Chillin'Competition

We had a great discussion on exclusionary abuses last Tuesday at LSE. We were delighted to see how many of you joined us online to what was (at long last) a Chillin’ event (rest assured there will be many more to come).

During the event, I shared a presentation outlining my main ideas, which you can find here. I would very much welcome your thoughts on the main points I made, which I can summarise as follows:

Enforcement under the Guidance is in a much better shape: the days of Michelin II and British Airways are long gone, which is why we tend to forget how much in need of reform Article 102 TFEU policy was at the time.

In the years that have followed the Guidance, enforcement has remained robust (both in qualitative and quantitative terms), and has become wiser (in the sense that the intellectual foundations are much more solid) and more predictable (again, we tend to forget how unpredictable enforcement was in the old days).

The analysis of effects is not a luxury or an indulgence from which we can dispense. It is the key tool to distinguish between conduct that is on the whole pro-competitive and behaviour that can be expected to harm the competitive process. One should not forget that the majority of practices potentially caught by Article 102 TFEU are, most of the time, normal expressions of competition on the merits.

The above said, it is worth reflecting on some of the criticisms that have been directed at enforcement under the Guidance. Is the analysis of effects overly cumbersome? Is intervention difficult to tell in advance?

Structured legal tests could be part of the answer to these concerns while preserving the essence of the Guidance. From this perspective, the forthcoming Gudelines provide a good opportunity.

Contrary to what is sometimes said, the evaluation of the actual or potential anticompetitive effects of a practice need not be open-ended or all-encompassing. It can be structured around a number of solid proxies and finite lists of criteria. This, in fact, is what the Court of Justice has been doing over the past decade (just think of Intel).

The case law could be codified in line with this principles. For instance, there is little doubt that the coverage of a practice is central to the assessment of the actual or potential impact of a potentially abusive practice. Why not rely on a bright line (say, 30% coverage) to define the instances in which effects are more likely?

If effects can be established always and everywhere, then the test of effects is a bad one. Any attempt to recalibrate policy should not come at the expense of predictability. If the test is reconfigured so that the analysis of effects becomes little more than a formality, it will not be possible to anticipate enforcement (the Commission would always find a way to show an impact on competition).

In the same vein, I explained that the hard questions cannot be avoided. These hard questions include:

• The meaning of effects.
• The threshold of effects. We all agree that Article 102 TFEU is concerned with actual or potential effects. But the notion of potential effects does not answer the question of what threshold applies. AG Kokott suggested that the case law demands a threshold of likelihood (probability of >50%) when looking at potential effects. I agree with her understanding of the relevant rulings.
• Causality: The difference between competition law (understood as a system aimed at protecting the competitive process) and economic regulation aimed at restructuring markets so that they conform to the particular vision of an agency is the issue of causality. As emphasised by the EU courts in recent years, Article 102 TFEU is only triggered when the actual or potential effects are attributable to the behaviour of the dominant undertaking.

I very much look forward to your comments. As you know, I have nothing to disclose.

We hope many of you will be able to join our LSE-Chillin’ Webinar next week (Tuesday 25th April; 4pm London time, 5pm Brussels time).

You can now register for the event here. The link provides all the necessary information to join us remotely on the day.

Alfonso and I will be discussing the future of Article 102 TFEU enforcement with my colleague Niamh Dunne, Mark English and Jorge Padilla.

Do not hesitate to get in touch with any questions. See you next week!

Alfonso and I have concluded that the Commission’s plans to issue Guidelines codifying the law of exclusionary abuses is important enough to set up, at long last, a new Chillin’ Competition event. So please save the date (Tuesday 25th April) and time (4pm London time; 5pm Brussels time), for a webinar on the subject.

My colleague Niamh Dunne and I will be welcoming at LSE Law School a true Article 102 TFEU dream team made up of Alfonso himself, Mark English and Jorge Padilla. We will be chatting with them about the future of the Commission’s policy on exclusionary abuses.

We hope to many of you will be able to join us via Zoom. We will be providing details on how to register early next week, so keep an eye on the blog! In the meantime, please get in touch in case you have any questions.

Many readers will remember the inaugural Ithaca Competition Conference, which took place in the Summer of 2018. It has long been known that returning to the island of Ithaca takes a while. This time has not been an exception. Now that the pandemic is firmly behind us, Peter Alexiadis has put together the (epic) programme for the second edition.

You can take a look at it here. As you will see, it is full of superstars (from civil service, practice and academia).

The event will take place over three days in August (3rd to 5th). The start is strong: a panel with no fewer four former Chief Competition Economists at DG Comp, (Kai-Uwe Kuhn, Damien Neven, Pierre Regibeau and Tommaso Valletti) who will be looking back and into the future in conversation with Jorge Padilla.

That would be enough to make the programme attractive, but there is even more: a panel on digital (with, just to mention a few, Filomena Chirico and Alex de Streel) and one on energy (with a dream team that includes Martin Cave, Leigh Hancher, Adrien de Hauteclocque and Carole Maczkovics, all chaired by the OECD’s Ruben Maximiano).

The conference will close with a discussion about the direction of travel in competition law and policy featuring, among others, such enforcement luminaries as Cani Fernandez, Ioannis Lianos and Henri Piffaut.

You can register for the event here. Please note, that, if you are a competition law student, you can register at a discount and the organisation will provide affordable aaccommodation.

The programme includes a very detailed Q&A, including on how to get there. If you have any questions, I am sure Peter will be delighted to answer them!

Decades may have passed, but the FIDE Congress remains an (the) inescapable reference for those interested in EU law matters. This year’s gathering, in Sofia (Bulgaria), will be the 30th (!). The stellar programme of the event (to take place between 31st May and 3rd June) can be found here. And information on how to register, here.

This year’s edition has all the ingredients behind the success of past congresses: topics at the cutting edge of developments in EU law, stellar (general and institutional) rapporteurs and an unparalleled line-up of speakers (including the President of the Court of Justice and the General Court as well as the Presidents of the Constitutional Courts of several Member States and of Ukraine).

As per the tradition, one of the topics is devoted to competition-related matters. This year’s (The new geopolitical dimension of the EU competition and trade policies) focuses on the ongoing shift in competition law and trade policies. It is not a secret that changes underway at the global level (reshoring of manufacturing, decline of multilateralism and geopolitical tensions) invites us to rethink how competition and State aid provisions are interpreted are enforced in practice.

The topic is in the expert hands of Jean-François Bellis and Isabelle van Damme (Van Bael & Bellis, General Rapporteurs) and Ben Smulders (European Commission, Institutional Rapporteur). If you browse the programme, you will get an idea of the various angles they take (industrial policy, sustainability, foreign direct investment, supply chains) on the ongoing shifts. The publication that invariably follows each Congress will be one to keep an eye on.

Topics 1 (Mutual Trust, Mutual Recognition and the Rule of Law) and 2 (European Social Union), by the way. promise to be fascinating too (no less because discussions will be led by top academics and practitioners).

The event’s dedicated website is pretty detailed, but the organisers will be delighted to answer any questions you may have.

The European Commission is seeking feedback on the adoption of a set of Guidelines on exclusionary abuses (see here). At the same time, it has announced the amendment of the existing Guidance on its enforcement priorities and has published a most valuable Policy Brief outlining the novelties.

The significance of this moment is not to be underestimated. When the Commission issued its enforcement priorities, it made it very clear that they were not a statement of the law, and that the document was without prejudice to the interpretation of Article 102 TFEU by the Court of Justice. The point of the Guidance was simply to indicate how, as an administrative authority, the Commission intended to exercise its discretion.

By contrast, the ambition behind the new initiative is to codify the case law based on the Commission’s own understanding of Article 102 TFEU. What is more, the press release is explicit that the point of the exercise is to provide legal certainty to national courts and authorities, in addition to undertakings. It is intended, in other words, as a document that will assist the competition law community when navigating, and making sense of, the growing body of judgments.

This initiative is also highly symbolic. It marks the end (if not the end, at least the terminal decline) of the ‘more economics-based approach’ to competition law. The Policy Brief embraces objectives other than consumer welfare. While the new vocabulary will not have consequences as such (words are just words), it is a reliable indicator that times are changing. The new EU competition law is here to stay and will permeate every aspect of policy-making.

It is not easy to anticipate the scale and consequences of the initiative. This said, the Policy Brief is already informative and gives a sense of the direction of travel. There is much to unpack, but I can offer the thoughts that follow for the time being. I would very much welcome yours.

What is sensible in the Brief? A solid attempt to define the notion of anticompetitive foreclosure

As I have had the chance to mention in the past (see here), we are missing a definition of anticompetitive effects (or foreclosure) in the case law. The Policy Brief adds a great deal of common sense to the discussion. First, because it does not abandon foreclosure as the relevant benchmark of exclusionary effects. Second, because it explains at length that foreclosure within the meaning of the case law can exist even when rivals have not been fully excluded or marginalised.

The relevant question, under the case law, is not whether rivals are or may be driven out of the market, but whether rivals’ ability and incentive to compete are (or may be) affected to such an extent that the dominant firm’s competitive constraints are (or would be) reduced.

The definition proposed by the Commission captures effectively this idea and is very much in line with it. More precisely, anticompetitive foreclosure is defined, in the Brief and the amended Guidance, as a ‘a situation where the conduct of’the dominant undertaking adversely impacts an effective competitive structure, thus allowing the dominant undertaking to negatively influence, to its own advantage and to the detriment’of consumers, the various parameters of competition, such as price, production, innovation, variety or quality of goods or services‘.

What is confusing? The conflation of the threshold of effects (likelihood) and the temporal dimension (actual vs potential effects)

Another issue that needs to be further clarified in the case law pertains to the relevant threshold of effects (as a matter of substantive law, which is different from the standard of proof). This is not an academic or esoteric matter. It is crucial in practice and has major consequences for the scope of Article 102 TFEU.

It is one thing to require from an authority that effects be likely (probability of >50%) and a very different one that they be plausible (probability of >10%). In the latter scenario, it would be considerably easier to establish foreclosure (in fact, anticompetitive effects could be deemed established in pretty much every Article 102 TFEU case under a plausibility standard).

As the Commission rightly points out, the Court tends to use capable and likely indistinctly. The Guidance, in its original incarnation, referred to ‘likely’ effects. To the extent that this term was indicative of a >50% probability of harm, it is the right one as a matter of positive law. An attentive reading of the case law makes it clear that (irrespective of the terms used) the Court requires, in substance, more than mere plausibility of harm (this is a point made by AG Kokott in her Opinion in Post Danmark II).

The Brief, by contrast, relies on a different substantive threshold, that of ‘potential effects’. This reference is confusing and will give rise to debates (which is very much welcome, and the very point of the exercise). Contrary to what is suggested in the document, the divide between actual or potential effects does not refer to the probability of harm, but to the temporal dimension of the analysis (that is, whether we are looking at harm that has occurred or, instead, at harm that may occur further down the line).

When the Court (uncontroversially) holds that Article 102 TFEU comprises both actual and potential effects, it holds, in essence, that the provision encompasses not only past foreclosure but the prospect of exclusion. A cursory look at any dictionary confirms that the word ‘potential’ refers to something that may happen in the future given the appropriate conditions.

One needs to look no further than Servizio Elettrico Nazionale (paras 49-58) to realise that the actual vs potential divide in the case law is indeed about the temporal dimension of the analysis (as opposed to the substantive threshold of effects). In fact, this judgment is useful in a crucial sense that I presume the future Guidelines will incorporate: past evidence of actual effects (or their absence) is a relevant consideration when evaluating the potential of a practice to do harm.

What is missing? Causality and attributability of effects

Finally, there is an aspect that is not discussed at length in the Brief and that is equally crucial (and equally underdeveloped). Both EU courts have consistently referred, in the past few years, to the need to establish a causal link between the potentially abusive practice and any actual or potential effects (or, if one prefers, that foreclosure be attributable to the behaviour of the dominant undertaking).

If foreclosure would have happened anyway (that is, the anticompetitive effects are not attributable to the dominant firm), the practice cannot be said to be abusive. While this point is uncontroversial, it needs to be fleshed out. The Court has only sketched the principle, and it may take a while before some aspects are fully clarified. The discussion that the Brief has already triggered will hopefully shed light on this point.

A number of writing and teaching commitments have kept us busy in the past few months, and we look forward to exchanging views about them on the blog, as it slowly comes out of hibernation.

I will start with one of which I am particularly proud, and which is available here.

It is a piece, written jointly with Damien Neven (Graduate Institute and former Chief Competition Economist at DG Comp) and that is forthcoming in Vincent Verouden’s and Philipp Werner’s second edition of their monumental treatise on the Law and Economics of State Aid Control (I take this opportunity to thank both for the invitation!).

Philipp and Vincent assigned us a most exciting task: explain how the EU State aid control regime and its distinctive features have influenced other legal systems around the world.

Inevitably, our chapter covers a great deal of legal ground: the EU-UK Trade and Cooperation Agreement (in addition to the UK Subsidy Control Act), the EEA regime and, finally, the EU Foreign Subsidies Regulation.

We structure the discussion around the two mechanisms through which the EU regime influences other legal systems: convergence and unilateral action.

Convergence occurs through the trade agreements concluded by the EU (the UK Subsidy Control Act being a great example). This trend is complemented with unilateral action which complements and completes the effective enforcement of subsidy control the ‘EU way’.

It would be wonderful to get your thoughts on the piece: do not hesitate to get in touch via email.

On 1 April 2020 we lost Rubén Perea, a truly extraordinary young man who was about to start a career in competition law. We decided to set up an award to honour his memory, and to recognize the work of other promising competition lawyers/economists under 30. EVP Vestager kindly agreed to deliver this Award.

Today we are announcing the winner and runners-up of the Award’s 3rd edition. And…

the Rubén Perea Award goes to: JEREOME DE COOMAN, for his paper “Outsmarting Pac-Man with Artificial Intelligence, or Why AI-Driven Cartel Screening is not a Silver Bullet“. 

The jury also selected 4 finalists whose papers will be published in a special JECLAP issue. The finalists are:

• “Assessing the world’s largest gaming acquisition under EU competition law”, by Fabian Ziermann)
• “SEP licensing in the value chain: Does Art. 102 TFEU require license-to-all?”, by Lukas von Brasch)
• “The Liability of Corporate Groups for Violation of EU Competition Law” (by Marco Pasqua)

Congratulations to the recipients of the award!

Many thanks also to my fellow members of the jury (Gianni de Stefano, Lena Hornkohl, Michele Piergovanni, Damien Gerard and David Pérez de Lamo).

Jean Monnet, one of the EU’s founding fathers, famously stated “that Europe would be built through crises, and that it would be the sum of their solutions”. The EU was conceived at a time of crisis, to ensure the post-war reconstruction of Europe and prevent future conflicts, and since then has stepped up to face multiple crises. In recent years, in particular, the EU has been central in devising and articulating the response to the financial and Eurozone debt crisis, the migration crisis, Brexit, the Covid-19 health and economic crisis, and the crisis provoked by the Russian invasion of Ukraine. Other crises, linked to increasing global warming and geopolitical tensions, loom in the horizon, leading to expectations of a global “permacrisis”.

Each of these have put the EU, Member States, and society to a “stress test”, exposing tensions, strengths and weaknesses, contradictions and limitations. This has been true on many fronts, also in that of State aid. Indeed, EU State aid law sets limits on Member State sovereignty, fiscal autonomy, and expenditure with a view to minimizing distortions to competition between Member States and ensuring a level-playing field within the internal market. The very nature of the State aid discipline makes it a field ripe for tensions between Member States, between law and politics, and between conflicting public policy objectives, but all those tensions are exacerbated in times of crisis.

Almost three years ago, in March 2020, José Luis Buendía and I wrote an op-ed warning about the risk that “full flexibility” would distort competition between Member States favoring those with deeper-pockets. To mitigate this risk, we proposed the creation of a “Solidarity Fund” (suggesting that it be notified to the Commission as an Important Project of Common European Interest), and a commitment that Member States contribute to this Fund a percentage of the public resources involved in their own measures. The risk we anticipated has proved very real.

Over the past three years, the Commission has made an extremely flexible interpretation of State aid rules to ensure that these would not get in the way of urgent damage mitigation measures. The Commission has adopted, and subsequently widened on several occasions, Temporary Frameworks related to aid adopted in relation to the Covid-19 pandemic (Covid Temporary Framework) and the war in Ukraine (Temporary Crisis Framework). Under these frameworks, the Commission has very rapidly approved hundreds of measures (see here and here) amounting to trillions of euros. The Commission has recently disclosed that over 50% of the volume of aid approved so far under the Temporary Crisis Framework and related Treaty provisions came from one Member State (Germany), and that over 80% came from three Member States (Germany, France, and Italy). The split is similar as regards Covid-19 related aid (see p. 24 of the latest State aid Scoreboard).

These numbers should be added to the great volume of non-notified aid granted under the General Block Exemption Regulation (covering over 90% of State aid measures), which is also very far from being evenly distributed among Member States (see the figures in GBER spending per Member State in Annex III to the latest Scoreboard). To those, one should also add all aid falling below the de minimis thresholds, as well as the billions or trillions of State support taking the form of general measures considered to fall outside the scope of EU State aid rules (unlike in other contexts, the Commission does not appear to have adopted a strict interpretation of the notion of “general measures”).

There is now a widespread concern that this flexibility has contributed to exacerbating differences between Member States. This concern is shared by influential media, in some way or another by all contributors to the latest EU Law Live Symposium on “State aid in times of crisis”, and by the European Commission itself. In a letter to Member States, EVP Vestager  recently stated that “not all Member States have the same fiscal space for State aid. That is a fact. And a risk for the integrity of Europe”; the letter featured the graph below: 

In the same letter, EVP Vestager announced yet additional flexibility, the transformation of the Temporary Crisis Framework into a “Temporary Crisis and Transition Framework”, also aimed at supporting the green transition and to react to US subsidies, as well as the boosting of the REPowerEU plan and the creation of a collective European fund to support countries in a fair and equal way. A few days later President von der Leyen publicly announced a plan to step up EU funding “to avoid a fragmenting effect on the single market” via the creation, in the medium term, of a “European Sovereignty Fund”.

It is evident that awareness about the exacerbation of asymmetries and distortions resulting from “full flexibility” under State aid rules has been a driver for major, bold, and arguably historic political initiatives. These include the SURE instrument (which raised close to €100 billion of common debt to support unemployment reinsurance schemes), the € 750 billion Next Generation EU stimulus package (with its partial introduction of debt mutualization via the Recovery and Resilience Facility Regulation), and the recently announced Sovereignty Fund.

But while these are unambiguously positive first steps entailing an element of solidarity benefiting States with less fiscal capacity, they pursue very specific goals (notably the green transition and digitisation), which are unrelated to the distortions caused by the aid measures adopted under a relaxed State aid regime. Those distortions affected, and will continue to affect, sectors and companies that may not benefit from new funding opportunities. The existence of “earmarked” strategic funds may have a positive “macro” effect on Member States budgets, but they do not address the harm that opening the State aid floodgates has on companies and markets.

The objective of preventing the harm to competition and fragmentation of the internal market can arguably only be attained by a meaningful compatibility assessment of State aid measures, balancing their negative and positive effects, and having regard to, among others, the principles of proportionality, equal treatment, and the cumulative effect of aid measures. This is, of course, assuming that such an objective remains a real priority at a time when the EU is arguably, and perhaps legitimately, more concerned about geopolitical competition with third countries than about intra-EU competition between Member States and between companies (whether the loosening of State aid rules may affect the legitimacy of enforcement efforts under the Foreign Subsidies Regulation is a separate matter).

Compatibility under State aid law, in other words, is not to be measured only against the EU’s (external) strategic goals at any given point in time, legitimate as they may be. If State aid law is to fulfill its goal under the Treaty, the Commission must necessarily pay due attention to the negative effects of aid on competition in the internal market and require proportionate countervailing positive effects prior to giving it a pass. This is, of course, much harder, but also even more necessary, at a time of crisis, when both stakes and pressures are high.

The Commission has very recently argued that “[w]hatever we do, we must avoid a subsidy race. If we compete individually as Member States, we lose as a whole. This is why the proposed changes to the State aid rules, broad and far-reaching as they may be, will be temporary- they would apply until 31 December 2025”. But even if we assume that derogations will be temporary, their effects on the internal market will be long lasting.

And if State aid control is regarded as inappropriate precisely when it is needed the most, then one may start wondering what is the point of keeping it in place at every other time.

***

[This post will also be published as part of series of contributions to EU Law Live Symposium on “State aid in times of crisis”, also featuring excellent contributions from P. Nicolaides. J. Piernas, D. Lypalo, A. Bouchagiar, S. Firsch, I. Agnolucci, M. Segura, C. Vollert, L. Hornkhol and F.C. Laprévotte].

Kluwer has just published Regulation 1/2003 and EU Antitrust Enforcement, a systematised article-by-article expert commentary on Regulation 1/2003, that also includes additional insights and critical views by a very impressive team of authors (featuring also some less impressive ones, namely Pablo and myself). The book has been edited by Kris Dekeyser, Céline Gauer, Johannes Laitenberger, Nils Wahl, Wouter Wils and Luca Prete.

I have already read various chapters in preparation for a 25 hour seminar on EU Competition Law Procedure that I start teaching today at the College of Europe, and it is a must-have for anyone interested in how EU competition law works in practice.

Luis Ortiz Blanco and I have authored the chapter on “EU Competition Procedure from the Perspective of Outside Counsel”, where we try to explain the beauty and the relevance of procedure from, well, the perspective of outside counsel. Kluwer has authorized us to post here the full text of our contribution. This is the introductory section:

“There is a hidden beauty to procedural matters. In a discipline as open and dynamic as competition law, substance tends to attract most of the attention. Many see substantive competition law as fertile ground to develop and debate creative theories but perceive procedure as a source of hurdles, dull tasks and deadlines regulated in black letter regulations or soft law instruments containing all relevant answers. From the perspective of outside counsel, this could not be further from the truth. Without procedure, substance is but abstraction. Procedure and substance live in symbiosis to the extent that the division between the two may not always be apparent.  At a time when, as we will explain below, the margin for substantive discussions in actual cases may be narrowing, procedural questions retain their interest. In practice, from the perspective of outside counsel, procedural questions are often the most interesting ones. While substantive competition law discussion may connect our discipline to economics, procedural principles and rules play a critical role in ensuring that competition law does not lose its last name.

There is also a hidden relevance to procedural matters. Procedural principles and rules have largely shaped the evolution of EU competition law, guided its application and contributed to its legitimacy and soundness. The evolution in EU competition procedures over the years has impacted, and in many ways even transformed, the nature of the work that outside counsel perform. In more immediate terms, procedural questions often determine the outcome of individual cases (‘It’s the procedure, stupid!’). This is particularly relevant to outside counsel. Unlike other repeat players, like competition authorities or courts, outside counsel are not bound by policy and consistency considerations but driven by a fiduciary duty to advance their clients’ best interests, generally within the context of a particular controversy. As outside counsel, both the nature and the measure of our work crucially depend on procedure. In what follows, we seek to explain how”.

To read the entire chapter (6 pages, you can handle that) and check out the full table of contents and authors, click on the link below: