Chillin'Competition

I have just uploaded a paper on Copyright Licensing and the EU Digital Single Market Strategy. It will be coming out in the Cambridge Handbook of Antitrust, Intellectual Property and High Technology, edited by Roger Blair and Daniel Sokol (to whom I am really grateful for the invitation to take part in the project!).

The chapter gives an overview of the issues relating to the application of Article 101 TFEU to copyright licensing, in particular against the background of the EU Digital Single Market Strategy (and of the ongoing proceedings on geo-blocking). You will find an analysis of the Coditel II and Murphy, and of the steps taken by the Commission to reform copyright regimes. The later includes last week’s proposal to ensure the ‘portability’ of copyright-protected content across borders.

As I point out in the paper, it is an interesting area insofar as the copyright legislation and EU competition law enforcement seem to be evolving alongside one another.

As usual, I would very much welcome your views on the piece!

[These are exciting days for competition lawyers in Hong Kong. The competition law regime is finally up and running! I have asked our friend Sandra Marco Colino, Assistant Professor at the Chinese University of Hong Kong, author of a textbook and excellent host,  to prepare a note on her impressions about the new times. Enjoy!]

This week marks the beginning of Hong Kong’s competition law era. As of Monday 14^th December 2015, all the provisions of the Hong Kong Competition Ordinance are fully enforceable, following a progressive 3-and-a-half-year implementation period.

The entry into force of the first ever comprehensive competition legislation is excellent news for my professional future a tycoon-dominated economy prone to anti-competitive conduct such as Hong Kong. As I discussed on this blog when the law was passed by the Legislative Council, the pervasive hostility in the region towards introducing any form of cross-sector competition legislation resulted in a passionate “to competition law or not to competition law” debate that went on for more than 15 years. These antitrust jitters left an imprint on the law which, as I previously discussed, required substantial dilution to be met with sufficient support for its adoption. But we got there in the end, and the Hong Kong Competition Ordinance was finally passed on the 14^th June 2012.

So what has happened in the last 3 and a half years, and why has it taken so long for the law to enter into force? For starters, the institutional framework had to be laid down. The Competition Commission (HKCC) and the Competition Tribunal (HKCT) were established in 2013, and both have been warming up for enforcement since. Subsidiary legislation was adopted by the government on the calculation of turnover and excluded bodies in April 2015, and on the Tribunal rules and fees in July 2015. The Competition Commission, in compliance with its obligations under the Ordinance, issued six Guidelines (to be found here) – first in draft form for public consultation, subsequently finalized in July 2015 – on: the First Conduct Rule; the Second Conduct Rule; the Merger Rule; Complaints; Investigations; and Applications for Decisions, Exclusions, Exemptions and Block Exemption Orders. More recently, in November 2015, the Commission announced its finalized leniency policy for cartel cases and its enforcement policy, setting out its enforcement priorities (see here). But beyond guidelines and policy, the Commission has been busy developing various initiatives to promote public awareness and to engage with the business community. It has produced didactic brochures and guidance to help companies understand the kinds of conduct that run contrary to the law. It has organized countless meetings and seminars with SMEs, trade associations and other stakeholders. And for those into soap operas, it has even produced a 10-episode TV mini-series, ‘Compete with Integrity’ (in Cantonese with English subtitles), which aired at prime time on local television. If you are hooked and you missed and episode, fear not – the entire series can be watched on the Commission’s website.

It has taken a while, but it looks like all is set now for competition law to kick in. Although the law is unusually detailed and lengthy, since it has not yet been enforced the Commission and the Tribunal have yet to chisel out some of the fundamental aspects of Hong Kong competition policy which will determine the effectiveness of the regime. It is through their forthcoming investigations and decisions that these aspects will be finally defined. The Commission is expected to start exercising its investigatory powers immediately, and some investigations may lead to enforcement actions before the Tribunal. The Tribunal will then adjudicate on the cases brought before it by the Commission or by private parties, and might impose sanctions if necessary.

As we anticipated, the new law has the potential to tackle many of the anti-competitive practices that threaten the proper functioning of Hong Kong’s free market economy. But the Ordinance, the Guidelines and the policy documents published thus far still leave important questions unanswered. I leave you with a few unaddressed issues to mull over. Under the First Conduct Rule, for instance, it is unclear how vertical agreements will be treated. According to the Guidelines, resale price maintenance “may” be harmful and even anti-competitive by object in some cases; however, the enforcement priorities make no mention of minimum RPM, despite the fact that it is considered to be common practice in Hong Kong. As for the application of the Second Conduct Rule, the Guidelines avoid referring to safe harbours, nor do they give any indication of specific market shares that might amount to “substantial degree of market power”. With regard to the Merger Rule, it remains applicable only to the telecommunications sector, and therefore most concentrations affecting Hong Kong will not be investigated unless they have wider effects and fall under the jurisdiction of other competition authorities. Adequately punishing anti-competitive conduct might also pose prove challenging. Since only the Tribunal can impose sanctions, it is still unclear whether the penalties available will be suitably used to deter anticompetitive conduct; given the relatively low fines that can be imposed (10 per cent of local turnover, for a maximum of 3 years), resorting to other weapons for serious breaches, such as director’s disqualification orders, could be crucial to enhance the punishing potential of the law. In addition, the leniency policy towards cartel members who are not the first to come forward is also far from clear. Moreover, the – virtually absolute – discretion afforded to the Chief Executive to disapply the law to ‘any person’, or to exempt certain conducts, could seriously undermine the authority of the Ordinance.

Only time will tell just how successful Hong Kong’s first cross-sector competition law turns out to be. Both the Competition Commission and the Competition Tribunal are more than sufficiently prepared to make the most of the somewhat limited powers that have conferred on them to fight anticompetitive practices and give a much needed boost to competition in the region. Even though the path towards a fully operational antitrust regime has only just begun, for the time being it is heartening to finally savour the victory of full implementation.

It has taken me a while to realise the significance of the recent Court judgment in Maxima Latvija. On its face, it does not seem to add much to what we know about agreements that restrict competition by object. This impression is probably due to the fact that the Court is not very explicit about why it ruled the way it did. If one takes into account what was not said, but is implicit, together with what the Court did actually say, it is possible to draw some valuable lessons.

What the Court said in Maxima Latvija

The necessary and sufficient factors to establish a ‘by object’ restriction

Paragraphs 22 and 23 are very much in line with previous case law. It is clear from the latter that the question of whether an agreement restricts competition by object is established in light of the content of the agreement and the context of which it is part. This is nothing new, but it is valuable that the Court confirms that these are the necessary and sufficient factors to evaluate whether a set of restraints is incompatible, by its very nature, with Article 101(1) TFEU.

The ‘by object’ category is not a presumption of anticompetitive effects

I repeat myself a lot, but it cannot be emphasised enough that the ‘by object’ category does not encapsulate a presumption of anticompetitive effects. When commenting on Bananas, I mentioned that an agreement such as an exchange of information can be found to restrict competition by object irrespective of whether there is evidence of its impact on competition. As Bananas itself shows, an exchange of information may be prohibited by its very nature even if it is not particularly likely to have a significant impact on prices.

Maxima Latvija is the mirror example. The case is about an obligation included in an agreement between the ‘anchor tenant’ of a shopping mall and the lessor. I understand from the ruling that the ‘anchor tenant’ had to give its consent to the letting of other premises to third parties. This restraint would work as an exclusivity obligation, in the sense that the tenant is given the right to oppose the letting of premises to competing supermarket chains.

The Court concedes that this contractual obligation is capable of having (‘could potentially have’) an anticompetitive effect. However, this fact alone is insufficient to establish that it is restrictive by its very nature. In other words, a restriction by object does not exist merely because an agreement can be presumed to have anticompetitive effects (and no, the Court never said the opposite in T-Mobile).

This is something that the Court has always held, but tends to be forgotten. Selective distribution agreements reduce substantially the ability and incentive of retailers to engage in price competition. It is in fact safe to presume that selective distribution softens price competition. However, the Court has always ruled, from Metro I to Pierre Fabre, that this fact alone is insufficient to establish a restriction of competition. As is well known, selective distribution networks fall outside the scope of Article 101(1) TFEU altogether in some circumstances.

Maxima Latvija is particularly interesting because there is recent empirical evidence suggesting that exclusivity obligations included in agreements between shopping malls and tenants have anticompetitive effects. Itai Ater comes to this conclusion in an article published earlier this year in the Journal of Economics & Management Strategy. So there it is: an agreement that is known to lead to higher prices has not been found to restrict competition by object.

What the Court did not say in Maxima Latvija

Why is an agreement not found to restrict competition by object if it is known – and can be expected – to have negative effects on some parameters of competition? The Court did not say much about it in Maxima Latvija. Actually, the Court does not really explain why the agreement is not restrictive by object. The good news is that past case law is very explicit about these two questions.

An agreement does not qualify as a ‘by object’ restriction if it has redeeming virtues that compensate for the expected negative effects. Think of Metro II. True, the Court held in that case, selective distribution softens price competition. But it benefits consumers in other ways. As a result, it is not restrictive by object.

The reasons why the Court came to the same conclusion in Maxima Latvija are probably not very different. The abundant references to Delimitis suggest that the contentious clauses were understood to be functionally equivalent to exclusive dealing obligations. And the Court has already held that exclusive dealing has redeeming virtues that are in the interest of both parties to the agreement and thus of consumers.

Interestingly, Itai Ater mentions in his paper, referred to above, that exclusivity obligations agreed upon between ‘anchor tenants’ and shopping malls can yield efficiencies. For instance (and this says much about his academic integrity), the author points out that his empirical analysis may have failed to capture that an exclusivity obligation between an ‘anchor tenant’ and a shopping mall may induce relationship-specific investments or may attract such investments at an early stage.

As you might have realized, other commitments have prevented us from writing much in the past few days. I would like to convey my heartfelt gratitude to the European Commission for doing everything possible to systematically send lawyers work in December.

So, a quickie is in order today:

We have found out that the lawyers at BDK have done a summary of what went on at the Chillin’Competition conference. It was first mentioned by Nicholas Hirst (Politico) in his weekly email, and today it was circulated as part of Lexology’s daily email. It is about time that we link to it too; thanks its authors for coming over from Serbia for the conference, for drafting it and for the very kind words. You can read it here:                          Chillin’ at the Chillin’Competition Conference

In the coming days we will be commenting on a few recent developments of interest. We’re still thinking whether to write something about the fact that there will now be a preliminary ruling from the ECJ in one of the cases that has attracted more attention in this blog: the endive cartel. I’m, not kidding. For those of you that don’t remember it, click here (I still can’t help laughing at some of the stupidities in those posts… 🙂 )

Tomorrow I will be speaking on platforms (yes, again) at ITIF. Pablo also spoke about platforms last weekend at the European University Institute in Fiesole. By the way,  if Giorgio or anyone else at the EUI reads this, please realize how cruel it is that you invite Pablo there while I only get invited to talks in the cold, rainy, gray alleged European capital of jihadism…

Continuing the “inter-platform dialogue” on platforms started by my post last week, we are very pleased to post a guest contribution from Jakob Kucharczyk, Director of Public Policy at CCIA‘s Brussels office, that will also go up on the DisCo blog. I hope you the reader enjoy this exchange of views.

—

As a trade association representing many of the most popular online platforms, CCIA obviously has some strong views as regards the many elements of the debate on platforms, as well as its roots which Alfonso adequately described in his post. While Alfonso tackled the debate from a competition law perspective, I will look into this debate from a regulatory perspective. As an immediate reaction to Alfonso’s points I have to say that regulation should have one key commonality with competition law enforcement: it should be a fact- and evidence-intensive exercise. However, very often there is a difficulty in Brussels to frame the regulatory debate against actual market dynamics and facts. While regulation is somehow bound to be subject to greater political influence than competition law enforcement because of the legislative process, good regulation should at the minimum be based on the concrete identification of economic or societal problems that merit regulatory intervention.

As the initiator of legislative proposals at European level, the Commission has extraordinary responsibility to base proposals on solid evidence in tune with its recently announced better regulation package. I guess in competition law terms one can say that in light of the Commission’s quasi monopoly on legislative initiatives is carries a special responsibility.

So let me start this dialogue with some good news and insights into Europe’s digital economy which I think are worthwhile to keep in mind when discussing online platforms.

Investment into European E-Commerce Ventures is Booming

Alfonso mentioned how political frustration with competition law enforcement in digital markets led to increased regulatory pressure on platforms. The mythical ineffectiveness of competition law, however, is often accompanied by a political belief that European online players are unable to compete in a market ‘dominated’ by mostly American players. This might explain why European policymakers seem quite willing to explore the regulatory path since intervention would not primarily hit European interests. I will discuss this argument later but for now let’s shed some light on the market. At CCIA we wanted to have insights from investors, people who are detached from Brussels and who invest ‘real’ money into e-commerce ventures. What do they think about the chances of European e-commerce companies?

Well, here is the good news — they seem to be very optimistic. Investments into European e-commerce ventures are booming. Our friends from ‘The Analyst’, an independent equity research house based in London, found investments into their study’s sample group of 25 publicly traded, pure e-commerce companies have increased by 27 times over the last three years. Capital inflows into the sample group of 500 private e-commerce companies, many in the startup/early development phase, increased by 4.5 times in the same period. In aggregate numbers, since 2012 the group of 25 publicly listed e-commerce companies raised €12 billion and the group of 500 private companies raised over €5 billion. Yes, money is essentially pouring in and the report illustrates several success stories in fashion, real-estate, and food delivery, whose range shows how the e-commerce market is becoming more diverse. (You can see Mark Hiley, CEO of The Analyst, speaking about the report here).

While these findings are a snapshot of the e-commerce sector, they confirm the one of the main characteristics of digital markets: very low barriers to entry (see e.g. here for our previous discussion of this theme). European e-commerce ventures are vibrant and in the process of greater diversification. Investors continue to bet on this positive development. All of this is indicative of healthy market dynamics and should send a clear signal to policymakers. European businesses are competing and platform regulation as a tool of industrial policy would be misplaced. In fact, increasing regulatory barriers might go the other way and stifle this development because it benefits today’s ‘incumbents’. In all likelihood they will be able to deal with more regulation which will shield them from more agile competitors. Policymakers need to keep this potentially disproportionate impact of regulation in mind when weighing the pros and cons of intervention.

Definition of ‘Platform’ – The Never Ending Debate  

Let me give you examples of Europe’s e-commerce success stories: in only eight years, Germany’s Zalando became Europe’s largest mass-market fashion e-tailer. Rightmove has become the UK’s leading residential property portal, providing services to estate agents. Italian-Swiss Yoox/Net-a-Porter operates the leading online, luxury apparel portal in Europe and after only four years the online food ordering platform Delivery Hero operates in 34 markets across five continents.

Apart from being successful and growing businesses, what else do these companies have in common? Of course, they are all platforms. But is that true? Alfonso rightly suggested that the answer to this question may not be easy as we currently witness a lot of blind men trying to describe the elephant — hence definitions are quite subjective. Therefore, let’s have a look at the definition provided by the Commission in its consultation on platforms. Interestingly, it does make sense but it seems that the consultation is inconsistent in the application of that definition. The consultation states that an online platform is “an undertaking operating in two (or multi)-sided markets, which uses the Internet to enable interactions between two or more distinct but interdependent groups of users”. However, it is not clear why a company like Netflix, which is explicitly mentioned as an example, would fall under that definition because it essentially functions as a retailer for audiovisual content. While there might be network effects, there is no direct interaction between content rights owners and consumers. Netflix negotiates with rights owners, ‘stocks’ the content at own risk and offers it to its subscribers. Amazon as such, for example, does also not fit neatly under the definition. Amazon’s online retail business is a one-sided market while its open marketplace does indeed bring together two distinct but interdependent groups: sellers and consumers. Today Zalando operates an online retail business in a one-sided market. Should it change its business model and open its site to third party sellers, just like Amazon did, it would suddenly fall under the Commission’s definition of an online platform.

Read the rest of this entry »

Last week we posted here Wouter Wil’s summary of the main procedural developments in recent times (it has already been downloaded quite a few hundred times…).

Today we are publishing the transcript (thanks to Carlos Bobillo) of Luis Ortiz Blanco’s intervention at the Chilling’Competition conference (pictured above).

I will do the same unnecessary introduction I did at the conference: Luis is a partner at Garrigues, a Visiting professor on competition procedure at the College of Europe, and the single reason why I decided to work in competition law (not sure that’s something he deserves credit for…)

His provoking intervention is available here: Chillin Competition Conference – Intervention by Luis Ortiz Blanco – 19.11.2015

A few days ago I spoke at CEPS about the debate concerning online platform regulation that is attracting some interest these days as DG Connect’s and the House of Lords’ consultations are ongoing (my presentation and a video interview are available here). This is a most interesting issue although, admittedly, one that not so long ago I would not have expected to be an issue at all.

In the wake of this event we thought that perhaps it would be useful to contribute a bit more to the debate, so here you will find a summary of what I said at that conference. In order to complement it, we have decided to engage in an “inter-platform” dialogue with our friends at CCIA and their DisCo (Disruptive Competition) Project blog. This post will also be published there, and we will soon be posting a guest contribution from them. Any comments you might have will certainly enrich the debate.

Not being an expert in regulation, my views on the subject are eminently related to competition law and to its application to multi-sided markets which, as you know, is one of the fields in which I have recently done some work, advising platforms, non-platforms competing with platforms or simply reflecting on wider policy issues (e.g. here or here). The competition law perspective is a particularly useful one because competition law seems to be the elephant in the room, much at the root of these discussions.

Indeed, many of you will recall that ex ante “platform” regulation went from being a non-issue to being very much an issue when a number of Member States (notably Germany and France) expressed frustration at how competition law would not be enough to tackle some problems (not clear which) caused by “some” (apparently not all) platforms (some examples of such statements are available here, here and here). [This concern about the possible shortcomings of competition law coincidentally emerged at a time when some thought that the ongoing Google investigation would fail to establish a “neutrality” obligation incumbent upon Google’s search activities] And since competition law was seen as insufficient (read: did not lead to the outcome that some expected), some thought that it would be idea to either change competition law or to bypass it by adopting specific regulation.

What kind of animal is a platform?

In this context, the word “platform” seems to have been chosen to encompass those “some platforms” that people had in mind. However, as explained in previous posts written on the DisCo Project blog (here or here), it may not be the best term to identify a category of companies subject to specific regulation.

Some of you may have heard of the expression “The Law of the Horse”. This is a term coined by American judge and antitrust expert Frank Easterbrook in a now famous conference in the US. In this conference he explained that there is no “law of the internet” more than there is a “law of the horse”; that there are laws of contracts that apply when horses are sold, of animal husbandry that apply when they need care, of laws of gambling that regulate when they race, but there is no law of the horse. Nowadays some partisans of regulation are trying to create some sort of “Law of the horse platform”. But then of course we come back to the somehow relevant question of what a platform is…

I don’t know if you are familiar with the Indian story of “The Blind Men and the Elephant”. This is a story in which several blind men are asked to describe what an elephant looks like by touching different parts of its body. The one touching the leg says the elephant is like a pillar; the one touching the belly says it must be like a wall; the one feeling the trunk believes it must look like a tree branch; the one touching the ear is convinced an elephant resembles a hand fan, and so on.. This story illustrates the fallacy that one’s subjective experience can be true but at the same time it is inherently limited and cannot account for the totality of the truth.

We see something similar regarding “platforms”: some appear to extrapolate certain features or problems from a limited number of companies to a whole business model, but those problems are neither exclusive nor common to “platforms” (as defined in the Commission’s consultation). Before doing such a thing, one should perhaps understand how markets work and why companies do what they do.

Having this complete view would certainly be necessary, for, as stated by Easterbrook in his talk The Law of the Horse, “the blind do not make good trailblazers”.

The wrong question

As already noted, the question many are asking is whether competition law is sufficient to address the challenges raised by platforms or whether we need a new framework; does competition law need to adapt?

In my view, and whereas enforcement may need some refinements (e.g. merger notification thresholds may not be well suited for some mergers—see here—and we do not have good economic tools to assess demand-side efficiencies–see here), there is no other branch of law that, over more than a hundred years, has proved similarly flexible, adaptable and accommodating of the evolution of markets and economic thinking than competition law.

In my view, the questions that are being posed now are the wrong ones, so I would suggest that instead of looking at supposed flaws in competition law, perhaps we should look to competition law to extract some lessons.

The above includes understanding why competition authorities are sometimes reluctant to intervene, or why issues that are perceived to be problematic by the lay public are not understood as such by experts in the field. Also, it would be worth reflecting on whether there may be a possibility that if competition law has not done more regarding “platforms” it might be due to the fact that there may indeed be very good reasons for it not to do more.

Why competition law can teach us?

Some may wonder whether competition law can really teach us something about platforms and about how to deal with them. If you ask me, it sure can.

Read the rest of this entry »

Many of you have been asking for the document used by Wouter Wils yesterday during his presentation at the Chillin’Competition conference (we’ll tell you more about how it went soon; we also have plenty of photos).

In the coming days we hope to be posting other materials (and even guest posts from speakers who may be interested); for the time being we leave you with Wouter’s paper, which will come in handy to many (including myself, given that it greatly facilitates the updates for the courses I teach on procedure…).

Here it is: antitrust procedure developments November 2015 final

We have just been made aware that the following text was published in todays’s Playbook by Politico. We are very grateful, but sexy?? 😉 

Only one clarification: it’s Nicolas, not me, who deserves credit for founding the blog!

BRINGING SEXY TO COMPETITION POLICY: The Who’s Who of Brussels’ competition world will congregate today at a conference organized by the blog Chillin’Competition. In a barren landscape dotted by multiple dry competition law journals, Chillin’Competition has attracted a fervent readership with its sometimes irreverent, sometimes serious look at European antitrust.
The blog was founded by Alfonso Lamadrid, an associate at law firm Garrigues, and Nicolas Petit, a law professor at Liège University, in 2009. It is now run by Lamadrid and Pablo Ibáñez Colomo, an associate professor at the LSE. Its long-running “The Friday Slot” puts a series of offbeat personal and professional questions to eminent practitioners, judges and officials, including competition commissioner Margrethe Vestager, Google outside counsel Maurits Dolmans and General Court Judge Ian Forrester.

As we are getting ready for the Chillin’Competition conference tomorrow we feel we should express our gratitude once again.

Thanks to you for following the blog and for the  interest in this event, which has exceeded our expectations and flooded my email , and apologies once again to the more than 200 people in the waiting list (we owe you one!)

We will report on how the conference goes, but for the time being we would also like to thank the conference sponsors and speakers; they have made it possible (and free) and they have our gratitude.

We are very much looking forward to it