Chillin'Competition

Ideas originating in North America cross the Atlantic sooner or later. The view that competition law should be concerned with choice, rather than with a particular measure of welfare, or another objective, seems to be gaining popularity in the EU. In addition to the references to choice found in Commission decisions and other statements of policy, there is a growing strand of literature emphasising the importance of choice in the competitive process.

You have certainly guessed from the title that I am quite sceptical about this move, and that I find express reliance on choice by competition authorities to be problematic in certain instances. More than anything, I see this trend as the repetition of past mistakes. As such, it also provides a suitable topic for the first post of the year, when we all think about resolutions. Indeed, ‘don’t repeat past mistakes’ is probably the best resolution of which one can think. Before I forget, by the way: happy 2015 to all!

There is already quite a lot written on competition law (or antitrust) and choice, which means that the main arguments are already well-known. Saying that competition law should be about choice amounts in a way to stating the obvious. Preserving the sources of competitive pressure to which firms are subject can be expected to lead to increase choice for consumers, in the same way it can be expected to lead to lower prices.

It is also abundantly clear that the competitive process often leads to what look like choice restrictions. By definition, selective distribution limits choice for consumers, insofar as they may only be able buy the product in question from certain retailers. Yet such systems are known to be pro-competitive (they tend to promote competition and thus choice). They fall outside the scope of Article 101(1) TFEU altogether in certain instances. The same can be said of franchising. It would certainly enhance choice to have McDonald’s hamburgers sold alongside Pizza Hut products. However, the ECJ held very clearly in Pronuptia that franchisors may take steps to protect their know-how and their reputation without infringing Article 101(1) TFEU.

In light of the above, it is not clear why choice as such would be advocated after the experience acquired over many decades. I do not believe choice advocates claim that we should prohibit altogether selective distribution, franchising or other vertical restraints. I am certain that they accept free-riding as a concern that can justify choice restrictions in such and other instances, and I am also sure that they accept the idea that the protection of the competitive process tends to lead to increased choice. In this same vein, I do not think they have in mind an alternative, internally coherent and fully-fledged standard revolving around choice.

What are we left with, then? It is difficult to tell. My impression is that choice could be useful in practice as something akin to a ‘back-up’ quasi-standard; that is, as a contemporary abracadabra that would allow for intervention when conventional analysis would not. Remedial action is not warranted under the established framework? Well, one can always resort to the vague idea of choice to make a case for intervention. It may not be as robust as a properly articulated theory of harm, but it may sound plausible and, hey, sure nobody is heartless enough to be against consumer choice.

If this is really what is going on, there is every reason to be concerned. It shows, first and foremost, that the lessons of history are easy to forget. We have come a long way to make enforcement sensible and predictable. It would seem, however, that the temptation to rely on nebulous concepts will never fade. Expanding the boundaries of intervention will always be appealing. The good news is that EU competition law is now much better equipped to deal with insufficiently robust and/or poorly articulated claims.

The revived interest in exclusive dealing and rebates forces us to come back to some of the concepts around which debates revolved in the mid-2000s. I had not anticipated that there would still be some confusion about the meaning of some of these concepts. In particular, I thought it was clear what lawyers and economists meant when they referred to the ‘form-based’ approach to Article 102 TFEU. I now realise that a post on the matter is not only appropriate but even necessary to help the ongoing discussions (which I hope will remain as lively as they have been in the past few months).

The prohibitions set out in Articles 101 and 102 TFEU may be triggered (i) by the practice itself; or (ii) by the effects of the said practice. Under the first approach, the practice, if established by an authority or a private claimant, will be prohibited unless the dominant firm is able to put forward an objective justification or unless the parties to the agreement are able to show that the conditions set out in Article 101(3) TFEU are fulfilled. Under the second approach, it would be necessary to show that the practice under consideration has, or is likely to have, anticompetitive effects. To be sure, it would still be possible to justify the conduct even under this second approach.

The expression ‘form-based’ is used (and, as far as I understand, has always been used) to refer to the first of these two approaches. A ‘form-based’ approach to some practices seems wholly uncontroversial. Cartels, for instance, are prima facie prohibited regardless of their effects (and irrespective of whether they have actually been implemented). Thus, any claims that the cartel is on the whole pro-competitive (as in BIDS) would have to be considered under Article 101(3) TFEU. The same is true of agreements aimed at restricting parallel trade, as confirmed by the ECJ in Glaxo Spain (more about parallel trade restrictions soon).

Some practices, including exclusive dealing and loyalty rebates, are treated like cartels under Article 102 TFEU (but not under Article 101 TFEU). In other words, their legality is established in accordance with a ‘form-based’ approach. If some aspects of the case law have been criticised, this is because exclusive dealing and loyalty rebates differ significantly in their purpose and effects from cartels. As I explain in my paper, experience and economic analysis show that it is appropriate to presume an anticompetitive intent in the case of a cartel, but not in relation to exclusive dealing and loyalty rebates. Similarly, one can safely assume that, if implemented, a cartel will have anticompetitive effects. As cases like Michelin II and British Airways show, the same cannot be said of exclusive dealing and rebates.

As can be seen, references to the ‘form-based’ approach sometimes followed by EU courts in Article 102 TFEU cases have nothing to do with the fact that legal analysis involves by definition the use of categories and bright-lines, nor are they a plea for the unstructured balancing, on a case-by-case basis, of the pro- and anticompetitive effects of a practice. These references are simply used to convey the idea, enshrined in the Commission Guidance, that a ‘form-based’ approach to enforcement is not appropriate for the most common categories of potentially abusive conduct.

[I took the above picture this morning on my way to the LSE. Londoners should be able to guess where!]

A great initiative right before the weekend. Professor Alison Jones and her colleagues at King’s College London have launched a Competition Law Moot. We are convinced it will be a great success. I hope LSE will send a team. Alfonso, in turn, is hoping to set up Chillin’ Competition Team with postgraduate students from all over Europe. Do not hesitate to contact him. Please see below for details (about the moot, not about Alfonso’s idea):

The Dickson Poon School of Law, King’s College London is very proud to offer students from across the world the opportunity to participate in the Herbert Smith Freehills Competition Law Moot, the first international competition law mooting competition to be held at King’s. The competition is generously sponsored by Herbert Smith Freehills, one of the world’s leading law firms.

In 2015, we will invite 12 teams to compete in a moot competition in the home of The Dickson Poon School of Law, Somerset House East Wing, London. The competition will provide an excellent opportunity for students to practise and improve advocacy skills in front of a judging panel, drawn from international competition law specialists.

Problem question.

Rules.

Timeline.

The amount of commentary to which the Intel ruling has given rise in less than six months is quite extraordinary. There is every reason to welcome the debate and exchange of views. Given the interest in the topic, I thought it would make sense to develop the ideas I sketched in a post published back in June. Click here to download the paper. Your comments would be most welcome (e-mail: P.Ibanez-Colomo@lse.ac.uk).

I started my LLM in Bruges in September 2003. A couple weeks into the programme, Michelin II came out. I remember vividly the discussions we had in class about it. Even for a postgraduate student with no experience it was easy to understand the significance of the judgment and its implications. 11 years have passed, I am now the one teaching LLM students, and the relevant case law continues to generate considerable controversy. It seems clear that the debate touches upon some fundamental questions in EU competition law.

The lack of clarity – in spite of the frequent and lively discussions – about the issues that are really at stake is what prompted me to write the paper. I argue that the controversy, while being of major importance, is far more limited in its nature and scope than commonly assumed. Upon closer scrutiny, it seems to me that the case law on exclusive dealing and rebates is criticised not so much because there is a disagreement about the objectives of EU competition law, but due to the tensions (or ‘frictions’, as I call them in the paper) that have arisen in the case law.

What the controversy is NOT about: This endless controversy has nothing to do with the so-called ‘more economic approach’ or ‘more economics-based approach’. I never liked these expressions. They suggest that economic analysis has been introduced by the European Commission from the top down in an attempt to change EU competition law. Nothing could be further from the truth. As I show in the paper. EU courts have always relied upon mainstream economic analysis to shape EU competition law (just think, among the many examples, of Woodpulp II or AKZO) and have frequently taken the lead in this sense. Tetra Laval and Airtours, both of which unambiguously embraced mainstream positions, are indispensable to make sense of the policy shifts observed in the course of the past decade.

Similarly, this debate is NOT about the objectives of EU competition law. As I explain at length in the paper, the current approach to exclusive dealing and rebates is not the only conceivable one under the Treaty. The prohibition, absent an objective justification, of exclusive dealing and loyalty rebates does not follow logically from the fact that the objective of EU competition law is to create a system of undistorted competition. Likewise, there is nothing in the said objective that is inimical to the use of efficiency considerations to shape the law, as rulings like AKZO, Deutsche Telekom, TeliaSonera and Post Danmark show.

How I see this controversy: EU competition law evolves and is shaped from the bottom up in an incremental manner. As a result, tensions in the case law are inevitably bound to arise. Some rulings may hint at a particular logic, while others at a different one. There is nothing wrong with that. Quite to the contrary, it is the very reason why law is fascinating as a scholarly discipline. Over time, doctrines are refined, and contradictions between cases addressed, through the interaction between (and disagreement between) judges, officials, lawyers and scholars. Nothing else is going on in relation to Intel. As I see it, the real (and only) issue at stake is that the case law on exclusive dealing and rebates is difficult to reconcile with Article 101 TFEU and Article 102 TFEU case law applying to the same or comparable practices.  Read the rest of this entry »

A few days ago the Chinese government announced that it will put an end to what is perhaps the oldest monopoly in the world, that of salt, which has been in force for well over 2,000 years (see here).

As of 2016 salt prices will be liberalized in China, and in 2017 the government will commence to grant new licences to operate in the market. Many citizens have expressed their reluctance to see the salt monopoly go (see here).

The salt monopoly was adopted in China by the Han dynasty in 119 B.C. with a view to funding the largest expansion in the history of China.  Over the years, salt came to be the origin of 80-90% of the public revenues in certain Chinese states. The role that the salt monopoly has had in Chinese history, at all economic and even philosophical or religious levels is determinant, having been at the roots of major debates on foreign relations, wealth and inequality and the role of the State in the organization of the market. Or that’s at least what I’ve read…

Interestingly, salt monopolies also played a key role in other parts of the world, as, btw, did salt taxes (with the British salt tax in India eventually leading to Gandhi’s Salt March or Salt Satyagraha in 1930 and the French “Gabelle” contributing to the uprise that became the French Revolution). Salt is not the only monopoly that has had a transforming impact in history; think of the East India Company or the Casa de Contratacion (among many others).

I started reading about all this stuff almost by accident, and then spent part of Sunday evening reading a bit more with the idea to write a post on the role of monopolies in history.

On a second thought, that’s too ambitious a goal, but the subject is -I think- fascinating.

If any of you knows of any books or studies that touch on the role of monopolies in history, please send them my way and we’ll give them due publicity here.

I tried (hard) to write something about the European Parliament’s non-legislative resolution on various aspects of the digital economy, including search engines (in plural). But I could not. I kept thinking about foreclosure. My fixation with the concept is most probably due to the fact that I am slowly becoming an old curmudgeon. The self-serving answer with which I fool myself (quite successfully for the time being, may I add) is that all the fuss about the EP’s resolution (largely irrelevant) is a distraction from the crucial aspect of the Google case.

In the Guidance, the Commission committed to give priority to cases leading to anticompetitive foreclosure. This is a very sensible position. The experience accumulated over the years (just think of Michelin II, British Airways or the Microsoft saga) shows that potentially abusive practices do not always harm the competitive process. As a result, it makes sense to ensure that the limited resources of the Commission are devoted to cases where negative effects are likely. Equally sensibly, it is explained in the Guidance that ‘if the conduct has been in place for a sufficient period of time’ the authority would consider ‘evidence of actual foreclosure’.

After 4 years (I know because the investigation is about as old as my tenure at LSE), I am ready to guess that, if Google’s alleged discriminatory conduct were really exclusionary, there would already be overwhelming evidence in this sense. If there is not, that fact alone should be a sufficient reason to close the investigation. Surprisingly, foreclosure has so far been mentioned only very sparingly in the context of the case. As an academic, I would want debates in future months to address this question.

In particular, it would be desirable if the Commission clarified whether the investigation is really driven by foreclosure concerns. The statements made by the former Vice-President suggest that evidence of exclusionary effects is not a precondition for intervention. Concerns with innovation as such or with choice as such (that is, not resulting from rival foreclosure) could, it would seem, trigger administrative action under Article 102 TFEU. In other words, intervention would be justified not so much because the alleged discriminatory strategies are likely to harm the ability and the incentive of Google’s rivals to compete but because they would limit choice for consumers or reduce companies’ incentives to innovate.

Relying on innovation and/or choice alone in Google would entail a paradigm shift in enforcement. This is not necessarily bad per se. After all, ideas and priorities evolve. Flux is competition law’s second name. However, if the case is no longer about foreclosure as such, the Commission should be crystal clear about the matter and acknowledge it openly. The consequences of a paradigm shift cannot be ignored and should not be taken lightly. In spite of the growing popularity of the concept (more about it in the coming weeks), I have not seen anything close to a fully-fledged and internally coherent analytical framework based on choice. Very much the same could be said in relation to innovation. Relying on a standard that lacks clear boundaries would harm legal certainty and would make it difficult for firms to anticipate the outcome of administrative action. These are, let us not forget it, the reasons why the Guidance was adopted in the first place and why it was made to revolve around foreclosure.

And now from foreclosure to disclosure, which is quickly becoming as popular as choice and innovation: nothing to disclose.

Pablo

It’s quite frequent in our line of business to hear accusations against the Commission for acting as investigator, prosecutor, judge and executor at the same time.

Well, in a case decided the day before yesterday by a Brussels Commercial Court, the Commission acted as all those, and also as a complainant…. and lost.

You read well

As some of you may remember, after fining the companies involved in the elevator cartel with 992 million back in 2007, the Commission tried to show the world that it is feasible to go before a national Court and ask for damages, so it went to a Belgian Court to ask for compensation for the damages allegedly suffered by the Institution (estimated at 6 million), given that it had to pay a cartelized price for the elevators installed in its buildings.

[Btw, I remember hearing Richard Whish saying once that if the Commission really wanted to pick the case that had caused the greatest harm to its officials, then it should have targeted the beer cartel (I confess I’ve used this joke a couple of times…)].

The Belgian Court has ruled that “on sait pas faire ça” and that “ici c’est pas l’ Europe, c’ est la Belgique” rejected the Commission’s contention that there is a legal presumption that every cartel causes damage, and held that the Institution had failed to prove the overcharging and the causality link.

No comment.

Actually, I have one: unlike their EU counterparts, national Courts lately seem to be getting increasingly less deferential to the Commission, and to EU Law for that matter (a topic interesting enough to deserve an ad hoc post)

P.S. A due acknowledgement: I became aware of this development thanks to a Lewis Crofts’ piece for MLEX, not the greatest Lewis in the UK, but close (like in the case of Prof. Whish above, I’m also copying this joke from another big guy in the competition world).

P.S. 2: The pics above are actually of the engraving that decorates my living room, A Caucus Tale and a Long Race, by Salvador Dali, inspired by the work of another famous brit named Lewis. The back of the painting reads as follows:  “Fury said to a mouse, That he met in the house, “Let us both go to law: I will prosecute you. –Come, I’ll take no denial; We must have a trial: For really this morning I’ve nothing to do.” Said the mouse to the cur, “Such a trial, dear Sir, With no jury or judge, would be wasting our breath.” “I’ll be judge, I’ll be jury,” Said cunning old Fury: “I’ll try the whole cause, and condemn you to death.”‘

The Competition Law Course that Luis Ortiz Blanco and I direct at the IEB in Madrid is turning 18 this year.

It’s not the first time that we say this here, but the line-up of more than 50 high-profile guest speakers who come every year from all over Europe to enjoy Madrid lecture in Madrid is a true Who’s Who of EU competition law experts. Moreover, the 115 hours of scheduled classes allow for a more detailed coverage than that offered by many other competition law courses on the market. About half of the course is lectured in English. Price wise the course is unbeatable: full registration is available for 3,000 euros.

The final program for each module and seminar has yet to be confirmed, but the overall structure and dates have been set, so I’ve included the info below.

The 2015 program will be structured as follows:

– An inaugural/introductory session by the former-blogger-now-full-time-Professor-Monsieur-Nicolas-Petit will take place on January 9.

– A module on cartels (coordinated by Luis Ortiz Blanco, Garrigues) will be held on 12-14 January.

– A module on other restrictive agreements and practices (coordinated by Juan Andrés García Alonso; Peugeot) will take place on 19-21 January

– On 30 January there will be a seminar on recent developments in relation to Art. 101 (coordinated by Fernando Castillo de la Torre and Eric Gippini Fournier, both from the Legal Service of the European Commission).

– A module on abuse of dominance (coordinated by myself) will take place on 3-5 February.

– A module on merger control (coordinated by Jerónimo Maíllo; San Pablo CEU University) will be held on 10-12 February.

– 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) will be held on 20 February.

– A module on competition law and regulation in network industries (coordinated by my co-blogger Pablo Ibañez Colomo, LSE) will be held on 2-4 March.

– A module on the application of competition and state aid rules to public entities (coordinated by José Luis Buendía -Garrigues- and Jorge Piernas -Universidad de Murcia-) will take place on 5-6 March. State aid seminar: Seminario Ayudas de Estado

– A seminar on Competition Law in the Technology Sector (coordinated by Alvaro Ramos -Cisco Systems- and myself) on 13 March.

– A seminar on competition law in non-adversarial scenarions  (coordinated by Juan Andrés García Alonso; Peugeot) to be held on 27 March.

Anyone interested can register both for the full program or just for specific module/s or seminar/s. If you’re interested, feel free to drop me a line at alfonso.lamadrid@garrigues.com

For more info, click here: competencia2015.

P.S. Thanks go to Araoz y Rueda, Clifford Chance, Compass Lexecon, Cuatrecasas Gonçalves Pereira, Garrigues, Gómez-Acebo y Pombo, MLAB, NERA and Uría Menéndez for agreeing to sponsor the course.

Ofcom announced earlier this week the opening of an investigation into the licensing by FA Premier League of its live TV rights. This is an area where competition and regulatory authorities have been very active over the past decade. The way in which football associations offer their rights is now subject to tight conditions, which prescribe the TV operators to which the content is to be sold or the appropriate length of the agreements. The same can be said of the licensees who acquire these rights to exploit them. The fact that the regulatory apparatus is growing across the value chain does not mean that intervention was needed in the first place and/or that it has improved the functioning of markets. And it does not mean, to be sure, that the sort of intervention at which Ofcom hints in its press release will achieve anything meaningful.

In 2006, the Commission adopted a decision requiring the FA Premier League to license its TV rights in several packages, as it had done in previous cases like UEFA Champions League. The twist in Premier League is that the Commission sought to ensure that consumers would be made worse off following intervention. The football association was not allowed to sell all of its live TV rights to a single operator (which was assumed to be Sky, as it had successfully bid for them in previous auctions). After the decision, sports fans were required to subscribe to two different Pay TV services to have access to all games (some Commission officials have been candid with me about the angry letters they received from some of these fans).

Then came Ofcom’s pay TV investigation. In 2010, the sectoral regulator required Sky (the licensee of the TV rights offered by the FA Premier League) to offer its premium sports channels to its downstream rivals on regulated terms and conditions. Ofcom’s officials issued hundreds of pages during the investigation but never claimed that Sky’s premium sports channels were an ‘essential facility’ for competing pay TV operators or that they were indispensable within the meaning of IMS Health (most probably because they are a far cry from being one or the other). What is certain, on the other hand is that BT (which, in case younger readers do not know, is the incumbent telecommunications operator in the UK) is clearly better off in the aftermath of the investigation (and even better off when its effects are combined with those resulting from the Premier League decision). This was not, I believe, what the regulator intended.

Now Ofcom seems to suggest that the FA Premier League may not be licensing enough games to TV operators. Virgin Media, the complainant, claims that only 41% of Premier League games are offered on TV, which is apparently a low figure when compared to practices in other EU Member States. At first blush, this looks like a convincing case. It is a horizontal agreement whereby football teams taking part in the Premier League restrict output in a coordinated manner. This is it. A plain-vanilla cartel.

Well, reality is much more complex than that. The joint licensing of TV rights in this context has absolutely nothing to do with the restriction of output that one observes in the context of a cartel, for the simple reason that football teams are not really rivals offering the same product and limiting competition between them. Co-operation between football teams allows them to create a new, complex product, which is the league as a whole and which the teams individually would have been unable to offer. An agreement of this kind is similar in its nature to other pro-competitive horizontal ventures, including the one examined by the ECJ in Groupement des Cartes Bancaires or by the US Supreme Court in BMI v CBS.

If ‘output restriction’ in this context is not comparable to a cartel arrangement (I remember a wonderful piece by Bill Bishop and Alison Oldale explaining this point clearly and concisely), then it is necessary to understand why the FA Premier League does not license all of its games. The most plausible explanation, in my view, is that it is all about creating a certain brand image, that is, about making sure that fans are not flooded with football games. Is creating relative scarcity bad per se? And again, scarcity relative to what? I struggle to see why it would be an issue in itself. Is it not precisely what Apple or luxury firms do, and what explains in part their success? Is the Premier League itself not an excellent example of successful global brand positioning? Is the task of a regulator exercising its powers under the Competition Act to decide about brand positioning on behalf of right holders?

[about the pic: there is always an excuse to include one of the best magazine covers of all time!]

Pablo

Champagne tastes great. A resounding victory against the European Commission probably tastes better. Yay! As the academic one in the duo (read: as someone who does not know how it feels to win a tough case after years of hard work), however, I cannot help spoiling the party with a geeky and anti-climactic counterpoint to Alfonso’s last post.

Last year, I published a statistical analysis of State aid litigation before EU courts. I was curious about the factors influencing the outcome of challenges against Commission decisions. I had of course some intuitions, but I was genuinely surprised with the results. It is interesting to compare some of the findings with the cases on selectivity that Alfonso discussed in his post.

• The single most remarkable finding is that the chances of success of an annulment action against a Commission decision increase dramatically when the Member State becomes involved in the proceedings (either as an applicant or in support of the recipient’s application). Close to one in two (44%) decisions were annulled with Member State involvement. Without the support of the central government, recipient firms did less well: only in in four decisions were annulled (26%).
• Many factors may account for this substantial divergence in outcome (I discuss some of them in the article). What matters for this post is that both Autogrill and Santander challenged the Commission decision without the support of the State, yet they won. One may interpret this outcome as meaning that their case was very strong on substance, or that they hired excellent lawyers. Or both, as they are not mutually incompatible. The latter is true here. Clearly. No doubt.
• What if the Commission decides to appeal the rulings before the ECJ? Interesting one. My study shows that the Court does not set aside GC rulings very often, except when the case revolves around selectivity… which is precisely the issue at stake in Autogrill and Sandander. If one examines the case law of the past few years, it seems clear that the ECJ tends to favour a broader notion of selectivity and the GC a narrower one (think of NOx, Gibraltar or British Aggregates).
• Against this background, the interdisciplinary scholar in me would say that the Commission would have a fair chance of winning the case on appeal. The black letter lawyer that I still am, on the other hand, would say that these cases will prove the limits of statistical studies. It is indeed difficult to believe that the ECJ will uphold the analysis of the Commission. Rendez-vous in a couple of years!