Chillin'Competition

If you follow us, you will know that Chillin’ organised its first State aid event on 14 June. We thoroughly enjoyed the day, and the encouraging feedback we received suggests that it would be a good idea to repeat the trick.

Whether you were able to make it or not, we are sure many of you are interested in the materials used at the workshop.

Selectivity

My presentation (see here) opened the first discussion, devoted to selectivity issues. I had the privilege to share this panel with José Luis Buendía Sierra, Jacques Derenne, Penelope Papandropoulos and Christina Siaterli.

As an academic, this area of the law has become genuinely fascinating, and this was a dream occasion for me to raise (finally!) some questions that have been at the heart of my discussions with students over the years (I was, in fact, glad to see some of them in the audience).

I structured the discussions around three main points:

The co-existence of two approaches to selectivity

One of the most intriguing issues in this area has to do with the co-existence of two different approaches to selectivity. There is a form-based approach that revolves around the famous ‘three-step test’ and there is an effects-based approach in which the only question that matters is whether, in effect, undertakings in a comparable factual and legal situation are treated in the same way (the Gibraltar approach).

We discussed how panellists saw the co-existence of these two approaches – one of the panellists labelled it the Marxist (as in Groucho) approach to selectivity (‘this is my approach to selectivity, but if you do not like it to I have another one’).

My own take? The co-existence of these two approaches (with all the legal and policy implications that follow) is alive and well, as evidenced by the GC judgment in the Polish Retail Tax case.

Undertakings in a ‘comparable factual and legal situation’

This has emerged as a central question in many recent cases. Whether or not a measure amounts to a selective advantage (and thus whether it qualifies as State aid) depends on the equal treatment of ‘undertakings in a comparable factual and legal situation’.

Alas, how to identify, in practice, the undertakings that are in a comparable factual and legal situation? The question is tricky, and the case law still developing.

It is clearly not about defining the relevant market in an antitrust sense. What is it then? Can the exercise be conducted in a meaningful and predictable way? It is reasonable to argue that large and small undertakings in case like Polish Retail Tax are not in a comparable situation; but it is equally reasonable to argue that they are.

What will the future bring? Some panellists were more optimistic than others about the situation, which will in any event remain a central one.

What if it is all about the objectives?

I finished the panel with a question on which a PhD student of mine has been working hard for a while already: what if the finding that a measure is selective depends in reality on the underlying objective of the measure?

What if, in other words, it all depends on whether the objective is deemed commendable or not? This interpretation would allow us to reconcile seemingly contradictory judgments such as World Duty Free and Gibraltar.

This suggestion raises an immediate follow-up question: would two formally identical measures, one pursuing a commendable objective and one pursuing a questionable one, be treated in the same way?

This fundamental debate could hardly be more topical. As I was giving the final touches to this post the General Court announced the annulment of the Commission decision in the Hungarian advertisement tax case, and there is growing talk about the so-called digital taxes (to which one of the panellists referred). Interesting times ahead!

Procedural and institutional issues

Alfonso chaired the second panel, which featured Natura Gràcia (see here for her presentation), Massimo Merola, María Jesús Segura Catalán (presentation here) and Andreas von Bonin (presentation here).

This second panel touched upon eternal questions on procedure that have not lost a bit of their topicality. We were lucky that the knowledgeable audience allowed for meaningful discussions.

One of these eternal questions relates to the status of third parties in State aid proceedings.

A second question concerns the powers and obligations of national courts. Is a national court required to order recovery pending a Commission decision, even when there is a reasonable prospect that the aid will be deemed compatible? Some argued it is, some took the view that the Treaty allows for more flexibility.

Finally, the issue of judicial review has raised eyebrows in recent times. There is a perceived rise in the rate of annulments before the General Court. Does this perception reflect reality (sorry, I am an academic and have to ask this)? Assuming it does, what may be driving it? María Segura gave some valuable insights in this sense.

State aid beyond the EU

We did not want to turn the last panel into one focused on Brexit issues alone. In my introduction (see here) I tried to emphasise the trade-offs at stake when a State aid system between two trading partners is designed.

In particular, I showed how, a purely national system (e.g. the CMA controlling aid granted by UK public authorities) comes at the price of an asymmetric relationship with supranational authorities – some of the wording used in the Withdrawal Agreement is reminiscent of the relationship between the European Commission and national competition and/or regulatory authorities in the telecoms sector.

My introduction was followed by a presentation by Vincent Verouden who addressed the rationale for State aid control between trading partners (see here, and note that he also addresses some of the features of the future EU/UK relationship); Nicole Robins (see here), who addressed, why and how frictions between the EU and the UK might arise and – faithful to the objective of the panel – Christian Jordal addressed some features of a symmetric system (that are enshrined in the EEA Agreement, as shown here).

Our keynote speaker: Viktor Kreuschitz

We were privileged to have Viktor Kreuschitz, judge at the General Court and renowned State aid specialist, who provided a wonderful overview of some recent developments that were not covered in the previous panels. I frantically took notes on issues that ranged from the notion of State resources to the status of the GBER. And learnt a lot!

Pablo and I were both speaking at the College of Europe’s ELEA Symposium last week, which was great. We actually did the full College experience, attending the last student bar of the academic year (the picture above is of my panel; hopefully no pictures were taken at the bar).

In the course of next month, I’ll also be participating in the College’s various summer courses on competition law. These include the courses for competition officials from China, India, Japan, Korea and ASEAN countries (which are not very likely to be of interest to you), but also the 1 week course on EU Competition Law and a 3-day course on Competition Policy & High-Tech markets.

You can still sign up for these (if you do, you’ll get a free beer from me in Bruges at the best beer pub you will have ever visited…) 😉

On Thursday of last week, I had the privilege to present parts of my research with the Amicale des Référendaires (the association of current and former law clerks of the CJEU).

My (animated) presentation, available in French here, addressed the issue of judicial review of administrative action in EU competition law.

As far as I am concerned, it was a wonderful opportunity to reflect on the respective roles of judges and academics when trying to make sense of the law (and there is hardly a better audience for an academic).

Court judges invariably emphasise at conferences that their role, at the end of the day, is to provide an answer to a given dispute in a specific factual and legal context. I always try to bear this idea in mind.

What is the role and potential contribution of academics, against this background? I see it as taking distance from concrete cases and trying to figure out whether there are patterns in the behaviour of the relevant actors (which explains the choice of cartoon for my presentation).

The importance of judicial review

Discussing the importance of judicial review before people who deal with it on a daily basis and know the intricacies of the subject much better than I do may come across as strange. What was my point? To explain that, as a result of my research, I am better able to understand, in a concrete way, the potential negative consequences of undue deference.

One needs to move away from a static perspective of administrative action and judicial review, which sees disputes as a one-shot game. We should always bear in mind that (i) law is, by definition, a dynamic phenomenon and that (ii) administrative authorities like the Commission are repeat players.

Two conclusions follow from these insights. First, administrative authorities may behave in a way that takes long-term considerations into account. By the same token, it may be possible to identify patterns in the behaviour of such authorities. Second, deference by courts can be expected to negatively impact the consistency and predictability of the law.

Are there distinct patterns of behaviour on the part of the Commission?

One of the most important lessons I have drawn from the systematic study of the EU competition law system is that one can identify distinct and persistent patterns of behaviour by the Commission as a competition authority. These patterns last to these day, and are useful to identify the source and likelihood of errors of law.

A central question in this sense relates to the way in which the Commission engages with the case law. Is it risk averse, as a frequent narrative suggests, or is it risk prone? My research findings do not provide much support for the risk aversion narrative.

Across provisions and over time, the Commission tests and has tested the boundaries of the case law, occasionally departing from it. It is not difficult to think of examples of this pattern of conduct (Irish Sugar, Langnese-Iglo, Microsoft, IMS Health, O2), which one should acknowledge when thinking about judicial review matters (and the related issue of legal consistency).

Expert consensus and judicial review

I was interested to find, in my work, that the likelihood of annulment rises where the Commission departs from, or fails to acknowledge, the experts consensus in its decisions. Suffice it to think in this sense of Airtours and Cartes Bancaires.

This is, I would say, a natural and expected reaction in a judge. Ignoring the expertise developed incrementally over the years comes across as arbitrary and capricious. As I explained in the past (see here), it is difficult to see how judicial review can be meaningful if we allow an administrative authority to choose what to believe.

From a normative perspective, I see the expert consensus as the basis on which administrative action should take place. From a positive perspective, I believe this is also the EU courts’ position (in a way, the Tetra Laval formula appears to capture this idea).

The issue of expert consensus and its relationship with administrative action and judicial review is fascinating. I look forward to digging deeper into it and (if there was any doubt) sharing my findings here.

[UPDATE: Since I have received the request from some of you to get an English version of the slides, you can find here the presentation I gave when I launched my book last year. There is quite a bit of overlap between the two presentations.]

The June issue of The Lawyer  magazine includes a short piece featuring my views on the current debates surrounding competition law, its alleged insufficiencies and its possible reform.

The piece posits that these debates relate not only to the moral underpinnings and ultimate justifications of competition law, but also to wider questions that cut across other areas of law. These have to do with legal certainty, objectivity, the role of expertise in decision-making, the virtues of rule-based system and non-negotiable legal principles.

With The Lawyer’s permission, it is available here. Comments welcome!

Competition law at a crossroads (The Lawyer_Lamadrid)

The famous Mardis de la concurrence (run by Jean-François Bellis and Denis Waelbroeck) are one of the most venerable institutions in the Brussels competition law community.  

It is wonderful that the closing address of this year’s Mardis will feature Commissioner Vestager, who will share her thoughts on Merger Control: The Road Ahead.

The event, which could hardly be more topical, will take place in a week’s time (Tuesday 18 June) at 7pm.

The venue will be the superb Auditorium of the ULB (Salle Dupréel, Avenue Jeanne 44, Brussels), which many of our readers will remember from last year’s conference.

Attendance will be free of charge, but those interested are expected to sign up for it here.

More info can be found in the event’s flyer. We hope many of you will be able to make it!

As you know, our State aid aid event will take place on Friday of next week – 14 June, @ Fondation Universitaire in Brussels (rue d’Egmont 11). We look forward to seeing many of you there!

You can check the final programme below. If you have not signed up yet: the event is unfortunately full but the waitlist is still open: do sign up for it here.

As promised, this is the second instalment of the series of posts on persistent myths in EU competition law (these received ideas that will not be put to rest even though they cannot be reconciled with the case law).

For the first instalment, please see here.

This second myth is one that I have explored already in the past (see here, for instance).

This myth is about the idea that the analysis of the counterfactual is not relevant when a practice is restrictive by object. According to this view, it would be possible to establish an object infringement without considering the conditions of competition that would have existed in the absence of the agreement.

Why address it again? Because I keep listening to this idea at conferences.

Underlying this myth there are two ideas that are at odds with a consistent line of case law (these are two sub-myths if you prefer)

A restriction by object can never be established in the abstract

The idea that the counterfactual analysis is not relevant at the ‘by object’ stage assumes that a restriction by object can be established in the abstract.

Alas, this assumption is contradicted by the case law. As we have mentioned more than once (and twice) here, the Court has consistently held that, when establishing the object of a practice, one needs to consider its nature, as well as the legal and economic context of which it is a part.

For instance, it is incorrect to say that ‘price-fixing agreements between competitors are restrictive by object’ Stated in the abstract, this sentence means nothing (my undergrads know this well).

There is no shortage of examples showing that a price-fixing agreement between competitors is not always restrictive by object.

As mentioned in the first post, an agreement fixing the purchasing price of a product is not always a restriction by object. It sometimes is (as in Italian Raw Tobacco). Sometimes, it is not, as in Gottrup-Klim.

Again, it all depends on the legal and economic context of the agreement.

The evaluation of the counterfactual (that is, the conditions of competition in the absence of the agreement) may be a relevant consideration in this regard.

Think of Tournier. The case was about a form of co-operation between competitors that involved price-fixing and the restriction of output. By object? Cartel? Not at all.

Where did the counterfactual kick in? The Court explained that, in the context of the arrangement, price-fixing and output restrictions (via blanket licensing) could be strictly necessary to ensure that copyright would be adequately exploited. In the absence of these clauses, in other words, the legitimate aim of the arrangement would not have been achieved.

Another great example is Remia. Seen in the abstract, the practice would look like an obvious ‘by object’ infringement. The seller of a business agrees to a non-compete obligation. A firm that agrees with a potential competitor to leave the market? Is this not very similar to BIDS (i.e. a ‘crisis cartel’ and obvious infringement of Article 101(1) TFEU)?

Again, the Court concluded, in light of the counterfactual, that, in such circumstances, a non-compete (or market sharing) clause may fall outside the scope of Article 101(1) TFEU altogether (neither restriction by object, nor by effect). Why? Because the main (pro-competitive) transaction might otherwise not take place at all. The purchaser might never have agreed to the sale absent the non-compete (or market sharing) clause.

The bottom-line here, I guess, is that many people assume that, in the context of by object infringement, no assessment of any kind is necessary. The case law makes it abundantly clear that this idea is incorrect. The economic and legal context counts and needs to be considered. It is true that sometimes the assessment of the context can be very brief (which is the point made by the Court in Toshiba), but an assessment in the abstract will always fail to carry the day.

Considering the counterfactual is not the same as evaluating the effects of the agreement

Another reason why this myth about the counterfactual is so popular may have to do with another received idea. Some people assume that, as soon as we start considering the counterfactual, we are already considering the effects of the practices. And we all know that object and effect are distinct conditions.

Alas, it is not true that evaluating the counterfactual is the same as assessing the effects of an agreement.

Figuring out the object of an agreement and assessing its restrictive effects on competition are two different exercises.

The analysis of the counterfactual may be relevant at both stages – it would simply fulfil different purposes at each (at the object stage, its purpose is to find what the agreement is about; at the effects stage, its purpose is to evaluate its impact on competition).

If the evaluation of the counterfactual reveals that the conditions of competition would have been the same with and without the practice (that is, that the practice is incapable of restricting competition), then the object of the agreement cannot be anticompetitive. It can safely be presumed to be a pro-competitive one.

Tournier, mentioned above, is a wonderful example in this sense. If it turns out that copyright can only be meaningfully exploited (read: the legitimate aim of the agreement can only be meaningfully achieved) with price-fixing and output restrictions, then the object of the latter cannot be the restriction of competition. Their objective purpose, their rationale, is pro-competitive.

Coditel II is another wonderful example along the same lines. Remember that the licensing agreement gave absolute territorial protection to the licensee.

Absolute territorial protection is always by object, right? Not always (remember that restrictions by object can never be established in the abstract). And not in the specific context of Coditel II.

The reason is simple: what restricted competition in the specific circumstances of Coditel II was not the licensing agreement, but the underlying copyright regime. Even in the absence of the agreement, the cross-border transmissions at stake in the case would have infringed copyright.

Wait a second: did the GC judgment in Lundbeck not say that the counterfactual is irrelevant at the by object stage?

I am pretty sure many of you had this question in mind when reading the above. It is a relevant and important question.

As I see it, the GC assessed the counterfactual while denying the relevance of the counterfactual. It did one thing, it said another.

A considerable part of the first instance judgment, in fact, is devoted to whether the generic producers were potential competitors. In essence, this analysis amounts to asking whether, in the absence of the agreement(s) the generic producers would have had the ability and incentive to enter the market.

If it turns out that they were not potential competitors, then the agreement(s) would not have been capable of restricting competition that would otherwise have existed, whether by object or effect. And it (they) would have fallen outside the scope of Article 101(1) TFEU altogether.

So if the GC did assess the counterfactual, why did it deny its relevance at the by object stage? Good question, for which I have no answer. Fortunately, we will have an appeal judgment at some point in the coming months (and, according to the Court’s website, AG Kokott will deliver her opinion on 27 June).

Last week the General Court annulled yet another Commission State aid decision in the Real Madrid case. This is an important development for at least 3 reasons:

1) First, because it is a “we told you!” scenario (add an irritating voice to that). Two months ago we wrote this post about “how the Court approaches judicial review of complex economic assessments when the burden of proof is on the Commission”. The conclusion was that “it won’t be difficult for the Commission to continue to win cases if it incorporates this logic [of not avoiding the examination of any relevant factor when it bears the burden of proof ] into its day-to-day. If that does not happen, we are likely to witness a series of annulments (…) My bet is that I will be making a few future cross references back to this prediction” (underlining featured in the original post). That prediction is faring well after only two months.

[Note that albeit the recent FC Barcelona annulment discussed in that post also had to do with Spanish football, the substance of the cases is completely different: one was about taxes and the other about urban planning].

2) Second, it confirms a trend. Over the past few months the EU Courts have annulled over a dozen decisions. Many of you will have heard me saying that for a few years many of the most interesting legal discussions in EU Law were happening in the field of State aid. All these cases show that EU judicial review is not meaningless. In fact, they show exactly what EU judicial review is about. We’ll discuss all this very soon.

3) Third, it is –sadly- the only thing that Real Madrid has won this year. All the matches I lost to my eldest playing the game picture above over the weekend (no kidding) don’t count…

For exactly the same reasons we outlined in the previous post, the lessons from these judgments are equally applicable to antitrust. Leaving aside all the case specific stuff, here is the general reasoning:

• Recital 89 reiterates the standard of judicial review for complex economic assessments (which, as you know, is the same for all areas of competition law);
• Recital 114 summarizes Real Madrid’s key argument about the implications of bearing the burden of proof: “Relying on various cases, the applicant asserts that the Commission bore the burden of proving that there had been State aid and that it was not for it to evaluate merely some of the benefits of the transaction in a selective and isolated manner”.
• At 116, the Judgment invokes the case law according to which “the Commission is required to carry out a complete analysis of all the factors that are relevant to the transaction at issue and its context”(my emphasis).
• At 118, the Court adds that “to assess the lawfulness of the contested decision, it is necessary to take into account the information at the Commission’s disposal or available to it at the date on which it adopted that decision. In that regard, if it should prove to be the case that the Commission’s assessment is contradicted or placed in doubt by information of which it was unaware during the administrative procedure, it must be established whether such information could have been known to and taken into consideration by it at the appropriate time and, if that were the case, whether that information should as a matter of course have been considered by the Commission, at least as relevant data” (read this together with the two Judgments commented upon in our previous post and you will see pretty much the same language);
• At 123, the Judgment places emphasis on whether a particular point (which the Commission did not explore) had been submitted during the administrative procedure. Interestingly, the Court made sure about this by requiring the applicant to confirm it “in a reply to a written question”
• At 125, the Court finds that “by merely examining the value of Plot B-32, the Commission did not take into consideration all the aspects of the transaction at issue and its context. Contrary to what it was required to do, it thus could not have carried out a complete analysis of all the relevant factors, for the purposes of establishing not only the valuation of the amount of aid, but also, above all, whether there was in fact an advantage resulting from the measure at issue, considered in the light of all the relevant factors (my emphasis).
• Failure to properly examine all the relevant circumstances and context to the measures automatically results in the annulment of the Decision (128): “The Commission therefore has not proven to the requisite standard that the measure at issue conferred an advantage to the applicant”.

The Bottomline(s)

… are exactly the same ones discussed at the bottom of our previous post on this topic.

I have just uploaded a new paper on ssrn (you can download it here). As you see from the title above, it is devoted to legal tests under Article 101 and 102 TFEU. The paper seeks to map these tests and explain how they operate in practice.

I thought it would be a good idea to provide a complete taxonomy, and to shed some light on where potentially anticompetitive conduct stands in the spectrum ranging from the prima facie unlawful (e.g. cartels) to the prima facie lawful (e.g. above-cost prices).

In addition, I felt a paper could shed further light on some questions that have been abundantly discussed in recent years and inter alia the following two:

How is the presumption of capability rebutted in practice?

We know that conduct that is deemed prima facie unlawful is presumed to be capable of having anticompetitive effects. 

We also know since Intel (and, in the context of Article 101 TFEU, since Murphy) that firms can rebut this presumption by showing why, in a specific legal and economic context, the practice in question is incapable of having such effects.

How does the rebuttal of the presumption work in practice? I explain in the paper that the presumption of capability can be rebutted in two ways:

• By showing that any actual or potential effects would not be attributable to the practice under consideration (remember Post Danmark II?); or
• By showing that the practice is objectively necessary to achieve a pro-competitive aim (remember Societe Technique Miniere?).

The first way of rebutting the presumption of capability is at the heart of Intel. The AEC test may tell us that an equally efficient rival would not be forced to sell at below cost, and thus provide a powerful indicator that the requisite causal link between the practice and any actual or potential effects is absent.

The second way or rebutting the presumption is at stake, for instance, in the Guidelines on vertical restraints. The Commission explains that, where necessary to enter a new market, an exclusive distribution agreement that insulates the reseller from active and passive selling may fall outside the scope of Article 101(1) TFEU (even though such an agreement is in principle a ‘by object’ infringement).

Why is indispensability required in some cases but not in others?

Another question that my paper addresses relates to an apparent puzzle in the case law. A refusal to deal and a ‘margin squeeze’ seem to be comparable in every way. Why is it, then, that, when it comes to establishing an abuse, indispensability is required in the case of the former but not the latter? Is the case law inconsistent, as some argue?

The paper identifies an aspect that is common to all cases in which indispensability was an element of the legal test (Commercial Solvents, CBEM-Telemarketing, Bronner, Magill and so on). In all of them, the remedy imposed was proactive in nature – a positive obligation to do something. In Commercial Solvents, for instance, the Commission prescribed the quantities and the price of the supplies.

Cases like Deutsche Telekom and Slovak Telekom are different. In these two cases, the remedy was the traditional reactive one – an obligation not to do something.

Proactive remedies are much more difficult to design, implement and monitor. Accordingly, it makes sense to introduce indispensability as a filter. In this regard, I submit (perhaps in contradiction with the prevailing view) that the case law is much more sensible than commonly conceded.

We are glad to share some news coming from all over Europe (in the spirit of the ongoing election to the European Parliament):

• From London, younger readers pursuing or considering an academic career will be pleased to learn that King’s College London is expanding its competition law team (lucky them). It is an entry-level position (lectureship). You have until 7 June to apply. More info here.
• From Murcia, our friend Jorge Piernas is keen to let us know that his home university (Murcia), in cooperation with the University of Padova and the European Commission, has put together a programme to train national judges in State aid matters. If you are a judge (or an apprentice judge), note that the first residential seminar will take place in Murcia on 30 and 31 May and that there are a few (very few) spots available. Interested? You can reach Jorge at jjpiernas@um.es.
• From Brussels, our friends from the eminent Global Competition Law Centre have organised a lunch talk, to take place on Monday of next week, in which to discuss the priorities of the next Commission. As part of the lunch talk, they have come up with the great idea of inviting the competition law community to share their views on the matter. You have until 25 May to fill their survey, which can be accessed here.