Chillin'Competition

Summary

It becomes apparent when discussing the case law that there is a certain overlap between the various concepts discussed in this section (competition, potential competition and restriction). The same ideas are relevant across the board, but are examined from slightly different perspectives, or for different purposes. The need to consider the counterfactual, for instance, is relevant not only when discussing the notion of competition, but also when evaluating whether a practice is capable of having restrictive effects. It would seem that each of the concepts captures discrete aspects of a single overarching set of principles. The fragmentation of the case law (and, more precisely, the fact that each of the concepts has generally been examined in isolation) helps explain the ongoing confusion around some of them, and about how they fit together.

            It is worth summarising the fundamental principles underlying the concepts discussed above. First, the evaluation of the restrictive nature of an agreement, whether by object or effect, can never be undertaken in the abstract. The analysis is always a case-specific inquiry that must be undertaken in light of the economic and legal context of which the practice is a part. Second, the restrictive nature of an agreement is evaluated in light of objective factors. The subjective intent of the parties (for instance, that their subjective intention was pro-competitive) is neither a necessary nor a sufficient condition to establish a restriction (or to rule out one). The question is whether the objective purpose of the agreement is pro- or anticompetitive. Third, the range of factors that are relevant when figuring out the object of an agreement include the features of the relevant market (for instance, whether there are barriers to entry, or whether it is of a two-sided nature), its structure and the position of the parties, rivals and suppliers/customers therein. These factors are also relevant when establishing the effects of a practice. It does not follow, however, that there is an overlap between the two stages (object and effect). The factors are considered for different purposes at each stage.

            It seems possible to define, in light of these principles, what the evaluation of the object of an agreement involves in practice. The relevant question is whether the objective purpose of the practice is the restriction of (actual or potential) competition which would have existed in its absence. If the agreement is a plausible source of pro-competitive gains, it is in principle not restrictive by object. As explained in T-Mobile, implicit in this analysis is the capability of the agreement to restrict competition. Capability is a necessary – but not sufficient – condition to establish a ‘by object’ infringement. Accordingly, if it appears that an agreement is not liable to restrict competition, it falls outside the scope of Article 101(1) TFEU altogether. Such an agreement would not restrict competition, whether by object or effect. As the Court held in Murphy, it is open to the parties to provide evidence in this sense.

            The evaluation of the counterfactual reveals whether a practice is capable of restricting (actual or potential) competition that would have existed in its absence. The overview of the case law has identified two instances leading to the conclusion that the agreement is not caught by Article 101(1) TFEU. First, it may turn out that the practice is objectively necessary to attain a pro-competitive aim (for instance, preserve the know-how and the reputation of a franchising system), and thus that its object is not the restriction of competition. Second, it may be the case that any restriction of competition would be attributable to legal barriers to entry, and not to the parties’ behaviour. As explained above, only lawful entry counts as competition for the purposes of Article 101(1) TFEU. Thus, if competition is precluded by, for instance, an intellectual property right, it is not attributable to the parties’ behaviour, but to the legal context of which the agreement is a part.

I have been writing quite a bit (here and elsewhere) on some fundamental notions of competition law (in particular on the very meaning of the word competition in the Treaty and that of restriction). These discussions have become quite topical, and it looks like they will get even more so in the coming months.

What prompted me to write about them is not only that they are so important, but also a strange paradox: even though the case law of the Court has long been consistent and stable about the notion of competition and that of restriction, there are still some myths that refuse to go away. Claims that a restriction can be established independently of the economic and legal context, or claims that the counterfactual is not relevant at the ‘object’ stage are still heard, no matter how strong and consistent the evidence to the contrary.

In this spirit, I prepared a paper (see here). Even though it is on pay-for-delay, I thought it indispensable to spend some time discussing the fundamentals (e.g. competition under the Treaty = lawful actual or potential competition which would have existed absent the practice; in principle, a practice that is a plausible means to attain a pro-competitive does not have, as its object, the restriction of competition).

In the same spirit, I thought it could be useful to share the relevant excerpt of the paper here. It is considerably longer than my usual post, but hopefully it will get the discussion going! I would very much welcome your thoughts.

The notion of competition (and potential competition) in the case law

The notion of competition

The notion of competition was defined by the Court from the outset, in Société Technique Minière. According to that judgment, competition, for the purposes of the application of Article 101(1) TFEU, must be understood as that competition which would have existed in the absence of the practice under consideration.[1] Thus, the evaluation of the counterfactual (that is, of the conditions of competition with and without the practice) is implicit when assessing whether a given practice amounts to a restriction, whether by object or effect. In Société Technique Minière, the Court noted that an agreement within the meaning of Article 101(1) TFEU does not restrict competition if it is ‘really necessary’ to enter a new market. In those circumstances, the practice would not affect competition that would otherwise have existed.

This principle was fleshed out in subsequent case law. Objective necessity featured, inter alia, in Nungesser, which is an intellectual property-related ruling. The Court noted that, in the specific circumstances of the case, some of the restraints imposed in a licensing agreement were objectively necessary to give the necessary incentives to take the risk of producing and marketing the product in question.[2] As a result, they were deemed to fall outside the scope of Article 101(1) TFEU altogether.[3] In addition to objective necessity, the evaluation of the counterfactual may take into consideration legal barriers to entry. In certain circumstances, competition may not be altered by virtue of the practice if, for instance, they there are legal barriers to entry that preclude market entry. A case involving intellectual property rights is Micro Leader. In the economic and legal context of the case, a distribution agreement banning Canadian distributors from selling software in France would not restrict competition that would otherwise have existed as the sale of such products would have amounted to a copyright infringement.[4]

Because the analysis of the counterfactual makes it necessary to consider legal barriers to entry, it follows that the notion of competition within the meaning of Article 101(1) TFEU only encompasses lawful competition that would have existed in the absence of the practice. Accordingly, market entry that could only take place unlawfully (including through the breach of an intellectual property right) is not considered in the analysis. Whether or not competition is lawful requires an analysis of the context surrounding the practice. It may be the case, for instance, that the question of whether a firm can enter a market is a de facto consequence of the combination of several pieces of legislation. This was, in essence, the finding in E.On Ruhrgas,[5] where the General Court (‘GC’) concluded that the regulatory framework afforded, for a certain period, a de facto monopoly in one of the geographic areas covered by the agreement. As a result, the practice was deemed not to amount to an infringement during that period. The opposite – what one may call de facto lawful competition – may also be true. In Hoffmann-La Roche, the Court clarified that an off-label drug (that is, a drug that is given a used not corresponding to those specified in the marketing authorisation) may exercise a lawful competitive constraint on the products expressly authorised for a given treatment.[6]

The notion of potential competition

Competition within the meaning of Article 101(1) TFEU encompasses both actual and potential competition. Market entry that has not yet taken place (and may never do) will be considered in the analysis where it is of sufficient entity to significantly constrain the behaviour of market players. The relevant question is whether the threat of entry is sufficiently strong to impact the ability and incentive of existing players to influence the relevant parameters of competition to their advantage. In this sense, the analysis must consider whether, in reaction to a deterioration of the conditions of competition, one or more firms would undertake the costs involved in entering the relevant market, and this, within a relatively short period of time.[7] Two dimensions of potential competition are relevant in the assessment: the probability of entry and the timing of entry.

As far as the first is concerned, the question is not so much whether entry is a certainty or an inevitability but whether there are ‘real, concrete possibilities’ that it will occur.[8] In other words, it need not be shown that entry is certain. It would be sufficient to show that entry is likely. In other words – and borrowing from AG Kokott’s Opinion in Post Danmark II – this would mean showing that entry is ‘more likely than not’ to occur.[9] It would be reasonable to assume that this means, in concrete terms, that the probability of entry is over 50%. Several factors can be considered in this assessment, and in particular the barriers to entry.[10] Since, as pointed out above, only lawful competition counts as competition for the purposes of Article 101(1) TFEU, this category comprises legal barriers to entry (including intellectual property rights). As far as the second factor is concerned, the prospect of entry must be sufficiently swift for it to constrain the behaviour of existing players. The analysis of this second factor necessitates a case-by-case assessment of the economic and legal context.[11]

The notion of restriction by object in the case law

The evaluation of the object of an agreement is a case-specific inquiry

In order to determine whether an agreement is restrictive of competition by object, it is necessary to figure out its ‘precise purpose’.[12] According to a consistent line of case law, the object of a practice must be ascertained in light of the economic and legal context of which it is a part.[13] Thus, a restriction cannot be established in the abstract. By the same token, it is incorrect to assume that certain categories of agreements are contrary to Article 101(1) TFEU by their very nature. For instance, it is often assumed that horizontal price-fixing by suppliers or purchasers is restrictive by object. The case law provides concrete examples showing that this is not always true.[14] Similarly, horizontal market-sharing is not always a ‘by object’ infringement. In Ideal Standard, mentioned in the introduction, the Court clarified that the market sharing that necessarily follows a trade mark assignment is not necessarily restrictive of competition.[15]

Remia is perhaps the most relevant example to illustrate that it would be wrong to assume that some categories of conduct are necessarily prohibited by object irrespective of the nature of the agreement and its context. This case presents similarities with BIDS[16] and other market-sharing arrangements (including the ones discussed in this paper). In Remia, the seller of two businesses agreed to a non-compete obligation with the purchasers, as a result of which it agreed to leave the market for a certain period of time. The Court concluded that, in the context of an agreement for the sale of a business, a non-competition clause is not necessarily restrictive of competition, and may fall outside the scope of Article 101(1) TFEU altogether.[17] This conclusion was reached by looking at the conditions of competition that would have existed in the absence of the practice.[18] The evaluation of the counterfactual revealed that a non-competition clause in the relevant economic and legal context may be objectively necessary for the transaction to take place. In spite of the formal similarities with BIDS, the outcome was different. Unlike BIDS, the objective purpose of the market-sharing arrangement in Remia was to allow the purchaser to acquire the goodwill associated with the sale of a business.

Summing up, ascertaining the object of an agreement is a case-specific inquiry. The case law has taken into consideration a range of factors in this assessment. The features of the relevant market, for instance, may shed light on the ‘precise purpose’ of the practice. In Cartes Bancaires, for instance, the Court took into consideration the two-sided nature of the activity (payment card systems) when concluding that the arrangement was not restrictive by object.[19] In Asnef-Equifax, it identified a market failure (an information asymmetry) that could be addressed via the coordinated exchange of information about the creditworthiness of potential clients.[20] The nature of the product may also be a factor. In Nungesser, mentioned above, the Court noted the innovative nature of the plant variety and the investments involved in its development.[21] The position of the parties is also likely to provide insights on the object of the practice. For instance, the fact that the parties to a horizontal agreement fixing the purchasing prices of a good are small and face large suppliers (as in Gøttrup-Klim) may lead to the conclusion that it is not caught by Article 101(1) TFEU by its very nature.[22]

A careful analysis of the case law leaves no doubt about the relevance of these factors when trying to figure out the object of an agreement. However, it remains a controversial issue among commentators.[23] Several reasons may explain the ongoing confusion about this aspect of the case law. There is, first, still a perception that a restriction by object can be established mechanically, in the abstract. A related idea, which is equally widespread, sees the case-specific inquiry in light of the abovementioned factors somehow amounts to an analysis of the effects of the agreement.[24] It is true that factors such as the economic features of the industry, the structure or the market or the nature of the product are all relevant when evaluating the impact of a practice. This fact does not mean, however, that considering these factors when figuring out the object of an agreement amounts to an analysis of effects. Figuring out the object of an agreement remains a different exercise and one that, as explained above, by definition involves an evaluation of the economic and legal context.

As a rule, an agreement that is a plausible means to attain a pro-competitive aim is not restrictive by object

The Court has routinely evaluated the ‘precise purpose’ of agreements falling within the scope of Article 101(1) TFEU. The relevant case law suggests that, as a rule, an agreement is not deemed to restrict of competition by object where the ECJ identifies that it is a plausible means to attain a pro-competitive objective.[25] The case law on this point is consistent.[26] It is sufficient to illustrate it by reference to some of the judgments mentioned above. In Remia, for instance, the Court noted that the ‘precise purpose’ of the non-compete clause was to ensure that the transaction takes place.[27] In Asnef-Equifax, it noted that the ‘essential object’ of the exchange of information at stake was to give credit institutions more information about the potential borrowers and thus to allow them to make a more accurate decision about whether to lend money.[28] In Cartes Bancaires, the Court concluded that the object of the contentious clauses was to allow the parties to address a free-riding problem emerging from the features of the relevant market.[29]

Two aspects must be noted regarding the analysis of the object of an agreement. First, the case law shows that the threshold to rule out the ‘by object’ qualification is relatively low, one of plausibility.[30] In the relevant case law, the Court does not engage in a lengthy analysis of the pro-competitive aims sought by the agreement, and does not consider whether, in the relevant economic and legal context the agreement actually pursued the objective in question.[31] To use of the expression of the GC in MasterCard, the question of whether the agreement is a plausible means to achieve a pro-competitive aim is assessed in a relatively abstract manner.[32] Second, the single most reliable indicator in this regard is whether it is capable of generating efficiency gains. The joint purchasing agreement in Gøttrup-Klim, was deemed to ‘make way for more effective competition’ which would be manifested, for instance, in the form of economies of scale.[33] The exchange of information at stake in Asnef-Equifax, for instance, allows for transactions that are in the interest of both lenders and borrowers.[34] By addressing free-riding concerns, the clauses at stake in Cartes Bancaires gave the parties the necessary incentives to invest in, and maintain, the system.[35]

An agreement is only restrictive by object if it is capable of restricting competition

Once it is shown that the objective aim of an agreement is anticompetitive, it is not necessary to show that it has restrictive effects on competition.[36] The Court has consistently held that object and effect are alternative conditions.[37] Accordingly, an authority or claimant would be able to discharge the burden of proof merely by showing that the ‘precise purpose’ of the practice is to restrict competition. This fact does not mean that effects are entirely irrelevant in the evaluation of the object of a practice. Such effects need to be established by a claimant or authority, but are implicit in the assessment. As the Court held in T-Mobile, for an agreement to amount to a ‘by object’ infringement, it must be capable of restricting competition.[38] Capability is indeed a necessary (but not sufficient) condition for a practice to amount to a ‘by object’ infringement. By the same token, if an agreement turns out to be incapable of restricting competition, it would fall outside the scope of Article 101(1) TFEU altogether (it would neither have the object nor the effect of restricting competition).

In reality, saying that an agreement must be capable of restricting competition for it to amount to a ‘by object’ violation is another way of expressing the same ideas that have been discussed above. The evaluation of the capability of a practice to restrict competition is inherent in the analysis of the counterfactual. Where the market conditions would be the same with and without the agreement under consideration, the said agreement is incapable of restricting competition and as such falls outside the scope of Article 101(1) TFEU. This is the case, for instance, where the analysis of the counterfactual reveals that cooperation between the parties is objectively necessary to attain the pro-competitive aim sought by the parties or that any restriction of competition would not be attributable to the parties but to legal barriers to entry.

The case law on vertical restraints provides concrete examples of these ideas. A franchising agreement within the meaning of Pronuptia, for instance, is incapable of restricting competition and as such is not caught by Article 101(1) TFEU.[39] It is implausible to expect that undertakings would resort to franchising agreements if doing so would jeopardise their know-how and/or the reputation and uniformity of their formula. The counterfactual in the absence of the key clauses in a franchising agreement, accordingly, is one in which this business model is simply not used. The same can be said about selective distribution agreements within the meaning of Metro I.[40] It is implausible that such a business model would exist absent a clause prohibiting members of the distribution system from selling to non-members. For the same reasons, it is incapable of restricting competition.

The position expressed by the Court in T-Mobile is sensible. It seems difficult to see how the object of an agreement can be anticompetitive if it is incapable of affecting competition. Where it is not plausible to expect a practice to have restrictive effects, one can safely presume that its objective purpose is pro-competitive. Put differently, one can presume that a practice that, in a given economic and legal context, is objectively incapable of achieving a particular aim, will not be implemented to pursue that very aim. Thus, if the practice is observed in the marketplace, its underlying rationale must be a different, pro-competitive, one. For instance, if a price-fixing clause is introduced in a horizontal agreement concluded between two competitors with market shares below the de minimis threshold (and thus with no credible ability to influence the conditions of competition), one can conclude that the agreement is presumptively pro-competitive.

Gøttrup-Klim illustrates this idea particularly well. Formally-speaking, this agreement is difficult to distinguish from cartel arrangements. It involved, as Italian Raw Tobacco,[41] horizontal price-fixing by the purchasers of a product. The Court noted, in its analysis of the economic and legal context, that the parties in Gøttrup-Klim were small and faced large suppliers.[42] They lacked, in other words, significant market power. In such circumstances, the agreement was incapable of restricting competition that would otherwise have existed. For the same reasons, one could safely rule out, as the ECJ did, that such horizontal price-fixing arrangement had an anticompetitive object and was not in any way comparable to a cartel.

Saying at the same time that effects need not be established, on the one hand, and that ‘by object’ infringements must be capable of restricting competition, on the other, may come across as contradictory. It is not easy to claim, at the same time, that an authority or claimant is able to discharge its burden of proof without showing an anticompetitive effect and that the capability of the practice restricting competition is still an aspect of the analysis. Either the analysis of effects is relevant or it is not. This seeming contradiction is not real, however. The two aspects of the case law can be reconciled. A finding that a practice has as its object the restriction of competition encapsulates a presumption that the practice in question is capable of having anticompetitive effects. By establishing the former, the latter is deemed to have been established.[43]

It is possible for the parties to rebut the presumption and show that the agreement is incapable of restricting competition and that, as a result, it falls outside the scope of Article 101(1) TFEU altogether. That this possibility exists was made explicit by the Court in Murphy.[44] The case concerned practices aimed at restricting cross-border trade within the EU, which are in principle restrictive by object. The ECJ expressly held that it is possible for the parties to provide evidence revealing that the agreement is not liable to restrict competition and thus not restrictive by object.[45] The Guidelines on vertical restraints provide an example of how the rebuttal of the presumption works in practice. As a practice restricting cross-border trade, restricting the ability of a distributor to engage in passive selling outside its allocated territory is in principle restrictive by object.[46] However, the Commission concedes in its Guidelines that there may be instances in which restricting passive sales is objectively necessary for the transaction to take place.[47] In such circumstances, the agreement would fall outside the scope of Article 101(1) TFEU altogether, as it would be incapable of restricting competition that would otherwise have existed.

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The post on abuses by object I prepared last week has received a number of really interesting comments (see here). I realise I would not do justice to the points raised if I simply addressed them one by one. So here we are:

Formalism and justification

Jia Rong Low started strong, and with an excellent point. Can one say that pricing below AVC is restrictive by object without considering the relevant economic and legal context? Would such a claim not be at odds with AG Bobek’s opinion in Budapest Bank? Kevin Coates and Peter suggested that there may be good reasons for pricing AVC, and that a blanket prohibition is unwarranted.

My reaction: I think I have insisted many times (on the blog and in my papers) that a restriction by object can never be established in the abstract; the qualification is always context-dependent. My point on pricing below AVC is in line with this position. You will see that I wrote that pricing below AVC is in principle (or prima facie) irrational, not that it always is.

It is always possible for a firm to try and come up with an explanation for price levels that seem irrationally low. In this sense, Kevin and Peter are right. I will simply add: this is one of the instances in which it makes sense to reverse the burden of proof. It is entirely sensible to prohibit prima facie conduct which, experience and economic analysis suggest, is irrational. Up to the dominant firm to come up with an explanation.

AG Bobek’s two-step test is not at odds with this approach. In his view (which I share) there are practices which, experience and economic analysis suggest, tend to amount to a ‘by object’ infringement. Does it mean that they always do? No. As the Court held in Murphy, it is always possible for the parties to an agreement to show why, in light of the economic and legal context, the practice is not liable to restrict competition and thus not restrictive by object. As Intel illustrates, the same principle applies in the context of Article 102 TFEU.

Jia Rong Low, in the same vein, asks how this mechanism operates . To which I answer: I tried my best in this article (comments certainly welcome).

Makis and Andrew Leyden come up with two great examples of by object abuses that I did not mention. Thanks a lot! One of them (Makis’) is AB-Inbev, which relates to market integration. It has long been clear that practices aimed at restricting cross-border trade are prohibited irrespective of their effects. The logic of Consten-Grundig applies in the context of Article 102 TFEU (for how could it be otherwise?).

Andrew mentions an even better one (and dating back from the 1980s), Racal Decca. This is about a case in which a firm introduced changes in the transmission of signals with the sole purpose of causing a rival’s product to malfunction. Definitely very Lithuanian Railways. There is every reason to prohibit this conduct prima facie irrespective of its effects.

So where does this leave us?

In light of the above, I could tentatively try a more exhaustive list of by object abuses.

I can think of (i) pricing below AVC (AKZO); (ii) the ‘Lithuanian Railways abuse’; (iii) the ‘AstraZeneca abuse’; (iv) the ‘Racal Decca abuse’; and (v) those related to market integration. I would add (vi) exclusive dealing and loyalty rebates (even after Intel), even though not everybody agrees with the point (the letter of the judgment seems unambiguous to me).

Happy to expand the list if more examples come to mind! But I guess the main message is clear: the object/effect divide exists in the context of Article 102 TFEU.

On restorative remedies

Makis was the one to touch upon restorative remedies. I agree with him it may not always be clear what we mean by the word ‘restorative’. I have in mind remedies the purpose of which is not simply to bring the infringement to an end but to recreate the market conditions that would have existed in the absence of the practice.

The underlying idea is to import into Articles 101 and 102 TFEU the logic of remedial action in the field of State aid (which is to restore, via recovery, the conditions of competition that existed prior to the award of the aid).

As I promised, I will write about this more extensively, but I do not mind anticipating, to get the discussion going, that I fail see what the legal basis for restorative remedies may be in the area of EU antitrust.

What a better way to start blogging in 2020, I tell myself, than writing a new instalment of a series that kept me busy last year (see here, here, here and here). As three of the posts were devoted to Article 101 TFEU, it strikes me as a good idea to move to abuses this time around.

You have probably heard this one many times: ‘the object vs effect divide does not exist in the context of Article 102 TFEU; there is no such thing as an abuse by object (or by effect)’.

One of the reasons that are given to defend this view is that the letter of Article 102 TFEU does not make an explicit reference to the object/effect divide. Any moderately attentive student of EU law (and more precisely the Court’s approach to the interpretation of the TFEU) knows well that this argument is not particularly persuasive.

It is sufficient, in fact, to take a look at the relevant case law to realise that, indeed, some practices are treated as infringements by object – in the same way that others are examined pretty much like ‘by effect’ agreements.

What does it mean, to begin with, that a practice is abusive ‘by object’? It means – and I am aware it may sound tautological – that its objective purpose is anticompetitive; in other words, that it has no plausible explanation other than the restriction of competition. In such circumstances, there is no point in establishing its effects (a key question about which the GC was explicit in Michelin II).

I can think of three practices that are clearly abusive by object under Article 102 TFEU – if I have missed other, I would very much welcome your contribution:

Pricing below average variable costs: As the Court explained in AKZO, it is in principle irrational for a firm (dominant or not) to price below its average variable costs. Why? Because it would be better off not producing at all (it loses more money by producing than by not producing).

If there is a dominant firm pricing at a prima facie irrational level, we can safely presume (as the Court did in 1991) that the behaviour only makes sense as an attempt to exclude rivals. We can safely presume, in other words, that the object of a practice is anticompetitive.

In such circumstances, I agree with the Court that it would not be necessary (even more, it would not make sense) to require a claimant or authority to show anticompetitive effects to establish an abuse. Pricing below average variable costs can be deemed capable of restricting competition. And that is all we need to trigger the prohibition.

The ‘Lithuanian Railways abuse’: We have discussed Lithuanian Railways previously on the blog. I suggested that it may well be the most straightforward abuse case ever. The facts of the case are nothing short of extraordinary. The incumbent railway operator in Lithuania dismantled 19 kilometres of track after it learnt that a rival could be using it to serve one of its customers.

In other words: the case is not about a refusal to give access to an infrastructure but the destruction (!) of an infrastructure to eliminate competition.

As a result, the sort of arguments that are invoked in refusal to deal cases (counterfactual, ex ante incentives to invest and so on) would not be relevant. In fact, it is a case where the firm devotes resources to dismantle, not to build, an infrastructure. Such a profit sacrifice can be safely deemed to have an anticompetitive rationale (or object).

I have no doubt a practice of this kind should be deemed prima facie unlawful and heavily fined. Thus, I fail to see anything surprising or unusual in the Commission decision in that respect. More controversial, however, is the question of the remedy. What remedy is possible once the infrastructure has been dismantled?

The Commission decision toys with the idea of the (now fashionable) restorative remedies, which is a question that deserves a post (or more than one), and most probably a paper. Spoiler alert: as the law stands, I do not believe the Commission (or any other competition authority) can impose restorative remedies; there is simply no legal basis for it.

In case you were wondering: the 19-kilometre stretch has been rebuilt – in fact, it was completed a few days ago, as you can read here.

The ‘AstraZeneca abuse’: AstraZeneca provides the third example of which I can think. Providing misleading information to a patent authority does not seem to serve any purpose other than the restriction of competition (via the extension of the protection).

This conclusion, in fact, is confirmed by the Hoffmann-La Roche ruling of 2018 (see here for my discussion of the case). If providing misleading information by means of an agreement is deemed to have as its object of the case, I fail to see how it would be possible to reach a different conclusion under Article 102 TFEU (and the analysis in AstraZeneca by the EU courts only confirms this point).

I look forward to your thoughts. And Happy 2020 (+weekend) everyone!

As the year comes to an end, I am reminded that it has been a remarkable year also for the Journal of European Competition Law & Practice (JECLAP). I am proud to be a Joint General Editor of the Journal together with Gianni De Stefano.

And as I was thinking of JECLAP’s remarkable year, I realised that I had not shared on the blog some materials that best reflect what has been going on. So why not close the year with some materials.

We had an anniversary conference back in October, where we were surrounded by past authors and editors. It was the high-level event we were hoping to have.

First we had a session on cartels (with Eric Barbier de la Serre, Paula Ramada and Marisa Tierno Centella). The three presentations used can be found here.

We then had a session on abuses where I had the privilege to be joined by Article 102 TFEU greats, Giorgio Monti and Ekaterina Rousseva. Here you will find the presentation I used.

The session on procedural and institutional matters was led by three JECLAP editors and former editors (Mark English, Andriani Kalintiri and Paul Nihoul). This is Andriani’s PPT on presumptions.

The event was closed by a dialogue between Pascale Dechamps, Giulio Federico and Lars Wiethaus. It was short on presentations, but I still think of it as probably the most dynamic and insightful panel of 2019. Thanks all three!

And a few weeks ago, the proceedings of the 1st Ithaca Competition Summit came out as a Special Issue of the Journal (see here). The authors of the lead articles? Marc van der Woude, Max Kadar, Cani Fernandez, Eliana Garces, Jorge Padilla, Martin Cave, Katerina Maniadaki and Gönenç Gürkaynak. And it comes with a Foreword by Lefkothea Nteka. It rarely ever gets much better than this! By the way, my Legal Tests in EU Competition Law came out in this issue.

Enjoy the celebrations! We will Chill as usual in 2020.

Under certain circumstances, Article 102 TFEU can only be triggered if it can be shown that an input or platform is indispensable for competition on a neighbouring market. There is some controversy, however, about what these circumstances are. Sometimes (e.g. CBEM-Telemarketing, Bronner) indispensability is required; sometimes, it is not (e.g. Telefonica, TeliaSonera).

The question is so intriguing that I have written a paper on it (available on ssrn, see here). Many of you will be familiar with my take: the case law is clearer than most commentators tend to concede. As I have explained in past papers, it is all about the remedy.

Where intervention under Article 102 TFEU would demand the administration of a proactive remedy (either a structural remedy or a prescriptive obligation that necessitates monitoring), indispensability becomes an element of the legal test (and thus a precondition for intervention).

Why the remedy determines whether indispensability is an element of the legal test

Support for this position can be found in the case law. In fact, the EU courts were explicit about the point in Van den Bergh Foods. According to this ruling, indispensability would be an element of the legal test where intervention would require the firm to ‘transfer an asset or enter into agreements with persons with whom it has not chosen to contract’.

The case law makes a lot of sense. Proactive remedies are notoriously difficult to design, implement, and monitor – the experience with Microsoft I and Microsoft II is there for all to see. Therefore, it makes sense to limit to exceptional circumstances the instances in which competition law institutions (courts, authorities) are exposed to this particular stressor.

This is all the more sensible if one considers, in addition, that weighing the ex ante and ex post dimensions of competition is as difficult an exercise, if not more.

From an ex post perspective, any refusal to deal restricts competition. Why is a refusal to start dealing typically abusive only in exceptional circumstances, then? Because the ex ante dimension of competition – the counterfactual, again – also matters. In this regard, indispensability is a valuable proxy to avoid a difficult balancing exercise (even if one ignores the difficulties, mentioned above, around the design, implementation and monitoring of proactive remedies).

Implications for ‘grey area’ cases

Indispensability is a controversial issue in some pending ‘grey area’ cases. What is interesting about these is that they come across as being somewhere in between two lines of case law.

Slovak Telekom is one of these cases. Some of the practices at stake in the case were labelled as a refusal to supply. Does it follow that indispensability should be required? Not necessarily, the Commission argued. I concur with it (and the General Court, which has already examined the question).

Why? In the circumstances of Slovak Telekom, the infringement could be brought to an end without resorting to proactive remedies. The usual reactive intervention (a cease-and-desist order) was more than enough.

The issue arose again in Google Shopping. Unlike Slovak Telekom, the infringement could only be brought to an end by means of proactive remedies (in essence, a redesign of Google’s products). The difficulties that come with the design, implementation and monitoring of such measures have become apparent in the aftermath of Google Shopping (and as far as I can tell, these difficulties have not yet been solved; see here).

In Google Shopping, the Commission refers to the principle laid down in Van den Bergh Foods.

Why does it conclude that indispensability is not required? It is all about its interpretation of the principle.

Google Shopping suggests that, so long as the Commission does not formally mandate a proactive remedy, indispensability is not an element of the legal test. According to this view, if the Commission simply requires that the infringement be brought to an end, Van den Bergh Foods would not be relevant.

As I explain in the paper, I am not sure this is the most reasonable interpretation of Van den Bergh Foods, and this, for two main reasons.

First, the interpretation advanced in Google Shopping would give the Commission the discretion to decide when indispensability is an element of the legal test and when it is not.

In other words, this interpretation would turn an issue of law (the conditions to establish an infringement), subject to full judicial review, into one left to the discretion of the authority (and thus subject only to limited review).

Second, the EU courts have always placed substance above form. As a result, I fail to see how the relevance of indispensability can depend on what a decision formally requires – as opposed to what it entails in substance.

It remains to be seen whether the case law will prove resilient. The pressure to circumvent and/or abandon the consistent doctrine since Commercial Solvents is strong. I claim in the paper that, if the case law is to survive, the underlying principles would probably have to be spelled out more clearly.

Before I forget: I am delighted to clarify that, in accordance with the ASCOLA declaration of ethics, I have nothing to disclose.

I really look forward to your comments!

Thanks a million to all those of you who attended, sponsored, wanted to attend, or otherwise followed our conference last Monday. We felt it was interesting, chilled, decaffeinated ,and fun, and we were happy to see so many friends from all over the world. Vice-President Vestager did us the honor of announcing the revision of the market definition notice at the conference. General Court President van der Woude provided his insightful views on the past, present and future of EU judicial review. We are particularly grateful to the two of them for their support.

With this conference we always wanted to do something substantive but refreshing, and also something balanced, with no particular agenda. Thanks to you, to our sponsors and to the excellent speakers and friends who have accepted our invitations, this conference has become a significant event in only 5 editions.

This time we were “only” able to accomodate 450 people, while close to 500 remained in the waitlist (most of whom had registered on day 1!). We will do our best to fix that in the furure.  In case you couldn’t make it, here are the videos (which, however, do not capture the best thing about this conference: its atmosphere).

Here are the videos:

Introduction- The 10 Year Challenge (Alfonso Lamadrid)

Keynote by General Court President (Marc van der Woude)

Keynote by European Commission Executive Vice-President (Margrethe Vestager)

TED@Chillin’Competition “Our Data/ Our Future” (Jorge Padilla)

TED@Chillin’Competition “Hey Dude, for Pete’s Sake, you’re 30. It’s no longer cute to be so ?#@*&% disorganized. Grow up and focus on the essentials!” (Frank Montag)

InstantYoutubeHit@Chillin’Competition “A Rap on Competition” (Philip Marsden)

TED@Chillin’Competition “Sustainable Competition Policy”  (Maurits Dolmans)

10 Years of Competition Enforcement by the European Commission(featuring Nicolas Petit, Kim Dietzel, Kai-Uwe Khühn, Lars Kjolbye, Vanessa Turner and Lewis Crofts)

Articulating the Effects-Based Approach (featuring Svend Albaeck, Christian Ahlborn, Avantika Chowdhury, James Killick, Christian Riis-Madsen and Pablo Ibañez Colomo)

[P.S. Due to a technical problem we have no videos of two panels, the discussion with Renata Hese, John Sutton and Heike Schweitzer and the last panel on the burden of proof featuring Eric Barbier de la Serre, Kevin Coates, Leigh Hancher, Kristina Nordlander and Nigel Parr. But we’ll try do something about that soon]

The Chillin’Competition conference is about to start.

You can follow it live via this link.

The action will start at 9.30 (or 9.40, as people are still arriving…)

Enjoy!

The 5th Chillin’Competition conference is fast approaching!

We have received many requests for additional tickets, particularly from those of you on the waitlist. We can’t unfortunately accommodate any more attendees (Pablo is even concerned that we might not be able to accommodate those currently registered).

Here’s the good news: to make up for this, we have arranged for the conference to be accessibe via a Youtube live stream.

We will be posting a (functioning) link on the blog around 9.am next Monday that will enable you to follow all the action.

We have had to make a few tweaks to the program. Please see the final version below. Those watching from the office/home will at least be able to take a break at some point in the morning 😉

THE CHILLIN’COMPETITION CONFERENCE 2019

9.00-9.30: Registration

9.30-9.45: The 10-Year Challenge

Alfonso Lamadrid (Garrigues)

9.45-10.30: Keynote by GC President Marc van der Woude

10.30-11.30 TED@Chillin’Competition  

Philip Marsden (Bank of England, College of Europe, CRA)

Frank Montag (Freshfields)

Jorge Padilla (Compass Lexecon)

Maurits Dolmans (Cleary Gottlieb)

11.30-12.15: Keynote by Commissioner Margrethe Vestager

12.15-13.30: 10 Years of Enforcement by the European Commission 

Kim Dietzel (Herbert Smith Freehills)

Lars Kjolbye (Latham & Watkins)

Kai-Uwe Kühn (University of East Anglia and The Brattle Group)

Nicolas Petit (University of Liège)

Vanessa Turner

Chair: Lewis Crofts (MLex)

13.30-15: Lunch

15.00-16.00: A New Competition Law for a New Decade? Chillin’ with:

Renata Hesse (Sullivan & Cromwell)

Heike Schweitzer (Humboldt University Berlin, Special Adviser to Commissioner Vestager)

John Sutton (LSE)

16.00-17.15: Articulating the Effects-Based Approach

Christian Ahlborn (Linklaters)

Svend Albaek (European Commission)

Avantika Chowdhury (Oxera)

James Killick (White & Case)

Christian Riis-Madsen (GibsonDunn)

Chair: Pablo Ibáñez Colomo (LSE and College of Europe)

17.15-17.45: Coffee Break

17.45-19:  Meeting or Shifting- The Burden of Proof

Eric Barbier de la Serre (Jones Day)

Kevin Coates (Covington & Burling)

Leigh Hancher (Baker Botts)

Kristina Nordlander (Sidley)

Nigel Parr (Ashurst)

Chair: Alfonso Lamadrid (Garrigues)

19-21.00 Drinks

People sometimes ask me how much time I devote to the blog. And I almost invariably answer by saying that the correct question is how much I benefit from the blog.

I have just uploaded a draft paper on ssrn (see here). This is a piece I would never have written had it not been for the blog. It has been inspired by the many discussions on pay-for-delay we have had in the past few years.

The comments I received were invariably thoughtful, and were sometimes outright passionate. I learnt a great deal from them. Something I learnt was that, for better or worse, the message I wanted to convey did not always come across as clearly as I would have wanted it to. The paper just poured out of me in an attempt to bring clarity to the issues.

These comments also gave me the – right or wrong – impression that I had something to contribute to the debate. There is a rich line of case law addressing the relationship between Article 101(1) TFEU and intellectual property that had gone virtually unnoticed.

Of these cases, two of them – Nungesser and BAT (Toltecs-Dorcet) – provide, in my view, the structure to analyse the lawfulness of pay-for-delay agreements. Other crucial cases include Coditel II, Ottung and Micro Leader.

One of the points I wanted to clarify is that I am not interested in the outcome of individual cases. This is something I have often emphasised on the blog. In spite of this, many commentators assumed that I was challenging the outcome in Lundbeck.

That was never my intention. I will say more: it is very difficult for a moderately attentive reader of the Lundbeck decision to avoid the impression that the agreements at stake in the case were restrictive by object and deserved a fine. But again: I am interested in principles, not outcomes.

Another point that I felt needed clarification: some commentators thought I endorsed Roberts’ dissent in Actavis. Nothing further from the truth. The more I think about theat dissent, the more I am persuaded that it is intellectually indefensible.

Stephen Breyer’s majority opinion, which rejected the prima facie unlawfulness of genuine settlements and proposed a case-by-case approach, comes across as more reasonable (more on this below).

As rightly observed by one of our commentators, John Roberts’ dissent seems to be based on the idea that, since patents are presumed valid, we can presume that, in the context of a dispute, they have been infringed. But there is no such thing as a presumption of infringement.

Main points raised in the paper

On the notion of (potential) competition and restriction by object

So how does my paper go about the analysis of pay-for-delay agreements? I thought the right approach was to go step by step: I start from the fundamentals and then progressively move to the specifics of Lundbeck and Paroxetine.

Thus, I discuss the fundamental notions at stake in these cases (competition, potential competition and restriction by object); I move on to the discussion, in general, of the relationship between Article 101 TFEU and intellectual property to finally explain the controversy behind Lundbeck and Paroxetine.

On the fundamentals, I believe the case law is consistent and unequivocal since the 1960s. The Court defined the notion of competition early on, in Societe Technique Miniere.

It is clear from this case and subsequent ones that the notion of competition under the Treaty should be understood as meaning ‘actual or potential lawful competition which would have existed absent the practice’.

One of the implications is that the evaluation of the counterfactual is of course relevant when assessing restrictions of competition (whether by object or by effect). I recently addressed this question on the blog (see here).

Another implication is that the evaluation of the object and/or effect of a practice is a case-specific inquiry. Restrictions by object do not exist in the abstract, and can never be established without considering the relevant economic and legal context (both AG Kokott – see here – and AG Bobek – in his Opinion discussed here – have recently emphasised the importance of context).

On the relationship between Article 101(1) TFEU and intellectual property

There is a wealth of case law addressing the relationship between Article 101 TFEU and intellectual property.

Nungesser provides the principle. The Court distinguished between two scenarios: (i) one in which the scope of the agreement does not go beyond the range of acts that the right holder would be able to authorise or prohibit by virtue of its intellectual property and (ii) one in which the agreement allows the right holder to obtain protection that it would not have been able to obtain by enforcing its intellectual property.

Agreements falling under the first (i) scenario are not necessarily restrictive of competition, and may sometimes (e.g. Coditel II, Micro Leader) fall outside the scope of Article 101(1) TFEU altogether. Agreements falling under the second (ii) scenario (e.g. Ottung) may restrict competition, and are often restrictive by object.

The principle set out in Nungesser was applied to intellectual property settlements in BAT (Toltecs-Dorcet). The Court, uncontroversially, concluded that the settlement at stake in the case was not a genuine one, and thus pertained to the second (ii) scenario.

Indeed, BAT had sought to obtain via the settlement what it would not have been able to obtain via the enforcement of its (dormant) trade mark. The object of the agreement was the restriction of competition.

On the application of the principle to pay-for-delay agreements

The framework described above fits pay-for-delay cases particularly well. One can distinguish between settlements that address a genuine patent dispute and those that do not. The object of the former would not be the restriction of competition; the latter are likely to infringe Article 101(1) TFEU by its very nature.

Lundbeck shows how this framework would work in practice. The originator itself admitted during the proceedings that its process patents did not block all possibilities of entry. Accordingly, it sought to obtain by means of the agreements a degree of protection that its patents would not have afforded. The conclusion that the agreements in Lundbeck are restrictive by object is in principle inevitable as a result.

Why the controversy, then? Again, it is not about the outcome. The reasoning of the Commission in Lundbeck, and of the CMA in Paroxetine, suggests that a settlement addressing a genuine dispute would also be restrictive by object.

It follows from this reasoning that there would be a prima facie infringement of Article 101(1) TFEU even when it has not been shown, to the requisite legal standard, that generic producers need to rely upon a patented process to enter the market.

As I have suggested in the past, the approach in Lundbeck and Paroxetine heralds a new relationship between competition law and intellectual property (these are not the only cases, hints at this new relationship can be found elsewhere).

This new approach is not obvious to square with the principle whereby EU law does not question the existence of the rights, but only their exercise. It is also difficult to square with the principle whereby registered titles are presumed valid.

Exciting times ahead! I very much look forward to your comments.

As ever, I am delighted to clarify, in accordance with the ASCOLA declaration of ethics, that I have nothing to disclose.