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Two important Opinions: AG Kokott on Post Danmark II (C-23/14) and AG Wahl on AC Treuhand (C-194/14 P)
A few hours ago two important competition law-related Opinions were made public by the European Court of Justice. Both are remarkable and, interestingly, I would even dare to say –and note that this is not a criticism- that the direction of each of them could have been expected in the light of the track record of their respective authors, Mr. Wahl and Ms. Kokott. Similarly, I also have the sense that the Court might finally be inclined to follow only one of the two Opinions, I let you guess which.
That said, both Opinions raise most interesting questions regarding two very different issues, one of them novel (can a cartel “facilitator” be sanctioned under 101 TFEU despite not being a party to the agreement?) and one of them fairly old but always hot (what are the criteria to assess loyalty rebates by a dominant firm?; Is it mandatory to follow the “as-efficient competitor test”; Is there an appreciability threshold for such conduct to fall under 102 TFEU?).
Let’s look at them one at a time. I have more extensively summarized Kokotts Opinion (because I know you’re too lazy to read Opinions in full), but have included all key messages in bold for those lazy enough to not read even the blog posts 😉
AG Kokott on Post Danmark II (more on the fight for the soul of EU Competition Law)
The legal treatment to be applied to rebates on the part of dominant companies remains one of the most contentious issues in contemporary EU competition law and is in many ways the main battleground on the –legal or economic- soul of EU competition law. Discussions about it have abounded in recent times (see here for a summary), and have also occupied our attention (for Pablo’s views see here, here or here, and for my own views click here).
Kokott sends a clear message right from the start (para. 4), noting that the case comes at a particularly controversial time when many push for a more “economic approach”, and recommends that “in is replies, the signal effect of which is likely to be extended well beyond the present case (she refers to Intel in a footnote) the Court should not allow itself to be influenced so much by current thinking or ephemeral trends, but should have regard rather to the legal foundations on which the prohibition of abuse of a dominant position rests in EU Law”.
In her Opinion the AG first goes on to identify the general criteria that should be taken into account in order to assess rebates, referring first to the special responsibility of the dominant company (para. 24), underlining that the “quantitative” or “loyalty” labels are irrelevant, and that what is decisive is the possibility that they may lead to an exclusionary effect which is not economically justified (para. 29). AG Kokott then insists but that there is not a closed list of factors to be considered given that each rebate might have its peculiarities, but identifies some particular criteria, namely (a) the “criteria and rules governing the grant of the rebate” (paras. 36-41: referring to loyalty building/suction effects, which depend inter alia on retroactivity, the volume and time-span of the rebate, as well as intent -the latter is referred to as a “strong additional indication” as opposed to a “mandatory precondition”-; she also adds that the charging of “negative prices” should not be a precondition either (para. 41); and (b) the conditions of competition in the market and the position of the dominant company (see paras. 42-50, very closely linked to the facts of the case). She sums all this up in a “interim conclusion” (para. 55) stating that a rebate scheme operated by a dominant company will be abusive “where an overall assessment of all the circumstances of the individual case shows that the rebates are capable of producing an economically unjustified exclusionary effect, it being important to take into account in that regard, in particular, the criteria and rules governing the grant of the rebate, the conditions of competition prevailing on the relevant market and the position of the dominant undertaking on that market”. Nothing groundbreaking or too controversial here.
From para. 57 onwards she refers to the Commission’s Guidance on exclusionary abuses and its endorsement of the “as efficient competitor test” that the Institution imposed upon itself. She notes that such an administrative practice “is not, of course, binding on the national competition authorities and Courts”. Importantly, she says that “although the national authorities themselves are not precluded from following the Commission’s example and using the AEC test, they are none the less, from a legal point of view, bound only by the requirements arising from Article [102]” and that “[i]t is for the Court to define what those requirements are”. This isn’t groundbreaking at all either, but some might consider it controversial.
It is at this point that the most relevant stuff comes. In para. 61 the Opinion observes that Article 102 does not support the inference of any legal obligation requiring the use of the AEC test. It then observes that in previous cases (Telia Sonera or Post Danmark I), the ECJ has validated this test but not as an “absolute requirement” for all price-related cases. The AG remarks, first, that the said-case law is specifically concerned with other pricing practices that are by their nature closely related to the cost structure of undertakings and also, second, that the wording used by the Court in those cases made it clear that anticompetitive exclusion is not only that which affects equally efficient competitors (62-63).
With regard to rebates in particular the Opinion refers to the ECJ’s Judgment in Tomra (para. 92 later mentions that Tomra was rendered “at about the same time” as Post Danmark I) to support the contention that a cost-price assessment is not mandatory. Although she contemplates the possibility of establishing this requirement, she expresses “skepticism” towards any reorientation of the law (65) given that (i) “the added value of expensive economic analyses is not always apparent and can lead to the disproportionate use of resources” [economist will love this..] (66); (ii) “it is wrong to suppose that the issue of price-based exclusionary effects can be managed simply and in such a way as to ensure legal certainty by applying some form of mathematical formula based on nothing more than [business data] not uncommonly open to different interpretations” (67); and (iii) “the finding of an abuse requires taking into account all the relevant circumstances of the individual case in question and must not be confined to an examination of price and cost components alone” (68).
In para. 69 the Opinion explains that taking into account all circumstances + considering whether there is any objective justification for the rebate “adequately ensures that the legal requirements (…) do not disregard economic realities”.
Paras. 71 to 75 then develop some further objections to the AEC test, notably regarding the fact that when a dominant company is present the structure of the market often rules out the presence of equally efficient competitors (due e.g. to barriers to entry, economies of scale or network effects) which implies that “the competitive pressure exerted by less efficient undertakings must not be underestimated.
In the light of the above, Kokkot’s recommendation for the Court in para. 75 is to respond that Article 102 does not require the abusive nature of rebates to be established pursuant to an AEC test, but that national authorities and Courts are at liberty to avail themselves of a price/cost analysis unless, on account of the circumstances, it would be impossible for another undertaking to be as efficient as the dominant one.
Finally, the Opinion addresses the question about how “likely and serious” the exclusionary effect must be in order for Art. 102 to apply. With regard to likelihood, it states that “hypothetical effects” are not enough because the rebate must be capable “not only in the abstract but also in practice of making it difficult or impossible for the dominant undertaking’s competitors to gain access to the market”; in its view, the provision is triggered in the face of “likely” effects, not of “very likely” or ·particularly likely” or “beyond reasonable doubt”. At most, the Opinion explains, the degree of likelihood may have a bearing on sanctions. With regard to seriousness (appreciability) she first observes that the doubts of the Danish Court may have to do with a deficient translation of the Judgment in Post Danmark I from French to Danish (the latter version referred to appreciable effects/elimination effects instead of exclusionary effects). In her view, likely exclusionary effects are enough, there not being a need to qualify it those effects as serious or appreciable; the Opinion then cites Tomra for support, and adds that a de minimis threshold doesn’t seem necessary given that there will already be a an assessment of all relevant circumstances and also given the fact that Art. 102 extends only to conduct that is likely to affect trade between Member States [I personally don’t think that this latter argument is valid, for the effect on competition and on trade between Member States are two different things assessed pursuant to different criteria; this, in my view, is quite clear in the case law on 101]
This very last section of the Opinion is what I find less satisfactory (many people will probably take issue with the previous stuff too) because it leaves a question unaddressed (in its defense, one that was not posed directly in the case, and one that I think is at the root of most major current substantive discussions: what is really anticompetitive exclusion/foreclosure? when is it enough to warrant intervention? is it about making life more difficult to competitors –and how much more?- or about their elimination –and to what extent-?) I’m not sure that the argument that “we will know after considering all circumstances” is enough. In practice the issue if often solved by prosecutorial discretion (the EC at least has chosen well its cases) but, query, is that the appropriate solution? Perhaps the question is not so relevant for loyalty rebates since –according to Michelin and Intel –the only two Judgments that, unless I’m wrong, contain the expression- they are considered restrictive “by object” (pending the objective justification assessment), but it is the key question to every other practices assessed under 102.
As for the rest of the Opinion, I think there is nothing new; it fits within the line of the established and controverted case-law on the issue that we have extensively discussed here. I suspect that (i) people with strong views on either sides will regard this Opinion as a lost opportunity for very different reasons; (ii) the ECJ is likely to endorse this view; and (iii) I also suspect AG Wahl might take a different view when he writes his Opinion in Intel. And speaking of AG Wahl:
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AG Wahl on AC-Treuhand (or what is a restriction of competition?)
The second Opinion rendered today concerns a novel issue which AG Wahl proposes to address by returning to the fundamental –and unclear– concept of restriction of competition.
The case concerns an appeal against the General Court Judgment endorsing the Decision which –for the first time- sanctioned a company for its role as a “cartel facilitator” despite not being a player in the affected markets. In essence, the company’s role consisted in arranging and participating in meetings, gathering and circulating data, moderating tensions and fostering commitments in exchange for a remuneration.
The ground of appeal that is dealt with in the Decision raised two interesting questions, namely: (i) does Article 101 encompass this sort of conduct?; and (ii) subsidiarily, could the company be sanctioned in a manner compliant with the principle of legality considering that there was no previous case-law establishing that such conduct fell within the scope of Article 101?
In the view of AG Wahl, “in order to identify a restriction of competition it must be shown, following the pertinent economic analysis, [intermission, note the difference in the language compared to the previous commented Opinion] that the company at issue has renounced, totally or partially, by its conduct, to exert a pressure characteristic of effective competition on the rest of the operators in the market or markets affected to the prejudice of economic efficiency and consumer welfare” (para. 1, later paraphrased at various key paragraphs of the Opinion, notably 47, 50, 51, 62 and 69). In the light of this notion of restriction, and considering that AC Treuhand did not exert any competitive pressure on the other participants in the cartel prior to the agreement, it never ceased exerting any such pressure and therefore, according to AG Wahl, cannot be held directly responsible for the cartel. Consequently, he recommends the ECJ to annul the General Court’s Judgment.
I see the point, but at the same time I have doubts: didn’t the company participate in an agreement that had as its object the restriction of competition? Also, it is true that a wide interpretation of Art 101 to capture facilitators could potentially extend even to lawyers not doing their job properly; at the same time, however, organizing cartels should probably not be a legitimate business.
Btw, the notion of restriction used here –despite the reference to economic analysis- seems close to that often criticized as ordoliberal; I’m not saying this pejoratively, I’m simply observing it.
According to the Opinion – which in para. 71 is quite blunt- if the Court were to endorse the view of the General Court and of the Commission, it would “profoundly disturb” the method of identification of anticompetitive conduct by disconnecting the conduct and the economic restriction in such a way that the definition of the relevant market and the identification of anticompetitive constraints therein would become completely superfluous. Again, I see AG Wahl’s major point, but I’m not really persuaded by the latter part of this particular argument, for market definition is already deemed superfluous when it comes to cartels…
The Opinion then goes on to consider the theoretical question of whether the company could be sanctioned as an “accomplice” (paras. 77-83). It notes that whereas this would seem convincing at first sight, the charges were not framed in that sense and, moreover, the concept of “accomplice” belongs to criminal law and is alien to administrative law, so resorting to it in a case like this would not make sense (para. 82).
In AG Wahl’s view, it is exclusively for the legislator to foresee a sanction for accomplices under EU Law. After stating this, at the very end of the Opinion, he sends a clear message that I, for one, am likely to quote in the future-: “it is necessary to underline that the will of the Institutions of safeguarding the effectiveness of their policies must be conciliated with legality and legal certainty. As pointed out by an author (a footnote clarifies that the “author” is Pierre Pescatore) the effectiveness -effet utile- doctrine cannot lead the Court of Justice to interpret Treaty provisions so as to extend to the maximum the competences of the Institutions, but must permit to interpret the pertinent rules in the light of their objective and goal”. (Note that an English version of the Opinion is not yet available; this is my own translation).
The second question raised by the applicants was, in my view, equally interesting, but was not addressed in the Opinion (although I predict that it may be more relevant to the eventual Judgment…). Could the company be sanctioned for acting as a facilitator when the law was unclear –there was no precedent- as to whether it violated Art. 101? In practice the Commission has sometimes decided not to sanction a company resorting to this reasoning but it has done so on its own motion (see here). However, is there a legal obligation for the lege to be clear for the poena to be imposed? This is a question –or rather a problem- that, in reality, concerns not only this issue but the whole of competition law (with the exception of cartels, or at least of how the term “cartel” was traditionally understood). I will recall the answer that the General Court gave to an argument that also concerned the principle of legallity in Case T-167/08, Microsoft (compliance):
- “(…)the use of imprecise legal concepts within a provision does not prevent liability being established as against a person who contravenes it. As the Commission points out, if it were otherwise, an infringement of Article 101 or 102 TFEU – which are themselves drawn up using imprecise legal concepts, such as distortion of competition or ‘abuse’ of a dominant position – could not give rise to a fine without the prior adoption of a decision establishing the infringement“.
I guess that says a lot about our discipline…
Post- and pre-conference thoughts
I was delighted to attend a conference on Friday last week at the University of Leeds. Drs Pinar Akman and Peter Whelan put together a really interesting programme combining young academics (as I like to fancy myself) and experienced practitioners. Great chance (for me) to meet some people (long overdue in some cases) and to see some friends, including Nicolas (I should definitely take the Eurostar more often). I hope to be able to share the slides (mine and others’) very soon on the blog.
Pinar and Peter asked me to discuss the interface between competition law and sector-specific regulation. The topic brings together my doctoral dissertation (on technological convergence between media and telecommunications) and some ongoing issues that I follow with particular interest – in particular, the Google investigation and the broader Digital Single Market Strategy.
The commonalities across issues are clear, and the fundamental research questions remain the same they were 10 or 15 years ago. It is not a secret that there is big appetite for the regulation of convergent technologies – whether it is telecommunications networks, pay TV channels, search engines, or e-commerce) One of the key ideas of my talk was that, when the impulse to regulate is too strong, competition law may be the casualty, and this in two ways. Enforcement may shift towards a newly crafted sector-specific regime (as the one that is now envisaged for the so-called ‘digital platforms’, or the one set up by Ofcom in relation to pay TV in the UK). If the shift does not occur, the challenge for courts and authorities is to ensure that the integrity of the competition law system is not jeopardised.
Tomorrow I will be flying to Japan to take part in the 10th ASCOLA conference. It is the first time that I speak at one of their events and I really look forward to sharing my thoughts with the participants. The topic is on the regulation of abusive practices, about which I have written abundantly on the blog. I hope to persuade my fellow academics that it is about time to place the law (as opposed to economics and policy-making) at the very centre of discussions around Article 102 TFEU (and equivalent provisions in other regimes).
Talking conferences. Our friend David Mamane tells us about an upcoming one on the enforcement of EU competition law at the national level.
The Brussels School of Competition
Over the past few years the Brussels School of Competition has established itself as one of the best places to study competition law in the EU. Very few programs feature a comparable line-up of visiting professors (including a good number of Commission officials) and, above all, a comparable bunch of dedicated students. I have been lecturing there for the past 4 years, and I’ve always very much enjoyed it (not so much grading exams, which I need to do this weekend…) The reason I’m telling you all this is, first, that Nico has asked me to ;), and, second, because registrations are now open for the 2016 edition.
Aside from the main course, the BSC also organizes a number of events, somo of which have received our attention on this blog (see, for example, this post on commitment decisions).
In the coming weeks the BSC will be holding two particularly topical events:
– On 28 May 2015 the BSC and The Liège Competition & Innovation Institute (LCII) will host a half-day conference on Public Restrictions of Competition. The topics to be discussed include: a possible re-activation of Article 106 TFEU enforcement, State related restrictions of competition; new business models that undermine regulated sectors; the sharing economy; competitive neutrality frameworks; State owned enterprises, etc. One of the speakers, and possibly the most reputed lawyer in this field (a bias disclosure is in order), will be my boss/partner/friend, José Luis Buendía. Click here for the full programme and here to register online
– On 9 June 2015 the BSC would also like to invite you (well, you need to pay, but it’s very cheap…) to a Morning Briefing on “the sector inquiry in e-commerce: what competition agenda for the digital single market?” The speakers will be Thomas Kramler (who is heading the enquiry at DG Comp), Stephen Kinsella (from Sidley Austin) and Frank Wijckmans (Contrast). For more info, click here.
A transatlantic perspective on some of our recent debates
In the past couple of months, Alfonso and I have offered different perspectives on topical issues. First, we discussed (too much and for too long) about the legal test that should apply to exclusive dealing. We then published a couple of posts (here and here) on the recent Bananas ruling of the ECJ. As in many other areas, it makes sense to take a look at how these matters are dealt with in the US. The comparative perspective is all the more interesting considering that the FTC has examined similar matters relatively recently.
Exclusive dealing in McWane
As many of you know, the US Court of Appeals for the Eleventh Circuit upheld last month the FTC’s order in McWane. The (other) Commission had found that the company had engaged in unlawful exclusive dealing. The Court of Appeals concluded that the findings about the impact of the practice on competition were supported by substantial evidence. So here it is: an exclusive dealing case that follows an effects-based approach and that is, in addition, decided against the dominant firm.
The legal approach endorsed by the Court of Appeals in McWane is familiar to EU lawyers. For instance, it is routinely followed in non-horizontal mergers, even when they involve a dominant firm (just think of Tetra Laval). Too many posts later, I have not yet found a compelling argument as to why the same legal test should not apply to exclusive dealing under Article 102 TFEU, and why the perpetuation of internal tensions in the EU competition law system is appropriate or sustainable. But rest assured that I will not insist!
McWane is a very useful read for another reason. Over the past few months, it has been assumed, too readily and too often, that an effects-based approach to Article 102 TFEU would require complex economic studies that would unduly delay the procedure and would make it very difficult to establish an infringement. McWane shows that these concerns are not justified. Not only was a violation established in the case, but the approach advocated by Commissioner Wright, who claimed that the FTC’s analysis was not sophisticated enough, did not carry the day.
Information exchanges in Bosley
Alfonso and I focused on different aspects of the Bananas case. I devoted my post to the qualification of the exchange as a restriction of competition by object. He expressed misgivings about the fine imposed in the case. Bosley suggests that the FTC would be in broad agreement with the two of us. The FTC claimed that the companies exchanged ‘competitively sensitive, non-public information’ about their business practices. The behaviour was challenged because it ‘served no legitimate business purpose’. This is precisely the approach that the Court of Justice has consistently followed when examining whether agreements restrict competition by object, including Bananas.
Interestingly, the FTC case was not closed with a fine, but through a consent agreement, whereby Bosley agreed not to exchange (or request) competitively sensitive information and to set up a compliance programme. This outcome provides support for Alfonso’s very sensible post. My only objection to it was in fact that his thoughts were relevant well beyond the relatively narrow area of information exchanges. His criticism of the case raised fundamental issues about the enforcement of EU competition law that would warrant careful consideration. There are indeed many practices that cannot be compared in any way to a cartel (or the ‘supreme evil of antitrust’, as he put it in the post) and that are nevertheless subject to fines (see above, for instance).
Recent output by Nicolas
Nicolas, founder of Chillin’ Competition and co-blogger emeritus, has been very active lately. He has shared with us some of his recent output (this adds to his piece of self-preferencing, mentioned in one of Alfonso’s posts). He can be contacted at nicolas.petit@ulg.ac.be for further info. He also has a Twitter account: @CompetitionProf. The papers can be found here.
Have a great weekend!
Supermarkets and competition law: lessons from Tesco’s recent troubles (and other news)
Supermarkets are often presented as serial competition law offenders. Some commentators simply assume that it is a highly concentrated industry that makes supra-competitive profits. From this perspective, they would be the epitome of the tight (and evil) oligopoly. According to other accounts, however, high prices are not the problem, but excessively low ones. Some see with genuine concern that supermarket chains compete vigorously across some product categories. The exercise of unilateral market power vis-à-vis suppliers has emerged as a third popular topic in recent years. The idea that there is something wrong about retailers favouring their labels and/or with them competing vigorously with manufacturers at the downstream level has become a popular one.
It is hard to believe that these claims can all be true at the same time. The reality of the industry must be far more complex than commonly assumed. I thought of all of this when reading about Tesco’s recent troubles. The consensus among analysts is that a significant part of the company’s problems – currently the leading supermarket chain in the UK with a market share of around 29% – is the consequence of strong competition from hard discounters such as Aldi or Lidl. Incumbents have a hard time meeting the prices of the two German chains, which are relatively recent entrants in the British market.
Why do I say all this? Well, because sometimes there may be a gulf between popular belief and the reality of markets. The problems in the supermarket industry are assumed to be so rampant and fundamental that the European Parliament became involved and – in line with the growing tradition – sector-specific regulation addressing the perceived problems was discussed and contemplated. In such situations, the best competition authorities can do is assess rigorously whether such claims are really justified, even if it means not taking any measures in the end. In fact, I wrote a while ago that a major task of competition authorities is to lead by inaction, which means that sometimes their remit is to explain clearly to the wider public why concerns are not justified, why the market is working in the interest of consumers or why sector-specific regulation could have the perverse effect of stifling competition. This is how I interpret what the Commission did recently in relation to supermarkets.
The groceries sector is also interesting in that it shows that there are necessarily winners and losers when markets evolve. The fact that some companies are driven out of the market does not always mean that it is the consequence of anticompetitive conduct. The exclusion or marginalisation of some players may simply mean that the conditions of competition are changing. In this sense, indicators that rivalry among supermarket chains in the UK is fierce may be interpreted as suggesting that vertical integration is merely a logical reaction to the new conditions of competition, and not an unlawful strategy limiting – enter the buzzwords – choice and innovation.
As I was thinking about the above, I received an email from Caron Beaton-Wells (Professor of Law at the University of Melbourne) informing about the launch of a research project about the industry (Supermarket Project). I wish her and her team the best of luck and I look forward to the findings!
In other news, and to indulge in some self-preferencing: I am delighted to report that my co-blogger has (once again) been the sole non-partner listed in the 2015 edition of Chambers Europe. Congratulations on the richly deserved achievement! Knowing how Spanish law firms work, he should be able to repeat the feat a good number of years… 😉
More on EU Courts: Ian Forrester to be appointed as GC Judge & the ECJ’s “Fight Club”
We have just learnt that Ian Forrester -our first Friday Slot interviewee and actually the person who named the Friday Slot– will be a Judge at the General Court replacing Judge Forwood. The addition of a distinguished competition law expert to the Court is always good news; congrats to him. For his interview with us, click here.
The ECJ is again news due to the controversy surrounding the planned duplication of Judgments Judges at the General Court. The tension seems to have mounted and some internal documents have become public. For the Financial Times‘ piece on this topic, click here: “The 1st rule of ECF Fight Club is about to be broken“. And speaking of the FT, I was quoted in it today in a piece on the Apple State aid case (see here).
How to distinguish between tying and refusal to deal cases (hint: it’s not just words)
I hear very often that the outcome of Google depends on whether you call it a refusal to deal or a tying case. If one sees it as a refusal to deal case, then it would be necessary to establish, at the very least, that non-discriminatory access to the search engine is indispensable. If not, the threshold would be much lower (although the Commission committed to establish anticompetitive foreclosure in tying cases in the Guidance). This approach cannot be right. The legal test that applies to a practice should not depend on what one ‘sees’, or on picking the words that one prefers (and which, no surprise, tend to coincide with the legal test that one also prefers).
What should matter when thinking about the applicable legal test to a given practice is the underlying issue, and in particular whether it is closer in nature to those underlying refusal to deal cases or tying cases instead. How could one draw the line between one and the other? This is a topic that I discuss very often in class with my students. The easiest way to go about the question is to think backwards about the case. In other words, it makes sense to think first about the remedy and then about the legal test.
In technology markets, it is not always easy to distinguish between tie-ins and refusals to deal, in the same way that it is difficult to distinguish between vertical and conglomerate mergers. What is clear, on the other hand, is that remedies in tying and refusal to deal cases are very different in nature. This explains, in turn, why the legal test under Article 102 TFEU is also very different.
The typical remedy in a tying case is an example of the good old, unsophisticated competition law. The likely or potential anticompetitive effects of tying can be easily addressed by breaking the tie-in, that is, by preventing the dominant firm from conditioning the acquisition of one product to the acquisition of another. Once tying is prohibited, concerns about the ability of the dominant firm to extend (or strengthen) its position on the market for the tied product disappear.
The remedy in refusal to deal cases takes competition law out of its comfort zone. Remedial action is no longer about a one-off, proscriptive form of intervention but about positive obligations that require monitoring. If a refusal to deal is found to be abusive, it is inevitable that the remedy will regulate the conditions of access to an input or a platform owned by an integrated firm. Remedies will, as a result, greatly interfere with the way in which a company does business. These are some of the reasons why competition law has traditionally limited to exceptional circumstances the instances in which regulated access obligations are imposed on a dominant firm.
The fact that concerns are addressed by means of access obligations on regulated terms and conditions tells you something else about the underlying issues in a case. If the dispute relates to the conditions of access to a platform or input, it also means that it does not really involve two separate products, as is in principle required in tying cases (just take a look at the Guidance). The dispute, in other words, relates to a complex product that integrates different components and not to a tie-in of distinct products. What about the Internet Explorer case? Was it not about access and tying at the same time? Indeed, but bear in mind it also was a commitments decision, which did not address substantive issues. In fact, I fully agree with the view, taken by some authors, that it was a refusal to deal case in disguise.
Where does the above leave us in relation to Google? I have written several times in the blog that I suspect that the underlying issues in the case are closer to those at stake in refusal to deal cases (hence why I mentioned last week that I am not convinced that anticompetitive foreclosure would or should suffice). It seems now clear to me that the Commission does not challenge the integration of Google’s services into the search engine, which suggests that talking about distinct products would be entirely artificial. This issue became very clear when the different rounds of commitments were discussed. The Commission has now explicitly mentioned that the remedy should be non-discriminatory access to the platform.
One could wonder whether it has become meaningless to distinguish between refusal to deal and tying cases. If drawing the line between the two is so difficult in practice, would it not make more sense to require anticompetitive foreclosure across the board, and get rid of the indispensability/new product conditions? I think it would be a terrible idea. The reasons why the legal test in refusal to deal cases is so strict are in fact as compelling as ever given the shift of the discipline towards IP-intensive and technology-intensive markets.
A separate question is of course whether the indispensability and new product conditions will be watered down in EU competition law to the point that they are no longer reliable indicators of administrative action in the field. In one way or the other, and irrespective of what courts and authorities formally say, we may end up in a situation in which, for all practical purposes, the test applying to refusals to deal and to tying cases is the same. I am more inclined to agree with this question, which is not one of principle. This is a phenomenon in which I am interested and which I follow closely. Who knows, maybe I will teach my students in a few years’ time that the Microsoft saga was the first nail in the coffin of the refusal to deal doctrine and that Google was the definitive one.
About the e-commerce sector inquiry
The Google case has kept us distracted from other interesting issues. Of the recent developments that keep piling up (including this one), Commissioner Vestager’s proposal to launch a sector inquiry into e-commerce is arguably the most relevant. The expression e-commerce is used in a relatively expansive way in the Commissioner’s anouncement, as it encompasses a variety of activities that do not necessarily belong together (other than, I suspect, involving the use an electronic device like a smartphone or a computer).
The context behind the proposal is well-known, but is precisely what makes it particularly interesting. The new Commission has given priority to the so-called Digital Single Market. The (explicit) purpose of the sector inquiry is in fact to explore the contributions that competition law can make to the policy agenda of the institution. The use of competition law as a tool to explore the feasibility of initiatives that are, more often than not, eventually addressed via ad hoc legislation has become something of a tradition (and, as far as I am concerned, a research topic). Just think of roaming or energy. In this sense, it is remarkable that the announcement itself openly presents the sector inquiry as a contribution not only to EU competition law but to other policy initiatives.
I look forward to some of the findings. According to the announcement, the Commission will examine whether there are barriers to e-commerce that limit access to websites from other Member States, based on their location or the credit card details. One would have assumed that, following the adoption of the Guidelines on vertical restraints (in particular following the ruling of the ECJ in Pierre Fabre), these issues were clear for stakeholders. It will therefore be interesting to see whether soft law instruments are truly effective in changing business conduct. And, why not say it: there is so much going on in relation to vertical restraints that some enforcement action in the area would be exciting.
The issue of geo-blocking is trickier. The statements made by several Commissioners in recent months suggest that European consumers should be able to access the content of their choice from the website of their choice. From this perspective, subscriptions to pay TV services should be accessible from anywhere in Europe. The announcement insists on the idea that geo-blocking of websites or of content is plain unacceptable.
It is not that I would be opposed to such an outcome, it is simply that it is not obvious to say that the phenomenon of geo-blocking is the consequence of an infringement of competition law provisions (as opposed to an undesirable phenomenon from a policy-making perspective). In fact, it was accepted for a long time that granting exclusive territorial licences (which then may give rise to geo-blocking) does not amount to an infringement of Article 101(1) TFEU. The issue is far less clear now. What is more, removing geo-blocking across the board may itself raise major challenges. I have dozens on questions on this aspect of the inquiry, but I guess it is better to wait for the details!
Impossible is nothing (or some thoughts on the statement of objections in Google)
Today, just a few hours after the Commission sent a statement of objections to Google, I have received a book I ordered a couple of weeks ago, called Do Great Cases Make Bad Law? What a wonderful coincidence. The author addresses the question, profound and fascinating, in light of 22 landmark US Supreme Court rulings. This is definitely a research exercise one could replicate by examining Article 102 TFEU case law and administrative practice.
The statement of objections in Google has just been sent, but the case has already secured its place in the hall of fame. After more than four years speculating about the legal aspects of the case, the documents issued yesterday by the Commission (see here and here) finally give a more accurate idea of the reasons why the authority has taken the preliminary view that Google has breached EU competition law. The memo is remarkable in many respects. As Alfonso explained earlier this week, it makes little sense to take a guess at this stage, but, from what I can read, the case could transform the way we think about Article 102 TFEU. The underlying issues are so fundamental, and some of the tentative theories of harm so unprecedented, that its consequences are, at least potentially, far-reaching.
What is particularly interesting is that the underlying issue is a basic one. It is in fact strange that it has not been addressed many times already. The case seems to revolve around whether, and if so, under what circumstances, a dominant firm is entitled to discriminate in favour of its own services. The Commission memo seems to take the view that, indeed, such behaviour may violate Article 102 TFEU, but it is not very clear about the conditions under which this may be the case (which is not surprising; after all, it is just a memo). In any event, one can think of three possible legal approaches to the question:
Discrimination is prima facie prohibited absent an objective justification: At times, the memo suggests that favouring one’s services is abusive by its very nature. This would make Google a by-object case. Absent an objective justification, discriminating in favour of an affiliate would be prohibited under Article 102 TFEU. According to the Commission, the prominence and growth of Google’s service since 2008 do not reflect its relative quality or its relative relevance for end-users. The document suggests, in other words, that it is not the outcome of competition on the merits.
I have explained elsewhere that it is controversial to state that dominant firms are under a general duty not to discriminate against rivals. Discrimination of the kind outlined in the memo is ubiquitous (supermarkets may give more prominence to their brands, media groups favour their own outlets and electronic equipment is often designed in a way that it only works with affiliated products). More importantly, such discrimination is more often than not pro-competitive. Trying to thrive in the marketplace by exploiting one’s advantages is what competition is all about. Similarly, it is a banality to state that markets sometimes work better when different activities are integrated. I do not know whether the Commission intends to follow a by-object line of reasoning, but it is easy to think of the far-reaching consequences for the future of Article 102 TFEU if it does. The scope of the provision would expand very significantly. Just think of the many practices that could be labelled (or re-labelled) as exclusionary discrimination.
Discrimination is abusive if it leads to anticompetitive foreclosure: The Non-Horizontal Merger Guidelines are based on an idea that contradicts the above approach. Following a vertical merger, the new entity may have an incentive to favour its own services. This is not problematic in and of itself, even when one of the merging parties holds a dominant position (and Alfonso knows a thing or two about this). Favouring an affiliate by restricting access to inputs or outlets is only an issue if it leads to ‘anticompetitive foreclosure’. This is an approach that could also be followed in Google. It would not be entirely uncontroversial – I spare you the details of why I am not entirely convinced – but it would have the advantage of consistency. Like issues would be treated alike across competition law provisions. Arguably, it would also be the logical approach for the Commission to endorse. After all, the Guidance is a pre-commitment device intended to confine administrative action to instances where anticompetitive foreclosure is likely. In this sense, it is remarkable that the word ‘foreclosure’ is not used in the memo. Not even once. The rhetoric of foreclosure is equally difficult to find in the document. This conspicuous absence raises a number of questions. Does the Commission believe that the Guidance is not relevant in Google? Is the Guidance no longer a reliable indicator of the Commission’s approach to the enforcement of Article 102 TFEU?
Discrimination is abusive if it harms consumers and innovation: The memo suggests that foreclosure is not the only source of anticompetitive effects that can trigger the application of Article 102 TFEU. The Commission seems to imply that, even in the absence of anticompetitive foreclosure, administrative action could be justified if it can be shown that discrimination harms consumers and competitors’ incentives to innovate. If the Commission chooses to follow this third approach, it would be venturing into unchartered territory. Instead of inferring harm to consumers and innovation (these effects are typically assumed to result from the exclusion of rivals), harm would be established in a direct way. I can think of several reasons why, in theory, it would make sense to do so. The questions I have in this regard are more practical than theoretical, however. For instance, I wonder whether it would be possible for the Commission to provide cogent and convincing evidence of harm to innovation (as opposed to discussing the plausible mechanisms through which innovation could be negatively affected). Similarly, I am not sure whether a dominant company would be able to challenge or disprove claims that a practice is harmful to innovation.
As usual, we very much welcome your views on the above.
Chillin'Competition 