Chillin'Competition

The successive editions Paul Samuelson’s legendary textbook accurately capture the evolution of economic thinking over the second half of the 20^th Century. It is the most obvious starting point to get a sense of the shift in consensus positions on many issues, including the viability of central-planning or the role of monetary policy.

It is probably appropriate to say that Whish & Bailey’s Competition Law is our discipline’s Samuelson. It has been widely (and rightly) praised for its clarity and has long set (and still does) the standard for other textbooks in (EU) Competition Law (also when it comes to the jokes). As much as Samuelson’s Economics, it also reflects consensus positions. This is the reason why I open with excitement every new edition of Competition Law to spot changes in the text (and this in spite of the fact that it is each time a painful reminder of one’s old age).

I received the 8^th edition a few weeks ago (I have all editions from the 5^th, with which I studied in Bruges). As I expected, there is a relatively lengthy discussion of Cartes Bancaires (pp. 125-127) and its impact on the textbook’s trademark framework, which revolves around the famous ‘object box’. The analysis of the Court in that case (and in previous ones, such as Allianz Hungaria) shows that the ‘object box’ approach is not always reliable. The discussion of this question in the new edition is in any event interesting and valuable. And there is no doubt that the ‘object box’ will help thousands of students to make sense of the underlying legal concept!

Another key change comes in the treatment of exclusive dealing and loyalty rebates. The book used to take a marked normative stance on the question. In the past two editions, the author(s) expressed a preference for an effects-based approach to exclusive dealing. Similarly, they considered that the application of the ‘as efficient competitor’ test to loyalty rebates by the Commission could have a positive impact on the substance of the law.

The 8^th edition is remarkable in that it adopts a positive stance on these matters. The authors no longer dispute the current state of the law. They simply explain that exclusive dealing and loyalty rebates are prima facie prohibited and that it is for dominant firms to put forward an objective justification for their behaviour. The new edition is also a good reminder for students that there is no such thing as a per se prohibition in EU competition law.

It is not difficult to guess what might be behind these changes. Wouter Wils’s article on Intel (announced in this blog) has had an enormous impact in the competition law community – it is probably the most read article of the past 12 months. Regular readers of the blog will remember that Richard Whish wrote an editorial defending the prima facie prohibition of exclusive dealing shortly after that article was published.

The changes introduced to the new edition show, above all, that ours is a discipline in a constant state of flux. Some of my colleagues regret that the law in some areas has become so stable that there are hardly any interesting theoretical or practical questions. For better or worse, EU competition law is really far from reaching that stage.

I genuinely thought – and I do not think I was the only one – that the Commission Guidance on Article 102 TFEU captured reasonably well the consensus around the appropriate treatment of exclusive dealing and loyalty rebates. It is now clear that such consensus does not exist, and may never have existed. From this perspective, Wils’s article played a valuable role, in the sense that it has prompted a vigorous (and necessary) debate on issues of principle. It is not a secret that I hold different views. But as a firm believer in competition, even (or rather, especially) when it comes to ideas, I am convinced that a more robust, consistent and sensible competition law system will emerge from this debate!

To sighs of relief among the audience I have just finished my intervention at ERA’s conference “Competition Rebooted: Enforcement and personal data in digital markets”. 

My slides are available here: Competition Big Data_Lamadrid

Nothing of what I said will sound new to frequent readers of this site; the content of my presentation has a lot to do with previous posts on the subject (see here, here and here).

The contributions from the EDPS himself, Jorge Padilla, Orla Lynskey, Maurice Stucke, Patrick Van Eecke, Cyril Ritter, Amal Taleb, Cecilia Parker and Christian D’Cunha were all much more interesting. If interested in their slides, then you should have registered 😉

You might remember that last week, in the post in which we we announced the date of the Chilling’Competition Conference, I included a sort-of-hidden sort-of-joke saying that we were taking inspiration from the organizers of another recent successful conference.

I didn’t explain what that conference was about but instead included a hyperlink. Those of you that clicked on it (only 195) were redirected to a The Guardian’s piece about a homeopathy conference in Germany where a number of people were intoxicated with an LSD-like drug and experienced psychotic hallucinations, cramps, racing heartbeats and shortage of breath only to be found rolling around on the floor by the emergency services. [the piece was sent to me by my colleague Luis Ortiz with a phrase saying “you need to use this somehow on the blog”. How Luis got to that news in the first place is still beyond me…]

When I wrote this I truly was not thinking about organizing any LSD related event under the cover of an homeopathy conference (sorry if that’s a dissapointment; there’ll be other surprises though).

But others seem to have taken our suggestion seriously. Today I ran a quick search for upcoming antitrust-related stuff, and thanks to Reuters I discovered this (really, no kidding, see here)

No comment 🙂

Bob Solow, a Nobel Prize laureate, once said the following of Milton Friedman: ‘Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper’. I think very often of this superb quote (and of the money supply) when reading competition law scholarship.

It would seem that there is always a valid reason to discuss the objectives of EU competition law, or to explain a legal controversy by reference to them. Authors disagree about the substantive standard that should apply to a practice? It must be the case that they disagree about the objectives that should guide EU competition law. A discussion about, say, vertical restraints? Pondering whether consumer welfare should be the goal underpinning the enforcement of Article 101 TFEU is absolutely necessary.

What I find interesting is that, the more I dig into the case law and administrative practice, the more apparent it is to me that the objectives of EU competition law are of marginal relevance in the decision-making process. My own research efforts lead me to the conclusion that, with very few exceptions, this question plays a very limited role (if at all) when the Commission or EU courts consider whether, and in what circumstances, a given line of conduct should be prohibited. It is simply a mistake to assume that a specific substantive test follows logically from a particular objective, or that a disagreement about the objectives that should guide EU competition law necessarily results in a disagreement about the test to apply in the context of a particular case.

Against this background, I asked myself why this issue features so prominently in academic and non-academic discussions. I can think of the following explanations (as usual, I would very much welcome your thoughts):

• Use as a rhetorical device: Challenging someone’s position by arguing that the arguments are only valid when a given objective is endorsed is often very effective. ‘What you say makes sense, but unfortunately consumer welfare is not the objective of EU competition law’, is indeed a powerful rhetorical device that can, moreover, prove useful to avoid addressing difficult questions.
• It is relatively easier: abstract discussions about the objectives of EU competition law may not be very useful in practice, but they often require little effort, or at least much less effort than reading carefully the case law and administrative practice and inferring principles from them. It is probably the case that the latter, no matter how necessary, is also less attractive for many.
• The influence of economics: It makes sense for economists to think about issues by reference to a benchmark against which the lawfulness of a practice can be established. The influence of economic analysis in the field may explain why even academic and non-academic lawyers display a tendency to go about questions in the same way. This is an additional reason why doctrinal analysis may be neglected.

For those readers who thought they would never see it, there you have it: I have just provided a clear example of why the influence of economic analysis might have proved negative in one important respect: it may have the effect of inducing legal scholars to engage in research that is not significant or that contributes little to the understanding of the discipline. I guess this blog can still bring surprises every now and then!

The first Chillin’Competition Conference will be happening in Brussels on Thursday 19 November 2015.

We are in the process of contacting speakers and hope to be done by the end of the week, so you can expect more information very soon.

For the time being we can tell you that the conference will be free for attendees. It will be funded by contributions from sponsors and any money exceeding our costs will be given to NGOs dealing with the refugee crisis.

We are also in touch with the organizers of this very successful conference to see whether we can get some ideas… 🙂

On the first anniversary of Cartes Bancaires (see here for Alfonso’s instant classic on the judgment), Commissioner Vestager gave a speech on Intellectual Property and Competition at the IBA Competition Conference in Florence. There is no trace of the ruling in the speech. There is, on the other hand, a reference to another carte. It is not the carte bleue either but the carte blanche, and this, in the context of a statement with which it is difficult to disagree (‘property rights never give you a carte blanche for exemption from regulatory obligations’).

The speech addresses two issues that have been abundantly discussed in the blog. Standard-essential patents – surprise – is one of them. Pretty much in line with Alfonso’s position, the Commissioner appears to interpret Huawei as broadly endorsing the Commission approach to the matter. The second one is the Pay TV case (and this in the context of the Digital Single Market Strategy). To mark Cartes Bancaires’ first birthday, I will focus on the latter.

You will remember that the Commission sent a Statement of Objections to Sky UK and the major studios. It was suggested in the press release that geo-blocking provisions prohibiting Sky UK from offering its online content outside of the UK are restrictive of competition by object (see here for my reaction). Commissioner Vestager’s speech insists on the same idea. It is valuable because it is less ambiguous than the press release in several important respects and thus more explicit about the challenges that the Commission will face in the Pay TV case.

Commissioner Vestager makes it very clear that Sky UK would not be able to offer its content online in the Member States where the rights have been licensed to another broadcaster. If it did, it would be breaching the rights of that licensee. Accordingly, removing the contentious geo-blocking provisions would not be enough to promote the cross-border provision of copyright-protected content in the EU. It would only be possible to achieve this policy goal– and the Commissioner is explicit and candid in this regard – by changing copyright rules.

So to recap: even in the absence of geo-blocking obligations, Sky UK would not be able to lawfully offer its online services in territories allocated to other licensees. It would have to breach the latter’s copyright to do so. Are these obligations be restrictive of competition by object, then? Cartes Bancaires (in line with Murphy) was a good reminder of the importance of the economic and legal context of an agreement when establishing whether it is restrictive by object. And I cannot think of a better classroom example than this case to show that such context can make a real difference in practice.

It is clear since Societe Technique Miniere that an agreement is only caught by Article 101(1) TFEU when it restricts competition that would otherwise have existed. This is the famous counterfactual analysis, which featured prominently in landmark cases like European Night Services, O2 (Germany) and, more recently, E.On/GdF. Interestingly, this principle has been explicitly endorsed by the Commission in the context of parallel trade restrictions. According to the Guidelines on vertical restraints, even absolute territorial protection may fall outside Article 101(1) TFEU altogether (i.e. it may not restrict competition by object or effect) if the counterfactual analysis reveals that no market entry would have occurred in the absence of the agreement. In the same vein, the Commission takes the view in the Guidelines on Article 101(3) TFEU that the counterfactual analysis applies both to potential restrictions by object and by effect.

Against this background, and since the Commission seems to concede – now unambiguously – that Sky UK would only be a potential competitor to other licensees in a different economic and legal context (that is, only following the reforms of copyright rules), I fail to see how, in the post-Cartes Bancaires universe, an agreement of this kind can be considered to be in breach of Article 101(1) TFEU ‘by its very nature’. As usual, however, I would love to read your views on this question. And please note that all of this goes without even starting to discuss Coditel II and Murphy!

In the EU competition law world “ordoliberal” is a label that is often used as a way of disqualifying a Judgment, decision or opinion as “excessively formal” or not sufficiently in line with some trends of economic thinking. Some also use it as a synonym for “absurd” and “nonsense”.

But when you dig deeper you realize that many don’t really know what “ordoliberalism” really was, or is.

Ordoliberals were the first proponents of the concept of “social market economy” and essentially hold that there was a need for public intervention to ensure a healthy level of competition (the existence of competition law itself is a corollary of this sensible tenet, as, by the way, I developed in my piece on Antitrust and the Political Center).

I always thought I should write something about this on the blog in an attempt to clarify (or rather help me understand) the real meaning of this often wrongly used label and of its implications in the competition law field.

But yesterday I discovered that someone has already done the work; the piece just by Peter Behrens linked to below is possibly the best piece on ordoliberalism and competition law that you will be able to find:

The Ordoliberal Concept of ‘Abuse’ of a Dominant Position and its Impact on Article 102 TFEU

Enjoy the weekend read!

I take a break from our break to let you know that new paper of mine, Post Danmark II, or the Quest for Administrability and Coherence in Article 102 TFEU, has just been uploaded on ssrn. I would love to hear your views on it (e-mail: P.Ibanez-Colomo@lse.ac.uk).

The paper discusses some of the issues I have addressed in a series of blog posts on the pending ruling in Post Danmark II. After so many years, the legal status of quantity rebates is still unclear. In Hoffmann-La Roche, the ECJ held that these rebate schemes are — at least — presumptively lawful under Article 102 TFEU. In Michelin II, the GC took the view that they should be assessed like target-based rebates have been since Michelin I. The Court will now have to choose between one or the other.

As you know already, I am of the view that a legal test applying to quantity rebates should be consistent with the presumption of legality set in Hoffmann-La Roche. I discuss in the paper some of the reasons why the approach endorsed in Michelin II — also favoured by AG Kokott in her opinion Post Danmark II — is at odds with this presumption. I can summarise some of my main findings as follows:

• Michelin II reversed the burden of proof: Rebates that depend on the volume supplied cannot be said to have an anticompetitive object. Thus, it would be for a claimant or a competition authority to show that they are inconsistent with a cost saving rationale. In Michelin II, the GC did the opposite. It did not ask the Commission to establish that the quantity rebate scheme had an anticompetitive object. The ruling reversed the burden of proof, and Michelin was the one asked to produce evidence that the scheme in question reflected the cost savings it made through it. It is difficult for me to think of a reason why this line of case law, which distorted the principles on which Hoffmann-La Roche is based, should be endorsed.
• The principles set out in Michelin I are not administrable: The fundamental problem with the case law on target rebates is that it is based on criteria that are not administrable. It is simply not possible to tell in advance whether a particular scheme is abusive or not. An analysis of the case law reveals that all cases are so fact-specific that it is difficult to infer generally applicable principles. What are the consequences in practice? When a legal test is not administrable, it tends to expand beyond the limits of its logic. A rebate scheme that is potentially abusive will always be found to be abusive in practice. The test set out in Michelin I was not crafted for quantity rebates (the Court unambiguously held that it was ruling on the lawfulness of schemes lying somewhere between loyalty rebates and volume-based schemes). We know what happened later in Michelin II. The Court did not hold in Michelin I that target rebates are always abusive, and it certainly did not hold that retroactive rebates granted over a period of one year are always abusive. In practice, as Post Danmark II shows, these schemes are always deemed to be prima facie abusive.

What are the ingredients of a reasonable approach to the assessment of quantity rebates? As you might have guessed from the title of my paper, these are, in my view, coherence and administrability. By coherence I mean that the legal test should reflect the logic on which the assessment of similar practices is based. It is now clear that price-based conduct that is not presumed to have an anticompetitive object (like the sort of selective price cuts examined in Post Danmark I), can be abusive if it is shown to be predatory within the meaning of AKZO. If a quantity rebate scheme amounts to pricing below average variable cost (or another appropriate measure), it would make sense to presume that it serves no purpose other than the elimination of rivals. The Court also made clear in Post Danmark I that above cost pricing does not have, in principle, an anticompetitive effect, as equally efficient rivals are able to match the prices of the dominant firm. Thus — never say never — it would be for the claimant or the competition authority to provide cogent and convincing evidence showing why, in spite of this fact, they are likely to have such an effect in the specific context in which the scheme is implemented.

Chillin’Competition has just reached its millionth visit, so thanks a million!

It’s amazing to see that the readership keeps growing daily after almost 5 years and over 1,000 posts. In fact, it seems that in 2015 we’ll even double the visits we had in 2014. As difficult to understand as this may be, it certainly encourages us to keep the blog alive.

Reaching this milestone has spurred some thinking on the much-talked-about-but-never-held-Chillin’Competition conference. We can now safely announce that we will be holding it in mid-November. We have a first draft ideal program and will be contacting speakers in the coming days. In order to make it a free-access conference and to pay for logistic costs we will need some corporate sponsors; so if anyone feels generous and would like to contribute to making the event possible, please drop us a line.

Thanks again!

P.S. We’ll be closing the shop during August, so enjoy the summer and hope to see you here soon.

The moment of truth for the Pay TV investigation has arrived. Yesterday, the Commission sent a statement of objections to Sky UK and the ‘Big Six’ Hollywood majors. It has come to the preliminary conclusion that the territorial restrictions introduced in the agreements between the pay TV operator and the studios are restrictive of competition, and this insofar as they give absolute territorial protection to broadcasters (both to Sky and to licensees based elsewhere in the EU). As a result of these agreements, the Commission argues, Sky is prevented from providing its services (online and via satellite) to end-users based in Member States other than the UK. Some of the views stated in the press release are remarkable and will no doubt give rise to considerable controversy in the coming months.

Exhaustion through competition law? The Commission suggests in the press release that Sky should be entitled to provide its online pay TV services outside the UK (at least in principle). The fact that it may hold a license to offer content only in that Member State does not seem to make a difference in this regard. This position is extraordinary. It means that a TV operator having been granted a licence to broadcast content online in one Member State should be entitled to broadcast the same content in the whole of the EU. As I see it, it comes dangerously close to saying that the exhaustion doctrine applies to broadcasts. According to the Commission, online content should circulate within the EU as freely as DVDs so long as it is offered by the right holder or with its consent.

The view advanced by the Commission in the statement of objections (at least in light of the press release) is at odds with Article 3 of the InfoSoc Directive, which states very clearly that the right of communication to the public is not subject to exhaustion. The Commission indeed suggests the opposite, in the sense that it claims that the licensee in one Member State is not entitled to prevent licensees based elsewhere from offering, online, the same content in its territory.

The question is, I guess, whether it is possible to limit the scope of an intellectual property right through competition law. One can say in this regard, at the very least, that there are no precedents for such a move. EU courts have always been clear in stating that EU competition law does not question the existence of intellectual property rights, but only their exercise. Is the extension of the exhaustion doctrine through Article 101 TFEU enforcement not tantamount to questioning the very existence of the right of communication to the public?

The scope of Murphy and Coditel II. The statement of objections seems to be based on a relatively expansive interpretation of Murphy. The Court held in that case that an export prohibition regarding decoding devices is restrictive of competition by object under Article 101(1) TFEU and does not meet the conditions of Article 101(3) TFEU. I have written elsewhere that Murphy is not easy to interpret. In particular, it is not immediately obvious to reconcile with Coditel II, which remains good law. The difficulty is that, in the latter case, the Court held that an exclusive territorial licence is not as such restrictive of competition.

In any event, it seems clear to me that merely prohibiting, by means of an agreement, an operator from broadcasting content in the territory allocated to another licensee is not contrary to Article 101(1) TFEU. Paragraph 137 in Murphy seems unambiguous to me in this regard. Not only does it confirm that Coditel II has not been overruled, but it states that ‘the mere fact that the right holder has granted to a sole licensee the exclusive right to broadcast protected subject-matter from a Member State, and consequently to prohibit its transmission by others, during a specified period is not sufficient to justify the finding that such an agreement has an anti-competitive object’.

The Commission now seems to be of the view that even clauses that restrict the ability of broadcasters to offer online content in a territory other than the one for which they hold the licence (the press release refers to geo-blocking) are contrary to Article 101(1) TFEU by their very nature. It would be interesting to see how this position is substantiated by the authority. It is without any doubt the key legal issue in the case.

Copyright reform through competition law? It is impossible to ignore that the statement of objections comes at a time when copyright reforms are being discussed. The press release itself refers to some initiatives by the Commission which seek to promote cross-border access to copyright-protected works. The proposed reforms overlap with the concerns raised in the statement of objections and would have exactly the same consequences for end-users. Is cross-border access to content a competition law issue or a copyright one, then? Why apply Article 101 TFEU to a policy objective that would be more logically achieved via legislation?

I find it extremely difficult to draw neat boundaries between disciplines. I am always wary of claims that EU competition law is being applied beyond its proper scope. One thing is clear, however. If the Commission goes ahead with the theories sketched in the press release, it would be redefining, via Article 101 TFEU enforcement, the scope of the right of communication to the public and the reach of the exhaustion doctrine. Proper or improper, this, as explained above, is surely unprecedented in EU competition law.