Chillin'Competition

Until recently, I ignored that the Court was turning 60.

A book was published on this occasion. I had the great honour of being invited to write a paper in it.

There was also a formal lunch yesterday in Luxemburg. And I must say I have been quite lucky in terms of seat placement. My immediate left neighbor was Rafael Garcia Valdecasas y Fernandez, who was the ‘juge rapporteur’ in Airtours. And just on my right, Advocate General Juliane Kokott, who writes most opinions in competition cases…

For a competiton geek of my kind, this was clearly the best lunch I could think of.

Heard through the grapevine. At a recent conference, someone close to the General Court mentioned that the average total cost of a judgment would be in the ballpark of €240,000 (!). Don’t know how this figure was calculated, but this ain’t cheap justice to me.

I remind our readers that the average duration of competition proceedings before the Court is 50 months.

Some people are real professionals.

In response to a mass mailing a few days ago, we received the following Out of Office message:

Today, L. Gallois (former CEO of EADS) handed down to JM Ayrault a long awaited report on how to boost the competitiveness of the French economy.

This report comprises a section on competition policy. It is entitled “A competition policy that serves competitiveness“.

Hereafter is the text of the section (in French):

La politique de la concurrence « domine » toutes les politiques européennes qui ne peuvent se déployer que dans le cadre qu’elle définit. Cette « domination » est également idéologique ; elle s’appuie sur une administration extrêmement compétente devant laquelle les autres administrations s’inclinent le plus souvent. La politique de la concurrence de la Commission souffre de deux faiblesses : d’une part, elle intègre mal la dimension de la compétition mondiale à laquelle l’industrie européenne est confrontée et donne la priorité au consommateur par rapport au producteur ; d’autre part, les décisions relatives à la concurrence (aides d’État ou concentrations) ne peuvent être remises en cause que devant la Cour de Justice Européenne ; elles sont donc très largement fondées sur des critères juridiques et prennent mal en compte la dimension économique, la taille du marché pertinent, les dynamiques des secteurs à moyen terme, les effets d’échelle ou les régimes d’aide dont bénéficient les concurrents. Nous ajoutons que les délais des procédures sont déconnectés de la réalité industrielle. La politique de la concurrence doit être davantage mise au service de l’industrie européenne et de sa compétitivité. Nous proposons donc que toutes les décisions concernant la concurrence soient accompagnées d’un avis d’experts économiques et industriels, extérieurs à la Commission ; cet avis serait public. Il permettrait, sans remettre en cause les prérogatives de la Commission de la conduire à mieux intégrer l’économie réelle dans ses décisions. Un pas supplémentaire conduirait à ouvrir une possibilité d’appel des décisions de la Commission devant le Conseil des Ministres européen qui se prononcerait alors à la majorité qualifiée ; cette possibilité remettrait, sans doute, en cause une des prérogatives « fédérales » de la Commission. Elle ne ferait pourtant que reproduire les dispositifs nationaux où les décisions des autorités de la concurrence sont susceptibles d’appel devant les instances politiques.

On grounds of legal certainty, risks of decisional capture and other evils of the same kind, I can only disagree with the proposal to subject Commission decisions to appeal before a political organ.

And I actually fail to see where he found that NCA decisions were in general already subject to political appeal.

The same applies to his proposal to create a panel of external economists and industry representatives, with advisory power on the Commission. Most CAs, including the Commission, now have teams of economists that advise at all stages of the decisional process. Do we really need another layer of bureaucracy?

Gallois makes however several good points. First, when he says that the case-law of the EU Courts is overly legalistic. Second, when he contends that the Commission’s obsession with consumer welfare may not always be apposite. Third when he criticizes the protracted nature of competition proceedings.

But anyway, who cares. After all, this document will likely be watered down real bad, as most such reports have been in the past.

[We were a bit inactive this week; Nico is at a conference in Hong Kong (lucky b…) and I had an important deadline to meet. We have some long and substantive geeky boring posts on the pipeline that we intended to post this week (on the MasterCard Judgment, on recent cartel case law and on Google), but have been unable to think/write them through properly. In the meanwhile, here’s an “easy” post to finish the week off]

A few days ago the Financial Times featured a piece  (click here for a podcast) discussing a recent report from the Competition Commission (“CC”) that concludes that the alumni networks of the “Big 4” auditing firms (who have a practical joint monopoly over the auditing of publicly traded companies; 99% of the FTSE 100 according to the report) stiffle competition in the business.

According to the CC, 60% of audit committee chairs and 66% of Chief Financial Officers in FTSE 100 companies had previously worked for the Big Four firms. The report states that “it is possible that this familiarity will make them more favourably disposed to the appointment of a Big Four rather than a non-Big-Four firm” and that “it could make them less aware of the quality and experience of the non-Big-Four firms”, thus raising barriers to entry.

The Financial Times’ piece takes a different view. It argues that “alumni networks are not  a problem at all – in fact they are a thoroughly good thing. Think about it. If  you have worked somewhere, you know what it is like. You know exactly how hard  people work, how straight they are, how often they screw up and, above all,  whether they are charging a fair price for what they do (…)  So an honest thumbs-up from a current employee means quite a lot. But one  from a former one means even more. When you leave a company, it is human nature  to pretend that the move was a success. That may mean bigging up the new place  and littling down (to coin a useful new phrase) the old one. If, in the case of the big four, the alumni are prepared to spend huge  amounts of their current employer’s cash on their ex-employer’s services, that  suggests that the market is working rather nicely“.

So, is this an unavoidable fact of life or a market failure calling for intervention? Any views?

The truth is that this issue is not confined to the audit world. For good or for bad, there’s a lot of this, for instance, in investment banking, and even in the legal -academic and professional- world too (although the inferior level of concentration in the legal world certainly mitigates the issue to the extent that, if anything, it would be a de minimis concern).

What could actually call for intervention (if true) are the findings in this most interesting report “Bank ratings: what determines their quality”  It argues that “rating agencies assign more positive ratings to large banks and to those institutions more likely to provide the rating agency with additional securities rating business (as indicated by private structured credit origination activity). These competitive distortions are economically significant and contribute to perpetuate the existence of ‘too-big-to-fail’ banks”.  If interested on finding what could be the legal grounds for antitrust intervention in this sector,  you really should read  Prof. Petit’s award-winning piece on Credit Rating Agencies, the Sovereign Debt Crisis and Competition Law.

Have a great weekend!

It’s Chillin’Competition’s birthday today.

It was on 20 October 2009 that Nicolas announced announced to the world that this blog was up and running. We’re thrilled about how this project has progressed since then. As of today, Chillin’Competition has had 368,000 visits and features 639 posts (!)  376 of you are suscribed to it through our homepage, and the LinkedIn group has 817 members.

But we can do much better. You guys are pretty sophisticated and heterogeneous readers, and it’s quite a challenge to provide you with ideas that most of you might find insightful or funny or cheeky or just a bit different from the tons of antitrust-related news that you get everyday. Actually, voicing out opinions in public every single day is in general risky, for as the wise aphorism states “it’s better to be silent and be thought a fool than to speak out and remove all doubt”…  The past few months have moreover been particularly busy on our side (as anything liable of getting worse, this will too), and whereas our sector provides plenty of stuff that is interesting or absurd (the kind of material that we like here), we may sometimes lack the time to identify it and process it quickly, for which we apologize in advance. We are quite aware that we don’t operate under public service obligations, but we aspire to do better; if it’s not too much to ask for, we’d love to have more feedback from you on what it is that we can improve.

In the past year we started the quite successful “Friday Slot” section and we provided you with some food for thought (notably endives). In the coming months we’ll bring some other new sections which we hope will improve the quality of the blog. We also intend to bring the blog closer to international enforcers and in-house lawyers and to enhance the visibility of younger associates. We should also organize the Chillin’Competition conference soon (which we have been announcing for almost the 3 years this has been alive…).

We aspire not to take this stuff too seriously and to keep having fun while we do it.

Thanks so much!

Nicolas & Alfonso

We are starting off a new section at Chillin’Competition called “Ménage à Trois”.

Readers of this blog know that I have a tendency not to over-criticize the European Commission. This doesn’t however blind me;  anyone familiar with the permanent revolution suffered by EU competition law in recent years will find a common denominator in all major policy reforms in which the Commission has embarked: they were all aimed at working less under the pretext of refocusing  (think about 1/2003; the State aid action plan, the Guidance paper on Art. 102, etc)      🙂

Nicolas and myself have decided to follow the Commission’s lazy wise approach to policy reforms:

We  have realized that we often can’t find the time to timely report to you the most interesting aspects of case-law developments. Also, we tend to give you our personal views on issues, which by definition are subjective and incomplete. So we asked ourselves (i) how can we follow case-law developments more closely and give readers subjective yet balanced opinions?; and (ii) how can we do that by working less? (i.e. what would the Commission do?)

So here’s the plan: each time a relevant development takes place we will contact three people. The idea is for one of them to write a post on the development at issue. Instead of publishing the post right away, we will circulate it among the three experts, who will then discuss it by email (Nico and I may intervene as well). We will then post on the blog the  original post together with the trilateral debate that it may have given rise to.

We welcome applications for experts who wish to be contacted, as well as suggestions for possible topics.  We also want to profit from this new section to bring younger lawyers or academics to the sporlight and to have the minteract with other established heavy weights.

Our first ménage à trois will deal with last week’s Judgment in the Greek Lignite case (concerning the inteface between Arts. 106 and 102 TFUE). Our three inaugural guests will be three good friends of this blog: two of them (Makis Komninos -White&Case- and Marixenia Davilla -Shearman&Sterling- were actually involved in the case (on the winning side) and the third (José Luis Buendía -Garrigues-) is the author of the bible on Article 106 (of which a new edition is on the pipeline).

Is the Office of Fair Trading racing for the prize of the most business-friendly competition authority in Europe?

I know this reads a bit controversial, but many have had the impression that, in recent years, the OFT was on a soft enforcement course, preferring to focus on high-level policy work, than on running – and terminating – cases.

A few days ago, the OFT issued a document entitled “OFT’s guidance as to the appropriate amount of a penalty“.

In this document, the OFT announces – with many caveats though – that firms that have compliance programme can benefit from mitigating circumstances.

Concretely, the OFT may offer a 10% haircut on the anticipated fine.

Here’s the text of the Guidelines:

§2.15 “Mitigating factors include: […] adequate steps having been taken with a view to ensuring compliance with Articles 101 and 102 and the Chapter I and Chapter II prohibitions”

And footnote 26: “The starting position with regard to competition law compliance activities will be neutral but the OFT will consider carefully whether evidence presented of an undertaking’s compliance activities in a particular case merits a discount from the penalty of up to 10 per cent. Thus, the mere existence of compliance activities will not be treated as a mitigating factor. However, in an individual case, evidence of adequate steps having been taken to achieve a clear and unambiguous commitment to competition law compliance throughout the organisation (from the top down) – together with appropriate steps relating to competition law risk identification, risk assessment, risk mitigation and review activities – will likely be treated as a mitigating factor. The business will need to demonstrate that the steps taken were appropriate to the size of the business concerned and its overall level of competition risk. It will also need to present evidence on the steps it took to review its compliance activities, and change them as appropriate, in light of the events that led to the investigation at hand“

I have expressed elsewhere my intuitive concerns about the sophistic argument that agencies should reward compliance programmes with discounts on fines, so as to induce firms to set up such programmes. Here’s what springs to mind:

First, it is somewhat odd to provide financial incentives to promote compliance with the law, or to be more accurate to reward the initiative of trying to comply with the law (in reality, the caught firm did not comply). If we push this logic to its end, agencies should then reward infringing companies if they can prove that they have hired lawyers to obtain regular competition advice.

Second, rewards on compliance programmes could have perverse effects, with firms adopting compliance programmes as a damage limitation mechanism, which limits the cost of punishment if they ever get caught. In other words, the reward on the existence of a compliance programme acts like an insurance policy, which in turns reduces firms risk aversion to antitrust infringements.

Third, a well-designed compliance programme can adversely promote the risk of antitrust infringement, if clever managers understand better how to exploit the loopholes and deficiencies of the antitrust enforcement system. Why reward this?

Finally, compliance programmes have benefits at any rate, and there’s no need for an additional fining stimulus to encourage their adoption. Compliance programmes promote awareness to what constitutes an antitrust infringement within firms, and to how much it costs to commit one. They  thus decrease the probability of antitrust infringement in the first place, and with it the risk of antitrust penalties.  Moreover, with better trained in-house lawyers and business executives, the legal costs of outsourcing of competitive assessments to external lawyers may decrease.

My bottom-line: rather than tinkering with the fining system to foster compliance, let’s just turn to individual sanctions (director disqualification and prison sentences).

[As Nico mentioned on his last post, he’ll soon be travelling to Hong Kong to participate at a conference on 21st century competition authorities. The timing is not accidental: at the beginning of the summer Hong Kong adopted its first comprehensive competition law. We have invited a friend of this blog, Sandra Marco Colino, currently an Assistant Professor at The Chinese University of Honk Kong to share her views on this new law. Sandra has a PhD on competition law issues from the EUI, and prior to moving to Hong Kong was a lecturer at the University of Glasgow. We leave you with her post on caffeine and competition law in Hong Kong].

It was close to midnight on June 14, 2012 when Hong Kong’s Legislative Council finally adopted the region’s first ever cross-sector Competition Ordinance (hereinafter ‘the Ordinance’). Rather geekishly, I remember exactly where I was the following morning when I first heard the long-awaited news: sipping my first espresso “ristretto” of the day at a café in the heart of the city’s financial district (strong coffee is a delightfully resilient habit I picked up in Florence). The news came almost two years after the Bill was originally tabled, and the debate
surrounding the legislative proposal has not been for the faint-hearted. Although preliminary studies indicated that the local community would welcome the introduction of the law, businesses and stakeholders repeatedly voiced their concerns about the threat it could pose to Hong Kong’s open economy. For many years, initiatives to regulate competition seemed to be frustrated before they even developed into concrete proposals as a consequence of a predominant mistrust towards any form of market intervention.

As I read through the text of the new Ordinance while enjoying my coffee, I couldn’t help wondering whether the twists and turns of the lingering ‘to antitrust, or not to antitrust’ discussion would have left a decaf taste on the law. As originally drafted in the summer of 2010, the Ordinance does indeed tackle anti-competitive agreements (the ‘first conduct rule’) and the abuse of a substantial degree of market power (the ‘second conduct rule’). For the time being, only anti-competitive mergers in the telecommunications industry may fall within the scope of the legislation. As regards institutional enforcement, an independent Competition Commission and Competition Tribunal will be set up to conduct investigations and decide whether there has been a breach.

Overall therefore, the general framework of the new legislation follows long-established principles of modern antitrust regimes.  But when fleshing out the nitty-gritty, already in October 2011 the government had been forced to water down the original text of the Bill to respond to critics. For instance, it vowed distinguish between ‘hardcore’ and ‘non-hardcore’ violations
under the first conduct rule, the former comprising those restrictions of competition that are considered anti-competitive by object under Article 101(1) TFEU (price fixing, market sharing, output restrictions). In addition, it agreed to reduce the maximum pecuniary penalty to 10 percent of local turnover for each year of infringement, up to a maximum of three years. Moreover, the Competition Commission’s ability to impose fines in the original infringement notice would be removed from the Bill. The government also promised to introduce a de minimis threshold for the application of the first conduct rule for all agreements among undertakings with an aggregate turnover of HKD 100 million or less in the preceding financial year. Importantly, it gave consideration to the possibility of precluding private parties from bringing claims before the Competition Tribunal altogether.

The Ordinance, as adopted in June, includes most of these mitigating alterations, with two clarifications: the de minimis threshold (set at a combined worldwide turnover of HKD 200 million) will only be applicable in the absence of ‘serious anticompetitive conduct’; and ‘follow-on’ private rights of action have finally been granted to those who have suffered loss or damage as a consequence of an antitrust violation, once a breach of the Ordinance has been established.

My initial thoughts? Clearly, some concerns do spring to mind associated to the devil that might be in the detail. Nonetheless, with the adoption of the Ordinance Hong Kong has certainly taken a colossal and much-needed step towards the building of a palisade against the dangers of unrestrained market power. The strength of that palisade will, of course, very much depend on the implementation of the rules, unlikely to materialise before the end of 2013. For the time being, it appears that the Ordinance may indeed have sufficient caffeine to awaken competition in Hong Kong.