Chillin'Competition

Thanks very much everybody for the interest in our State aid workshop (14 June, Fondation Universitaire, Brussels).

As you will have seen, registrations are now closed. But please do sign up for the waitlist, which is still open. We hope to be able to accommodate everybody.

We are proud to be able to bring an update to our programme.

Viktor Kreuschitz, Judge at the General Court and renowned State aid specialist, has kindly agreed to give a keynote at 4pm, right after the last panel. La cerise sur le gâteau of what promises to be a great event.

The updated programme (and the link to sign up for the waitlist) can be found here.

On 19 June, the ELEA students at the College of Europe will be hosting a symposium focused on two of the main themes in competition law these days: Europen champions and industrial policy, and digital platforms.

They have managed to come up with an excellent line-up of speakers.  Pablo and I will both be happy to join them.

There are only 10 seats left, so you better hurry up. For additional info and registration, click here.

Registration for our State aid event is now open! You can sign up for it here.

Remember that the programme can be found here.

We look forward to seeing many of you there! And please contact us for any question.

As you know, we are a month away from our State aid event. You will find below the finalised programme. We are proud to have brought together a group of top experts (thanks again to all of them!).

The registration page will go live this Friday (17 May) at 10am London time and 11am Brussels time. You will find the link to the page via the blog, so watch this space!

Chillin’ State Aid Workshop: Charting the Territory

Where: Fondation Universitaire (Rue d’Egmont, 11 – 1000 Brussels)

When: Friday 14 June 2019 

9am-9.15am | Registration and welcome

9.15am-11.15am | Selectivity and advantage

Introduction and chair: Pablo Ibáñez Colomo (LSE and College of Europe)

Speakers: José Luis Buendía Sierra (Garrigues), Jacques Derenne (SheppardMullin), Penelope Papandropoulos (European Commission) and Christina Siaterli (European Commission)

11.15am-11.30am | Coffee break

11.30am-1pm | Procedural and institutional issues

Introduction and chair: Alfonso Lamadrid de Pablo (Garrigues)

Speakers: Natura Gracia (Linklaters), Massimo Merola (BonelliErede), María Jesús Segura Catalán (Clayton & Segura) and Andreas von Bonin (Freshfields)

1pm-2.30pm | Lunch

2.30pm-4pm | State aid beyond the EU

Introduction and chair: Pablo Ibáñez Colomo (LSE and College of Europe)

Speakers: Juliette Enser (Competition and Markets Authority), Christian Jordal (EFTA Surveillance Authority) and Vincent Verouden (E.CA Economics)

4.00pm-4.45pm | Keynote speech: Viktor Kreuschitz (General Court)

4.45pm-5.15pm | Let’s find somewhere nice for a drink

The support of LSE Law is gratefully acknowledged

The good news first: Chillin’Competition just went over 2 million visits. Thanks so much everyone for choosing to come here from time to time.

The competition that we improvised this morning (see here) didn’t quite work according to plan. We received over 1,500 visits in the first half an hour. (!); the system got stuck and did not update for a while, so unfortunately we don’t know who the exact 2 million visitor was.

We have received reports from readers who claim to have tried to refresh the page on several devices and networks. This situation raises important questions, mainly: didn’t you really have anything else to do?! 😉

To make up for it we offer two things:

-Since we know that what truly motivated you was the possibility to introduce more absurdity, some fun, a word in one of Pablo’s academic articles: please write as a comment to this post or in a tweet the word that you’d like Pablo to include in his next paper (I’d go for Oocephalus, my colleagues suggest Dracarys). We’ll then select the best ones and run a poll. The person who suggests the winning word will get the Chillin’Competition sports bag and t-shirt.

-A free round of beers at an open bar to be announced soon.

Today Chilling’Competition will attain the 2 million visits mark, which is pretty amazing.

At 9.47 am we are roughly 500 visits away, and we just thought about creating a competition.

If any of you can prove with a screenshot of the blog’s homepage that you are the exact 2.000.000 visitor, you will win:

• A Chillin’Competition sports bag and t-shirt;
• Two tickets for our next conference;
• Most importantly, the possibility to decide on a word that Pablo will have to include in his next academic paper (he has just agreed; no kidding) 😉

(The headline of this post may admittedly constitute clickbait)

EU competition law keeps busy a growing number of officials, practitioners and academics. It is fascinating that, with so many professional lives devoted to it, with so many specialised conferences and journals, there are still many myths that refuse to die. Some received ideas are incredibly powerful. They keep being repeated as uncontroversial truths even when they are patently at odds with the case law.

I thought it would be a good idea to do something more than simply express my fascination: identify what these myths are and explain why they are unfounded.

The idea of writing a series of posts on myths in EU competition law came when I thought about the statement you find in the title. To this day, some people remain convinced that the pro-competitive aspects of agreements can only be evaluated under Article 101(3) TFEU. It is perhaps the most popular myth around.

According to this view, claims about the ways in which the agreement could create (or improve the conditions of) competition would have no role to play under Article 101(1) TFEU.

This mantra may be very popular. For better or worse, it is unambiguously contradicted by a consistent line of case law.

The pro-competitive aspects of an agreement play, and have always played, a central role under Article 101(1) TFEU

The abovementioned line of case law dates back to the very early days. In Societe Technique Miniere, the Court already ruled that an agreement that is ‘really necessary’ for a supplier to enter a new market is not restrictive of competition, whether by object or effect.

Another one of my favourite examples is Asnef-Equifax. You will remember that the case was about an information exchange system available to credit providers. The point of the system was to allow the said providers to figure out the likelihood of repayment by potential borrowers.

The Court concluded that the system was not restrictive by object. As part of the reasoning, it noted that information exchange mechanisms of that kind ‘are in principle capable of improving the functioning of the supply of credit’ (paras 46, 47 and 55) and ‘of increasing the mobility of consumers of credit’ (para 56). I do not believe the reasoning can get much more explicit than this.

A similar example (and another all-time favourite) is Gottrup-Klim. A group of competitors decide to buy an input in common. Cartel arrangement? Could be (buyers’ cartels do exist and are sanctioned as such), but not in the specific circumstances of this case. The joint purchasing agreement at stake in Gottrup-Klim was different from a cartel and thus not restrictive by object. Crucially, the Court noted, in this regard, that the agreement in question may ‘make way for more effective competition’ (para 32).

I could go on for a while, but it makes sense that I mention two relatively more recent cases.

Pierre Fabre is arguably as explicit at Asnef-Equifax. The Court held that clauses in an agreement that would otherwise be restrictive by object fall outside Article 101(1) TFEU if there is an ‘objective justification’ for them (para 39 of Pierre Fabre).

How do we figure out if an agreement is objectively justified within the meaning of Pierre Fabre? By ascertaining (para 40) whether the agreement in question aims at the ‘attainment of a legitimate goal capable of improving competition’ (in other words: by identifying its pro-competitive aspects).

Our last station in this overview has to be Cartes Bancaires. Just remember (para 74) that the crucial factor to rule out the ‘by object’ characterisation was the fact that the Court accepted that the contentious clauses could be understood as a means to tackle free-riding issues.

If the pro-competitive aspects of the agreement count under Article 101(1) TFEU, what is the role of Article 101(3) TFEU?

The above examples make it sufficiently clear that the pro-competitive aspect of an agreement are not only relevant, but crucial under Article 101(1) TFEU – and have always been. If there is anyone disputing this conclusion in spite of the examples given, please leave us a comment. I would really love to know your thoughts.

I believe I understand why the myth is so persistent in spite of the overwhelming evidence to the contrary. Article 101(3) TFEU is the forum in which the pro-competitive aspects of an agreement are balanced against its anticompetitive aspects. Would Article 101(3) TFEU not be completely devoid of purpose if the former were also considered in the first paragraph of the provision?

To which my answer is: no. And this, for two reasons.

First, the exercise conducted under, respectively, the first and the third paragraphs of Article 101 TFEU, is different. For the same reasons, the pro-competitive aspects of the agreement are considered for very different purposes too under each paragraph.

In the context of Article 101(1) TFEU, the pro-competitive aspects of an agreement are indispensable to figure out its object. Put differently: it is simply impossible to evaluate the objective purpose of an agreement (i.e. what it can objectively achieve, irrespective of the subjective intent of the parties) without considering whether it is a plausible source of pro-competitive gains.

This is something that the Court understood from the outset, and that has emerged as a pillar of the case law.

Second, the intensity of the analysis is very different under the first and the third paragraph. The pro-competitive aspects of an agreement are considered in two stages.

Asnef-Equifax, Pierre Fabre and Cartes Bancaires (as well as others like Delimitis or Pronuptia) all tell you that the analysis of the pro-competitive aspects of an agreement is relatively superficial under the first paragraph.

Under Article 101(1) TFEU, the question is whether the agreement is a plausible source of pro-competitive gains. A cursory analysis suffices, and no quantification is needed. The General Court in MasterCard (2012 judgment) made a similar point (para 80).

The analysis is much deeper under Article 101(3) TFEU (once the burden of proof shifts). Then, it is for the parties to show that it is likely that the pro-competitive gains generated by the agreement will weigh more than the anticompetitive effects resulting from it.

As can be seen, there is a role for the two paragraphs: they fulfil a different role and the intensity of the analysis is also very different.

If you ask me: the case law makes a lot of sense.

It makes sense for the the Court to say (as it does): if the agreement is a plausible source of pro-competitive gains, then it can only be prohibited if the authority or claimant establish that it is likely to have appreciable effects on competition. And it makes sense to engage in a full-blown balancing of the pro- and anticompetitive once the latter are shown.

It is also sensible that the burden of proof shifts when the agreement is not a plausible source of pro-competitive gains. Want to claim that a cartel is on balance pro-competitive? Well, experience and economic analysis tell us that such a claim is implausible, but the possibility of claiming the implausible exists under Article 101(3) TFEU. Just think of BIDS, another key judgment where this point is made.

The Junior Competition Conference has become one of the great traditions of the London competition community (and one we are really glad to see back after a one-year hiatus).

It is a wonderful opportunity for junior lawyers and economists to share their thoughts on ongoing developments. The next edition will take place on Friday of next week, and the organisers have been kind enough to extend the deadline to register. Do not miss this great opportunity if you can make it! More info below:

The Editors of the Competition Law Journal are delighted to present the 12th Junior Competition Conference (JCC) 

Recent developments in competition litigation and Vertical restraints in the online age: where next?

@Competition Appeal Tribunal, London (Friday 10 May 2019 at 2:00pm)

Link to full programme here

The JCC is open to all those involved in UK competition law, economics and policy, whether in practice, public service or academia. Admission to the JCC is free.

As in previous years we anticipate that demand will be very high: for those interested in attending, please email journals@e-elgar.co.uk with your name, position and organisation by no later than 5pm on 7 May. 

On Chillin’Competition we have always been for fair, objective, neutral and consistent rules and enforcement. Rules and cases should not be designed to favor (nor to challenge) only certain companies.

The debate surrounding the Siemens/Alstom deal triggered important debates around these issues at the legal and political levels. Both Pablo (here) and myself (here) contributed to that debate with our own views.

Today the Financial Times has published an open letter signed by 92 competition lawyers and economists (myself included), organised by Vanessa Turner, standing up for our current and time tested system, based only on the law and on the facts.

The letter is available here. For those with no access, here is a PDF version: Open letter on EU competition policy (FT)

‘Self-preferencing’ is the buzzword of the day. This concept was discussed at length in the Special Advisers’ Report and is now being explored in earnest by national competition authorities around the EU. We have heard news about the Dutch Authority exploring Apple’s alleged favouring of its own app. Right before the break, the Italian authority announced the opening of an investigation against Amazon and its practices.

This flurry of enforcement activity, yet another sign of the turning tide, cannot surprise an attentive observer. Self-preferencing is a powerful rhetorical device: it provides authorities with the key to potentially countless investigations and allows them to monitor closely the activity of large firms in the digital arena. More importantly, it is through this device that they can adopt wide-ranging remedies changing, potentially in fundamental ways, some business practices.

The genius of self-preferencing as an epithet is that it turns the most pervasive and the most banal of practices into prima facie violations of Article 102 TFEU. Vertical integration is, indeed, pervasive in the digital (and the analogue) world. And instances in which vertically-integrated firms treat their affiliates more favourably than their rivals are equally pervasive. Just stroll around your local supermarket after reading this post.

Self-preferencing may become the tool to achieve ‘common carrier antitrust’ (that is, a state of affairs in which vertically-integrated firms are expected to comply with perfect neutrality obligations vis-a-vis customers and suppliers). This is an idea I explored previously on the blog.

As I was reflecting on the above, and on the dangers of enforcement-by-slogan, I was reminded of Areeda’s classic piece on essential facilities. In that piece, Areeda warned against an epithet-based approach, emphasising that it tends to lead to the expansion of a doctrine ‘to the limits of its language’, ultimately resulting in outcomes that are intellectually indefensible (Areeda’s choice of words was more colourful and perhaps more effective, but I guess you get the point).

If arguments revolving around self-preferencing are going to play a fundamental role in the coming years, it makes sense to ask some hard questions by reference to first principles. And it is also important to face the consequences of certain choices.

Self-Preferencing has never been seen as a concern, but as an expression of competition on the merits

It may be hard to believe, but there was a time when vertical integration and, by the same token, firms favouring their affiliates were not deemed problematic in themselves. They were not considered suspicious conduct deserving close scrutiny but the natural manifestation of the competitive process.

One of my favourite examples of the traditional approach dates back from the days when people smoked. In Tabacalera v Filtrona, the latter firm challenged a self-preferencing decision by the former (at the time, the tobacco monopoly holder in Spain): Tabacalera had decided to favour its own affiliate for the production of cigarette filters.

The Commission explained in its press release that this form of self-preferencing was not in itself an ‘abnormal act of competition’. In fact, few things are more normal than a firm relying on its affiliate to meet its own needs for a particular product (or favouring it when in doubt).

A second example (another one of my favourites) along the same lines is provided by the Guidelines on non-horizontal mergers. Again, self-preferencing is not presented in the document as something justifying remedial action, in and of itself, after a merger. It is instead presented – and was examined in individual cases – as an expected outcome of  a vertical merger, which may be problematic only where certain circumstances are met.

Key takeaway: I guess the main message here is that self-preferencing cannot be seen, in and of itself, as a departure from competition on the merits. Questioning this practice, in essence, is tantamount to questioning vertical integration and the rationale behind vertical integration – and I do not think anybody is ready to suggest (or at least not yet) that vertical integration is inherently bad, or presumptively bad.

Thus, if self-preferencing is going to dominate enforcement, we need to think carefully about the legal conditions under which it is deemed unlawful (i.e. the legal test) and the rationale behind such conditions. Which takes me to my next point.

Indispensability: the hard question that cannot (and should not) be avoided

I have explained many times on the blog that I am not interested in the outcome of individual cases. What matters, in my view, is the analysis, and how the analysis relates to the applicable case law. And I noted, when I read the Google Shopping decision, that none of the hard questions about the legal status of self-preferencing were addressed.

The Commission never spelled out in the decision the legal test against which the lawfulness of self-preferencing was assessed. It merely explained that Article 102 TFEU can apply to leveraging practices. This is not only correct but wholly uncontroversial. The problem is that (i) it is not a legal test and (ii) fails to address any of the issues.

If you have not done so, take a look at paragraph 334, which, according to the decision, provides the case law underpinning intervention. The Commission refers to several cases in footnotes 350 and 351. A cursory look at these judgments shows that there are virtually as many judgments as there are legal tests:

• CBEM-Telemarketing: in this case (the first to be mentioned by the Commission), the legal test requires evidence of indispensability (the reference to indispensability is explicit in the judgment, a point expressly confirmed in Bronner).
• Tetra Pak and Microsoft (Media Player): as the law stands, tying is prima facie unlawful under Article 102 TFEU – the practice is prohibited in and of itself (bearing in mind that it is always possible for a firm to rely on Murphy/Intel to rebut the underlying presumption that the practice is capable of restricting competition).
• TeliaSonera: a ‘margin squeeze’ is only prohibited where it has, or is likely to have, anticompetitive effects.

As you can see, the outcome in Google Shopping is perhaps correct. The difficulty is that we do not know which of the above three legal tests was the applicable one in the case, as the question was never tackled as such in the decision.

The uncertainty in this sense will have to be addressed, sooner or later, by the EU courts. It cannot be dismissed simply by arguing that leveraging has in the past been found to be abusive. For the same reasons, the question of whether indispensability is a legal condition in some, or all, self-preferencing cases will have to be addressed.

If you ask me: I always say that Google Shopping is just a re-run of Commercial Solvents: a firm, following a decision to vertically integrate, engages in a raising rivals’ costs strategy. But bear in mind Commercial Solvents, like CBEM-Telemarketing, required indispensability (and for good reasons).

Key takeaway: Perhaps it makes sense to depart from Commercial Solvents. Perhaps the reasons behind the introduction of the indispensability requirement in that case (and in CBEM-Telemarketing) are not compelling anymore. Perhaps one should not require indispensability in the specific circumstances of the case (for instance, it makes sense not to not to require indispensability in TeliaSonera/Slovak Telekom scenarios, as I explained here). 

But these questions have to be addressed explicitly. Avoiding the inevitable for a while can only lead to uncertainty and inconsistencies in the case law.

The need for a robust analysis of anticompetitive effects

One could argue that, so long as we can show that self-preferencing is potentially a source of anticompetitive effects, the above discussion is largely irrelevant. This is a very reasonable position to take. There is only one problem: it all depends on how anticompetitive effects are defined, and how they are assessed in practice.

This is a question that keeps me busy – and to which I devoted my talk at the last Chillin’ event. As I explained then, if the threshold of effects is low, pretty much any behaviour would be in principle prohibited, and would be treated, in practice, just like ‘by object’ conduct. The requirement to show anticompetitive effects would be a mere formality.

If we understand anticompetitive effects to mean ‘any competitive disadvantage’, self-preferencing will be, always and in any circumstance, prima facie abusive. Complaints about self-preferencing are, in fact, complaints about the affiliate receiving a competitive advantage.

We would face the same situation if an authority were able to discharge its burden of proof by showing that anticompetitive effects (however defined) are plausible. Such a low threshold would be met in the vast majority of cases. After all, the reason some practices deserve scrutiny is because they are deemed a plausible source of anticompetitive effects.

I believe it is possible to infer from the case law what is meant by effect. However, there seems to be a disparity between the case law and the practice of competition authorities. My work over the years has taught me that authorities have a tendency to equate any competitive disadvantage with anticompetitive effects, and tend to prefer to set the threshold of effects at the level of plausibility.

This disparity will inevitably arise in self-preferencing cases. And, like the indispensability issue, the question of what we mean by an anticompetitive effect will have to be tackled directly and in a clear and meaningful way.

Key takeaway: Saying that self-preferencing is abusive where it is a potential source of anticompetitive effects does not solve any of the problems discussed above. Unless the notion of effects is defined, considerable uncertainty, and considerable scope for opportunism, will remain.