Chillin'Competition

On September 19th 2022 EU Law Live launched its new Competition Corner, a section exclusively devoted to developments in the field of EU competition and state aid law. EU Law Live is a project devoted to the promotion and research of all areas of European Union law that has become a must-read for those interested in legal developments spanning beyond one practice area.

Chillin’Competition will be cooperating with this new project and with the driving forces behind it (namely ELL’s Editor-in-Chief Daniel Sarmiento and Competition Corner Editors Lena Hornkohl, David Pérez de Lamo, Lewis Reed and Pablo Solano).

Specifically, we will contributing to ELL’s Competition Corner with blog posts, op-eds and suggestions for symposiums. The first symposium is devoted to judicial review in EU competition law. In addition to our opening op-eds (here and here), the symposium will feature contributions from José Luis da Cruz Vilaça, Judge Alexander Kornezov, Paul Craig, Or Brook, Barry Rodger, Jorge Padilla, Assimakis Komninos, Fernando Castillo de la Torre and Silvère Lefèvre.

Stay tuned!

It is always a pleasure to share are recently completed paper (which can be accessed here) and invite comments. I am particularly delighted to do so today, as this piece is the first of my entries to be posted simultaneously via EU Law Live, which had the great idea of organising a symposium (the first of many, I hope) around it.

This particular entry, as much as the paper itself, is devoted to a topic that is close to my heart: judicial review in EU competition law. Some of you may remember that I presented these ideas at Cambridge back in March (see here for the post I prepared at the time). The end product, now available as a working paper, will be coming out before the end of the year in the Cambridge Yearbook of European Legal Studies.

Working on the paper gave me the chance to revisit the topic in light of some recent developments. Anyone who has devoted some thinking to the subject knows how hard it is, from a methodological standpoint, to determine whether judicial review is truly effective.

My suggestion – and my main argument here – is that this question that is best approached obliquely, that is, by identifying the techniques that the EU courts have developed over the years and that allow them to meaningfully scrutinise administrative action.

I call these techniques the ‘hallmarks’ of effective judicial review (hence the image accompanying the post). The analysis of these hallmarks is useful not only to understand how the EU courts operationalise an abstract remit, but also as a benchmark to identify individual instances where the intensity of judicial review may have varied.

I find it useful to divide the ‘hallmarks’ around three main themes or areas.

Some of the techniques relate to the way in which the EU courts engage with substantive law. There is no need to explain at length that the Commission enjoys no discretion when interpreting primary (and indeed secondary) EU law. Full review of issues of law has to be meaningful, in the sense that it has to go beyond a mere declaration or abstract commitment.

The case law suggests that, in practice, the EU courts go about implementing their mandate by crafting clear legal tests that are capable of constraining administrative action and against which the lawfulness of future decisions can be evaluated.

The four conditions set out in Magill are arguably the canonical example in this sense, and the one that comes to mind immediately. More recent examples include the (by now famous) five criteria laid down by the Court of Justice in Intel, and CK Telecoms, where the General Court introduced a structured set of factors akin to the Airtours conditions (yet another classic).

This technique would not be effective, however, if the Commission were allowed to disregard the applicable legal test in subsequent cases (that is, if the relevant criteria were only relevant to assess the legality of a single decision). Thus, another ‘hallmark’ of effective judicial review – at least as relevant as the preceding one – is the ‘stickiness’ of legal tests over time: the scrutiny of administrative action cannot meaningful if the law is allowed to fluctuate too much from one case to the next.

A second theme or area relates to the theoretical and empirical evidence on which administrative action relies. The case law suggests, in this regard, that effective judicial review implies verifying whether Commission decisions are grounded on the best available evidence. There are two dimensions to this ‘hallmark’. One of them has to do with the role of non-legal expertise. It would be impossible to meaningfully review administrative action if an administrative authority were able to disregard the expert consensus of a non-legal discipline that informs the interpretation of the law (including, to be sure, economics).

Another dimension relates to the need, for the Commission, to pay due regard to the relevant economic and legal context. It is not difficult to think of examples in which administrative action has been quashed for not fully considering the circumstances surrounding the case. For instance, there is a long line of Article 101 TFEU decisions that were annulled for failing to assess the effects of the practice against the counterfactual. Cartes Bancaires, where the Commission did not draw the legal consequences from the two-sided nature of the relevant market, is another wonderful example (not to mention Intel again).

Finally, some ‘hallmarks’ of effective judicial review have to do with the policy positions expressed by the Commission in Guidelines and other soft law instruments. It follows from the principle of good administration that an authority must behave in a manner that is consistent with the positions declared in one such instrument. If it ever deviates from them, one would expect, at the very least, an explanation of why it is appropriate to do so in a particular instance.

It is interesting to note, moreover, that both the Court of Justice and the General Court have expressly relied on the Commission’s Guidance Paper on exclusionary abuses in some of the most recent judgments (including, again, the Intel renvoi and Servizio Elettrico Nazionale). This last factor suggests that soft law instruments are valuable not only as a check for intertemporal consistency, but for another reason.

Typically, Guidelines and similar documents are an encapsulation of the expert consensus. This is true, inter alia, of the Guidance Paper itself or, say, the Guidelines on horizontal and non-horizontal mergers (both of which reflect the relevant advances in economics). If one takes this factor into consideration, it becomes clear that soft law can become an effective means to ensure that administrative authorities remain committed to the best available evidence (and not just to the policy positions declared in them).

I would very much welcome your comments (if there was any doubt: nothing to disclose, as usual). And remember that, thanks to the great crowd at EU Law Live, there will be a symposium where some of these ideas will be discussed (including a post by Alfonso). Do not hesitate to join the crowd of discussants!

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You can now register online (see here) for our Panel Discussion on (EU and UK) Subsidies Regulation (22nd September, Thai Theatre, 54 Lincoln’s Inn Fields), followed by a drinks reception.

We very much look forward to seeing many of you in person at LSE. if you have any questions about the event, do not hesitate to contact me or my colleagues at law.events@lse.ac.uk.

I will be discussing all things subsidies regulation (UK regime, EU foreign subsidies) with Claire Froitzheim (CMA), Natura Gracia (Linklaters), Thorsten Käseberg (German Federal Government) and Conor Quigley QC (Serle Court).

If, as we hope, you cannot join us in person on the day, you will be able to follow the panel online. Details will follow soon.

In a recent post I argued that “procedure and rights of defence should not be afterthoughts, for they are what make public enforcement sound, effective and legitimate”. That is a point worth emphasizing again, now in relation to the DMA.

The DMA gets rid of the constraints flowing from competition law as regards substance, but it largely mimics competition procedure, largely transplanting rules from Regulation 1/2003, only with higher sanctions and more discretion for the Commission. This means that procedural constraints, rights of defence and fundamental rights will be, at the very least, as relevant under the DMA as they are under competition law.

The Commission, of course, understands this and is fully committed to respecting fundamental rights (see e.g. page 11 of its legislative proposal). The DMA itself makes clear that “the rights of defence of the gatekeeper, undertaking or association of undertakings concerned shall be fully respected in any proceedings”.

But while this general statement is welcome, I fear that procedural issues may have been somewhat of an afterthought in the process leading up to the DMA’s final text. After all, the aim was to get rid of constraints, not about putting them in place (as D. Geradin has noted, “some of the companies supporting a strong DMA (because they are business users or rivals of large tech firms’ services) were quite effective in setting the agenda and shaping the DMA as it was negotiated“). On top of that, since procedural rules will be developed in a future implementing regulation, there may have been an assumption that someone will eventually think more in detail about those. That someone may not have an easy task; have you tried counting the number of different types of Commission decisions envisaged by the DMA?

The DMA will raise plenty of procedural challenges for enforcers, and at various stages. Gatekeepers may perhaps decide not to raise them (my sense is that companies are focused on ensuring compliance), but some of these issues will inevitably arise, perhaps via third parties. The following are only a sample:

— At the stage of designation, for example: how will the Commission interpret the rule (in recital 23 and Art.3(5)) that a gatekeeper designation can only be rebutted by reference to the quantitative thresholds in Art. 3(2)? This means that gatekeeper designations will ultimately be based on the qualitative criteria in Art. 3(1), but that companies will not be able to exercise their rights of defence directly in relation to those. So the Commission could rely on qualitative factor to designate gatekeepers not subject to the presumption, but companies could not rely on those same factors to rebut the presumption. Query: is this compatible with companies’ rights of defence?

— What procedural rights will third parties enjoy? Unlike competition law, the DMA is not so much about protecting consumers, but competitors/ third parties. It is not about market power, but about the importance of gatekeepers for third parties relying on them. Our experience under competition law shows that third parties play an important and active role at all stages of the procedure, perhaps particularly in relation to remedies. As noted above, third parties appear to have played a pivotal role in shaping the DMA, and they will no doubt make great efforts to have an impact on its enforcement; it would be important to establish a clear procedural framework for them too.

— As regards access to the file, will gatekeepers have access to all materials in the Commission’s file, including potentially exculpatory evidence, or only to those on which eventual decisions will be based (as one could arguably infer from the latest amendments to recital 88)? Will the file include non-confidential versions of all relevant documents and minutes of all contacts held with third parties as per the CJEU’s Intel and the GC’s Qualcomm Judgments?

— I am not sure that the indicative deadlines set in the final DMA text (e.g. 12 months to run full non-compliance investigations or 2 months for market investigations) may be realistic if parties (and third parties?) are to enjoy meaningful procedural rights. The anxiety about moving fast could perhaps create the temptation to take shortcuts. And since the DMA is partly born out of frustration with the length of the competition procedures, we should be particularly cautious about expediency. To give you just an example, Art. 30(4) DMA, provides that “delay caused to the proceedings” may be a relevant factor for the purposes of calculating fines (!). It would be important to clarify that exercising one’s rights of defence cannot be equated with causing undue delays.

— How will the Commission specify the obligations in Article 6? What criteria will it use to ensure equal treatment? What procedure will it use so that other affected gatekeepers might make their views known? It is easy for commentators to say that obligations should be specified on the basis of business models (typically in favour of one’s clients and to the detriment of their competitors), but it is much harder for enforcers to do this without interfering in competition between different business models.

— How will the Commission ensure the proportionality of remedies? Under the competition system and the Alrosa case law the Commission was able to accept commitments going beyond its preliminary concerns. Under the DMA, where commitments are only envisaged for systematic non-compliance proceedings, ensuring proportionality by reference to the alleged infringement and the gatekeeper’s fundamental rights will be of even greater importance (some of the recent commitments proposed by Amazon would arguably not have been attainable under the DMA). In addition, the Canal + Judgment also made clear that assessing the proportionality of remedies should take into consideration their impact on third parties’ contractual rights, and there is no reason why things would be different under the DMA.

These are only a few issues, but I can think of many others regarding, for example, transmission of evidence, the use of evidence previously gathered by the Commission under Arts. 101 and 102, the question of whether the Commission will hold oral hearings, the role of the hearing officer, the interaction with the competition rules and with other regulatory regimes and sanctions, etc.

For the DMA’s implementation to work well, the Commission will not only need additional resources, but also a sound system of procedural rules. In my view, these need to reflect the principle that the greater the discretion enjoyed by the authority, the greater the need to take procedure seriously. It is important for everyone to understand that procedural safeguards are not there to protect gatekeepers, but to uphold the rule of law in a democratic society. It is mainly on that front that the EU should lead the way.

In the brave new DMA world, in sum, we may not discuss anymore about market power, competition on the merits, effects or efficiencies, etc. but there remain fascinating issues to explore for anyone interested in the law.

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[Disclosure: I work for companies likely to be designated as gatekeepers, including for some directly targeted by the DMA. The views expressed in this post are strictly my own and have not been requested, nor paid for, by any clients. At the time of publication, I have not discussed this post with any of my clients].

The deadline to submit papers for the 3rd edition of the Rubén Perea Award is coming up (15 September, 23.59 Brussels time). If you are under 30, we would very much welcome your contribution (up to 15,000 words, including footnotes).

All relevant information about the award (including on elegibility, lenght, formatting requirements and procedure) is available here. Please remember that submissions are to be uploaded through the Journal of European Competition Law and Practice’s site (https://mc.manuscriptcentral.com/jeclap) indicating, in Step 5 of the process, that the submission is for a special issue.

Information about last year’s finalists, winner and awarding ceremony with EVP Vestager is available here.

We look forward to receiving your submissions and making the 3^rd edition of the Rubén Perea Award another success!

The rentrée has finally caught up with us, and with it, conferences and other events. I am delighted to announce that, on 22nd September, LSE Law School will be organising an afternoon panel (5pm-7pm) on (EU and UK) Subsidies Regulation. The event will take place in the New Academic Building (Thai Theatre). Please make sure to save the date!

We will be offering the event in hybrid format, but we very much hope you will be able to join us in person for the occasion (as a plus, there will be drinks afterwards).

With the UK Subsidy Control Regime up and running (the Competition and Markets Authority has recently been consulting on the implementation of the system) and the formal adoption of the EU Foreigns Subsidies Regulation around the corner, the timing could not be better. Coincidentally, the new edition of Conor Quigley’s legendary treatise on State aid will be coming out on the very same day.

I am delighted to confirm the superstar panel of experts with whom we will be discussing these topics:

Claire Froitzheim, Director at the Competition and Markets Authority

Natura Gracia, Partner at Linklaters

Thorsten Käseberg, Head of Competition Policy at the German Federal Ministry for Economic Affairs and Climate Action

Conor Quigley QC, Barrister at Serle Court

I will soon be following up with details on registration (for free, as usual) and others. In the meantime, do not hesitate to drop me a line if you have any questions about the event. We look forward to seeing many of you there!

Last week gave us, among others, Advocate General Rantos’s Opinion in Unilever (see here for the French version). As Servizio Elettrico Nazionale, the preliminary reference comes from the Italian Consiglio di Stato and originated in abuse of dominance proceedings before the AGCM.

Unilever raises two points of law. One relates to the single economic entity doctrine. The second, on which this post will focus, to the meaning and scope of the Intel judgment of 2017.

In essence, the Consiglio di Stato asks whether the framework laid down in Intel is also relevant outside the specific context of loyalty rebates, and more precisely where a dominant firm imposes outright exclusivity obligations on its customers.

The question from Italy’s highest administrative court has two elements: one substantive and one procedural. The substantive aspect has to do with the need to assess, as a matter of law, the capacity of an exclusivity obligation to foreclose competition. The procedural side of things concerns the need for the administrative authority to engage with the economic arguments raised by the dominant firm.

AG Rantos’s view on the point of principle is clear: the framework laid down in Intel applies irrespective of the practice at stake, to the extent that the dominant firm provides evidence showing the absence of effects (para 71).[1]

Thus, whenever the ‘Intel test’ is triggered, the authority is required to assess the actual or potential impact of the practice in light of the five criteria identified by the Court.

This clarification would be relevant when assessing the legality of ‘by object’ conduct, such as exclusive dealing (at stake in the case), predatory pricing and tying, since a finding of abuse does not necessitate, in principle, an assessment of effects.

It is difficult to disagree with AG Rantos on this point. As the Opinion explains, the very letter of the Intel judgment appears to suggest that the framework applies to any dominant undertaking (paras 74-76).

In addition, a teleological interpretation of Article 102 TFEU would go to confirm this view. As the Court made explicit in Generics, a finding of abuse presupposes that the contentious practice is capable of restricting competition.

Thus, it is only logical that arguments pertaining to the absence of actual or potential effects are considered across the board, and not only in the narrow factual circumstances of Intel (paras 78-79).

The answer to the substantive aspects of the question already addresses, by and large, its procedural dimension. If the Intel framework is applicable irrespective of the practice, by necessity a competition authority is under a duty to consider the arguments of an economic nature raised by the dominant firm (para 84).

The Opinion makes several important points from a procedural perspective. First, AG Rantos reminds us not to lose sight of the fact that authorities have the legal burden of proving the infringement, even if it is for dominant firms to reverse the presumption of foreclosure/exploitation in ‘by object’ cases.

Second, competition authorities cannot reject outright the economic evidence put forward by the parties, except by showing that the methodology relied upon by the dominant firm is not capable of substantiating claims about the potential effects of a practice (para 85).[2]

This point addresses one of the gaps left by previous case law, namely the standard of proof that dominant firms would have to meet to trigger the ‘Intel test’.

AG Rantos appears to suggest that authorities would only be dispensed from the need to engage with the evidence provided by a dominant undertaking when such evidence is irrelevant for the purposes of the assessment (a very low threshold indeed). Importantly, the Opinion makes it clear that, even in this scenario, the authority would still be subject to a duty to state reasons (para 85).

All in all, the answer to the question raised by the Consiglio di Stato seems straightforward. Its significance for future Article 102 TFEU cases, on the other hand, cannot be overstated. Some of the themes addressed by AG Rantos, such as whether the evidence has been adequately considered by the authority, are likely to be relevant again soon.

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[1] The French version reads as follows: ’71. Pour les raisons suivantes, et ainsi qu’il a déjà été indiqué au point 63 des présentes conclusions, j’estime que ce même principe vaut de manière générale, et indépendamment du type de restriction, lorsqu’une entreprise dominante avance des preuves visant à démontrer que le comportement en cause n’était pas susceptible de produire de tels effets‘ (emphasis in the original)’.

[2] ’85. Or, même si l’autorité de concurrence considère, comme en l’occurrence, que la méthodologie utilisée aux fins de l’étude économique n’est pas pertinente, elle ne peut pas exclure d’emblée la pertinence d’une telle étude, sauf à indiquer, dans la décision par laquelle cette autorité qualifie un comportement d’« abusif », les raisons pour lesquelles elle estime que la méthodologie sur laquelle repose cette étude ne permet pas de contribuer à la démonstration du fait que les conduites mises en cause ne sont pas aptes à exclure des concurrents aussi efficaces‘.

Exactly 7 years ago, on 16 July 2015, the CJEU rendered its Judgment in Huawei v ZTE (here are the comments I published that day).

The Huawei v ZTE Judgment essentially sought to clarify the circumstances under which the seeking of injunctions by a SEP holder could constitute an abuse of dominance. The Judgment confirmed the view, initially advanced in academic circles, and endorsed by the European Commission in Samsung and Motorola, (and vehemently opposed by many) that in certain cases patent hold up was a competition law problem connected to the leveraging of market power obtained through standardization. The underlying idea was that hold up could materialize in refusals to licence, excessive royalties or injunctions. In that Judgment the Court set up a procedural framework balancing the different stakes and incentives at issue.

7 years later many of these debates remain (and remain equally bitter). Interestingly, though, there appears to have been an effort to shift attention away from hold up and focus, instead, on hold out  (i.e. the situation where implementers would allegedly refuse to negotiate in good faith). The argument is that innovation on the part of SEP holders would be discouraged should their royalties not be high enough as a result of hold out.

Paying attention to potential hold out on case-by-case assessments might be, to some extent, natural because  implementing the procedural framework set out in Huawei v ZTE necessarily requires assessing whether implementers have entered into bona fides negotiations.

At the same time, however, the recent trend is to present hold out (aka “reverse hold up”) as the other side of the same coin. This view has made it from economic articles, to national litigation, to the “new Madison” policy in the US under AAG Delrahim. More recently, and more surprisingly, the European Commission’s draft horizontal Guidelines (recital 470) would appear to support this view:

“When the standard constitutes a barrier to entry, the undertaking could thereby control the product or service market to which the standard relates. This in turn could allow undertakings to behave in anti-competitive ways, for example by refusing to license the necessary IPR or by extracting excess rents by way of discriminatory or excessive royalty fees thereby preventing effective access to the standard (“hold-up”). The reverse situation may also arise if licensing negotiations are drawn out for reasons attributable solely to the user of the standard. This could include for example a refusal to pay a FRAND royalty fee or using dilatory strategies (“hold-out”)”.

Perhaps it is simply a drafting problem, but this paragraph appears to put hold up on the part of SEP holders and hold out on the part of individual users of the standard (and the concerns to which they both relate) at the same level, also from a legal standpoint. This is interesting for various reasons that we have often discussed on this blog. First, the shift in the focus of these debates is one more example of the pendulum oscillations that characterize competition law, but one where the swing would appear to be particularly wide. Second, this text would also appear to equate hold out practices with anticompetitive hold up practices on the grounds that both can affect the distribution of rents between the different parties, regardless of whether they involve the exercise of market power or not.

I would welcome your views on this point. Not having worked for clients on these issues, I have no view on the extent to which hold out may be a real-life concern. As a competition lawyer, however, I have trouble seeing how hold out practices could lead to genuine competition law concerns (i.e. how they could lead to foreclosure, anticompetitive leveraging, exploitation or otherwise restrict competition) absent dominance or a cartel/boycott-like arrangement at the level of would-be licensees. I see that others have expressed very similar thoughts (e.g. here or here).

Don’t get me wrong. As mentioned above, hold out considerations can be, and have been, relevant in case-by-case assessments under the Huawei v ZTE framework (under that framework injunctions remain legitimate in relation to implementers not acting in good faith). But to the extent that hold out concerns may be concerned with relative bargaining power (as opposed to market power) and with the distribution of rents between SEP holders and implementers (absent market power, exploitation or foreclosure), they would not appear to be a matter for competition law to address. In sum, while the narrative, the incentives, and perhaps even the economics, may be “the reverse” as those arising in hold up scenarios, this might not be accurate from a legal standpoint.

Once again, thanks to Lewis Crofts and his reporting abilities via Twitter, I have been able to get a sense of what has been going before the Court this week. If you have not done so, go check his tweeting on ISU and Super League. These two cases will have a major impact on the relationship between competition law and sports governance.

I have been following this topic closely for a while (the updated version of my paper on sports governance can be found here; I am really grateful, by the way, to those who reached out with comments).

Lewis’s reporting gives me the impression that much has been discussed about sports associations’ alleged ‘conflicts of interests’. According to a particular school of thought, it is concerning that governing bodies enjoy the power to regulate the sport and, at the same time, to authorise rival competitions.

I have never really understood why this idea has managed to gain so much traction. It is definitely an astute spin on the issues. As an outside observer, however, I am not sure it makes sense to frame discussions in terms of conflicts of interest. It is, in fact, a problematic way of looking into the underlying substance.

It is problematic, first, because it suggests that the fact that a firm protects its own economic interests is somehow a concern under competition law (of all disciplines). Second, because it is based on the (now discredited) idea that one can meaningfully distinguish between, respectively, sports-related and economic considerations.

Third, and finally, because it would be unfair to sports associations, in the sense that it would demand more from them than from any other entity engaged in an economic activity.

‘Conflict of interest’ is just another way of saying ‘protecting one’s economic interest’ (which has never been presumptively anticompetitive)

Discussions around conflicts of interests in cases like ISU and Super League give the impression that the situation is specific or unique to sports governing bodies, in the sense that it does not arise elsewhere in the economy (or only rarely).

In reality, the only thing that is unique to sports is the vocabulary used to frame the underlying issues. When it comes to the substance of these issues, there is nothing special, let alone exceptional, about the situations described in the abovementioned cases.

In reality, ‘conflict of interest’ is another way of saying that governing bodies have put in place mechanisms aimed at defending their economic interests. And we know from the case law that doing so is not necessarily or presumptively anticompetitive (not even when the firm enjoys a dominant position).

Just to illustrate how pervasive (and, sometimes, even prima facie pro-competitive) so-called conflicts of interest are, consider the following examples.

A franchisor finds itself in a position that is not fundamentally different from that of a sports governing body. It dictates the rules of the system (brand image, quality of the products, look and feel of the stores) and also limits competition: franchisees will typically be subject to a non-compete obligation preventing them from concluding similar agreements with other suppliers, or setting up rival shops themselves.

In spite of the blatant conflict of interest, franchising agreements are prima facie lawful under Article 101(1) TFEU.

Consider also the proverbial refusal to deal scenario. A vertically-integrated firm that produces an input and also manufactures the finished product would also be in a ‘conflict of interest’: this firm would be able to control competition against itself on the downstream market.

It is clear from the case law, however, that the vertically-integrated firm cannot be compelled to deal with rivals absent exceptional circumstances. This is so in spite of the fact that its dual status as supplier and competitor to its own (would-be) customers necessarily creates a conflict.

The ‘conflict of interest’ test would apply a stricter standard to sports governing bodies for no valid reason

To the extent that ‘conflict of interest’ is just another way of saying ‘undertaking acting as expected in a system based on undistorted competition’, there is no reason to make it presumptively anticompetitive.

What is more, seeing with suspicion this alleged ‘conflict of interest’ would lead to governing bodies being treated more strictly than any other undertaking in competition law. There seems to be no valid reason justifying this differential treatment.

As the Court held in Meca Medina, there is nothing that immunises sports associations from the application of competition law. They may be scrutinised under Articles 101 and 102 TFEU, just like any other economic activity.

Conversely, it is not because a case is about football or skating (as opposed to the manufacturing of aminobutanol, or the delivery of newspapers) that so-called ‘conflicts of interests’ should become problematic ipso facto.

As explained in my paper, cases like ISU and Super League are best understood when examined through the lenses of other horizontal co-operation agreements raising similar issues.

Think of Gottrup-Klim. The cooperative in that case faced a ‘conflict of interest’ just as much as the UEFA or the ISU do. In fact, members of the cooperative were prohibited from taking part in competing ventures.

The association decided who was entitled to compete with itself, while regulating the joint purchasing activities. Alas, the Court held that these non-compete obligations were ancillary and did not restrict competition, whether by object or effect (just like franchising).

The divide between economic and non-economic interests is more of an illusion than a reality

I can think of a final reason why the idea of the ‘conflict of interests’ of sports associations is problematic. It seems to be grounded on the premise that one can establish a clean divide between economic and non-economic measures. According to this understanding, governing bodies would combine functions relating to sport and then economic functions.

The problem with this understanding is that it is, at best, an oversimplification of what goes on in the sector. Scratch beneath the surface and you will realise that this clean divide between the economic and non-economic does not reflect the reality.

Think of salary caps, thinks of rules limiting how much money can be spent on transfers, and on how the revenues generated by a competition are to be allocated. Are these measures economic? Certaintly. Do they serve non-economic aims as well? Without any doubt: they will are typically introduced to achieve competitive balance.

The bottomline is the same: to the extent that they relate to the exercise of an economic activity, the rules adopted by governing bodies are best scrutinised, in the usual way, under Articles 101 and 102 TFEU.

As ever: nothing to disclose in this and, indeed, any other case.

On 15 June the General Court (“GC”) annulled the Commission’s decision imposing a close-to-1-billion euro fine on Qualcomm in relation to alleged exclusivity payments made to Apple in breach of Article 102 TFEU. In a previous post I discussed the Judgment focusing on procedure; this second post deals with substance, and concludes my comments on what this means for future cases.

What the case was about. The case concerns rebates (in the form of direct payments from Qualcomm to Apple) in exchange for Apple exclusively incorporating Qualcomm LTE chipsets in certain devices. The Qualcomm decision was the first Commission decision concerning exclusivity rebates following the CJEUs’ Judgment in Intel.

The Commission’s approach. The Commission largely built its case on the wording of the agreements, the extent of Qualcomm’s alleged dominance, the importance of Apple as a key client and certain (see below) internal documents from Apple. For additional background on how the Commission saw the case, see this guest post from Max Kadar that we published in 2020.

What the Judgment does not address. Throughout the case there were relevant discussions about market definition and dominance (including on the question of whether conducting a SSNIP test was necessary or not) and on the binding nature of the Guidance Paper on Article 102 (see here for my take; the Guidance Paper will likely be withdrawn before the Courts address this), but the Judgment did not need touch on those points as it annulled the decision on other grounds.

The Judgment’s substantive review.

The principles. The Judgment starts off recalling the principles that competition law is not concerned with the exclusion of competitors due to their inferior efficiency because dominant companies cannot be prevented from competing on the merits (349-351). The Judgment also recalls the special responsibility of dominant firms (352), retains the formal “presumption” that exclusivity arrangements are abusive (353) subject, however, to the “further clarification” in Intel (354). It recalls that for conduct to be abusive, it must be capable of producing exclusionary effects, and that this assessment requires examining all the relevant circumstances (355). The Court also recalls the Galp case law indicating that post-decision elements may be relevant (357) Tetra Laval standard of review applicable to complex economic assessments (358), and the rules on the burden of proof/presumption of innocence (359).

The F word. In my mind, the principle in 354 (the one set out by the CJEU in Intel) makes clear that, under Art. 102, effects=capability to foreclosure (that is also view that the Commission advanced in its Guidance Paper). The Court is saying that, even for conduct presumed abusive, whenever the dominant company offers evidence challenging capability to restrict, then it is for the Commission to carry out a foreclosure analysis. This is not new, but it’s relevant here, because the Commission’s decision does not refer to foreclosure (just run a Ctrl+Find search here; 373 shows that Qualcomm made the same point). The Commission’s argument is that there was no need to show foreclosure, and that the restrictive effect consisted in the reduction of Apple’s incentives to switch to competitors (381, 384). This debate is also key several pending cases (including some in which I represent clients), but I will reserve my views on those for now. Its also worth noting that the GC’s review looks both at “real world” foreclosure effects and at “hypothetical AEC world” foreclosure effects.

The relevant circumstances. The Court observes that while the decision defines a worldwide relevant market for LTE chipsets, the alleged abuse concerns a single important customer (380). It also notes that the decision did not allege the existence of a strategy to foreclose (383). It then goes on to examine several circumstances.

• Scope of the conduct. The Judgment observes a mismatch between, on the one hand, the Commission’s analysis and findings of abuse (which relate to LTE chipsets for iPhones and iPads) (389-391) and, on the other hand, the Apple documents and explanations invoked to support those findings, which only referred to certain iPad models which Apple planned to launch in 2014 and 2015 (395, see also 420 and 422).
• The counterfactual. The Court notes that, according to the decision itself (322), between 2011 and 2015 “Apple had no alternative as regards its requirements of LTE chipsets for its iPhone devices” (400); this, the Court underlines, is common ground (403, 405). Since iPhones represented approximately 90% of Apple’s requirements of LTE chipsets (408), this means that for a very large part of Apple’s requirements covered by the decision Apple could not have switched to competing LTE suppliers (409-410). The Judgment observes that, while the decision acknowledged this fact, it failed to consider it when analyzing whether Qualcomm’s conduct was capable of restricting competition (412, 415). The Judgment does not use the term “counterfactual”, but evidently applies that logic: Qualcomm’s payments could not have reduced Apple’s incentives to switch to rivals because, even absent that conduct, Apple could not have switched to rivals. In other words, there was no competition that Qualcomm could have restricted. For this reason, the Court concludes that the decision failed to take into account all the relevant circumstances (417).
• Conditions for granting the payment / exclusivity label. The Court does not dispute that the characterization of the payments as exclusivity payments, but explains that this is “not sufficient to conclude that those payments constituted an abuse” (424).
• Other circumstances invoked by the Commission. At 425 the Court finds that while the circumstances invoked by the Commission (extent of the dominant position, conditions for granting the payments, their amount and duration or the importance of Apple as a customer) “should not be disregarded, the fact remains that those factors (…) do not in themselves demonstrate, in the present case, anticompetitive effect and, in particular, foreclosure” (425). What this means is that “all the relevant circumstances” includes “all the relevant circumstances”, not only those that may support the finding of abuse.

The Judgment also engages, for the sake of completeness (442-444), in an analysis of whether Qualcomm’s conduct could have influenced Apple’s sourcing decisions concerning 2014 and 2015 iPads. In a nutshell, the Court observes that this section of the decision is based on Apple’s internal documents and explanations regarding only to certain versions of certain iPad models which were to be launched in 2014-2015 (439, 450), which do not necessarily match  the Commission’s conclusions (455-456); the Court dismisses both the Commission’s argument that this was a clerical error (458). For this reason, the Court finds that the evidence on which the Commission relied is “inconsistent, both internally within such evidence, and in relation to the findings which it seeks to support” (462-463).

The Court goes on to address Qualcomm’s argument that the Commission failed to take into account evidence that demonstrated that Apple did not select Intel’s chipsets for reasons other than the payments concerned. [This is related to both the procedural points we discussed in the previous post and to the discussion on the counterfactual above]. This has to do with the question of whether Intel’s chipsets met Apple’s technical and schedule requirements. The Commission, based on certain Apple documents and explanations, concluded that it did. But, in the Court’s view, the evidence obtained by Qualcomm through the Section 1782 application (that the Commission opposed) “gives rise to doubts in that regard” (467, 476). Para. 475, for example, shows that the decision had relied on an internal Apple email, but that Qualcomm obtained other follow-up emails suggesting the opposite. For these reasons, the Judgment concludes that the decision failed to carry out a “true examination” of whether alternative chipsets could have met Apple’s requirements (480, also 477) and, therefore, failed to take into consideration all the relevant circumstances.

Finally, the Judgment concludes that the evidence in the decision was not only inconsistent and incomplete, but also that it was incapable of substantiating the conclusions drawn from it (483). In essence, the Court finds that the decision relied exclusively on Apple’s statements and documents which either did not refer to the models at issue (492, 496), were not conclusive (494), or had been internally challenged by other Apple’s employees according to evidence obtained by Qualcomm (498, 499). In a harsh concluding recital (505), the Judgment concludes that the Commission “in the context of a general analysis mixing models and years, relied on evidence which is not relevant, which is contradicted by other evidence or which is not capable of substantiating its conclusions (…) and which, therefore, does not make it possible to demonstrate that the payments concerned actually reduced Apple’s incentives to switch to the applicant’s competitors to obtain supplies of LTE chipsets”.

Comments

This is a thorough and (despite the confidentiality challenges) very clear Judgment articulating the principles set by the Court of Justice in its 2017 Intel Judgment. It is probably noting that the Commission’s case was initially conceived in one world (after the 2014 Intel Judment) but born in a very different (after the 2017 Intel Judgment).

From a legal standpoint, I do not see anything innovative other than the important message that enforcers must consider all, not only some, relevant circumstances. Perhaps ironically, the message from the Court in this case is, in my view, not very different from that of the Apple State aid Judgment (see my comments here). This is what I wrote exactly 2 years ago when that Judgment was delivered; everything applies equally, word by word, to this case:

“The Judgment will attract more attention than other annulments, but in reality, it is not in any way groundbreaking from a legal standpoint. The reasons, and the reasoning, leading to today’s annulment are exactly the same as the one that has led to the recent annulment of other decisions, including in Frucona Kosice, FC Barcelona, Real Madrid, Naviera Armas, Valencia and Elche cases, among others. In recent years the Courts have consistently insisted on the Commission’s obligation to actively and impartially gather and assess all the relevant evidence in relation to issues where the burden of proof is incumbent upon it. It was all there.

You might think this is easy to say in retrospect, but we already anticipated all of this here and here. At the time, we said that “it won’t be difficult for the Commission to continue to win cases if it incorporates this logic into its day-to-day. If that does not happen, we are likely to witness a series of annulments based on this logic (…) My bet is that I will be making a few future cross references back to this prediction”. Here’s one more cross reference, probably not the last one”.

Ditto.