Chillin'Competition

I laughed when Alfonso asked whether there is an Article 102 TFEU decision adopted by the Commission that I like. I laughed in part because I understand why someone might come up with such a question, but also because the image of an academic curmudgeon grumbling from an ivory tower is undeniably comical. After the healthy dose of laughter, I realised the question was more interesting than I initially thought. As is often the case with jokes, it is one that raises pretty fundamental issues. The short answer, and the sad truth, is that I do not see Commission decisions that way. I will elaborate a bit to make sure Alfonso feels compelled to answer the question that I have for him and that you will find at the bottom of the post.

I am not interested in the outcome of individual cases. Really not. I am not even sure that it is possible or meaningful to like or dislike a particular decision examined in isolation. The many posts I have written in relation to the Google investigation would have been written in any other context giving rise to the same issues. When I wrote about the GC ruling in Intel, I never sought to argue that the company had not breached Article 102 TFEU. I am interested in the way in which the law is shaped and evolves over time, and not so much in the ‘who wins’ or ‘who loses’ a specific case. These questions are necessarily relevant for civil servants and practitioners, but matter little to me.

Just take a look at what Alfonso and I wrote about Intel to illustrate the above. He presents the ruling as a ‘victory’ for the Commission and explains how the General Court carefully crafted the judgment in anticipation of the appeal. My entry, on the other hand, was devoted to the key assumption underpinning 35 years of case law on exclusive dealing and loyalty rebates. After reading my paper on these issues, a friend told me, only half-jokingly, that the title was misleading, as it was not really about Intel, but about everything. Well, exactly.

The question is also valuable in that it provides an opportunity to emphasise the difference – that can never be emphasised enough – between law and policy-making. A case may well be sound from a policy standpoint, but this fact alone does not mean that it is necessarily justified from a legal one. It is not unusual to hear people say that a particular case ‘must be right’ because the company in question is superdominant or has done something that looks mischievous. Some people have reacted to my posts on the Post Danmark saga by saying that action by the Danish competition authority was justified because it concerned the behaviour of an incumbent in a recently liberalised industry. Again, this is not the point, and it is not the reason why I wrote about the case. More important, these are dangerous arguments.

Ignoring the law to focus on the outcomes of individual cases is, and has always been, a recipe for disaster. A particular rule may seem unproblematic, from a policy-making standpoint, if it is confined to an exceptional case arising in very particular circumstances. We know well by now that, once a rule is laid down, it is only a matter of time before it is expanded in other contexts that have little to do with the specific factual scenario in which it seemed appropriate and innocuous. Alfonso likes to quote Areeda emphasising the importance of defining sensible limiting principles to enforcement in competition law. As you can see, I like to do so too. It is indeed one of the most important lessons to draw from decades of enforcement.

Just think of Intel again. I never argued that the outcome was wrong. In fact, the case is particularly interesting in that it exemplifies the commitment of the Commission to devote its resources to cases where negative effects on competition are likely. As a result of this commitment, reflected in the Guidance, it may well be the case that the prima facie prohibition of exclusive dealing and loyalty rebates does not make a practical difference when action by the Commission is at stake. This fact does not mean, however, that the perpetuation of a rule that fails to capture the lessons of experience and economic analysis is unproblematic.

The Commission may carefully choose to intervene in clear-cut cases, but what if a national court is asked to intervene in a case where anticompetitive effects are implausible? In the era of private enforcement and decentralisation, it is simply no longer possible to rely alone on the expertise of the Commission and its ability to prioritise cases. Whether or not the authority ‘gets it right’ in a particular case is not the only relevant question anymore. As the Post Danmark saga shows, much has changed since Hoffmann-La Roche, and rules and standards need to be crafted to ensure that they are accurate and administrable. These are the concerns that prompted my paper on Intel and my many posts on Article 102 TFEU. Nothing to do, as you can see, with whether I like or dislike a specific decision.

In light of this extensive answer, I feel entitled to ask Alfonso whether he believes exclusive dealing should be prohibited absent an objective justification or whether, instead, Article 102 TFEU enforcement should follow the principles set out by the Commission in the Guidance and by the Court in Delimitis. Alfonso?

My blogging inactivity over the past few days has to do with spending two weeks in Luxembourg for hearings with a short visit to Madrid for this seminar, which, btw, exceeded the already high expectations. In intense weeks like these ones I tend not to post even stuff I’ve written before because the downside of having your own clients read your blog is that they may get the impression that you’re blogging instead of preparing [Note to them: don’t worry, nothing further from the truth…].

This is all to justify say that today’s post will not be very brainy; here is just a compendium of short reflections spurred by recent experience:

On litigation. I’ve always said that litigation is the most fun part of my job. The problem now is that with the prevailing “amicable” solutions in antitrust (settlements and commitments) the scope for litigation is getting narrower and narrower (as clearly reflected in the joint slides by Judge Van der Woude & Nicolas Petit available here). The result is that most competition-related litigation nowadays is State-aid related. I, for one, am involved now in over 30 ongoing State aid appeals. I guess it’s a consolation that at least one area of competition law is still within the realm of judges.

On state aid. State aid now gives rise not only to most litigation, but also represents a higher percentage of the output of DG COMP than mergers, cartels or abuse of dominance. Nevertheless, it receives much less attention from the people who typically comment on antitrust issues. In previous posts I’ve given my view of the possible causes for this (see here) but today I’ll focus on a consequence: in State aid the Commission can get away with some absurd arguable or inconsistent decisions with no one even noticing. Fortunately, EU Courts are trying to remedy that with some sensible case-law, which also goes similarly unnoticed.

On the Legal Service. Some time ago I also wrote a post on the Legal Service (see here) which earned me some criticism from fellow practitioners who thought I was being too nice to “the enemy”. After some recent hearings in which I’ve been opposing and disagreeing with them I have to stand firm on commending their work, particularly given the acts that they sometimes are obliged to defend 🙂

On the press and competition law. In the past few weeks there were also a few cases on which I have worked that appeared in the general press, and this also triggered a reflection. The coverage that non-specialized press often does of competition cases is shameful subject to improvement, often trying to present everything under a simplistic light attempting to give the impression that everything is a scandal (what they have done with the alleged dairy cartel in Spain is a very good illustration of this). This makes me wonder whether that is also the case with regard to other issues that I don’t know first-hand. Like with lawyers, the differences between good and bad journalists can be enormous, and in Brussels there are competition journalists who know more about competition law than many lawyers, but at the national level…  Considering the increased politicization of competition law (see here), the messages conveyed to the general public are increasingly important, and wrong messages may well lead to wrong decisions.

On Spanish competition law. Some of you have recently inquired about why, despite being two Spaniards, Pablo and I don’t comment on Spanish competition law developments. Well, aside from the fact that the scope of the blog is wider, we’ll comment on those whenever we have something positive to say… The only recent welcome development which deserves a comment is the sensible Supreme Court Judgment on fines on which we still have to comment (I’m waiting to see whether the consequences are the apparently intended ones). This Judgment, by the way, reminded me of something that is applicable to many debates on competition law enforcement and judicial review: much more than institutional arrangements, what matters is having prudent and knowledgeable people doing the work.

On Pablo’s most recent posts: A few of you reacted in private to Pablo’s recent posts on Post Danmark II asking whether he’s ever liked any abuse of dominance case ever done by the European Commission. I thought that was a very good question (and have been teasing him with it for a few days) and one that it’d be interesting to pose him in public. So, Pablo?

I explained last week why it is difficult to infer from the case law an operational test for the assessment of standardised rebates. The purpose of this second post is to start a discussion about the principles that should guide the definition of such a test. I do not believe a single approach is possible or conceivable, and I welcome your views on the question. As in other areas, there is more than one substantive standard that would appropriately capture the principles underlying the case law. Regardless of one’s stance, I see the following ideas as a sensible starting point for a discussion around the definition of a legal test:

• The ECJ presumes since Hoffmann-La Roche that quantity rebates are pro-competitive (or, if one prefers, a valid form of competition on the merits). Any legal test should be devised in a way that is compatible with this principle (both in theory and in practice).
• Quantity rebates do not always have a negative impact on the competitive process. One of the fundamental lessons to draw from Michelin II is that exclusionary effects are not an inevitable consequence of the implementation by a dominant firm of a system of quantity rebates.
• In Post Danmark I, the Court considered that the award of selective price cuts to attract the customers of a competitor is not abusive by its very nature. Absent evidence of predatory pricing within the meaning of AKZO, it is necessary to show that the practice has (or is likely to have) exclusionary effects.

Standardised rebates vs. selective price cuts. I would conclude from the above that a system of standardised rebates like the one examined in Post Danmark II should only be deemed abusive under Article 102 TFEU where there is evidence of its actual or likely exclusionary effects. This is the substantive standard that applies to selective price cuts à la Post Danmark I. I cannot think of a reason why a scheme of standardised quantity rebates should be subject to a more stringent test. In Post Danmark I, the price cuts were specifically devised to attract the customers of a rival. What would justify a stricter treatment of price reductions that apply uniformly across the board?

If anything, a system of standardised rebates is clearly less suspicious and more obviously pro-competitive than the application of selective price cuts. In the case of quantity rebates, price reductions are the consequence of an increase in the amount acquired from the dominant firm. Selective price cuts, instead, reward a decision to switch suppliers. It is therefore safer to presume that the former reflect the cost savings made by the dominant firm. If this is so, I would claim that the need to provide evidence of an exclusionary effect in the case of quantity rebates became inevitable the moment Post Danmark I required evidence in this sense in relation to selective price cuts.

Establishing exclusionary effects in practice. The next question is of course that of how exclusionary effects are established in the context of a particular case. The issue can be approached in two ways. One possible approach is to assume the exclusionary effects of a rebate scheme from the fact that it is ‘loyalty-inducing’. This legal test would be problematic for several reasons, some of which have already been mentioned above and in last week’s post.

• One reason is that we know from the case law (the ‘experience’ mentioned by the Court in paragraph 51 of Groupement des Cartes Bancaires) that the exclusionary effects of rebate schemes cannot simply be assumed from their ‘loyalty-inducing’ nature, even when applied by dominant firms. They may or may not be manifested in the context of a particular case.
• Another reason is that the point of the selective price cuts examined in Post Danmark I was not conceptually different from that of ‘loyalty-inducing’ rebates. The price cuts in question sought to attract the customers of a rival. In other words, they sought to reward disloyalty. I cannot think of a valid reason why ‘loyalty-inducing’ rebates would be prima facie prohibited irrespective of the effects they produce and ‘disloyalty-inducing’ price cuts allowed absent evidence of exclusionary effects.
• Finally, one should bear in mind that all rebates are, at least to some extent, ‘loyalty-inducing’. Rebates, irrespective of their nature and objective, provide an incentive to buy more from a particular supplier. As a result, it seems possible to argue in virtually every instance that a given scheme is ‘loyalty-inducing’ and as such should be prohibited. Thus, not only would this approach fail to provide the basis for a practicable legal test but it would also contradict the principle whereby quantity rebates are presumed to be pro-competitive.

A second possibility is to endorse the logic underlying the Court ruling in Post Danmark I. In essence, this approach would involve showing that the practice it at least likely to harm the ability and the incentive to compete of equally efficient rivals. A legal test revolving around this question would have the advantage of consistency. The same substantive standard would apply to all practices that are not deemed abusive by their very nature. In the current state of the case law, this category includes not only quantity rebates and selective price cuts, but other practices like ‘margin squeezes’, the abusive nature of which is established in accordance with the same principles.

There are several ways in which the impact of a system of quantity rebates on rivals’ ability and incentive to compete can be established. The Court held in Post Danmark I that equally efficient competitors are unlikely to be excluded where the dominant firm charges above-cost prices. Accordingly, it would be necessary to show that the system of quantity rebates is in some way predatory (that is, that it forces rivals to sell below cost). I welcome views on the question, but I struggle to find how it would otherwise be possible to establish the exclusionary effects of schemes like the one examined by the Court in Post Danmark II. Such schemes do not seek to reward loyalty, nor are they conditional upon customers buying a certain share of their needs from the dominant firm. AKZO and Post Danmark I (as opposed to Hoffmann-La Roche and Delimitis) therefore look like the closest precedents.

A legal test based on these principles would not only have the advantage of consistency but would be infinitely easier to administer than the existing unstructured standard. We tend to forget, when thinking about these matters, that the AKZO test was developed by the Court, not the Commission. In its decision, the latter favoured an unstructured standard based on a range of factors. According to the Commission in AKZO, pricing below cost would not be a decisive criterion to establish the abusive nature of a predatory pricing campaign. The Court rejected this approach and crafted a substantive test confining administrative action within a set of boundaries well-defined in advance. Post Danmark II raises, in my view, the exact same issues.

Intel has given rise to much excitement in the competition law community. No doubt it is a high-profile case where much is at stake. If you asked me, however, I would say that the pending preliminary ruling in Post Danmark II is more important for the future of Article 102 TFEU. For some reason, it has attracted relatively little attention (one notable exception is Luc Peeperkorn’s recent article, mentioned by Alfonso a few days ago). Now that the date of the hearing (26 March) is approaching, it makes sense to say a few words about it. From the outset, I have to thank Christian Bergqvist, from the University of Copenhagen, for his availability to discuss the background and some aspects of the case.

Some authors have claimed in the past months that the case law on exclusive dealing and rebates has the advantage of providing legal certainty. It is clear that exclusivity obligations and rebates conditional upon exclusivity are, absent an objective justification, unlawful under Article 102 TFEU. A qualified prohibition rule of the kind is undeniably easier to administer than a standard (a different story is of course that the former is less accurate and more error-prone than the latter).

What these authors do not always emphasise is that the case law would be easier to administer if it prohibited altogether, absent an objective justification, all other rebate schemes. Even easier to administer would be a rule allowing all rebates. The fact is that schemes that are not formally conditional upon exclusivity are, at least in principle, only prohibited where they are shown to be ‘loyalty-inducing’ (or ‘fidelity-building’). As explained by the GC in Intel, this is a matter to be established following an assessment of ‘all the circumstances’ relating to the rebate scheme in question. The lawfulness of these rebate schemes is, in other words, formally assessed in accordance with a standard.

Some standards are good and some are not. A good standard is one that is structured around a set of well-defined proxies and that is predictable for firms and easy to administer for courts and authorities. Bad standards, in turn, are unstructured and make it impossible for firms to anticipate the outcome of a particular case. Post Danmark II shows that the standard under which rebates not formally conditional upon exclusivity are assessed is closer to the second category. The criteria identified in the case law to determine whether a given rebate scheme is ‘loyalty-inducing’ do not provide the basis for an operational legal test that can be readily applied by national courts and authorities.

Post Danmark II is particularly interesting because it is about standardised rebates (this is explicitly mentioned in the preliminary reference). A scheme of that kind is in principle lawful under the case law. Quantity rebates apply in the same way to all customers and increase with the amount supplied and are thus presumed to reflect the cost savings made by the firm. Is that the end of the story? Does it mean that the scheme in question is compatible with Article 102 TFEU? Not really. We know, at least since Michelin II, that quantity rebates can be found to be ‘loyalty-inducing’ and as such prohibited. As in that case, the rebates in Post Danmark II are retroactive. Is the retroactive nature of the rebates alone sufficient to establish an abuse? An additional factor that was considered in Michelin II is the reference period considered for the award of the rebates. Are all rebates granted over a one-year period prohibited?

One can try and read and re-read the relevant rulings, but I am afraid that nothing in the case law clarifies how the abovementioned factors (some hinting at the lawfulness of the scheme, some suggesting a violation of Article 102 TFEU) are weighed against one another to establish whether, on the whole, a particular scheme is ‘loyalty-inducing’. The case law, in other words, does not provide a set of principles for the systematic assessment of the nature of rebate schemes. The different criteria have so far been considered in an unstructured way and in light of the facts specific to individual cases.

In practice, and in the absence of a legal test, it is sufficient for a competition authority (or a claimant) to identify some factors hinting at the ‘loyalty-inducing’ nature of the scheme to establish a violation of Article 102 TFEU. This is at least the lesson I draw from Michelin II and British Airways. As soon as any such factors are identified, an abuse is prima facie established and the burden of proof shifts. It is then for the dominant firm to show that the rebate scheme is economically justified.

EU courts, most recently in Intel, have repeatedly held that rebate schemes that reflect cost savings are compatible with Article 102 TFEU. Similarly, they have clarified that a case-by-case assessment is necessary for rebates other than those conditional upon exclusivity. The case law has not evolved in a manner consistent with these principles. In reality, and for all practical purposes, rebate schemes seem to be prima facie prohibited irrespective of whether they are formally conditional upon exclusivity. I would assume that it is uncontroversial to state that, where the law fails to capture the principles on which it is based, as is true here, it needs to change or at least be refined.

The reasons why the case law has moved away from its underlying principles are not a mystery. It has developed in the context of annulment proceedings, where the primary task of EU courts is to review the legality of administrative action. In such a procedural context the GC and the ECJ are, an analysis of the case law suggests, less likely to develop a substantive test that captures the principles against which the lawfulness of the practices in question is assessed. Unsurprisingly, they are more likely to focus instead on whether the analysis carried out by the Commission is sound and whether it supports the conclusions drawn by the authority.

The pending ruling in Post Danmark II shows that the case law, as it stands, does not provide meaningful guidance to courts and authorities in the era of decentralisation – remember there is a decision by the Danish competition authority at the origin of the case. The good thing about the case is that, as much as Post Danmark I, it is a unique opportunity for the Court to clarify the law in the area and to contribute to legal consistency. These are, after all, the very reasons why preliminary references are so important in the EU system of judicial remedies.

Many of you will have read the headlines about the recent auction organised by the Premier League. A couple of weeks ago, Sky and BT paid a record sum of £5.1bn (up from £3bn in 2012) for the TV rights to three seasons of the top English football championship (2016-17 to 2018-19). Sky secured the majority of the rights (126 matches per season out of a total of 168).

Victory for Sky? I am not convinced, and given the behaviour of Sky’s shares the day after the deal was announced, it would seem that I am not alone. In fact, the deal seems to have strengthened BT’s position. Unlike Sky, the incumbent telecommunications operator in the UK had nothing to lose, and everything to gain, in the process. Just consider the aftermath of the auction. BT has managed to force Sky, a major competitor, to pay an unprecedented amount for premium sports content (thereby harming its profitability), without fearing the consequences of not securing the rights in question. Why not? In 2010, Sky was required to supply its sports channels to its competitors. As a result, BT was confident that it would be able to offer top football to its subscribers irrespective of the outcome of the auction.

An analysis of the regulatory landscape indeed shows that the incumbent telecommunications operator benefits disproportionately from the multiple distortions progressively introduced by Ofcom and the European Commission on markets for the acquisition of the rights to premium sports content. Due to intervention by the latter, BT has been able to acquire part of the rights offered by the Premier League, as well as the rights to the UEFA Champions League. As a result of the regime set up by the former in 2010, it is able to offer Sky Sports channels to its subscribers (in addition to its own content). The combination of the two regimes has allowed BT to become a credible provider of pay TV services in little time.

Against this background, the immediate question that springs to mind is why Ofcom would set up regulation having the effect of strengthening the position of the incumbent telecommunications operator at the expense of two of its rivals, Sky and Virgin Media (the main cable operator in the country). In December 2014, Ofcom launched a consultation about whether the regime introduced in 2010 should be amended or removed. If this blog post is accepted as a response to the consultation, here is my reaction: ‘Please remove the compulsory licensing obligation, and the sooner, the better. It is not necessary in any way and is likely to do more harm than good’.

I guess many among you are unfamiliar with the regulation put in place by Ofcom in 2010. If you know little or nothing about it, I am sure you would find it interesting to take a look at the consultation document issued back in December by the authority. It illustrates very well the sort of issues that might arise in areas at the crossroads of competition law and sector-specific regulation. Premium TV content is in a grey area between the two. It is not part of the traditional focus of telecommunications regulation (which is primarily concerned with access to, and interconnection between, networks). At the same time, TV content is obviously relevant for broadband Internet providers offering television services as part of their triple and quadruple play bundles. The competitive advantage, in the form of exclusive rights, enjoyed by one provider is likely to influence downstream competition.

In essence, Ofcom’s seeks comments on whether it is convenient to treat premium TV content in the same way it treats the telecommunications network and thus whether it makes sense to impose compulsory supply and non-discrimination obligations on pay TV providers like Sky. Access to BT’s network ensures a level playing field between the incumbent telecommunications operator and its competitors. Imposing similar obligations in relation to Sky’s premium channels would ensure that all broadband Internet providers are able to compete on an equal footing with the leading pay TV operator in the UK.

You may have asked yourself already whether premium TV content and the telecommunications network are really comparable. If you read the consultation document you are likely to be even less convinced about the convenience of extending to content activities the regulatory regime applying to networks.

Is premium content indispensable for downstream competition? It would make sense to treat networks and premium TV content alike if the latter were an essential facility or an indispensable input to compete on the relevant downstream market. Interestingly, Ofcom’s consultation document provides extensive evidence showing that this is clearly not the case. I have in fact not found a more exhaustive and reliable source of data showing that premium TV content is a far cry from being indispensable for pay TV or triple play providers.

There is nothing anticompetitive in trying to exploit one’s competitive advantages. One should not be surprised that companies want to keep competitive advantages for themselves. Profit-maximising firms tend to be unhappy with the idea of subsidising a competitor. Authorities and courts have long understood that a refusal to supply is, absent exceptional circumstances, a manifestation of healthy rivalry. Curiously, Ofcom seems to claim that Sky’s lack of incentive to supply its premium TV channels to its rivals is anticompetitive. This is certainly the line of reasoning that a competition lawyer is more likely to find strange or surprising.

How do companies compete on the relevant downstream market(s)? It is interesting that the consultation document never seeks to define the relevant downstream market in a systematic way. The dynamics of downstream rivalry (where BT, Sky and Virgin Media compete across the whole range of convergent services) must be understood before one determines whether it is justified to take regulatory action in a particular market segment. The consultation document falls short in this regard. At times, it borders on the tautological. Here and there, Ofcom seems to suggest that obligations relating to the provision of premium sports channels are justified to promote competition on the market for premium sports content.

What are the unintended consequences of regulatory intervention? More than anything, I am concerned about the fact that Ofcom never considers the unintended consequences of regulatory intervention. By and large, pay TV and premium content are examined in isolation. The risk that intervention could strengthen the position of the incumbent telecommunications operator is never considered. Similarly, Ofcom does not question whether it makes sense to favour the commoditisation of triple and quadruple play offers. If premium TV content is far from indispensable, would it not make more sense to favour diversity, as opposed to homogeneous offers? What are the consequences of limiting operators’ scope for differentiating their products? Does regulatory intervention commoditising retail offers harm firms’ incentives to invest and innovate? These are questions to which I do not find a satisfactory answer in the consultation document.

I look forward to Ofcom’s next steps in relation to this consultation. We (read: I) will keep you updated about them. And now with the tradition: I do not have anything to disclose (funnily enough, I had to clarify this back in 2010, when I submitted this paper to a review). In fact, I do not even have a TV set at home. Although I do have a broadband subscription, which I hope to keep many years… with BT.

A very good friend tells me that the world of international arbitration is discovering the mysteries of EU State aid law, and that some of its peculiarities have not been received particularly well (to put it elegantly). Curiously enough, these developments have not gathered much attention so far in the parallel universe of EU competition law. It is a pity, as the questions raised by the interface between these disciplines are genuinely interesting. May an arbitral award amount to State aid within the meaning of Article 107(1) TFEU? May the Commission order its recovery as a result? Imagine the implications of an affirmative answer to these two questions in other areas of the law.

If you are not familiar with the ongoing debates, you may be interested to know that these issues are being discussed in the Micula case. In December 2013, Romania was ordered to pay around EUR 82 million (plus interest) as a result of an investment dispute. The arbitration tribunal found that the said Member State had breached a Bilateral Investment Treaty with Sweden. Shortly thereafter, the Commission informed the Romanian government that the implementation of the award would amount to new aid within the meaning of Article 108 TFEU and would therefore have to be notified. In addition, it issued a suspension injunction to ensure that Romania would not take any steps in this regard. From the perspective of the Commission, the implementation of the award would conflict with a previous decision declaring a tax incentive to be incompatible with EU State aid law. Romania was thus left torn between two regimes.

If you take a look at the letter submitted by the Commission in Micula, you will realise that the legal and factual scenario is fairly straightforward from the perspective of EU State aid law. I was in fact struggling to find something unusual in the case. If a measure adopted by a Member State is found to be incompatible with the internal market, it is simply natural that any subsequent measure intended to compensate the recipients of the aid for the consequences of a recovery obligation is also found to run counter to the principles set out in Articles 107 and 108 TFEU. If it were possible for a Member State to grant damages in such a context, the whole system would collapse. The ECJ understood early on that, indeed, the ex ante control for the award of State aid would otherwise become meaningless. These ideas stem clearly from cases like Van Calster or Commission v Council (2006).

It does not matter how well-established these principles may be under EU State aid law. From the perspective of international arbitration, I can understand that the intervention of the Commission in cases like Micula is received with surprise, if not shock. How can it be argued that it is unlawful for a Member State to comply with its obligations under the ICSID Convention? The same that I said in relation to EU State aid law in the preceding paragraph could be said in relation to international arbitration. The whole system for the settlement of investment disputes could be jeopardised if such arguments were to be accepted. It is in fact not unusual for States to claim that their domestic regime makes it impossible for them to comply with the award.

Underlying the Micula case there seems to be something that looks like a primacy (or, if one prefers, a kompetenz-kompetenz) issue – a debate that brings me straight out of my comfort zone. It seems to be about determining which of the two legal orders prevails. There are other issues that may be less fundamental but not necessarily less interesting, and on which I hope to work in the coming months. If you read the Commission letter, you will see that the issue of legitimate expectations is understood very differently in EU State aid law and investment arbitration, respectively. It is well-known that legitimate expectations can be validly invoked only in truly exceptional circumstances under the former. Articles 107 and 108 TFEU would not be practicable if the possibility to circumvent recovery obligations were not limited to the narrowest set of scenarios. This is a distinct feature of EU State aid law that is very unlikely to be found in other areas of the law. It should therefore come as no surprise that the principle of legitimate expectations has a broader scope of application in the context of investment arbitration, the point of which is after all to provide a framework for the protection of international investments.

Hart has been kind enough to send us (technically, to me) a review copy of the latest volume of the European Competition Law Annual series, and I thought I would devote this Friday slot to say a word about it. You do not need an introduction to the famous Florence workshops, which have proved to be enormously influential and which have anticipated some substantive and procedural developments in EU competition law. The vast majority of you do not need an introduction either to the beauty of the Tuscan landscapes surrounding the European University Institute. Even though I did my PhD there, I am amazed every time I have the chance to go back, which is less often than I would like to.

Because it would not make any sense to discuss the obvious, I thought it would say instead a few words about some of my favourite pieces published as part of the proceedings. These are articles which I use very often for research purposes or about which I find myself thinking quite often. My personal top 3 – in strict alphabetical order – is as follows:

• Ian Forrester, Sector-specific price regulation or antitrust regulation – A plague on both your houses?: If you have followed my work a bit you will know that I am interested in telecommunications regulation (as it is now called again, it would seem). Unfortunately, there is relatively little academic research in the area. This piece discusses the interaction between competition law and sector-specific regulation and the implications of some legislative developments. In particular, it provides an excellent critical analysis of the regulation of roaming. This was the first significant departure from the logic underpinning the EU Regulatory Framework for Electronic Communications. If Ian Forrester only knew back then what would happen in subsequent years.
• Luc Gyselen, Rebates – Competition on the Merits or Exclusionary Practice?: The first virtue of this piece is its clarity. If you want to understand DG Comp’s pre-Discussion Paper approach to exclusive dealing and rebates, this article is the best starting point. Many things make more sense after reading the piece (in particular some ECJ rulings such as British Airways). Its second virtue is its intellectual honesty. At the time of the workshop, in 2003, Luc Gyselen was Head of Unit at DG Comp. This fact did not prevent him from expressing in public his misgivings about Michelin II, which was controversial for several reasons even under the old approach.
• Heike Schweitzer, The History, Interpretation and Underlying Principles of Section 2 Sherman Act and Article 82 EC: Article 102 TFEU case law is frequently labelled as being ‘ordoliberal’. It is not always clear what people mean when they use this expression, no less because it is often relied upon to refer to any feature of the case law that is perceived to be problematic or controversial. This article explores some common misconceptions in this sense. Heike Schweitzer discusses the drafting history of Article 102 TFEU and explains post-war ordoliberal views and debates on the appropriate legal treatment of unilateral practices. The analysis of existing case law is valuable in its own right. I often refer in my work to her understanding of the principle whereby dominant firms have a ‘special responsibility’ under Article 102 TFEU. I agree with her views and I also believe that people tend to read too much into it. I only regret that the piece does not cover more practices!

I have finally read the report jointly issued by the Autorité de la Concurrence and the Competition & Markets Authority on the economics of open and closed systems and published about a month ago. The topic is exciting, the timing ideal and the initiative itself most interesting for several (both substantive and institutional) reasons. It remains to be seen whether joint action of this kind will become more frequent in the years to come.

The report seems to be broadly in line with consensus positions. Both relatively open (say, Android) and relatively closed (say, iOS) systems can have pro- or anticompetitive effects depending on the circumstances. As a result, there is no reason, from a competition law standpoint, to favour one over the other, or to seek an allegedly optimal level of openness. The fact that the report restates these commonly known principles does not make it any less interesting or relevant. Well-established positions tend to be forgotten all too often, and it is reassuring that two leading authorities embrace them publicly.

My only criticism (admittedly an incredibly unfair one!) of the report is that it is too abstract and avoids the use of concrete examples. When it is said that prohibiting closed systems could lead to substantial efficiency losses, advocates of open systems tend not to take the warning very seriously. Efficiency, when dealt with as an abstract concept, seems to be inherently suspicious and as such can be disposed of very easily. ‘Who wants efficiency when you can have freedom?’ has become a fairly frequent argument, even in published work.

It is only by referring to concrete examples that a discussion about these matters becomes meaningful. Apple launched its iPhone as a relatively closed system. It was even more closed in the early days than it is now – remember that Apple preferred to offer the phone through a single mobile provider in each country. It would be difficult to deny that the iPhone and the revolution in mobile telephony to which it gave rise have been immensely beneficial for consumers and society as whole (and please note that this statement comes from a never-ever-Apple person!).

Cable television was created as a closed system (something that was deemed problematic during the 1970s in the US). We may never have witnessed the dawn of a new ‘golden age’ in television if network providers had been prevented from keeping tight control of content. HBO was not created as a stand-alone venture, but at the initiative of a cable operator that wanted to attract subscribers to its system. The phenomenal growth of satellite pay television in countries like the UK during the mid-1990s owes much to the integration between the two activities.

Now that the battle seems to have been lost forever in the context of telecommunications regulation – net neutrality without a compelling theory, I am afraid, is here to stay – we can only hope that competition authorities do not fall into the trap of making sweeping assumptions or favouring across-the-board remedies. This is a risk that I have already identified in some of my pieces. I see a worrying tendency to assume – both in abuse of dominance and in merger cases – that the creation of a ‘level playing field’ in vertical settings is by definition conducive to more competition and innovation. This is not necessarily the case, and, as I say above, the report is a fine reminder that things are far more complex in practice.

– On Friday 30 January we, at the IEB course, will be holding a seminar in Madrid, coordinated by Fernando Castillo and Eric Gippini, which will feature three panels: one on judicial review in competition cases (with Manuel Campos -Spanish Supreme Court-, Santiago Soldevila -former GC judge, now at the Spanish Audiencia Nacional- and Helmut Brokelmann -MLAB-; another on the application of competition law to public conduct (with Francisco Marcos -IE Law School-, Fernando Castillo – EC’s legal service- and José Luis Buendía -Garrigues-); and a third one on “Life after Cartes Bancaires“ (with Nicholas Khan -EC’s Legal Service-, Xavier Ruiz Calzado -Latham & Watkins- and a handsome lawyer going by the name of Alfonso Lamadrid -Garrigues-). For more info please click here or send an email to competencia@ieb.es.

– On Friday 6 February the editors of the Competition Law Journal will hold the 9th Junior Competition Conference, which will have two themes, namely “Control of unilateral conduct and ‘the Goldilocks dilemma’: too much, too little or just right?” and “The new frontier: competition law in the financial services sector”. The conference programme can be found here. Those interesting in attending may contact the organizers at operations@catribunal.org.uk

– On Thursday 19 February ERA will host a workshop in Brussels on “Dawn Raids in Practice: Developments in Case Law and Enforcement”. The workshop will examine the latest enforcement trends and the impact of recent case law from the CJEU and the ECtHR on the conduct of dawn raids by the European Commission and national competition authorities. More info is available here.

– On Friday 20 February we, again at the IEB in Madrid, will host a seminar on recent developments in abuse of dominance and merger control coordinated by Cecilio Madero -Deputy Director General, DG Comp-, Nicholas Banasevic -Head of Unit at DG COMP- and Milan Kristof -Référendaire at the ECJ-.

– A bit later, on 15 May, the University of Leeds will hold a (free) conference on Contemporary Challenges in Competition Law featuring, among top-notch speakers, Pablo and Nicolas. More info is available here.

– And, in a few days, Chillin’Competition will be resuming its Friday Slot section with a quite special interview. More info coming soon…

 (by Sam Villiers, Garrigues, Brussels, not pictured below)

With the Golden Globes this weekend and the Oscars fast approaching, the 2014 awards season is officially upon us. In this light, the FT ran an interesting piece yesterday (see here) on the highlights of 2014….in the world of cartel fines. I don’t know whether one can accurately describe there being ‘winners’ and ‘losers’ in cartels, but the article – based on a report by A&O (see here) – certainly highlights some interesting general trends in global cartel fining.

The report explains that total cartel fines dished out by the world’s competition authorities in 2014 reached a new level of $5.3bn, up 31% on the previous year’s (record breaking) total. And the nominees are…..sorry, I mean…the markets handing out the most fines in 2014 are:

• Europe leads the way, having handed out €1.7 bn ($2.3 bn), although didn’t quite make it to the giddy heights of its 2013 level of €2.5bn. The report picks out the German and French competition authorities as having enjoyed particularly vintage years.
• Brazil’s CADE (Administrative Council for Economic Defense) had a record-breaking year, with cartel fines totaling $1.6 bn. This figure includes the imposition of the second largest fine ever given by a competition watchdog, that of $1.39 bn for a decades-long cement cartel.
• South Korea’s KFTC also broke its fining record, doling out an impressive $1.01 bn worth of fines.
• In the 2014 fiscal year, the US DOJ Antitrust Division imposed a modest $861m of fines, 15% down from the previous year. Plus, the lion’s share of this total came from fines handed out to the auto parts cartelists.

It is quite hard to discern too many long-term trends from these isolated 2014 numbers as cartel investigations are characterised by such long gestation periods; the time between the opening of a case file and the final decision by an authority or court can take years. It would perhaps be more indicative of general trends if one could look at the total fines given over 5 or 10 year cycles. In any case, the numbers are interesting in themselves.

One general trend that did particularly catch my eye – in the context of the debates around reform of competition enforcement in Europe – is the seemingly large number of jurisdictions allowing individual offenders to face prison sentences. It is interesting to note that in 2014 a Brazilian court imposed a 10 year prison sentence (and a $156m fine) on an executive for bid rigging. At the level of DG Comp, I would imagine that we are some time away from this.

Oh, and one final point: according to the FT, bistros (the noisy, French variety one would presume – easier not to be overheard ;-)) and hotels were shown to be the preferred cartelist meeting spots. Not surprising I guess, but zero points for imagination…  That said, if anyone reading this is in search of a cartel venue, I hear Alfonso’s parents have a special offer for cartellists at their hotel 😉