarified that indispensability is an element of the legal test where an authority or court would have to ‘force’ a dominant undertaking to deal with third parties with which it has chosen not to deal.

In this regard, the judgment tries to distinguish between a refusal in the traditional sense and the behaviour at stake in the case. However, the General Court seems to concede that formal differences between the two are not decisive. The arguments against requiring indispensability in the case are ultimately drawn from the opinions of the Advocates General in TeliaSonera and Bronner. These opinions are cited (at para 239) in support of the proposition that exclusionary discrimination is a separate form of abuse.

A close look at these opinions shows that only Advocate General Mazak’s analysis in TeliaSonera is capable of substantiating the conclusion drawn from it in the judgment. Advocate General Jacobs’ in Bronner indeed mentions discrimination, but is clearly referring to exploitative conduct and therefore does not answer the question (the same is true, by the way, of the reference to discrimination in Irish Sugar).

In any event, Advocate General Mazak’s Opinion would still fail to address the criterion introduced by the Court in Slovak Telekom: would the key question not be whether intervention forces a firm to deal with rivals? If so, does it matter whether we call it discrimination or otherwise? One should not forget, in this sense, that Slovak Telekom came after the Opinion and that the latter was not followed by the Court in TeliaSonera, which struck a different balance.

The General Court dismisses the idea that a remedy forcing a firm to deal with rivals means that indispensability should be an element of the legal test. It does so in the following terms:

244. However, the obligation for an undertaking which is abusively exploiting a dominant position to transfer assets, enter into agreements or give access to its service under non-discriminatory conditions does not necessarily involve the application of the criteria laid down in the judgment of 26 November 1998, Bronner (C‑7/97, EU:C:1998:569). There can be no automatic link between the criteria for the legal classification of the abuse and the corrective measures enabling it to be remedied. Thus, if, in a situation such as that at issue in the case giving rise to the judgment of 26 November 1998, Bronner (C‑7/97, EU:C:1998:569), the undertaking that owned the newspaper home-delivery scheme had not only refused to allow access to its infrastructure, but had also implemented active exclusionary practices that hindered the development of a competing home-delivery scheme or prevented the use of alternative methods of distribution, the criteria for identifying the abuse would have been different. In that situation, it would potentially have been possible for the undertaking penalised to end the abuse by allowing access to its own home-delivery scheme on reasonable and non-discriminatory terms. That would not, however, have meant that the abuse identified would have been only a refusal of access to its home-delivery scheme‘.

Your thoughts on the above would be very much welcome. My impression is that the paragraph fails to engage with the question, which remains unanswered. The General Court explains, in essence, that, in a case like Bronner, the dominant firm may have breached Article 102 TFEU in a different way, and that remedying the additional abuse may or may not have required the firm to deal with third parties (think of an exclusivity obligation). That seems correct and unquestionable.

However, the fact remains that indispensability would have been an element of the legal test in relation to the refusal. Whether or not there might have been an additional abuse does not alter this conclusion. And, as the Court explains in Slovak Telekom, the reason why indispensability would have been an element of the legal test in relation to the refusal is because intervention would interfere with the firm’s freedom of contract and would amount to forcing it to deal with rivals.

The General Court’s interpretation of Slovak Telekom will give rise to some controversy and will be widely discussed. This is only normal, as there is much uncertainty around the meaning of the case law. Paragraph 246 shows the extent to which the relationship between remedy and legal test needs to be clarified. As cases like Bronner show, they are two sides of the same coin: it is artificial to distinguish between both. When pondering whether a refusal to deal should be abusive, we are acutely aware that intervention would involve mandating a firm to deal with rivals (and we are cautious about such a remedy). It is difficult to pretend otherwise.

Since this post is already too long, I will be addressing other questions (in particular in relation to effects) in other entries. If there was any doubt: still nothing to disclose.

Written by Pablo Ibanez Colomo

10 November 2021 at 6:44 pm

Posted in Uncategorized

REMINDER: Sports and Competition Law ft. yours truly @ the mardis du droit | 16 November, Institut d’études européennes (Brussels, 7pm local time)

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Super League Breakaway Clubs Release Statement Following Talks

I very much look forward to seeing many of you on Tuesday of next week (16 November, 7pm) in Brussels. I am proud to have been invited by Denis Waelbroeck and Jean-Francois Bellis to discuss recent developments in relation to the interface between competition law and sports. I will be doing so in the context of the legendary mardis du droit de la concurrence.

Information on how to register for the session can be found here. The information will be delivered in hybrid format. Should you have any questions on the registration process and/or on access to the event, do not hesitate to contact Françoise Vanden Broeck via Francoise.Vanden.Broeck@ulb.be.

The application of competition law provisions to sporting activities could not be more topical, with two pending rulings. One is a preliminary reference concerning the ongoing dispute between the UEFA/FIFA and the Super League (see here). The other one is the ISU case, concerning the lawfulness of some rules laid down by the International Skating Union (see here).

The cases are not only topical but also fascinating from a legal standpoint. Evaluating the compatibility of these rules with Articles 101 and 102 TFEU forces us to engage with traditional doctrines such as ancillary restraints and classics of the case law from Gottrup-Klim to Cartes Bancaires.

I plan on expanding the thoughts on this and this posts in a paper to be published after the presentation. Your insights, in what promises to be a great discussion, will definitely improve it.

A bientôt in Brussels!

Written by Pablo Ibanez Colomo

9 November 2021 at 3:34 pm

Posted in Uncategorized

Chillin’Competition DMA Symposium: Will the DMA deliver? On carrots and sticks (and some magic tricks), by Oles Andriychuk

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Duck-rabbit | NomadWarMachine

[This post is the next instalment in our ongoing series of guest posts bringing a range of perspectives on the Digital Markets Act (see here for the preceding entries). It is also a follow-up on the posts I published last week, in which I asked — here and here — whether, and to what extent, the DMA will deliver on its promises. This time it comes from Oles Andriychuk, whom I have been fortunate to know for many years and who has been thinking reflecting on the intersection between law and technology for as long as I can remember. No wonder he is emerging as a thougthful voice on ongoing reforms. Enjoy the piece!]

In one of his latest Chillin’Competition contributions on the DMA proposal, Pablo has raised a number of reasonably sceptical points about the ability of the DMA to deliver on its promises. He is asking these questions not from the technical, legal – but rather from a broader, societal – perspective. By this short note, I would like to offer my understanding of the processes underpinning the DMA, and which respond to Pablo’s observations – and again, in the genre of a friendly coffee-chat polemic. The focus of the first original post, addressing DMA’s substantive aspects, is placed on the critique of the following three strategic goals of the DMA: (i) making leveraging the dominance from one market to others less straightforward; (ii) rents re-allocation and (iii) triggering competition in bottleneck segments of digital markets. The main attention is paid to the third issue, which is described as “an impossible, or virtually impossible, task”. The argument being that for very well-known reasons many digital markets (and clearly most of the CPSs) are inherently close to natural monopolies, and those seeking enthusiastically to change this foundational feature of the markets by introducing a long list of substantive ex-ante obligations are likely to be disappointed, as the task may turn out to be Sisyphean: “No matter how forcefully one may want to preserve rivalry on a market, if it does not structurally allow for it, it will not happen”.

It will be hard for DMA to change the markets’ DNA

The ‘Sisyphean task’ point is indeed one of the underrepresented topics in the discussions on the role and function of the DMA in shaping digital markets, and its proper analysis could help to discover a master-key to the entire DMA project. In my view, the real purpose of the DMA is based less on bringing paradigmatic changes to the functioning of digital markets. What really matters in this overall legislative endeavour is horizontal, not vertical aspects.

The vertical task in many senses may become Sisyphean indeed. Of course, some meaningful refinements on the periphery of business-models are possible, and some of these refinements will contribute incrementally to the improvement of vertical and downstream rivalry at the intra-platform level. Here we are essentially talking about P2BR+ function of the DMA. These issues are indeed important and even if the task of the DMA would stop here, it is still a project worth pursuing. But it is hard to share the holistic optimism that the DMA is capable to identify correctly – let alone address comprehensively – all/most/many systemic flaws and market failures of the digital economy. It is in fact illusionary to think that any public regulation can capture – let alone steer – such a dynamic, technically complex multilayer market.

Following the latest regulatory activities in the field, the gap between the enforcers and the technology has indeed decreased significantly: from being catastrophic to becoming huge, and this is probably the maximum we can realistically expect. We are dealing with the problems, designed two or three decades ago. Do we really think that the Digital Leviathan had invented these business models and then hibernated peacefully for 20 years? The most one should expect from a successful intervention is that it will make the gap a decade shorter. To paraphrase Kelsen, Big Tech are like King Midas. Just as everything King Midas touched turned into gold, everything to which Big Tech refers becomes their advantage. No matter what is introduced in the law, sooner or later (sooner) the algorithms will process all the technical constraints to the benefits of their controllers. This is unchangeable. Call it dark patterns or an extended privacy paradox, but despite the fact that most of the market participants (business- as well as end users) disagree with the status quo normatively, many are adapted to the situation behaviourally. We say ‘interoperability’ – they hear ‘another challenge to my business model’; we say ‘multihoming’ – they hear ‘fragmentation’. Is it likely that the DMA alone will make a paradigmatic change to this systemic condition? Don’t ask the GDPR adepts.

Vertical, horizontal, asymmetric (some DMA geometry)

My expectation from the DMA is different. I understand why – and I see how – it can have a significant impact on competition for the digital markets. In my view, this dimension of the DMA is more important than the previous one. Let me begin though with a broader point.

Pablo asks rhetorically if it is indeed within the public mandate of competition law and policy (even if taken sensu lato) to pursue macroeconomic objectives. His answer is clearly negative: “competition law is now expected to achieve something it cannot and was never designed to do”. My answer is less clearly positive. After the disillusioning in the omnipotent absolutism of Law & Economics consensus to define, measure and manage economic competition, the question of rediscovering the normative goal/s and methodological toolkit of competition policy becomes open again. Leaving aside the substantive aspects of this discussion, it appears that the new modality of competition policy will be characterised by two features: (i) its greater preparedness to engage with broader economic and non-economic goals (without co-opting them explicitly into the disciplinary apparatus); and (ii) pluralistic co-existence of different approaches and theories, allowing enforcers to shop around in search for the most suitable one, pretty much, ad hoc.

In this emerging reality the goal of the DMA is less about redesigning the unredesignable, and more in adjusting the regulation to the broader societal interests. What exactly constitutes such an interest for the EU? Who exactly holds the required strategic vision and powerful will for pursuing this broader societal task? – Answering these existential questions is beyond my competence. Suffice it to say that such a broader projection exists. And if it does not – it should. The horizontal dimension is less about recalibrating the inner features of digital markets as such, and it is more about establishing closer links between these markets and EU’s strategic interests. Yes, the substantive provisions of the DMA are focused on vertical relationships, which triggers a logical expectation that the DMA is about ‘improving’ something, which is in Pablo’s (and in my) view fundamentally unimprovable (introducing workable competition to naturally monopolised markets). The main purpose of the DMA, however, appears to be in facilitating horizontal non-ecosystem entries. In my opinion, without this strategic goal, the DMA would doom to underperform.

Mind the old saying: it is the lender who suffers from insomnia, not the borrower

Not elaborating on what, let me elaborate on how. This links me to Pablo’s second post “Institutional aspects (or obligations do not become self-executing by decree)”. He makes an important observation that technically, the monitoring of compliance with most of the requirements of Arts 5 and 6 DMA (as well as other DMA obligations and expectations) is a very laborious task. He offers a very good example of how technically dense the EU Electronic Communications Code – which covers only a fraction of what will be covered by the DMA – is. Extrapolating it to the wide by scope and opaque by design obligations of the DMA, we can see that it is likely to end up with the labyrinth of requirements, which could be interpreted differently depending on the will and the skills of interpreters, constellations of stars in the sky and – as our friends-legal realists proclaim – on what judges ate for their breakfasts.

For the DMA’s addressees – as well as for those expecting the DMA to improve unimprovable – this characteristic of the proposal is its main systemic bug: ‘make obligations clear and precise, do not just do a generic hotchpotch of previous cases – and gatekeepers will be complying’, – say the former; ‘make obligations clear and precise, do not just do a generic hotchpotch of previous cases – otherwise gatekeepers will not be complying’, – say the latter. However, the opacity appears to be not a bug, but the DMA’s main distinctive feature, capable to address the consequences of the ‘Sisyphean task’ aporia. It is hard to disagree that the totality of the DMA obligations is realistically neither monitorable nor achievable. But it is equally non-compliable. The question is if this laborious technicality condition places the compliance burden on the Commission or on the gatekeepers. Evidently, the burden is placed on the gatekeepers. From the vertical, intra-platform, rationale, this would make little sense. However, from the horizontal, ‘opening-up’ perspective this is very pragmatic. The DMA, in other words, is not limited to its façade-goal of protecting downstream markets from vertical misconducts of the gatekeepers. This task would require some DSA-style regulatory supervision, designing obligations not in a strictly binary 102-style fashion, but in a more proportionate, pyramidal way (the bigger the intermediary, the stricter the requirements). Yes, the DMA speaks about this vertical duty, and it is an important dimension of the act. Its more important strategic task, however, goes beyond its wording. Or less euphemistically, the vagueness of the wording of the DMA is intentional, allowing the wording to be further instrumentalised.

The mechanics of such instrumentalisation is designed in a juristically elegant (elegant for supporters but cynical for opponents) way. Essentially, the susceptibility of being further specified format envisages the situation when a gatekeeper is invited into a room with a carrotstick object on the wall. Whether this object is a carrot or stick would depend on the ability of the gatekeeper to read between the lines and on its readiness to compromise during the regulatory dialogue (and the ex-tunc/ex-nunc discretion is only the smallest of the available carrotsticks). Technically, the agenda of the dialogue would be limited to the relevant provisions of Art 6(1) DMA. Factually, the opaque by design scope of these provisions, full of open-textured adjectives and theories of harm, would mean that the discussions could end up approximately anywhere.

The power of the DMA, in other words, is not in the ability of the Commission to enforce the catalogue of obligations in its totality. It is rather in the ability of the Commission to identify an instance of non-compliance ­(and then an instance of systematic non-compliance) whenever it is necessary. And even more so, this power is in the Commission’s ability to turn a blind eye to the practice whenever it is not strategically important in the enforcer’s judgement. This feature may explain the desire of the Commission to share the magic wand for converting carrots into sticks (and back) neither with the NCAs (beyond some assistance and strategic planning) nor with the third parties (beyond follow-on actions). Like with the leniency vs. private enforcement dilemma, the magic stops once exclusivity is lost. Yes, “obligations do not become self-executing by decree”. The expectation of the opposite would be overly optimistic, and I agree that those waiting for the DMA to transform the Wild-West-Wonderland into a Civitas-Solis are likely to be hugely disappointed. This would become a major problem for the enforcer, which really means to maintain the order by executing obligations in their totality. This same feature, however, turns miraculously into a strategic advantage for the enforcer maintaining the order by establishing instances of non-compliance instrumentally. The real purpose of the DMA is not in changing markets vertically, but in opening them up horizontally.

Written by Pablo Ibanez Colomo

26 October 2021 at 4:30 pm

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Will the DMA deliver on its promises? Part II: institutional aspects (or obligations do not become self-executing by decree)

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When you want something, all the universe conspires in helping you to  achieve it. - Paulo Coelho - Quotespedia.org

In the post published on Wednesday, I covered the substantive reasons why the Digital Markets Act (DMA) is likely to underdeliver (and if it does, it will do so by design). There are, in addition, a number of institutional factors that one needs to consider.

It is not a secret that the institutional context within which a regime is applied may play a major role in its success (not to mention its substantive scope and reach). The DMA is not an exception in this regard. It makes sense to ask, and debate, whether the premises underpinning the regime (and the resulting institutional setup) are in line with what the restructuring of digital markets requires.

Getting to the remedy stage is just the end of the beginning

Competition law has been criticised by some stakeholders for placing cumbersome demands on authorities. If it were easier to establish an infringement (or if establishing an infringement were not a precondition to intervene in the first place), the argument goes, enforcement would be more effective. Alternatively, some commentators have argued that some of the recent cases have been a “failure” (no less) because of the remedies chosen by the Commission.

These criticisms come across not only as unfair to the Commission, but also as misguided. As I have mentioned many times, establishing an infringement in digital cases is, to paraphrase Churchill, just the end of the beginning. Intervention aimed at fundamentally restructuring markets and/or altering business models is distinctly difficult and resource-intensive at the remedy stage.

In other words: the real challenge in digital cases is to figure out how to redesign a product, how to change a monetisation strategy and how to recalibrate the allocation of rents within an ecosystem. Establishing an infringement, by comparison, is just an amuse-bouche. We have always known that competition law struggles with remedies of that nature and therefore nobody should be surprised that intervention demanding authorities to restructure markets takes time or fails to fulfil the expectations of some stakeholders (more on this below).

Discussions around the DMA occasionally give the impression that the new regime is based on the idea that, by reversing the burden of intervention and, effectively, moving to the remedy stage from the get-go, the main difficulties will have been addressed. The opposite, in fact, is true.

I have often said that some of the obligations set out in Article 6 of the DMA would each require a regulatory framework of their own. In fact, a few of these duties seem far more challenging, for an agency, than regulating telecommunications. And if you take a look at how the latter are regulated in the 179 pages of the EU Electronic Communications Code, you will get an idea of the magnitude of the task ahead in digital markets.

As can be seen, the DMA does not represent a substantial change from competition law on what really matters in practice. For the same reason, it seems likely that the same stakeholders that expressed frustration with the pace and effectiveness of Article 102 TFEU enforcement will be just as dissatisfied once the DMA is in force.

Obligations do not become self-executing by decree

The solution to the challenges raised by fundamentally restructuring digital markets is, according to some, to ensure that obligations are “self-executing”. With the appropriate regulatory design, the argument goes, gatekeepers will adapt their conduct, products and business models to the demands of the DMA.

This line of thinking is what I have labelled the “Paulo Coelho School of Regulation”. It seems based on the hopeful view that the self-executing nature of an obligation depends on the willpower of the legislature. If it believes hard enough, it will ensure that the regime works without delays in its implementation and without a large regulatory apparatus.

I am afraid I do not share the optimism of the coelhians in our community. In the same way that a regime cannot turn natural monopolies into effectively competitive oligopolies, it cannot turn obligations into self-executing mandates by decree.

Again, the experience acquired in telecommunications provides a valuable cautionary tale. The liberalisation of that sector in New Zealand was based on the hope that competition law alone would do the job, and that the cumbersome access and interconnection obligations would become self-executing through court action. It did not take long to realise that such hopes would not materialise.

There is a chance that the DMA will become a second “New Zealand moment” in the history of regulation once it becomes clear that, more than “further specification”, some duties necessitate all but a sector-specific framework of their own.

The risk of perpetual grievances: when will obligations go far enough?

One can think of a third, final factor, that may stand in the way of the DMA delivering (or, rather, which may create the impression that the DMA fails to deliver).

The design of the DMA makes it particularly vulnerable to the risk of perpetual grievances. First, the obligations (at least those enshrined in Article 6) are relatively broad and vague, in the sense that they can be construed in a multitude of ways. Second, there is no obvious benchmark to assess whether or not they meet the objectives set out in the regime. Third, there is no point at which obligations cease to be imposed: there is no real sunset clause or similar mechanism.

Combine these three instruments, and one can see how stakeholders benefitting from intervention would be able to claim that a particular incarnation of the obligations in insufficient in the sense that it does not go far enough, or that it is not ambitious enough. And it would be difficult to blame them: why not go for the maximalist approach allowed under the regime? Is it not what any authority that is serious about achieving the objectives of the DMA would do?

Add to the above the fact that several agencies will compete for the same regulatory space (within or outside the confines of the DMA; within or outside the EU) and it is easy to see how a never-ending quest towards maximalism may be a feature of intervention in digital markets.

I look forward to your comments (I had nothing to disclose on Wednesday, and nothing to disclose today).

Written by Pablo Ibanez Colomo

22 October 2021 at 7:25 am

Posted in Uncategorized

Will the DMA deliver on its promises? Part I: substantive aspects (or markets do not become contestable by decree)

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How Tech Companies' Election Promises Have Held Up – The Markup

As the legislative train carries on its journey towards the adoption of the Digital Markets Act (DMA), academics, stakeholders and consultants have produced a great deal of work examining how the future regime can be improved and made more effective, whether from an institutional or a substantive standpoint.

One of the questions that is far less prominent in these debates is whether the DMA can actually deliver on its promises. Put differently: is it realistic to expect that the regime will achieve every one of its ambitious aims? It seems to me that this question is, at the end of the day, more relevant. Achieving the optimal design of the regime would be a futile effort if it appears that it is expected to achieve an impossible task.

A regime that promises what it will be exceedingly unlikely to deliver is bound to create frustration (and even the false impression that failure is not a function of the regime’s structural inability to achieve its aims, but rather the regulator’s lack of willingness to meaningfully enforce it).

Against this background, I thought it might be a good idea to start a debate along the abovementioned lines, if only because managing expectations about what regulation can and cannot achieve is always a good idea.

The DMA is not particularly explicit about how it intends to transform digital markets. Contestability and fairness are, in this sense, more high-level aspirations than operational principles. Beneath Articles 5 and 6, I identify the following three goals (which I discussed in this paper of mine too):

Address the risk of leveraging from bottleneck segments to neighbouring ones: this is a traditional goal in competition law and sector-specific regulation (think of telecoms regimes, for instance). The idea is simple: ex ante intervention seeks to avoid the possibility of the extension of dominant position from one market to adjacent ones.

Re-allocate rents (away from so-called gatekeepers to firms in neighbouring markets): there should be little dispute that the ambition (arguably the single most important ambition) of the DMA is to redistribute rents within and across digital ecosystems. This goal is achieved through several mechanisms. A straightforward technique is to ban or water down gatekeepers’ monetisation strategies (for instance by allowing the side-loading of applications). Another one is to limit gatekeepers’ ability to fight free-riding (for instance, by banning altogether MFN clauses).

Inject competition in bottleneck segments: the final, and most ambitious, goal of the DMA is to inject competition within bottlenecks (that is, markets where a gatekeeper enjoys a dominant, if not superdominant, position). In this regard, the regime seeks to change the structure of platform markets to introduce and preserve effective rivalry. For instance, the DMA does not hide its ambition to inject competition on the market for search engines.

So: can the DMA deliver on these promises? When it comes to the first two goals, I am ready to guess that the consensus is that they are, in theory and practice, at least achievable. Preventing leveraging and re-allocating rents is what utilities regulation has routinely done for decades.

The real question, in relation to these first two goals, is whether they are necessary and/or desirable. I am not uncovering any secret when I say that there is no consensus on this front. Some believe ex ante intervention in this sense is both necessary and desirable, some do not. My views are also well known, and I developed them in this paper.

The third goal is far more interesting. As far as I can see, the DMA has probably set itself an impossible, or virtually impossible, task. If a market is a natural monopoly (or displays extreme returns to scale, to use the expression found in the Special Advisers’ Report), regulation, alone, cannot change the tendency of a market towards concentration (or, more precisely, towards the emergence of dominant or superdominant positions).

The above is also true, by the way, of competition law. No matter how forcefully one may want to preserve rivalry on a market, if it does not structurally allow for it, it will not happen (which is why we have, for instance, the failing firm defence in the field of merger control, and the reason why dominance is not prohibited as such under Article 102 TFEU). It is important to bear this point in mind when debating whether competition law is working or is being applied effectively in digital markets: are some stakeholders frustrated with recent enforcement because competition law is now expected to achieve something it cannot and was never designed to do?

At most, competition law and regulation can intervene at the margin, and act against any practices that may accelerate the natural tendency of the market towards concentration (by acting, for instance, against exclusivity obligations). Ultimately, however, they will have to deal with the reality that the economic context allows: they cannot force, by regulation, different features.

Effective competition in a market that is structurally unsuited for it will come from technological and economic change, not from regulation. Regulation can, at most, accompany the process and perhaps reduce the scope of the bottleneck segment (not eliminate it). Telecommunications is a wonderful example in this regard (and the EU Regulatory Framework for electronic communications is the gold standard, in my view, of how regulation is to engage with changing realities).

The task is even more difficult as far as the DMA is concerned: dealing with natural monopolies is hard enough when the issues are well known and have been researched inside out (as in telecommunications or electricity). Just think of how much harder it is when the drivers of markets and technologies are not fully understood (and, as the Special Advisers point out in their Report, market dynamics in digital markets are not yet fully grasped).

I tell myself that a task for academics, moving forward, is to manage expectations: I just hope that the success or the failure of the DMA will not be measured against its ability to deliver deconcentration in bottleneck segments controlled by one or two gatekeepers. This point does not justify, alone, changing the regime, but it is a powerful reason to be realistic and to understand that the DMA will most probably underdeliver (and will do so by design).

(As you know, I have nothing to disclose in this or indeed any other matter).

Written by Pablo Ibanez Colomo

20 October 2021 at 12:27 pm

Posted in Uncategorized

IEB Postgraduate Competition Law Course (25th edition)

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Diez cosas que no sabías sobre Madrid - Datos interesantes y curiosidades  sobre la capital: Go Guides

2022 will mark the 25th edition (!) of the EU and Spanish competition law course founded by Luis Ortiz Blanco. This is a course that is particularly dear to us: I took it as a student back in 2005, and have co-directed it for the past few years; Pablo is also actively involved as lecturer and module coordinator.

The course (taught partly in Spanish and partly in English) will run from January to March 2022 in a hybrid format (attendees can participate either in person or online). Lectures take place in the afternoon (16h to 20h CET) to help make it compatible with other professional or academic activities.

As always, it will feature a great line-up of international lecturers (70 in the past edition) that include Judges from EU and national courts, officials from the European Commission, the Spanish CNMC and other national competition authorities, as well as top-notch academics, in-house lawyers and practitioners. Students are tipically officials from competition authorities, in-house lawyers as well as lawyers/economists in private practice. The course is designed to cater to all levels.

All relevant information (program, coordinators, cost, sponsors, and list of lecturers in the past edition of the course) is available here:

IEB COMPETITION LAW COURSE 2022

In addition to registering for the full course, it is also possible to register for the 1-day seminars that will be fully taught in English. The seminars in this 25th edition will be the following:

Seminar 1- Recent Developments in EU Competition Law (4 February 2022). Coordinators: Fernando Castillo de la Torre and Eric Gippini-Fournier

Seminar 2 – Competition Law in Hi-Tech Markets (25 February 2022). Coordinators: Nicholas Banasevic and Alfonso Lamadrid

Seminar 3 – Sport and Competition Law (18 March 2022). Coordinator: Marcos Araujo

Seminar 4 – Private enforcement of the competition rules (25 March 2022). Coordinator: Mercedes Pedraz

Special Seminar – Celebrating 25 years of the Course (1 April 2022).

If you want to know more, please drop us a line at competencia@ieb.es

Written by Alfonso Lamadrid

15 October 2021 at 10:42 am

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