Antitrust Rumours
Heard three weeks ago in Hong Kong: our antitrust master, our antitrust icon, our antitrust god Prof. Richard Whish – who will be leaving King’s College London in August 2013 – would be a strong contender for a high-level position at the forthcoming Hong Kong Competition Authority.
Heard last week in Brussels: people close from the Court case have leaked to Chillin’Competition that the draft ruling in Intel v. Commission (T-286/09) will likely be an outstanding piece of nonsense ordoliberalism. Not yet out, and we already have a candidate for the worst 102 judgment of 2012. Wow!
Antitrust and political imbecility
(The post below will perhaps be a bit more controversial than the stuff we usually publish here. I nonetheless bet that its title will draw some additional readers to it: insults -particular when linked to politics- are always good marketing tools! Please note that these are simply some Sunday afternoon ruminations that aren’t that well though through; they are rather “thoughts in progress”. Would be happy to further distill/refine them through public discussion, so feedback will be appreciated).
In The Revolt of the Masses, Ortega y Gasset wrote a phrase that I often quote:
“Aligning oneself with the left, as with the right, is only one of the numberless ways open to man of being an imbecile: both are forms of moral hemiplegia.”.
This quote has in the past got me into trouble long discussions. There can certainly be some nuances to be made to it (some issues traditionally defended by the left, or by the right, -extremisms aside- are certainly worth aligning with; the quote rather refers to all accross the board uncritical alignments), but, frankly, I think Ortega had a point.
Another great writer -Orwell- said that “to see what is in front of one’s nose needs a constant struggle”. Undertaking such exercise from a pre-defined right or left perspective makes things easier, for you know in advance about what stance to take on most issues. On the contrary, assessing all issues objectively and on their merits (to end up agreeing sometimes with the left, sometimes with the right, and often benefiting from a mixture of the two) is complex, tiring and some would say perhaps unfeasible.
Now, considering that you probably – and rightly- don’t give a damn about our views on politics, you might legitimately ask why on earth I’m telling you all this. Well, because I think that the expansion and consolidation of antitrust laws accross the world can actually contribute to mitigating political imbecility through the promotion -even if implicit- of sensible centrist attitudes (actually, I’m not sure I think it, but it’s an interesting thesis anyway). Let me try to explain what I mean, and please tell me what you think:
The widespread adoption of antitrust rules implies a recognition that (i) freedom of enterprise and free competition is positive; and (ii) for such freedom to be real market forces and excessive market power need to be effectively supervised and corrected through public intervention. This crucial paradox -to limit some sorts of freedom for the sake of freedom itself- might sound obvious to you (after all the laws themselves are “those wise restraints that make men free“), but it has not been a feature of the economic policies pursued in many places around the globe. As a matter of principle, the recognition of the need to strike a balance between the two principles outlined above through the very enactment of antitrust rules (unless purely cosmetic) around the world constitutes a giant step towards the construction of centrist economic policies.
The enactment of antitrust rules also obliges public authorities in many jurisdictions to make complex economic decisions (notably on when to intervene and when not to). To be sure, these decisions may certainly be (and often are) infused by different ideologies, and instrumentalized to pursue non-centrist political agendas. However, as experience, precedents, inter-relations and peer pressure consolidate, it will (I hope) become increasingly harder for decision-makers to adopt decisions on the basis of elements other than objective ecomomic and legal knowlegde. That, to me, would be sensible centrist economic policy too.
The underlying assumption that smart public intervention might not only restrict but also actually promote economic freedom could hopefully be extended to other economic domains. For instance, it would be nice if some (not only in developing countries, think of the Tea Party movement) who identify themselves as pro-individual freedom (a principle with which I agree) would realize that for freedom to be real (and not confined to a few) public intervention is required in order to provide effective and equal opportunities to actually exercise it.
I was positively surprised to see that I may not be sole one thinking this way. A recent editorial in The Economist (which I would very much suggest you read; available here) not only called for “radical centrist policies” (what the piece also referred to as “true progressivism”) to combat growing inequalities, but also attributed antitrust a primary role in the pursuance of a centrist agenda. (“The priority should be a Rooseveltian attack on monopolies and vested interests, be they state-owned enterprises in China or big banks on Wall Street. The emerging world, in particular, needs to introduce greater transparency in government contracts and effective anti-trust law“).
Btw, I have the feeling (no evidence though) that The Economist drew inspiration for some these ideas from a recent and truly great book: Why nations fail -which I’m trying to read when work allows-. This book also contains compelling arguments about why the promotion of competition through the application of antitrust rules is one of the most effective ways to contribute to the development of any given nation.
The Friday PowerPoint
I attach below the presentation I gave today at the GCLC annual conference. It deals with the nexus between competition enforcement and industrial policy.
A rough 45 pager, co-penned with my assistant Norman Neyrinck, was circulated to the participants.
BTW, I am contemplating moving to Prezi, and leave the conventional PowerPoint world. Anyone with feedback on this?
Ugly -at first sight- but interesting (on nullity under EU competition law)
Some time ago Nicolas Charbit (Concurrences) asked Luis Ortiz Blanco and myself to write a foreword for a special issue of e-Competitions on “Nullity/Voidness”.
Yes, at first I had the same reaction you just had; kinda “What?? Wasn’t there a less sexy topic? I bet they asked us because no one else wanted to do it!”. But we accepted the offer (partly because it was for Concurrence, and partly because we still haven’t learnt to say no). Then we started thinking about it. For some time our only thought was mainly “damn, damn, damn, why did we accept to do this?“.
But when we really undertook to work on this foreword (the weekend before the tenth deadline expired), we realized the reason why the theme of nullity does not rank high in the list of preferred topics of EU competition law commentators. Reflecting upon it requires an excursion into “terra incognita”. Making sense out of the various intellectual riddles that arise with regard to nullity/voidness requires not only a knowledge of competition law principles, but also a mastering of general principles of contract law, as well as of comparative law, that are all too rare in our narrow discipline. In other words, we found out that the topic demands not a foreword but a doctoral dissertation. In spite of the appearances, it’s as interesting as it is important.
In our view, the most interesting issues concern so-called “fruit agreements”, that is, agreements distinct from the one found in breach of the competition rules but that are instrumental to realise the profits sought therewith (e.g. the agreements between a company participating in a cartel and its customers). It is clear that a given anticompetitive clause within an agreement shall be deemed void. It is also well-established that the nullity of such given clause can possibly extend the nullity to the rest of the agreement of which it is part provided that the two are not severable, and that whether a given clause is severable from an agreement is to be decided by national courts in the light of the applicable legislation in each Member State and of the specific features of each agreement. And whereas the practical application of these principles may give rise to divergent results, the situation –at the level of EU law principles- is fairly satisfactory.
What is less satisfactory is the uncertainty surrounding the validity of agreements which do not directly breach the competition rules but which stem –and actually put into practice- another agreement that does. The case law of the European Courts states, on the one hand, that the “the nullity referred to in Article [101](2) (…) is capable of having a bearing on all the effects, either past or future, of the agreement” (Courage v Crehan, para. 22) and, on the other hand, that “[t]he consequences of such nullity for other parts of the agreement, and for any orders and deliveries made on the basis of the agreement, and the resulting financial obligations are not a matter for community law. Those consequences are to be determined by the national court according to its own law” (Kerpen & Kerpen, para. 12). In other words, EU law purports to deal with the nullity of the effects of the anticompetitive agreement, but not with the vehicles (ensuing contracts) that carry out such effects. Does this make sense?
Those interested in finding out our view on this issue, and on a few others, can read the full foreword here: Foreword eCompetitions Nullity/Voidness (It’s only 5 pages long; not long enough to bore you to death).
The rest of the special issue is available here.
Have a great weekend!
HK
As reported earlier on this blog, Hong Kong recently joined the league of jurisdictions with a domestic competition regime.
On this occasion, CCH Wolter Kluwers organized a one day conference to discuss forthcoming challenges for the new law.
I was one of the happy many to be invited to the conference, together with a bunch of lawyers from Brussels, Beijing, Australia and the United States.
Now, our Hong Kong friends might be pondering how to apply their new law, they know how to throw a good event. Everything was perfect. Congrats’ in particular to Shirley Hon and Simon Bellamy for the superb organisation.
The level of the discussions was by all standards very high. You could tell the speakers had put time and energy in their presentations. Not the usual quick and dirty, taxi-drive preparation. I personally gave a talk entitled “New Challenges for XXIst Century Competition Authorities” where I identify 5 new enforcement challenges, and 4 new substantive ones. My ppt is available at the end of this post.
The after-conference evening was also a success. There was a cocktail reception, which was followed by rounds of free cocktails, courtersy of Kluwer (no kidding here). With a bunch of enthusiastic conference participants (including several speakers), we then moved to Lan Kwai Fung where we had a lot of fun. I then took a few days off, enjoyed the sun and did some trekking with an old friend who relocated there.
The bottom-line: it was a fantastic trip. And I must confess that since I came back, I have been looking once or twice if academic positions were available in the region…
Presentation – New Challenges for 21st Century Competition Authorities – HK [Mode de compatibilité]
OOO
Some people are real professionals.
In response to a mass mailing a few days ago, we received the following Out of Office message:
Objet : Out of Office: LAST CALL: 8th Annual Conference: Competition Law in Times of Economic Crisis: In Need for Adjustment
I apologise for my absence. I am out of the office on Friday and the weekend. I have access to email except when travelling mid-Friday and Sunday evening, but my response time may not be as timely as you would like. If you expect a more immediate response, please contact my assistant at …
Unconventional. Had never seen a WE OOO email before.
My fear is that if lawyers start to apologise for being OOO on the WE, then those jobs will be increasingly difficult to sell to students, and in particular to clever ones.
Or maybe it’s just me, and I should just design my own WE OOO email?
The Gallois Report on Competition
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.
Case T-111/08, Mastercard. A priceless Art. 101(3) assessment
A while ago we wrote a post on The Slow Death of Article 101(3) TFEU, where we said that in recent European Commission, practice, only once the challenged agreeement was not deemed to be a restriction by “object”, and that only in that case the Commission had carried out a serious Article 101(3) assessment. This was the Mastercard Interchange fees case, and last May the General Court rendered its Judgment on it (btw, we have no interest whatsoever on this case).
Over time we have realized that the longer and more serious a post is, the less you guys read it (and this one will be quite lenghty). So, of the many complex and interesting issues raised by this case, we will only comment on a general point regarding the Court’s assessment of the interchange fee arrangements under Art. 101(3). Given that almost no Decision or Judgment delves into 101(3) analyses these days, the General Court’s assessment is priceless for anyone interested in exploring how this key provision is to be interpreted. In this sense, it’s surprising that the Judgment hasn’t received more attention.
I confess that I undertook the reading of the Judgment with a clear confirmation bias: I was looking for evidence that would support my point that it’s incredibly difficult to successfully argue that a given agreement can benefit from the legal exemption provided by 101(3). To my (positive) surprise, I found out that despite applying the “manifest error of assessment” standard of review, the General Court actually did carry out an assessment of the evidence put forward by Mastercard which is well more detailed than what I expected (see paragraphs 207-237). Right or wrong, it was acceptably thorough, specific, and even revealed that the Court had managed to understand the so-called Baxter model put forward by the applicants.
The Court’s application of the first condition of Article 101(3) nonetheless raises some interesting and debatable issues that relate to the fundamentals of Art.101(3), which are partly discussed below. I take responsibility for the opinions below, but I have taken a free ride benefitted from educative discussions with two of my favorite legal minds: Luis Ortiz (who has authored the best study on how Art. 101(3) is to be applied) and Eric Gippini (whose great Friday Slot interview is available here) (to make sure, they don’t necessarily agree with the views developed below)
Click here if you’re interested in reading more (spoiler alter: dense stuff ahead)
GCLC Annual Conference – 8 and 9 November
Back from HK where I had a great time. Will report on this later in the week.
As I am currently working on a paper for the forthcoming GCLC Annual Conference, I just realised we had not advertised this event on the blog.
So here we go. On 8 and 9 November, the GCLC will hold its Eighth Annual Conference. This 2012 edition is entitled “Competition law in times of economic crisis: In need for adjustment?” More information on the programme can be found here.
As usual, working groups have drafted reports which will be commented upon – inter alia – by Commission officials.
This undoubtedly will be a promising event. Unfortunately, I had to breach ethical rule n°3; “do not take speaking slots at conferences that you organize”. The explanation? Most of the persons we contacted to draft the paper on industrial policy and competition law – including my learned co-blogger – turned our invitation down. So I ended up filling this slot. But this is a great honour, and am very happy to do this.
PS: Alfonso and I have just decided that will be no more Chuck Norris jokes on this blog :(.
Anticompetitive (?) alumni networks, and more on credit rating agencies
[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!
