Chillin'Competition

[The global Human Rights Logo, above, was created by Predrag Stakić from Serbia]

Some in the EU claim that EU Courts are permissive of the alleged flaws of the institutional/procedural system for the enforcement of the competition rules. The prosecutor-and-judge debate is one of the most longstanding in contemporary competition law. Whereas the Menarini Judgment from the European Court of Human Rights seemed to indirectly endorse the EU system, some continue to question whether the ECHR’s requirements are complied with by a system where the Courts do not always exercise “full review”. In anticipation of possible future challenges, you will in fact have noted that, following Menarini, the expression “marginal review” has disappeared from EU competition law Judgments. The extent to which there was a problem, or to which there may have been a change, in this regard is further discussed here.

Now, what happens when the EU mode is exported to/imported by other jurisdictions with allegedly different checks and balances? Well, here’s a story that is currently making the headlines in the Balkans and that has triggered some unprecedented developments, including a common constitutional challenge on the part of the national Bar, Human Rights Organizations and criminal law academics, public accusations on the part of the competition authority against individual lawyers, alleged breaches of private correspondence and other black-novel-like developments. Who said competition law couldn’t be adventurous…

A quick recap follows:

Read the rest of this entry »

Last Friday I took part in an (ideally timed) panel on Intel at the IBA Conference in Florence. The panel was chaired by Thomas Janssens and Timur Bondaryev (thanks a lot to both, and the rest of the panellists!). I learnt a great deal.

Inevitably, I spent some time re-reading some decisions and judgments ahead of the event. In the process, I shaped my thoughts on Intel and its implications.

These are some key takeaways that I did not develop at any length in my first post, and which I believe are key:

The AEC test is a (valuable) proxy; it is not the only factor

One of the issues that came up in the conference (no surprise) is whether the AEC test can rule out, in and of itself, the existence of an abuse. As I understand the judgment, the AEC test is better understood as a proxy or filter, not as the end of the inquiry.

If the test suggests that an equally efficient competitor would not be forced to sell below cost (read: below ATC or LRAIC), the onus is on the Commission to show why the rebate scheme is capable of foreclosing equally efficient rivals. Anticompetitive harm is possible in such an instance, but it cannot simply be presumed. It has to be substantiated in light of the factors identified by the Court in Intel.

Post Danmark II is an exception; Post Danmark I is the rule

When Post Danmark II came out, some commentators claimed that the judgment made efficiency considerations irrelevant in practice. Intel suggests that an alternative reading of the judgment is probably more reasonable: as a matter of principle, Article 102 TFEU is concerned with the ability and incentive of equally efficient rivals to compete. This makes Post Danmark I the rule, and Post Danmark II the exception.

Post Danmark II is in fact a wonderful example of the sort of special circumstances that may justify a departure from the rule. In that case, Post Danmark’s position came close to a monopoly; this position was, moreover, protected by exclusive rights.

A victory for consistency and legal certainty

A strict stance towards exclusivity agreements and loyalty rebates has often been defended in the name of legal certainty. Is there something better for legal certainty, the argument goes, than a clear rule that states that X is unlawful?

I have never been persuaded by this claim. Those advancing the argument only pay attention to one side of the rule (the outcome) and lose perspective of the other side (the scope of the rule, or trigger).

And the scope of the rule in Hoffmann-La Roche (and Michelin I, and British Airways) has never been clear. Look no further than Intel: it is far from uncontroversial to say that all schemes in the case are truly conditional on customers obtaining ‘all or most’ of their requirements from the dominant supplier.

For a rule to provide legal certainty, both the scope and the outcome need to be clear and predictable: make the first vague and the only certainty is that an undefined but potentially very vast range of practices is caught by the prohibition.

The Court’s clarification in Intel (and I believe it is a clarification) is a valuable step towards legal certainty.

Why? Intel provides a uniform benchmark: companies know that a cost-based test can be confidently relied upon as a proxy across the board. They also know that the cost-based test will be, in practice, the starting point of any inquiry.

Intel also makes it clear that the legal characterisation of a rebate scheme no longer has fatal consequences: it does not really matter (or not that much) whether a scheme is qualified as a loyalty or a ‘third category’ rebate. The methodology and approach will be roughly the same in practice.

Capability = Plausibility

As I understand the law, the threshold of capability is a relatively low one (on this one, I understand I agree with the Commission’s submission). In a ‘by object’ case (both under Articles 101 and 102 TFEU), it is sufficient that anticompetitive harm is plausible.

By the same token, what a firm would need to show to rebut the presumption of harm is that anticompetitive effects are implausible.

The good thing about rebates and predatory pricing is that we know where the threshold of capability lies: if a practice does not force an equally efficient rival to sell below cost (again: ATC or LRAIC), anticompetitive effects are in principle implausible: absent other factors, an equally efficient rival would be in a position to match the prices offered by the dominant firm. Its ability and incentive to compete would not be affected.

Exclusive dealing and loyalty rebates are not hardcore cartels

A hardcore cartel worthy of the name is capable, always and everywhere, of having restrictive effects on competition – otherwise, the cartel would have no point. As Toshiba suggests, arguing that a genuine hardcore cartel is incapable of restricting competition is hopeless in the vast majority of, if not all, cases.

But exclusivity agreements and loyalty rebate schemes are not hardcore cartels. These practices are implemented even when anticompetitive harm is implausible – which is also the reason why small market players with little or no market power resort to them.

The acknowledgement of this reality in Intel is valuable: the Court makes explicit that not all restrictions by object are created equal and that the law should take this factor into account. What is true of exclusive dealing is also true, inter alia, of tying and RPM.

What about de minimis?

The Court held in Intel (para 139) that a dominant firm may challenge the capability of harm on the basis, inter alia, of the limited market coverage of the practice. Is there a contradiction between this principle and Post Danmark II, where the Court held that there is no de minimis threshold in Article 102?

I do not believe there is a contradiction. Once again, it is worth taking a look at how things work in the context of Article 101 TFEU.

We know from Expedia that a ‘by object’ infringement that affects trade between Member States is not de minimis. But we also know from Murphy that the parties to a prima facie ‘by object’ infringement can show that the practice is not capable of restricting competition. I have never heard anyone argue that there is a contradiction between the two.

The same system would operate in the context of exclusivity agreements and loyalty rebates under Article 102 TFEU. A claimant or a competition authority can build a prima facie case without showing that the practice is capable of having appreciable effects. This is the point the Court made in Post Danmark II. On the other hand, Intel clarifies that dominant firm(s) can show that the practice is incapable of having effects. The former does not preclude the latter (it should not).

Applications of Intel: intellectual property-related cases are the obvious candidates

Intellectual property rights may prevent actual or potential competition between firms. Competition between these firms, in other words, may be implausible due to the existence of intellectual property rights.

Cases involving the exploitation of these rights are thus an ideal arena in which firms are likely to rebut with success the presumption that a practice is capable of restricting competition.

Examples? Think of the disputes in pay-for-delay cases (Servier, Lundbeck), in which the disputes revolve essentially around whether patent protection made market entry by generic producers implausible .

The best, and quickest, Intel comment by the most preeminent academic of his generation –who also happens to be my co-blogger- already contains the keys to understand and make sense out of the very essence of today’s CJEU (Grand Chamber) Judgment in Intel (see the preceding post). In what follows I add my two cents on another set of issues raised by the Judgment. Read the rest of this entry »

There was a lot of hype about the appeal judgment in Intel. It proved to be justified. The Court of Justice has set aside the ruling of the GC, and it has done so on the issues that have proved to be more controversial in the past few years: the question of whether, and to what extent, it is necessary to evaluate the effects of a system of loyalty rebates on competition.

Other grounds of appeal, including the territoriality question and the rights of defence, were rejected by the Court.

I will focus on the meaty stuff – Alfonso will jump in later and add his thoughts.

Does the judgment change the law?

Not really. The principle whereby exclusive dealing and loyalty rebates are prima facie abusive (or ‘by object’) stands (see para 137). What is new(ish) then? Well, the Court now clarifies that it is possible for a dominant firm to rebut the presumption that the rebate scheme is ‘capable’ of restricting competition. See para. 138: ‘that case-law [Hoffmann-La Roche and others] must be further clarified in the case where the undertaking concerned submits, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects’.

The Court makes explicit that anticompetitive harm is simply presumed in exclusive dealing and loyalty rebate cases. Accordingly, where supporting evidence is produced, the Commission must take seriously any arguments showing that the practice is not capable of having effects on competition.

Revolution? No. More of a desirable clarification, which makes a lot of sense.

Think of restrictions by object under Article 101(1) TFEU. In that context, the parties can also show that an agreement is not capable of having restrictive effects on competition, and therefore escape the prohibition (see for instance Murphy, paras 140 and 143). Does it mean that the Commission needs to show that the agreement has effects? No, it means that the parties can show that the practice cannot have effects. We now know that the same principle applies in Article 102 TFEU.

The Court’s clarification is welcome. A good legal system applies the same basic principles across the board. In EU competition law, it is now clear beyond doubt that ‘by object’ practices (read: those practices that are prima facie prohibited without the need to show effects) are treated in the same way under Articles 101 and 102 TFEU.

Efficiency counts in Article 102 TFEU, also in rebate cases: a welcome end to a controversy

We already knew from the Post Danmark saga – well, even from AKZO – that Article 102 TFEU is not inimical to efficiency considerations. On the contrary. The Court had already declared that the exclusion of less efficient rivals is a natural consequence of the competitive process, and therefore not attributable to the behaviour of the dominant firm.

The Intel judgment reiterates these principles and, by doing so, it gives them an aura of generality that is welcome for our understanding of Article 102 TFEU. In para 133, the Court holds that ‘it must be borne in mind that it is in no way the purpose of Article 102 TFEU to prevent an undertaking from acquiring, on its own merits, the dominant position on a market. Nor does that provision seek to ensure that competitors less efficient than the undertaking with the dominant position should remain on the market’.

It goes on in para 134, where the Court holds that ‘not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation’.

However, the most important bit comes in para 139. Post Danmark I and AKZO were about aggressive pricing. Do efficiency considerations count in rebate cases, where the concern is about distribution and access to outlets? They do. The judgment is crystal clear in this regard: when assessing the capability of harm, the Commission is ‘also acquired [sic, I assume it means required] to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market’.

This declaration was very important: I read it with relief. Saying that efficiency considerations are relevant only in one area of Article 102 TFEU but not in other areas seemed indefensible.

One important implication of the judgment: it is clear from AKZO and Post Danmark I that a practice is not capable of having exclusionary effects if it does not require equally efficient rivals to sell below cost. It follows, I would say, that a rebate scheme that does not force equally efficient rivals to sell below cost is prima facie compatible with Article 102 TFEU.

Open question: what is capability? How is the threshold of capability met?

The crucial part of the judgment (paras 129-147) is carefully crafted. Every word counts and is in the right place.

One aspect that I note is that the Court only uses the word ‘capability’. The open question then is: what is capability? Is it the same as likelihood? Is the meaning a different one? If the Commission needs to assess the capability of harm, does it mean that the tripartite division between loyalty, quantity and ‘third category’ rebates will disappear in practice?

We do not seem to have clear answers in the judgment. This said, it is not necessarily bad that the Court leaves the issue open.

On this point (capability vs likelihood), I happen to agree with the Commission submission in the case: capability and likelihood are not synonymous. They mean different things, and it would make little sense to give the same meaning to the two. The line between ‘by object’ and ‘by effect’ infringements (or between loyalty and ‘third category’ rebates) would otherwise become completely blurred. And this is not what the Court is declaring. Para 137 suggests that the tripartite division stands as a matter of principle.

The threshold of capability applies to ‘by object’ infringements, where harm is presumed (this is true of both Articles 101 and 102 TFEU). The threshold of likelihood, which is higher, applies to ‘by effect’ cases, where harm needs to be established on a case-by-case basis. To distinguish between the two: think of T-Mobile (by object, capability), and Delimitis (by effect, likelihood).

My views on the question: the assessment of capability is not and cannot be as detailed as the analysis found in ‘by effect’ cases. But capability plays a role! Just think of Post Danmark I. I discussed the difference between the two thresholds in Oxford back in June. Check my PPT here.

I am sure there will be a lot of commentary on this question in the coming months. All I can say for the time being is that, if I understand it correctly, what the Court has done makes a lot of sense. And that I will try to tease out its meaning and implications. Stay tuned, and let me know your thoughts!

The CMA found the ideal timing for the publication of its decision in the Impulse Ice Cream case: it came out when ice cream consumption peaks (mid-August) and right before the Intel judgment (when, incidentally and among other things, ice cream consumption starts to decline and coffee consumption starts to go up).

Following its investigation of the question, the CMA concluded that there were no grounds for action against Unilever under Article 102 TFEU and its national equivalent. When I write that the CMA shows the way with this decision, it is not because of the outcome (I have already explained that the outcome of individual cases does not matter to me).

What I find interesting is how the authority approached a potential infringement both from a policy and a substantive perspective. There are many lessons to draw from both:

• From a policy-making standpoint, the decision is a valuable reminder that ‘no infringement’ decisions and ‘no grounds for action’ decisions are essential in any competition law system. What an authority does not do is as important as what it does.
• From a substantive standpoint, the CMA shows that an effect-based approach can be conducted effectively and that it is a valuable means to make the best use of (and not to drain, as some like to claim) an authority’s resources.

Allow me to discuss them in more detail.

The importance of ‘no infringement’ and ‘no grounds for action’ decisions in policy-making: we should have many more of them

We live in strange times. Some people like to believe that competition law (like rock ‘n’ roll) can save the world. Some people think that every concern justifies intervention.

Competition law is valuable for society at large because of the lessons learned over decades of enforcement. Experience shows that, while competition law is indispensable in a social market economy, it cannot save the world (this is also true of rock ‘n’ roll, by the way). Experience also shows that sometimes intervention may not achieve anything meaningful and can sometimes be counterproductive (in the sense that it may harm the competitive process and ultimately consumers).

It is very important that competition authorities regularly convey these two messages to the business community and the wider public. Explaining why not everything is a competition law concern, and that intervention is sometimes counterproductive is likely to reduce the appetite for sweeping (and typically unreflective) regulation. My sense is that it will also protect competition authorities against demands for tailor-made action (which sometimes requires a fresh, untested and/or incoherent theory of harm).

The best instruments to show the world that competition law cannot and should not try to get to El Dorado are ‘no infringement’ and/or ‘no grounds for action’ decisions. In this regard, Impulse Ice Cream is a model: it is succinct yet sufficiently detailed to understand why, in light of the case law and administrative practice of the European Commission, Unilever’s practices were unlikely to have exclusionary effects.

The effects-based approach is administrable and can save resources to an authority

Those who oppose the effects-based approach like to claim that it is unmanageable: their hyperbolic stories describe armies of economists engaged in impossibly complex calculations and unable to come to meaningful conclusions. It would no longer be possible, the argument goes, to know whether something is lawful or unlawful, and dominant companies would be able to exploit this uncertainty to avoid intervention. And, if there was any doubt, courts would be overwhelmed with numbers and welfare estimations.

The CMA’s decision shows that these claims do not stand up to serious scrutiny (to tell the truth, I suspect that many commentators do not even take the claims seriously; it is just an irresistible rhetorical point). In about 4 pages, the authority applies the framework laid down in Post Danmark II and concludes that there was no point in keeping the case open and thus devoting some of its limited resources to it.

I will take just one of the practices examined by the authority to show how the effects-based approach works in the real world (spoiler: it does not involve infinite rows of sleepless econometricians). The CMA raised concerns, inter alia, about some ‘large’ package deals offered by Unilever to supermarkets (the decision refers to ‘buy 8 [packages] get 4 free’ or ‘buy 12 get 6 free’).

Unilever is probably dominant on the relevant market, and some of its products are must-haves. In spite of these factors, the CMA concluded that exclusionary effects were unlikely to result from the large package offers. As explained in the decision, the firm gave these offers in February or March, where ice cream consumption is typically low, and were available for just one month. In addition, the purchasing decisions made during winter and early spring were deemed unlikely to affect purchasing decisions during the summer months; instead, such decisions were found to be determined by other considerations.

These conclusions are not only sensible, but also in line with the case law. Needless to say, nothing of what the CMA does is out of the reach of a generalist court. Far from that. A court applying Delimitis or Maxima Latvija to a dispute is more than able to consider the same factors in an Article 102 TFEU case. There seems to be no reason why what is considered acceptable and administrable in the context of Article 101 TFEU is not acceptable and administrable in abuse cases. This is something that is implicit in some of the most recent rulings of the Court.

Any lessons for Intel?

Before I forget: Impulse Ice Cream is relevant for the (never-ending) discussions around Intel in one important respect. The case provides yet another example that the tripartite division between quantity rebates, loyalty rebates and ‘third category’ rebates is, insofar as it exists, neither meaningful nor workable.

Why do I say that? As I started reading the decision, I thought ‘it looks to me like a set of quantity rebates, as the discounts are given with respect to each of the orders; this would make them prima facie lawful’. The officials at the CMA (who obviously have more information) characterised it instead as a ‘third category’ rebate scheme. As sensibly explained in the decision, the characterisation of the practices, in any event, matters less than their impact on the competitive process. This point is buried in a footnote, but it is key.

I will say more: the boundaries of each category are so blurred, and all rebate practices are so similar in their nature and potential effects, that I fail to see what the tripartite division achieves, other than creating confusion and opening the door to arbitrary decision-making. We need legal categories, that is out of the question, but legal categories need to make sense. We will get to know next week whether the Court agrees with me on this one!

Although with a bit of a delay, here are some events organized by friend of this blog in the coming weeks and that might be of your interest:

On 8 September the 11th Junior Competition Conference will take place at the Competition Appeal Tribunal in London. This is an event organized by the editors of the Competition Law Journal and that we have always supported. For details on how to register, click here.

On 15 September the University of  Leeds will be hosting a conference titled Competition Law in a Global Context: Analysing the Trans-Atlantic Divide with a very promising program. The conference will be preceded by Pinar Akman’s inaugural the day before (see here).

On 25 September LeadershIP will put together a conference in Brussels to discuss  recent international developments having to do with IP issues. More information is available here.

I am delighted to have joined the Journal of European Competition Law & Practice as joint general editor (together with my friend Gianni De Stefano, from Hogan Lovells; and an impressive team of editors). JECLAP has become a reference in a short time, and I am really excited to become involved in this venture (I just regret that I will not overlap with Judge Nihoul, who is stepping down).

I reproduce below my first piece published in my new capacity. The journal version is available here. I look forward to your comments, and to your submissions too (I have published in the journal a couple of times and can tell you first hand that JECLAP has the swiftest and most professional process I have seen around; I can also tell you that I will make sure it stays this way!).

I leave you with the editorial:

Changing Times for JECLAP, Changing Times for Competition Law

In less than 10 years, JECLAP has established itself as one of the (if not the) leading competition law journals in Europe. Thus, I felt honoured (and, why not say it, also somewhat overwhelmed) when I was asked to replace Paul Nihoul as one of the general editors—together with Gianni De Stefano. Needless to say, I gladly accepted. Inevitably, doing so made me think about changes in the enforcement of EU competition law since JECLAP’s creation, and about the role that the journal can play in these changing times.

This editorial is prepared at a time when EU competition law is undergoing a noticeable evolution. When JECLAP was founded in 2010, it looked like we were close to reaching the ‘end of history’ in the field. A landmark moment was the adoption of the Commission Guidance Paper on Article 102 TFEU enforcement—which was in fact the subject of an article by Giorgio Monti in the first issue. It looked like efficiency and consumer welfare were just about to become the keystones around which the interpretation and application of EU competition law would revolve.

Things look very different 7 years later. We have witnessed the emergence of new analytical frameworks and new ideas. Concepts like choice and, more recently, fairness, have found their way in academic and policy discussions. Paul Nihoul himself has in fact been one of the most vocal proponents of choice as a guiding principle in EU competition law (see for instance ‘Choice vs Efficiency’, JECLAP (2012) 3(4): 315–316). What these developments show is that the efficiency-based framework has failed to win the hearts and minds of many lawyers. The consensus around consumer welfare that exists on the other side of the Atlantic has not materialised in Europe, and perhaps never will.

In addition, new developments in the field are pushing the boundaries of EU competition law. Looking back at the past decade, it looks like authorities in Europe have become less reluctant to interfere with the exploitation of intellectual property rights, to mention one example. Pay-for-delay settlements in the pharmaceutical sector, and the use of injunctions in the context of standard-essential patents (both abundantly discussed in the pages of JECLAP) are clear milestones in this sense. Similarly, discussions relating
to the use of big data and the impact of algorithms on firms’ ability and incentive to engage in collusive and/or discriminatory conduct have moved to the centre stage.

What is, and can be, the role of JECLAP in reaction of these developments? Allow me to share a few thoughts with you.

Place the law at the centre of the analysis: If EU competition law is fascinating, this is in part because it is at the intersection of many disciplines. The downside is that, for that very reason, we run the risk of ignoring that enforcement and policy-making is achieved through the law. It is my hope that JECLAP will contribute to ensuring that the law remains at the centre of discussions. This can be achieved in many ways. One way is to keep up to date with legal developments and putting them in their economic, regulatory and technological context—whether through current intelligence pieces or through the excellent surveys that have greatly contributed to the journal’s name.

I also hope JECLAP will engage critically with new approaches to the interpretation and enforcement of EU competition law. As has been recently argued in these same pages, there is no reason to rule out fairness as a guiding principle for enforcement. At the same time, it is necessary to bear in mind that high-level objectives need to be made operational. If a principle is not, or cannot, be broken down into a set of practicable legal
tests (that is, if it lacks a concrete content that can be anticipated in advance by stakeholders), it may open the door to arbitrary decision-making—and arbitrary decision-making is inherently unfair.

Economics? More of it! This said…: Economic tools are widely used in EU competition law. In fact, never in the history of the discipline has its use been more frequent and pervasive. On the other hand, it is impossible to ignore that the rise of economics has been received with scepticism, if not overt resistance, by some lawyers. Several factors can explain this reaction. The perceived ‘imperialistic’ inclinations of economics—that is, the tendency of economists to apply their approaches and techniques to phenomena that are studied by the other social sciences—is one of them. In this sense, it is hoped that
JECLAP will continue to bridge the divide by encouraging the dialogue between lawyers and economists.

It is also hoped that JECLAP will help understand that economic analysis makes some fundamental contributions to the discipline that are often ignored. Economics in competition law is not just about defining overarching benchmarks (namely efficiency and consumer welfare) and about econometric forecasting. It is also valuable as—if not primarily—a means to define boundaries on administrative action and, by the same token, as a tool that contributes to the clarity and predictability of the law.

A platform to deal with new (and old) ideas: It is exciting to see there is no shortage of new ideas in competition law, and JECLAP editors would like the journal to contribute to their production and dissemination. On the other hand, we would like to encourage discussions that do not miss the forest for the trees and that address transversal issues that are of the utmost relevant in practice. These are the sort of questions that require the combined skills of practitioners—who have a nose for relevant issues—and academically minded lawyers—who have developed the ability to see the big picture.
JECLAP has been and should continue to be the preeminent forum for these exchanges.

In this sense, and as I write this editorial, I can think of some questions of fundamental importance that have not yet been clarified. For instance, there is still uncertainty as to what is exactly meant by an ‘anticompetitive effect’ in the case law. The same is true of other fundamental concepts, including that of counterfactual—which is central to ongoing cases relating to the exploitation of intellectual property rights (just think of Lundbeck and Servier). Readers are hereby invited to contribute to these.

JECLAP is a success story. I have no choice but to work hard, together with the rest of the team, to ensure the success lasts many more years!

As promised, I am back with some thoughts on Cyril Ritter’s recent post on corporate funding of academic research in antitrust. I will point out, to begin with, that the contribution is most welcome. I would like academics to discuss the issue of corporate-funded research as openly and courageously as Wouter Wils discussed the issue of prosecutorial bias in his magisterial 2004 piece on the combination of functions within the Commission.

I do not have major disagreements with Cyril. What is more, he makes some important points with which I agree wholeheartedly. I just have some comments here and there. This is arguably inevitable, as his was a short blog post, not a dissertation.

‘Corporate funding changes the tone of academic discourse’

Cyril argues that corporate-funded research can have the effect of moving the efforts of academics away from basic research and towards the discussion of case-specific issues or concerns.

I agree with Cyril that there is not enough research on fundamental questions and there is certainly too much of an overflow of articles discussing individual cases or discrete sub-sets of cases. And I am ready to concede that corporate funds may exacerbate this trend – whether it is the main cause of the phenomenon is a different question.

I have long seen the trend with concern and will lead by example. If anyone among our readers is considering a PhD: forget about pay-for delay or SEPs. Think about a dissertation on fundamental, horizontal issues that will stand the test of time!

Even if I agree with the above, a reader of Cyril’s post may get the impression that corporate-funded articles are always one-sided advocacy tracts. It would not have hurt to clarify in the post that this is not necessarily the case. Corporate-funded research can be as rigorous in style and substance as research funded via tuition fees and/or the public purse. Again, the example of Toulouse is one that comes to mind.

The ‘subtle’ and ‘insidious’ effects of corporate-funded research

Cyril points out that corporate-funded research may have effects that go beyond the funding of a specific piece. The same effects may be expected of consulting relationships entertained by academics. As a result of these ‘subtle’ and ‘insidious’ effects, academic work may be biased in favour of the interests of the firms funding the research or consulting work.

For the most part, I fully agree. Cyril describes phenomena that have already been identified in the relevant literature, and it is important to engage with them.

As an academic, I am far less persuaded by one of the risks he identifies, however. According to Cyril, academics may be reluctant to change their minds and contradict the viewpoints already expressed in corporate-funded work.

People who are reluctant to change their mind in public belong with druids and preachers, not with academics. The whole point of research as an intellectual exercise is to advance knowledge. Advancing knowledge involves, by definition, refining prior positions and occasionally abandoning them altogether.

I would say more: the harder one thinks about an issue, the more likely a change of mind becomes. A giant like Keynes was famous for the fluidity of his positions. ‘When events change, I change my mind. What do you do?’, Paul Samuelson said, when a journalist pointed to inconsistencies in the successive editions of his legendary textbook about the desirable rate of inflation.

I can also think of some giants in our field. When the latest edition of Whish & Bailey’s textbook came out, I noted in the blog that the position in relation to exclusivity agreements under Article 102 TFEU had evolved. If you read my blog post, you will not be able to find the slightest hint of criticism about this change of mind. On the contrary, I celebrated it as evidence suggesting that ours is a discipline in constant flux.[1]

I understand that the above may not be obvious to non-academics. This fact may explain, for instance, why many in the EU competition law community entertain bizarre ideas about the ordoliberals. Some view ordoliberalism as some sort of cult in which a fixed set of fossilised ideas are worshipped. Nothing could be further from the truth. Ordoliberals disagreed among themselves at discrete points in time, and their views have evolved over the years, as Peter Behrens and Heike Schweitzer have brilliantly explained.[2]

Collective action and corporate funding: what about capture?

Even though Cyril acknowledges that the issue is more complex in practice, a reader may conclude from his piece that corporate-funded research typically, or as a rule, advocates positions opposed to those of competition authorities. Corporations would be in the anti-intervention camp, and public authorities in the pro-intervention camp. As a result, corporate-funded research may create a climate that is hostile to action by competition authorities, thereby harming the public interest.

However (and Cyril points this out at the beginning of his piece), it is not unusual to see corporations siding with public authorities in the pro-intervention camp. By the same token, there is no shortage of corporate funds for research advocating action by competition agencies. Suffice it to think of patent hold-up and the many companies that have funded pieces explaining why it is a real problem requiring some form of intervention.

If one takes this factor into consideration, the issues discussed by Cyril could be developed further. Instead of creating a climate contrary to intervention, corporate-funded research may very well lead to unwarranted action. Why? Companies in the pro-intervention camp may be able to exploit to their advantage the cognitive biases that Wouter Wils masterfully described in the abovementioned piece.

The risk of agency capture by ‘purchasers’ of regulatory intervention is well identified in the literature. It is also known that what is in the interest of companies advocating intervention is not necessarily in the interest of competition and consumers – in fact, it often has the effect of harming both competition and consumers. As Cyril rightly explains, powerful special interests can organise themselves better than larger groups, such as end-users.

There are other factors that may actually enhance the prominence of pro-intervention views. As a reader pointed out in their reaction to Cyril’s post, proactive enforcement is ultimately in the interest of practising competition lawyers. In addition, pro-intervention views may be more popular in academic circles than views advocating restraint and/or arguing that there is nothing new under the sun. I was sharing this impression last month over coffee with a senior academic.

These quibbles aside, Cyril should be congratulated for enriching the debate and taking it to another level. Thanks so much!

[1] One should note, in addition, that Richard worked as a law firm partner for a number of years. This is an example suggesting that the risk identified by Cyril may not materialise in practice, or that the phenomenon may be less pervasive than he appeared to suggest in his post.

[2] I am proud to disclose that Heike was my PhD supervisor in Florence and that I was Peter’s assistant in Bruges.

The much-awaited opinion in Coty is finally out. When reading it, one cannot avoid wondering whether all the excitement was justified. AG Wahl’s take on the issue is so full of common sense that the outcome he suggests to the Court comes across as the logical one.

The Oberlandesgericht in Frankfurt raised two key questions. The first was whether the protection of the brand image of a product is a legitimate requirement that justifies the setting up of a selective distribution system. The second is whether an online marketplace ban amounts to a restriction of competition by object within the meaning of Article 101(1) TFEU – and, by the same token, a hard-core restriction within the meaning of the Vertical Block Exemption Regulation.

AG Wahl takes the view that a selective distribution agreement aimed at preserving the brand image of a product falls outside the scope of Article 101(1) TFEU altogether if the conditions set out by the Court in Metro I are fulfilled. In addition, AG Wahl holds that an online marketplace ban is the sort of restraint that is acceptable in the context of a selective distribution agreement – and as such not restrictive by object. According to the Opinion, any such ban is comparable to the sort of restraints found in the off-line world and which the Court has already ruled are compatible with Article 101(1) TFEU.

AG Wahl also concludes that an online marketplace ban is not a hard-core restriction under Articles 4(b) and/or 4(c) of the Block Exemption Regulation. This is important insofar as it means that such a ban benefits from the exemption without it being necessary to engage in a case-by-case inquiry about whether the conditions laid down in Metro I are fulfilled.

More than the outcome, which does little more than follow the principles laid down in prior case law (full of common sense too), it makes more sense to say a word of the lessons that we can draw from the opinion.

Lesson 1: Selective distribution is primarily about preserving the brand image of a product

The protection of the brand image of the manufacturer is the primary reason behind the use of selective distribution systems. This is particularly obvious in the case of luxury products. It would make little sense for producers to resort to third-party distributors if doing so would jeopardise the image and aura of prestige of their goods. See in this sense para. 43 of the Opinion: ‘Brands, and in particular luxury brands, derive their added value from a stable consumer perception of their high quality and their exclusivity in their presentation and their marketing. However, that stability cannot be guaranteed when it is not the same undertaking that distributes the goods’.

Against this background, it is only reasonable to hold that any restraints aimed at preserving the brand image of the products are not as such restrictive of competition, whether by object or effect. Any such restraints are objectively necessary for the existence of selective distribution systems in the first place (the counterfactual all over again!).

This idea is not new. As AG Wahl holds, it was already in the case law. It is an idea that is also present in the case law relating to franchising – in Pronuptia, the Court held that restraints aimed at preserving the reputation and uniform brand image  of a product are not caught by Article 101(1) TFEU. AG Wahl applies a reasoning that is similar to the one found in the latter; see again para 43: ‘The rationale of selective distribution systems is that they allow the distribution of certain goods to be extended, in particular to areas geographically remote from the areas in which they are produced, while maintaining that stability by the selection of undertakings authorised to distribute the contract goods’.

Lesson 2: Competition is not synonymous with ‘price competition’. It is much more than that

The Opinion is also a valuable reminder that firms do not only compete on price, but also, inter alia, on quality and innovation. This is a key point that the Court understood very well in its lucid Metro I and Metro II judgments. If it was already clear in the late 1970s and early 1980s that firms do not only compete on price, this fact is all the more apparent in 2017 – I am reminded of this every time I am in a classroom full of 20-somethings that have a marked preference for pricey Apple products.

Accordingly, it is plain irrelevant to argue that online marketplaces intensify price competition among retailers. The Court and the Commission have always understood that, while selective distribution systems restrict intra-brand price competition, they promote competition in other parameters. They encourage producers to compete on the quality of their products and they provide an incentives for retailers to improve the shopping experience of end-users. Why would a restraint that is known to have such positive effects be restrictive by object?

AG Wahl summarises these issues particularly eloquently in para 46 of the Opinion: ‘It should be borne in mind that the compatibility of selective distribution systems with Article 101(1) TFEU ultimately rests on the notion that it may be permissible to focus not on competition “on price” but rather on other factors of a qualitative nature. Recognition of such compatibility with Article 101(1) TFEU cannot therefore be confined to goods which have particular physical qualities. What matters for the purpose of identifying whether there is a restriction of competition is not so much the intrinsic properties of the goods in question, but rather the fact that it seems necessary in order to preserve the proper functioning of the distribution system which is specifically intended to preserve the brand image or the image of quality of the contract goods’.

Lesson 3: The scope of Pierre Fabre is confined to outright bans on online sales

Even if the above seemed clear for a long time (I have always told my students that the whole point of selective distribution is to preserve the brand image of a product) Pierre Fabre created some confusion. This is so because the Court appeared to suggest that the protection of the prestigious image of a product is not a legitimate requirement justifying the sort of restraints found in a selective distribution system.

AG Wahl argues – and I agree – that such statement must be confined to the specific circumstances of that case (para 78). In other words, he takes the view that the Court examined whether the protection of the brand image could justify an outright ban on online sales. Thus, Pierre Fabre was not making any general statements about the former. As explained in the opinion, any other reading of that ruling would contradict a consistent line of case law that acknowledges the role of selective distribution in the protection of the brand image of the producer (para 85).

Lesson 4: Competition law and intellectual property law go hand in hand

The single most important and relevant precedent for Coty was not a competition law case, but an intellectual property one. In Copad, the Court held that the licensor of a trade mark may impose restraints on a licensee aimed at protecting the brand image of its products. Accordingly, it may require the licensee to sell the product to members of the selective distribution network.

If one accepts that Copad is good law – and it is – then it is difficult to see how the Court can take a different view in relation to a contractual clause that has the same purpose. As explained by AG Wahl in paras 88 and 89 of the Opinion, any other outcome would lead to an inconsistency that would not be easy to justify.

Our next and third annual Chillin’Competition conference will be taking place on Wednesday 25 October 2017.  We have confirmed the date with a surprise guest (we cannot tell you more, but just a hint: she is Danish and, among other things, knits elephants).

We want to make this a uniquely interesting, fun, relaxed and disruptive conference, and we are already thinking about new formats and ideas, so:

–If you’d like to help us sending ideas or proposals our way (on new formats, themes, etc), please do so!  A good idea will get you a guaranteed seat…

–If you’d like to attend, save the date! At the beginning of September we will publish a tentative programme as well as information on how to register. Remember that last year all seats were gone in 6 minutes (if you think that was fast you should have seen some of the attendees at the open bar after the conference…).

-If you’d like to sponsor it, drop us a line.