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On the possible ex ante regulation of online platforms (II): line of business restrictions (OECD round table)

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OECD Competition Law and Policy | LinkedIn

Discussions about the ex ante regulation of platforms are becoming ever more prominent. I do not think any reader is unaware of yesterday’s announcements by the European Commission relating to the development of new tools in the competition and the ex ante regulation arena (see here and here).

As these debates gather momentum, the OECD has set up a panel on an issue that is central to them. You will be able to find here all the info on the upcoming round table (Monday of next week), including a background note and a set of videos featuring, among others, yours truly (feedback most welcome!). The presentation I used in the video can be found here. Big thanks, by the way, to Chris Pike (OECD), who also prepared the background note.

The panel is devoted to line of business restriction, that is, the different regulatory techniques used to limit the ability of a firm to take part in an adjacent activity. It is a topic address in Martin Cave‘s legendary ‘Six Degrees of Separation’, still one of the best titles of all time for a paper (see here).

The topic is a classic one in utilities regulation. A substantial fraction of debates in telecoms relates to the separation of the local loop from other activities (in particular, retail activities like broadband). In the energy sector, the separation of natural monopoly segments (transmission and distribution) from the rest of the activities (generation and supply) is also a central aspect.

The idea of separation has made a comeback. Some advocate the same approach to separation in relation to online platforms. Some advance the idea that Big Tech firms like Google or Amazon should be subject to some form of separation across their different activities.

In my presentation, I introduce the various degrees of separation as points along a spectrum: from the least intrusive (transparency obligations) to the most intrusive (structural divestiture). This is how I see it:

Line of business

The fundamental point I make in the presentation is that the choice between one end of the spectrum or the other seems to depend on two factors: the rate of innovation and the efficiencies resulting from the activity.

In particular, the greater the degree of innovation on a particular market or industry, the greater the reluctance to go for the most intrusive options. It is not a surprise that telecoms authorities have so far been very cautious about mandating the structural separation of the local loop from the rest of activities.

What about online platforms? What lessons can we draw from utilities regulation?

First, they are closer to telecoms in terms of innovation than to any other network industry. Thus, we should be greatly cautious about structural separation.

Second, online platforms makes the task of separation much more difficult. For all the innovation and the efficiencies, the set of problems in telecoms is relatively narrow and well-defined, and similar solutions make sense across the board.

In the context of online platforms, on the other hand, markets are much more heterogeneous. An online platform can be dominant in its core segment and have a marginal role in an adjacent one. As a result, the adoption of regulatory solutions can be considerably trickier. It is not clear how they can be crafted.

And with that open question, I leave it for the panel discussion…

I look forward to your comments!

 

 

 

 

 

Written by Pablo Ibanez Colomo

3 June 2020 at 9:31 am

Posted in Uncategorized

The Dangers of a Protectionist Revival: Digital Turnover Taxes under State aid law

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(by Alfonso Lamadrid and José Luis Buendía)

Our last blog post on State aid observed how the Covid-19 crisis may awake dangerous currents in Member States and how, absent concerted action or legal safeguards, unilateral measures could pose a threat to the EU internal market. We had in mind measures that could aggravate existing economic asymmetries between Member States. The Commission is now commendably pursuing a concerted approach on that front.

This post is about a different but related threat: that Member States may succumb to a renewed temptation to engage in backdoor protectionism through State aid.

The problem is not new. The Commission quickly realized about this risk and challenged the Polish and Hungarian taxes on retail and advertising, pointing to their clearly discriminatory nature (by virtue of progressive turnover thresholds, they affected almost exclusively companies from other Member States, and not domestic ones). We ourselves had also already discussed this on this blog (see here, and also here for Pablo’s take) when commenting publicly on the Digital Service Taxes announced in several Member States due to the absence of international or EU-wide consensus. Like the Polish and Hungarian measures, these also seek to tax non-domestic companies [Disclosure: we (but not Pablo) have since then written legal opinions for various companies on this subject].

Even if the problem is not new, it is now that this risk is acquiring a completely different dimension due to a combination of factors. First, Member States obviously need additional sources of income to support their economies (this is not only legitimate, but very necessary). Second, Member States might now have more incentives to obtain new income from non-domestic companies in order to support domestic ones (that is neither legitimate nor necessary). Third, recent Court Judgments may be read as suggesting that there is a creative way for Member States to pursue protectionist goals without contravening free movement and State aid rules.

These latter Judgments come from both the General Court (in Poland/Commission, T-836/16 and T-624/17, and Hungary/Commission, T-20/17) as well as, more recently, from the Court of Justice (Tesco-Global Áruházak, C-323/18, Vodafone Magyarország, C-75/18, and Google Ireland, C-482/18). In these cases the EU Courts would appear to have adopted a more lenient stance regarding Member States’ protectionist measures, refusing to follow the sensible positions advance by the European Commission (for a comment on the latter see also Prof. Nicolaides’ comment here).

What these Judgments have in common is that they have seemingly dismissed allegations of material discrimination, choosing instead a formal assessment of ad hoc taxes as reference systems of their own. In other words, they accept at face value the declared logic of each specific tax (for instance, the need to tax advertising and to do so based on turnover) without wondering if the said logic is consistent and fits within the objectives of a fiscal system as a whole.

Perhaps the EU Courts’ ambivalence and lack of decisiveness in the assessment of these measures has to do with political sympathy for other unilateral measures (Advocate General Kokott’s Opinion in the Hungarian cases suggests that the Court may have had in mind Digital Services Taxes when approaching these other recent cases). Political sympathy for a given set of measures, however, should not blind us to their possible illegality; arguably, it should even make us more alert to it.

Indeed, the problem is much bigger than DSTs or that the Hungarian and Polish taxes at issue in the recent Judgments and in other pending cases. If this new and recent line of case law were confirmed in the pending appeals against the General Court Judgments, it would open the door to deconstructing all the progress achieved in fiscal State aid in recent years.

Negating the potential discriminatory nature of progressive taxes could run counter to non-discrimination principles as well as to an established line of case law on asymmetric taxes (British Aggregates, T-210/02 RENV recently confirmed in ANGED, C-233/16). In these and other cases EU Courts have consistently established safeguards against artificial boundaries around fiscal measures, emphasizing the need to check whether the boundaries and conditions of specific taxes are coherent with their declared objective or are rather set in an arbitrary way.

The lack of a clear EU position on unilateral asymmetric/ protectionist measures can be the source of enormous problems at a time when the temptation to resort to them may be particularly high. Any Member State could simply decide to slice up the national tax systems into ad hoc taxes in order to avoid State aid control, and to create asymmetric taxes targeting not a public policy goal, but only certain players with a perceived capacity to pay. This would not just concern EU retailers in Poland and Hungary or a handful of US multinationals. These would simply be the first in a long list. And then, let’s not underestimate the capacity of other blocs around the world to reciprocate with similar discriminatory and distortive taxes.

One can only hope that the negotiations at OECD level to reform the international tax system will result in some international consensus on digital taxation. A very recent Commission Communication has confirmed that it supports the discussions led by the OECD and the G20 and stands ready to act if no global agreement is reached.

Pending these negotiations, it would be dangerous to EU law to permit unilateral discriminatory measures. Some may feel sympathy for measures designed to affect only global players, but one should keep in mind that exactly the same approach could be replicated to discriminate between different EU companies.

Written by Alfonso Lamadrid

29 May 2020 at 10:21 am

Posted in Uncategorized

Case T-399/16, CK Telecoms v Commission: a new Airtours moment and the future of effects analysis

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Law matters

The assessment of non-coordinated effects in ‘gap cases’ has attained its Airtours moment: earlier today, the General Court annulled the Commission decision declaring the incompatibility of the acquisition of O2 by Three (see here). The judgment is, to be sure, of major importance for that aspect of merger control. It is significant, however, for EU competition law at large. I can think of three contributions in this sense:

  • EU competition policy, the General Court confirms, is implemented through law, not discretion.
  • The analysis of effects is a meaningful one in EU competition law; this is true across all provisions.
  • The proposed reform of the EU competition system will not legislate away law and judicial review.

Why this case was so important: it was law vs discretion, and the law won

When the decision declaring the incompatibility of the transaction was announced in 2016, I discussed (see here) what was, in my view, the main potential problem with the assessment of non-coordinated effects under Regulation 139/2004. Because it is no longer necessary to establish dominance in the new regime, Article 2 could in theory be interpreted as allowing the Commission to block any horizontal merger.

Suffice it to think about the matter for a second: any concentration involving actual or potential competitors leads, by definition, to a reduction of competitive pressure and thus to an increase in market power (no matter how small).

Accordingly, one could make a not unreasonable argument that any such transaction gives rise, by definition, to non-coordinated effects. If this interpretation were accepted, then the Commission would enjoy, in effect, the discretion to decide which horizontal merger to allow and which to block.

The idea that the Commission would enjoy (de facto) discretion would not only be at odds with Regulation 139/2004, but with the logic of EU law at large, whereby it is for the EU courts, not an administrative authority, to state what the law is.

This central aspect is grasped by the General Court in CK Telecoms. The judgment is explicit about the risk of construing Regulation 139/2004 in the way described above.

Paragraphs 157-176 are of particular relevance in this regard. In its Three/O2 decision, the Commission had claimed that Three was an ‘important competitive force’. However, the General Court notes, the authority had defined the notion in such a way that any competitor in an oligopolistic market would count as an ‘important competitive force’ (thereby affording de facto discretion to itself). Para 174 is, I think, the crucial one.[1]

I read this aspect of the judgment as demanding a meaningful assessment of the ‘appreciability’ of the effects of a horizontal merger that does not give rise to dominance (that is, a ‘gap’ case). Appreciability is required by virtue of Article 2 of the Regulation, which refers to a ‘significant impediment’.

Most of you will remember that the Court of First Instance faced the very same issues in Airtours already. In that case, the Commission, by playing down the ability to collude, had defined the notion of collective dominance in a way that would afford it de facto discretion to block any horizontal merger in an oligopolistic market.

After today’s judgment, we now know that the ‘gap’ left open by Airtours (which in turn led to the adoption of Regulation 139/2004) is also driven by law.

In the same vein, the General Court confirms (paras 95-105) that, in order to establish a significant impediment to effective competition in a gap case, it would not be sufficient to show that the transaction would lead to a ‘reduction of competitive pressure on the remaining competitors’ (see Recital 25 of the Preamble to the Regulation).

It would be necessary to establish, in addition, that it results in ‘the elimination of important competitive constraints that the merging parties had exerted upon each other’. I feared that we might not have a structured legal test for the assessment of non-coordinated effects in ‘gap cases’. The General Court, fortunately, has provided one.

The analysis of effects in EU competition law is a meaningful one

More generally, the judgment provides confirmation that the analysis of effects is a meaningful one in the EU competition law system. The analysis can revolve around potential effects, true, and it is not necessary to establish that it is certain that such effects will occur. Still, the Commission would need to show, as a matter of law, that the practice or transaction would probably have such appreciable effects (paras 115-119 of the judgment).[2]

CK Telecoms provides several examples of the ways in which the Commission may fail to show effects. For instance, the authority did not establish, to the requisite legal standard, that Three was an ‘important competitive force’ (paras 155-226). It also failed to show that, prior to the transaction, O2 and Three were close competitors (paras 227-250). Finally, the quantitative evidence relied upon by the Commission was insufficient to establish that prices would rise significantly (paras 260-282).

The analysis of effects is central to the outcome of many pending cases (before the Commission and the EU courts). As a result, the very frictions observed in CK Telecoms are likely to be observed again.

One aspect should be emphasised in this regard: the notion of anticompetitive effects is the same irrespective of whether merger control, Article 101 TFEU or Article 102 TFEU are at stake. In fact, today’s judgment is in line with the most recent case law on Article 102 TFEU (e.g. MEO and Intel). It is only sensible that, as the case law shows, the concepts of ‘competition’ and ‘effects’ have the same meaning across the board.

On the reform of EU system: law and judicial review cannot be legislated away

CK Telecoms comes at a time when there are discussions aiming to take competition law in the opposite direction from where the EU courts have taken it over the years. Today’s judgment is just the latest of a trend of cases that show that competition policy is implemented through law (as opposed to discretion) and that administrative action is subject to full review of all issues of law and fact.

Some of the proposals to reform the system appear to hint at a different way of doing policy: discretionary fine-tuning of markets away from the law, away from the judges. I understand why this Copernican Revolution would appeal to some. However, CK Telecoms leads me to the conclusion that, at least in the EU system, law and judicial review cannot and will not be legislated away.

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Written by Pablo Ibanez Colomo

28 May 2020 at 4:25 pm

Posted in Uncategorized

State Aid Asymmetries and the Covid-19 Outbreak- An Update and an Offer

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covid

At the end of March, my colleague José Luis Buendía and I wrote a post on this blog (also here and here) pointing to the risk of massive distortions to the internal market caused by the asymmetric national responses to the Covid-19 outbreak. We put out there a proposal to mitigate these distortions that we think would be legally feasible.

This was not a prominent debate at the time. After all, there appeared to be more pressing issues, and pointing to this one was uncomfortable, and even politically incorrect. Things, however, have changed, and this debate is gaining prominence (see below for a list of recent pieces touching on it). President Von der Leyen and Commissioner Vestager have now also warned about the dangers of what’s happening. The consequences of what we decide to do on this subject might be felt for generations.

What was politically incorrect only two months ago has now become almost the consensus. To put it mildly, almost everybody recognizes now that may be witnessing the greatest competitive distortion of our lifetime. Having a correct diagnosis does not cure the illness but is at least a first step in the right direction. It is certainly much better than denying the existence of the problem.

We put a possible solution on the table that we think is legally feasible, but you might have other ideas about variants or alternative models that could also do the trick. We are confident that if the community of competition lawyers and economists puts its creative juices to work we might be able to contribute to the solution. After all, we can get really creative when it comes to market definitions and theories of harm…

If any of the readers of this blog has other ideas or suggestions on how to prevent, mitigate or correct these competitive distortions, we are happy to offer you a space in this platform.

For more on this see, for example:

-. Von der Leyen warns state aid ‘unlevelling the playing field’ in Europe (The Guardian, 13 May)

-. Vestager: Discrepancy in state aid distorts single market, hampers recovery (Euractiv.com and Reuters, 18 May)

-. EU Members clash over State aid as richer countries inject more cash (Financial Times, 1 May)

-L. Hornkohl and J. van‘t Klooster, With Exclusive Competence Comes Great Responsibility: How the Commission’s Covid-19 State Aid rules Increase Regional Inequalities within the EU, VerfBlog (29 April)

-M. Motta and M. Petz, EU state aid policies in the time of COVID-19 (18 April);

Macron: “We are at a moment of truth” (Financial Times, 17 April)

– JL. Buendía, Editor’s Note: Editor’s Note – State Aid in Time of Cholera (European State aid Law Quarterly, Vol 19, Issue 1 (1 April)

Written by Alfonso Lamadrid

19 May 2020 at 7:45 pm

Posted in Uncategorized

The debate on big tech- We can do better

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we-can-do-better

The debate about the role of technology and technology companies in the economy and in society is inevitable, and largely positive. It is necessary and healthy for experts to discuss the virtues and perils of different ideas and approaches, no matter how creative, conservative, revolutionary. I am not sure, however, that many of the ongoing debates will assist society in reaching sensible solutions. I don’t know where the right balance lies, but I do have a clear idea of how we are not going to attain it. So this is not a post on substance; it is (mostly) a post on process.

An important disclaimer: I do have professional interests in this debate and work for companies at the center of these debates (on the last point I discuss how that affects my personal views and attitude).

1-.The tone. It is perplexing to see how much animosity these debates create, how many personal attacks and high-pitched criticism they trigger, how they make awkward friends and new enemies. But we should all be above that. We probably all think we are on the right side of the debate (which is not necessarily a bad thing). But that doesn’t entitle anyone to be offensive or dismissive of those with different ideas. If anything, we have the responsibility to demonstrate the merits of our ideas, and not let them lose weight because of our tone. Being a lawyer is mostly about empathy, and too often we show too little. Can’t we try to be less controversial and more civilized? [A tip: the ones who insult the least are the ones who tend to be right]. All these are but minor issues in the grand scheme of things. Even within competition law, there are arguably more important ongoing debates eliciting less passions and commentary

2-. The temptation of partisanship and simplicity. Unfortunately, moderate views are often a faithless creed. Pablo wrote some time ago about the “footballization” of competition debates. As he explained, “it would seem it is all about joining a team – becoming a loud, proud member of a camp that supports everything that comes from within and opposes whatever comes from the other side”. That’s sadly true. Life is much more comfortable when you align yourself with one view and know always what line to take. If only things were that easy… Most debates are about trade-offs, and that is certainly the case of debates on big tech. If you refuse to understand the real points others are making, your arguments will be weaker, it not flawed. That’s an easy mistake to make (perhaps I make it all the time), but that’s precisely why we should resist the instinct. More nuance would do much good.  More active listening and constructive engagement with/by the affected stakeholders (companies, consumers, industry associations) would also be desirable.

3-. The lack of neutrality. Last weekend we received a critical comment pointing to alleged conflicts of interests in lawyers/economists participating in these discussions. So take this also as a comment on that comment. There is nothing wrong with people advocating for private interests; that’s the way the system works. Lawyers and consultants do that for a living, and I don’t see how one can criticize us for doing our job. That also includes academics who may choose to do consulting, which I believe it’s absolutely fine. To be sure, we are all for clear disclosures to permit closer scrutiny on the merits by the audience. That said, I can see the point that there is too little neutrality in professional circles and in academia. People like Pablo are all too rare. It’s legitimate and most helpful for academic to voice out their views, no matter whom they benefit. But I do admit there’s a problem when advocacy work is concealed as an academic piece. [A tip: If someone’s research is only dictated by their client base, then you know they are not academics]. We should also hear more from more people, including experts in related areas.

 4-. The theory vs the evidence. Our job, as lawyers or economists, consists in applying established rules and principles to a given set of facts. We are not entitled to our own facts, nor to ad hoc principles that would ensure we always win. The role of evidence is not to support preconceived views, but to challenge and test them in order to verify them. And this is particularly true for public authorities, who have the higher (and more difficult) responsibility to get it right. So we should not exclude the evidence that contradicts our instincts; we should look forward to it, because it may allow us to understand whether our views may be wrong, and how they can be polished. And if it is the case that this evidence is wrong, irrelevant or confirms our views, then we can reason through it and explain why. The EU Courts were right to point out that the only way of avoiding manifest errors is to have all the necessary evidence to avoid a complex situation. By the way, we can all probably agree that this should also apply to legislation and regulation.

5-. The frustration of uncertainty. Even (or particularly) when we look hard into evidence, the right answer is often “we don’t know” or “it depends”. That is frustrating, but it is what it is. This is true in most areas entailing some degree of complexity, also  when it comes to digital markets. The Special Advisers’ Report, for example, was open about it: there are many issues we simply don’t know. Can network effects tip markets? It depends. Can data be the source of competition concerns? It depends. Can self preferencing be anticompetitive? It depends. If there’s anything we know, is that we know very little. Does this suggest that we should never take action? Not at all! It means there should be even closer scrutiny, just not broad brushing. [For a similar message, see para. 80 of the recent Budapest Bank Judgment]. At the end of the day, we might still have doubts. Without recognizing that there might be doubts and shades of gray, instead of just black or white, we are unlikely to make progress.

6-. The alleged blind gap (?). What sets competition law apart from other areas of the law is its wideness and its reliance on vaporous legal concepts. That’s its blessing (it can immediately adapt to new realities and new economic theory), but that’s also its curse (hammer-nail, etc). So I think that it’s unfair on the discipline to dismiss it due to alleged blind gaps. Now, where is that gap? Is there any practice harmful to competition that EU competition authorities are not/ have not been able to effectively pursue? In my mind, the German Facebook case (discussed here) is a perfect example of how we are failing to address, or properly frame, the real challenges for enforcers. Nothing in the Düsseldorf Court’s Order suggests that there is anything wrong with a new theory of harm based on exploitative privacy policies; the reason for the annulment was lack of evidence. In reality, the problem is not that competition law and competition authorities cannot adapt to new theories and realities. If there is evidence of anticompetitive conduct in digital markets (which may very well exist), then competition authorities have the tools to address that. The problem is that we (as plaintiffs, authorities, etc) need to do our homework if we want to establish an infringement on the basis of evidence.

7-.The approaches to uncertainty (on the rule of law). What frustrates some people about competition law might actually not be the fault of competition law, but of Law alone. Legal principles and rules (allocation of burdens, presumptions, etc) articulate ways of dealing with uncertainty. These rules incorporate the lessons of experience and factor the relevant trade-offs. In any sanctioning regime, arguably the most important presumption is the presumption of innocence. When we speak about “Type-2 errors”, etc. we also need to understand that we have to operate within the confines of the rule of law and of that presumption. That might be uncomfortable, but that is what makes us civilized and what protects us from arbitrariness. Let me invoke, again, the words of General Court President Marc van der Woude: “where the contested conduct of the public authorities is repressive in nature, it is hard to conceive, at least in free democratic societies, that citizens and firms can be condemned on the basis of estimates, approximations or guesses, even if they are informed ones. Uncertainty must then be balanced against the requirements of the presumption of innocence […]. [T]his balance is struck by relying on legal concepts, such as the burden of proof”. To the extent that any proposals deviate from these principles, we will not be making progress. 

 8-.The role of the Courts. The trend that worries me the most in these debates is that of “taking antitrust away from Courts”, proclaiming that precedents are but relics that hold progress down. In my view, this is intimately connected with all of the above. We might disagree with Courts (coincidentally, that tends to happen more when we lose), but they are what makes the system work. We should cherish the legitimacy that Courts give to any decision and policy. That is why I resist the proposals to turn to regulation (where there is no judicial review or evidence standards). I never really understood the Furman Report’s point that “appeals systems can contribute to the competition authority’s risk aversion” (to be sure, I get the point; just not why that’s a problem). In addition, the EU case law is remarkably sensible and balanced in its approach to competition law (for more, see here), and we should be proud about that. I’ve said this for many years when people systematically accused EU Courts of being biased in favor of the Commission, and I say the same now that some people criticize the case law as putting limits on enforcement. It’s remarkable that the Courts can be accused of the two things at the same time, which brings me to my next point (almost done!).

 9-.What the near future holds. The Courts will soon have the chance to rule on some of the test cases at the heart of these debates. Regardless of what they do, remember: the system does work. I am personally invested in some of these cases, but I will oppose any suggestion, on any side, invoking an outcome to point to alleged flaws in EU competition law or in our enforcement system. And those will come. Whatever side loses will need to accept it and adjust. In a properly functioning system, cases are won and lost (see here for Pablo’s recent take on that). That is how the law progresses, even if at a cost, and even of not always in a straight line. If test cases work, then that shows the tested hypotheses are correct. If they don’t, then that would show the test-case was flawed or that the evidence was insufficient, but it will say nothing about our discipline (other than that the system works).

 10-.My own bias. Are my views affected my work and background? Of course they are. The fact that I spend a lot of my time on these issues does make me more sensitive to them, and also contributes to shaping my views. Does that mean I might be wrong? Perhaps, yes. I’ve never worked on a case where I didn’t believe on the points we were making, so it’s a matter of probability and common sense that I might have been wrong on a good number of occasions. It is healthy to keep that in mind, and it is a reason to more carefully scrutinize the merits of what we say. Actually, for quite some time I’ve been holding thoughts on many of these issues, avoiding to engage and comment on important issues, simply because I realize my comments may be suspect of bias (and also because of my first observation about the tone of the debates). That might have been a mistake.

My commitment: Together with Pablo, we commit to making this platform a place where people can discuss different ideas openly and respectfully. We will comment on the issues that we believe are important, because there are important things going on in competition law at the moment (even if more important things are happening outside competition law). We will always play the ball, and not the man. We won’t be offensive or dismissive to people with contrary views. And we will continue to like and invite (here and to our conferences) people who think differently from us.

Written by Alfonso Lamadrid

18 May 2020 at 1:52 pm

Posted in Uncategorized

New Paper | Anticompetitive Effects in EU Competition Law

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law logo

I have uploaded a new paper on ssrn (see here) on Anticompetitive Effects in EU Competition Law.

What was the impetus behind the paper? The ‘effects-based approach’ have long been part of discussions, yet there are only a handful of judgments addressing the analysis of effects in a meaningful way.

There is still some uncertainty about what anticompetitive effects are and how they are measured in concrete cases. On the other hand, the Court has already clarified the key issues. Against this background, I felt I could contribute to the debate by bringing together the various strands of the case law and present them in a single framework.

The paper tries to organise what we know about effects around the main variables that shape its meaning and scope, and in particular:

  • The time dimension: actual and potential effects (and retrospective and prospective analysis).
  • The dimensions of competition (inter-brand and intra-brand) and the counterfactual (ex ante and ex post).
  • The meaning of effects: effects can mean many things, from a competitive disadvantage, to harm to the market structure to harm to consumers. The analysis is particularly sensitive to the way this variable is defined.
  • The threshold of effects: again, the analysis would vary substantially depending on whether it is enough to show that effects are plausible or whether instead it is necessary to establish that effects are likely to happen.

It would not be obvious to summarise the paper in a single post (I will probably add some dedicated entries). It may make sense to mention, however, that the notion seems to have acquired a clear meaning over the years.

In particular, it seems like effects are more than a competitive disadvantage and/or a limitation of a firm’s freedom of action (think of Deutsche Telekom, Post Danmark I, MEO, Maxima Latvija, Generics and, in the context of merger control, Tetra Laval and GE/Honeywell).

We know from experience that having an edge over rivals is not necessarily fatal for competition; it may even spur rivalry (think of Post Danmark I, where rivals were able to withstand a below-cost price campaign). A limitation of a firm’s freedom of action is not enough either (think of Generics, where the Court held that the effects should be more than the impact of each individual agreement).

What matters, the case law suggests, is whether firms’ ability and/or incentive to compete is affected by a practice or transaction, and this to such an extent that competitive pressure is reduced. Thus, no effects would exist where firms on the market are still willing and able to compete.

The threshold of effects is another contentious issue. We all know that effects can be actual or potential. The real question, when the analysis of potential effects is at stake, is whether it is sufficient to show that harm is plausible or it is ‘more likely than not’ (to use AG Kokott’s expression in Post Danmark II).

If we pay attention to what the Court does, it appears that, regarding ‘by effect’ conduct under both Articles 101 and 102 TFEU (as well as mergers), the negative impact of a practice should be probable (‘more likely than not’) and not simply plausible. Just think of how the analysis was actually conducted in, inter alia, Delimitis, TeliaSonera, Post Danmark II, Kali & Salz and Microsoft/Skype

As far as ‘by object’ conduct is concerned, it is sufficient to show that harm to competition is ‘plausible’ (the threshold, in other words, is much lower). Bananas or Toshiba are clear examples in this regard, and reveal how much the analysis differs between the ‘by object’ and ‘by effect’ stages.

As I say, I will probably follow up with more posts on the paper. In the meantime, I very much look forward to your comments.

Written by Pablo Ibanez Colomo

13 May 2020 at 10:25 am

Posted in Uncategorized

The ‘robust and reliable experience’ requirement in Budapest Bank: why it is a consequence of the case law (and why it is not relevant in pay-for-delay cases)

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Experience

The ‘robust and reliable experience’ requirement: a natural consequence of the case law

An interesting aspect of Budapest Bank is the reference to ‘robust and reliable experience’. According to the Court, it is not appropriate to categorise conduct as a ‘by object’ infringement absent sufficient accumulated knowledge about the nature, purpose and potential (pro- and anticompetitive) effects of a practice (para 76).

This requirement cannot come as a surprise. Cartes Bancaires and Generics already made a reference to experience. If one considers the logic of the case law as a whole, moreover, it looks like this requirement was already implicit in the Court’s approach.

One can think of at least two reasons in this regard, one relating to the allocation of the burden of proof in the system and the other one to the value placed to expert knowledge by the EU courts.

Experience, ‘reasonable doubts’ and the allocation of the burden of proof

The Court held in Generics that the categorisation of a practice as a ‘by object’ infringement would not be appropriate where ‘reasonable doubts’ remain about whether the agreement is capable of generating pro-competitive effects. In such circumstances, it would not be possible to rule out that the agreement would improve the conditions of competition that would have existed in its absence.

Where there is insufficient experience about the rationale behind a practice in a particular economic and legal context (given, for instance, the features of the relevant market, as in cases like Budapest Bank or Cartes Bancaires), it would not be possible for an authority or claimant to dissipate any such ‘reasonable doubts’. For the same reason, they would not be able to discharge their legal burden of proof.

On experience and expertise as a constraint on administrative action

There is another reason why the ‘experience test’ was an implicit element of the case law. The EU courts have always seen expertise and expert knowledge as a safeguard against arbitrary decision-making. Cases like Airtours, Tetra Laval and, indeed, Cartes Bancaires, show that the Commission (or any other administrative authority subject to EU law) cannot ignore the body of knowledge accumulated over the years.

Against this background, it is only logical that the Court requires that the categorisation of a practice as a ‘by object’ infringement is grounded on consensus positions refined over time. By the same token, absent sufficient evidence about the rationale behind a practice, authorities should refrain from coming to conclusions that cannot be adequately substantiated by expert knowledge.

The issue can be aptly illustrated by reference to a concrete example: if, at the time of the adoption of a decision the pro-competitive effects resulting from a practice are not yet well understood, an authority would not be in a position to conclude that the practice in question has, as its object, the restriction of competition (in such circumstances, ‘reasonable doubts’ in this sense would not be dissipated).

The ‘robust and reliable experience’ requirement and pay-for-delay cases

It is natural to ask oneself whether the ‘robust and reliable experience’ test has a role to play in pay-for-delay cases. After all, it is not unreasonable to argue that these cases are new and that there may not be sufficient accumulated knowledge to conclude that they are restrictive of competition by object.

Contrary to this view, I fail to see how the ‘robust and reliable experience’ test could be of assistance to defendants in pay-for-delay settings. The test laid down in Generics seeks to ascertain, in essence, whether the settlement conceals a cartel-like market-sharing or market-exclusion arrangement (paras 76-77).

One cannot seriously dispute that there is an abundance of experience about the nature, purpose and net anticompetitive effects of cartels (since they have no plausible purpose other than the restriction of competition, they can only do harm). There is probably more experience about these agreements than about any other. This point is central to Cartes Bancaires (para 51) and Budapest Bank (para 36).

It has long been known, in addition, that cartel arrangements can be concealed as a pro-competitive venture. There is so much experience on this question that the Guidelines on horizontal co-operation agreements repeatedly allude to this point. For instance, a standard-setting arrangement can hide a cartel, as in the venerable ANSEAU-NAVEWA case.

Can an intellectual property settlement conceal a cartel arrangement? Do we have experience in this sense? It is sufficient to take a look at Ideal Standard to see that the two questions are to be answered in the affirmative.

In Ideal Standard, the Court held that the assignment of a trade mark can amount to a cartel-like arrangement (more precisely, it can amount to market-sharing). In such circumstances, it would be restrictive by object. As in Generics, however, the Court was careful to point out that the issue cannot be ascertained in the abstract and requires a case-by-case, context-specific assessment.

What is ‘robust and reliable experience’? The example of the Special Advisers’ Report

While the Court made an express reference to ‘robust and reliable experience’, it never fleshed out the concept. Inevitably, it can be interpreted in a variety of ways. The most reasonable way to make sense of it is to read para 76 of Budapest Bank together with AG Bobek’s Opinion, which is explicitly cited in the judgment.

It would seem that the key question is whether a consensus has emerged about the nature, purpose and potential (pro- and anticompetitive effects) of a practice, and whether this consensus has found its way in the practice of courts and authorities. In this regard, the lessons from mainstream economics are of particular relevance.

The Special Advisers’ Report provide an example a contrario. The authors acknowledge that the efficiencies of certain practices in the digital economy are ‘not yet well understood our knowledge and understanding still needs to evolve step by step’. In such circumstances, it would be reasonable to conclude that the ‘by object’ label (or, more generally, their prima facie prohibition irrespective of their effects) would not be appropriate.

Written by Pablo Ibanez Colomo

6 May 2020 at 4:03 pm

Posted in Uncategorized

Court of Appeal in Ping: how market integration complicates the analysis of object restrictions

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PING - Irons

Market integration: why it matters in cases like Ping

Market integration considerations are essential to understand EU competition law. Articles 101 and 102 TFEU exist, after all, as part of a wider project that seeks to remove barriers to trade and create an internal market.

Thus, one cannot be surprised that, from the outset, market integration was treated differently under Article 101(1) TFEU. In Consten-Grundig, the Court expressed concern about the risk that firms recreate the very barriers that the Treaty sought to bring down.

How is the special status of market integration manifested in practice? In a stricter, treatment of practices aimed at restricting cross-border trade within the EU. The topic is dear to my heart and I discussed it in a number of papers and at this year’s GCLC conference (see here for the slides).

Earlier this month I commented on Budapest Bank (here) and, more generally, the principles of the case law (here). There is a long line of case law suggesting that, as soon as the Court finds a plausible pro-competitive rationale for an agreement, the ‘by object’ categorisation can be ruled out. Budapest Bank is valuable in that it states, in para 83, that ‘serious indicia’ about the pro-competitive effects of the agreement are conclusive in this regard.

The Court departs from these principles, alas, when market integration is at stake. It is, as I have explained elsewhere (for instance here), one of the outliers in the case law (and one for which I think there are good reasons: my own view is that the symbolic dimension of market integration would alone justify this stricter legal treatment).

Accordingly, conduct aimed at restricting cross-border trade (for instance, an export ban or absolute territorial protection) is in principle restrictive by object even if it is known to be a plausible source of efficiency gains (by the way: if you were wondering how paras 52 and 83 in Budapest Bank can be reconciled, this is, I believe, part of the answer).

If the parties to an agreement aimed at restricting cross-border trade want to avoid the ‘by object’ qualification they can, as the Court held in Murphy (para 140). However, they would have to overcome higher hurdles than usual. They would need to show either that the restraints are objectively necessary to achieve a pro-competitive aim or that they are not capable of restricting competition (which would for instance be the case if there were ‘insurmountable barriers’ to cross-border trade).

The legal analysis in Ping and the conspicuous absence of market integration

You may be wondering what the above may have to do with the Ping ruling of the Court of Appeal of England and Wales, decided earlier this year.

The case involved a ban on online sales à la Pierre Fabre. Against the background of the above, the case seems straightforward. Online sales bans are problematic in EU competition law insofar as they limit passive sales. And limiting passive sales is, as recent action by the Commission since the e-commerce inquiry shows, inimical to market integration. The Internet is a most powerful tool to promote cross-border trade.

Accordingly, a ban on online sales is restrictive by object unless the parties can show that it is objectively necessary and/or it is incapable of restricting competition in its economic and legal context.

If you read the Court of Appeal ruling in Ping (as well as the CAT ruling and the CMA decision), you will realise two things: (i) the outcome is the same as above (the online sales ban is restrictive by object) and (ii) the reasoning is infinitely more convoluted.

The CMA, the CAT and the Court of Appeal all reached the same conclusion about the legal status of the ban. As the law stands, this conclusion seems uncontroversial. However, all three bodies struggled with a key aspect of the case: the online sales ban is at least plausibly pro-competitive.

If one reads the facts in both Ping and Pierre Fabre, it is difficult to avoid the impression that the ban was probably all about brand image and the creation of an aura of exclusivity and prestige around the products. Why, otherwise, would a firm want to limit the exposure, and thus the sales, of its products?

How to reconcile the fact that the ban is a plausible source of pro-competitive gains and its status as a restriction by object? Market integration, as seen above, provides the easy, straightforward answer.

Since market integration was never seriously considered in the analysis, the CMA, CAT and Court of Appeal could not avoid some legal contortions to reach the desired (and correct) outcome. The CMA went as far as to suggest that a restraint amounts to an object infringement unless it is objectively necessary (this position, at odds with the case law, was discussed on the blog here). The CAT, in turn, suggested that a plain vanilla cartel like the one in BIDS was plausibly pro-competitive (see here).

Finally, the Court of Appeal had to engage with AG Bobek’s Opinion in Budapest Bank, which summarised the relevant case law. Now that we have the judgment, it seems to me that the Court of Appeal departed from the Court’s interpretation of Article 101(1) TFEU in some important respects.

In particular, the Court of Appeal seems to require more than ‘serious indicia’ about the pro-competitive gains resulting from the agreement; in addition, it limited the scope of Cartes Bancaires as relating to two-sided markets alone (as opposed to pro-competitive gains more generally, which is the interpretation Generics and Budapest Bank would confirm).

Market integration and restrictions by object: more clarity needed

Market integration has enjoyed a special status in the EU system from the very early days. It is difficult to see that reality changing. More importantly, there is no reason why it should. Accordingly, clauses that would be typically unproblematic in other legal systems (including a post-Brexit UK?), such as online sales bans, are in principle restrictive by object.

The Ping judgment, on the other hand, suggests that it may perhaps be a good idea if some aspects about the special status of market integration were made explicit in the case law. This move would avoid the confusion of methodologies that we observe in the Court of Appeal ruling (and, as the example of Glaxo Spain case shows, this is not the first time we witness this situation).

Written by Pablo Ibanez Colomo

30 April 2020 at 10:09 am

Posted in Uncategorized

Chillin’Competition’s Rubén Perea Award

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Ruben Perea

Rubén Perea passed away on 1 April 2020 at 25 years old.

He was a smart, kind, formidable guy who had just completed his LL.M at the College of Europe and accepted an offer to work as a competition lawyer at Garrigues in Brussels. He bravely fought for months against cancer, a fight he ultimately could not win because the Covid-19 delayed the surgery on which we all had our hopes.  The grace and courage he showed in these past few months revealed the kind of person that he was, that he would have been, and that we have tragically lost.

In his memory, we have decided to create the annual “Rubén Perea Award” for the best paper (master thesis, research paper or article) in competition/state aid law written by lawyers, economists or students under 30 years old.

The paper will be published in the Journal of European Competition Law and Practice. The winners will be announced on the blog, where they will have the opportunity to present their work in a guest post. If the circumstances allow it, an award will be presented at our next Chillin’Competition conference.

We call on university professors and senior lawyers or economists to encourage their students and younger colleagues to apply. The deadline for submission will be 15 September, so you can save the date. More details will follow soon.

We are also exploring the possibility of funding a scholarship to pursue EU studies in Ruben’s memory, and we hope to publish more info on this soon. Should anyone like to contribute to this initiative, please drop us a line.

Written by Alfonso Lamadrid

27 April 2020 at 1:56 pm

Posted in Uncategorized

On the possible ex ante regulation of online platforms (I): lessons from the EU telecoms regime

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Fibre

Before our world was turned upside down, a major theme in our community concerned the possibility of regulating ex ante online platforms. No matter how challenging the times, it is safe to predict that this question will not completely go away in the foreseeable future.

For the same reason, it makes sense to start a conversation about the possible ex ante regulation of online platforms, and more precisely about (i) why we would want it and (ii) what it would look like if it is ever going to see the light of day. Further posts will follow, as well as, hopefully, some sort of online discussion.

I would not break new ground by saying that it is an exercise that requires careful reflection. Any regulatory regime needs to be scrupulously crafted to ensure that the public interest is preserved. When there is so much at stake this is often a challenge. And claiming that something ‘needs to be done’ is not sufficiently compelling.

Fortunately, we have a template that gives us an idea of why and when to regulate online platforms. I see it as an insurance against sub-optimal outcomes. The EU telecoms regime (that is, the EU Regulatory Framework for electronic communications) asks the right questions and provides the right answers. Every time I look into it I realise that it is, in fact, an impressive achievement.

The EU telecoms regime has always been part of my research and teaching and thought it would be a good idea to start by discussing on the blog how a regulatory framework inspired in its approach would work, and whether there are good reasons to depart from the principles and approach enshrined in it.

Principles of regulation (and how they could apply to digital markets)

When the European Commission proposed the adoption of a new regulatory framework for electronic communications, it was aware of the challenge posed by innovation and technological evolution. Telecommunications activities were undergoing major changes; it was necessary to adapt regulation so that it would not become obsolete (that intervention would continue where it would no longer be necessary and/or it would be unable to address new issues).

The main principles of the framework can be summarised as follows:

  • Flexibility and adaptability: legislation sets the objectives and the procedure to be followed by regulatory authorities; it does not directly prescribe the remedies.
  • No regulation for the sake of regulation: the framework is premised on regulatory humility. Competition is seen as the best form of regulation, and as the default. Regulatory intervention only takes place where it can be shown that competition law would be unable to address the problem (mainly due to the problems that come with proactive remedies) and where there are major and lasting structural problems in a market.
  • Technology neutrality: the framework was crafted to ensure that it would not favour a particular technology over others, and that the market, not regulation, would pick winners and losers.
  • Bias against intervention in newly emerging markets: the framework is particularly careful not to intervene in nascent markets, where it is difficult, by definition to anticipate their evolution.

If ex ante regulation is ever adopted for online platforms, I hope the principles outlined above will also guide the regime. Two particular aspects deserve attention.

First, I cannot think of a good reason why an ex ante regime for platforms should not revolve around principles, as opposed to outcomes. In other words: it seems to me that ex ante regulation should provide for the objectives and the process through which the need for intervention is considered. By the same token, the details of intervention should be left to a regulatory authority. The temptation to enshrine particular remedies in legislation may be strong. Wisely, the EU legislature resisted it.

Second, it seems to me that neutrality should be a key guiding principle, in particular when (as acknowledged in the Special Advisers’ Report), there is much that we do not know about the gains resulting from practices in the digital sphere. There appears to be every reason to ensure that any ex ante regime does not have a built-in bias in favour of, or against, certain practices or business models.

The operation of the regime

As a principles-based regime, the EU telecoms regime leaves it to the regulatory authority to decide, on a regular basis, whether intervention is warranted and, if so, the remedies that may be needed to promote competition and innovation on a particular market segment.

How does the system work? If you are not familiar with the framework, you may not know that market definition (understood in the competition law sense) is central to the identification of regulatory concerns. The best explanation of when and why remedial action may be warranted is to be found, I think, in the Commission’s Explanatory Note on market definition.

The starting point of the analysis is to define, in accordance with competition law principles, a market on a segment that is potentially competitive and that is adjacent to a potential bottleneck. In telecoms, this adjacent segment could be, for instance, the one for retail broadband services (and the potential bottleneck the local loop).

In the digital sphere, this adjacent segment could be (I mention some examples that can be easily visualised) the online distribution of a particular good (say, books), a particular category of app (say, music), or a particular online service (say, travel). Each of these segments would relate to a particular bottleneck segment. Some good candidate markets that are less easy to visualise are extensively discussed in the CMA’s Interim Report.

The key question is whether these adjacent segments are effectively competitive. If they turn out to be effectively competitive – in the sense that no dominant position can be identified – then regulation would not be warranted. No matter how strong the position of a market player on the potential bottleneck segment, no remedial action will take place (again, no regulation for the sake of regulation).

If they are not effectively competitive, then the two main questions that follow are, first, whether the potential bottleneck segment to which these activities relate has ‘high and non-transitory barriers to entry’ and, second, whether a dominant position can be established on this market. As part of this assessment, it would be necessary to consider whether this position is likely to last in the foreseeable future or whether, instead, technology and innovation would undermine this position (for instance, by allowing the firms on the adjacent segment to circumvent the bottleneck).

Only where these two questions are answered in the affirmative will the regulatory authority be in a position to impose remedies, which have to be adapted to the specific demands of every case (they range from transparency and/or non-discrimination obligations to the functional separation of some activities).

The operation of the EU telecoms regime provides two valuable lessons. Again, I cannot think of a good reason to deviate from them.

First, regulatory action should be based on a market-by-market assessment of the conditions of competition, not on a broad-brush identification of companies as having a ‘special status’ on the basis of vaguer, more general criteria. Second, where a market is effectively competitive absent intervention, regulatory obligations would not be warranted. In such circumstances, they can well do more harm than good.

As usual, your thoughts and comments would be most welcome.

Below you find, reduced to the essential, the logic of the framework.

Regulatory framework

Written by Pablo Ibanez Colomo

24 April 2020 at 11:42 am

Posted in Uncategorized