I Started Something and Now I’m Not Too Sure? (or The Commission and Google)
(Note by Alfonso: Last week I announced that Pablo Ibañez, a great friend of ours, a co-author of mine, and a truly brilliant legal mind, would be writing a post on the Google investigation. Here it is. As lucid as always).
Thanks very much to Nicolas and Alfonso for giving me some space to share a few quick thoughts with their (numerous and growing in number) readers on the nascent Google case! I was looking forward to posting something as soon as I read the press release. For the many readers who do not know me, I am a Lecturer in Competition Law at the LSE (P.Ibanez-Colomo@lse.ac.uk).
My concern with the ongoing proceedings has less to do with the technicalities of the case, very well outlined by Alfonso a few days ago, and more with the future of Article 102 TFEU. More precisely, I wonder whether this investigation is in line with the spirit and purpose of the 2009 Guidance or whether it represents, again, a step back to the pre-Discussion Paper era.
Even though it is an imperfect document, the 2009 Guidance represented a great victory in at least two important respects: it promised consistency (i) across competition law provisions and (ii) within Article 102 TFEU itself. Put differently, the Guidance Paper gave us the hope that the standards of intervention would be the same regardless of the provision (in particular, Article 101 vs. 102 TFEU) or the formal label with which the case is brought. This means, for instance, that a ‘margin squeeze’ will from now on be treated as a ‘constructive refusal to supply’ (and, as a result, it will in most instances be necessary to establish that the access to the input in question is ‘indispensable’ within the meaning of the Bronner and Magill cases).
Why is the ongoing investigation in Google problematic from this perspective? Because the European Commission seems to suggest that it is justified to open an investigation on grounds that Google may be discriminating against its rivals in web searches.
– Is secondary-line discrimination a problem in and of itself under Article 102 TFEU? Clearly not, it would seem, in the light of the logic underlying the 2009 Guidance and the Non-Horizontal Merger Guidelines. What is more, secondary-line discrimination is not even an ‘enforcement priority’ for the European Commission (try to find the word ‘discrimination’ in the 2009 Guidance using Microsoft Windows’ built-in search engine!).
– Is a dominant undertaking obliged to provide non-discriminatory access to its inputs in the first place?
o Maybe, if, as in the case of a ‘margin squeeze’, the conditions set out in Bronner are fulfilled (i.e. if non-discriminatory access is indispensable to compete and non-discrimination is necessary to avoid foreclosure on the neighbouring market).
o Maybe, if it is a recently liberalised market (a decisive factor in the few precedents on secondary-line discrimination cases).
o Maybe, if there are concerns with market integration and nationality discrimination (the second crucial factor explaining the outcome of these precedents).
None of these ‘maybes’ seem to apply in the Google investigation. Suggesting that non-discriminatory access to Google (however powerful and dominant its search engine) is indispensable to avoid foreclosure in a neighbouring market is hardly a credible claim. In addition, Google has emerged as a market leader in a deregulated and fast-moving market.
In view of the above, I hope that, it the case is not dropped, the European Commission explains convincingly and at length (even though this seems to exclude the kind of reasoning displayed so far in ‘commitment decisions’) why secondary-line discrimination may in and of itself constitute an abuse of a dominant position in the specific circumstances of the Google proceedings (or, alternatively, that the conditions set out in Bronner are met). If this is not the case, the promise of the 2009 Guidance will not have been fulfilled (and this, only a year after its adoption).
To be honest, I also hope that, if the European Commission adopts a prohibition decision, Google decides not to appeal this decision before the General Court. I can already imagine the General Court stating, in a terse and unreasoned paragraph, that secondary-line discrimination is not a form of ‘competition on the merits’ and is therefore caught by Article 102 TFEU by its very nature (i.e. à la AstraZeneca).
The European Fordham
Like last year, N. Charbit (concurrences) has managed to put together an impressive programme for the second edition of “New Frontiers of Antitrust“.
The conference will take place on Friday 11th February, at the House of Parliament in Paris.
See link hereafter for the programme. New Frontiers of Antitrust Paris 110211
Horizontal Cooperation Agreements
Last week, I faced the very pleasant situation of having to lecture on horizontal cooperation agreements a day only after the adoption of the new horizontal framework by the Commission…
The good thing is that it gave me an opportunity to read the text from top to bottom.
So here’s my own assessment of this lenghty set of Guidelines. I like: (i) the introduction of a chapter on information exchange agreements; and (ii) the examples, which are very instructive and draw on national practice, §§107 and 109 notably (or the bottom-up learning effects that arise with decentralization)..
However, there’s a heap of less satisfactory things in the Guidelines. To structure things a little, I distinguish between formal (1) and substantive (2) issues.
1. Formal issues
Unpractical self-assessment method. The Guidelines stick to the good old Article 101(1)-Article 101(3) sequence. But why not endorse a simpler self-assessment method which involves:
- First step: screening of the agreement through incompatibility presumptions (hardcore provisions); followed by screening of compatibility presumptions (de minimis; market share thresholds; and conditions);
- Second step: detailed assessment of possible restrictive effects under 101(1); followed by detailed assessment of possible pro-competitive effects
Incorporation of the rules on environmental agreements within the standardisation section. Why are those agreements no longer worth a specific section?
Linguistic mistakes in French version. The concept of “vente groupée” used under the section on agreements on commercialization is confusing. The Commission and Court routinely refer it in relation to bundling under Article 102 and the EUMR (see Microsoft and Tetra Laval).
Perfunctory treatment of Article 101(3) arguments. The Guidelines often say that horizontal cooperation agreements bring significant efficiencies, pro-competitive effects, and so on. Yet, when it comes to providing guidance on efficiencies, the Guidelines dedicate little time and space to the issue (or they simply restate in substance what has been said under Article 101(1), check the section on standardization agreements). True though, one can find help in the unhelpful Article 101(3) General Guidelines.
2. Substantive issues
Inconsistent, and old-fashioned analytical framework for collusion. There’s been a number of great books on tacit collusion in the past decade, and more importantly, good judgments and soft law instruments (the Airtours ruling, the Guidelines on horizontal mergers, the Article 102 Guidance Communication). All set out a modern, consensual framework for the assessment of collusion concerns which hinges on the proof of 4 cumulative conditions. Very remarkably – and to the exception of a footnote in the section of information exchanges – the new Guidelines suggest however to test tacit collusion through an impressionistic, structural, and reduced range of factors. The section on purchasing agreements which refers to commonality of costs and exchange of information (§§213-216) brings a glaring illustration of this. But the same applies to production (§§175-182) and commercialization (§§242-245) agreements. My question: are the dark times of the checklist approach back? Of course, this approach leaves more leeway to enforcement authorities, but it generates huge legal uncertainty + high type I errors risks. And it is wholly inconsistent with the approach taken under the EUMR, which pursuant to §21, has “certain common elements … pertaining to the potential restrictive effects, in particular as regards joint ventures“.
The §§ on FRAND terms are devoid of legal basis, and should be disregarded. To draw possibly on the expertise gathered in the Qualcomm and Rambus cases, the section on standardisation agreements devotes some wording to what is, and how to self-assess, a FRAND price. Now, under EU competition law, it is well settled that unilateral conduct falls short of an agreement under Article 101 TFEU. Assume that following the adoption of a standard, a party unilaterally decides to request terms which other parties challenge as unFRAND (the classic patent ambush story). In such a setting where firms antagonize, there is no, and there cannot be, an unlawful agreement under Article 101 TFEU. Since the Bayer and VW rulings, the fact that the parties have, in the past, co-operated in the SSO is no longer sufficient to trigger the applicability of Article 101 TFEU (those cases repealed the “contractual framework” doctrine inherited from the Ford case). And by the way, everyone knows this. To date, allegations of unFRAND terms have only been brought under Article 102 TFEU (notably by discontent parties which had participated to the standardization process).
PS: The new texts were given a number today. The R&D BER is Regulation 1217/2010 and the specialisation BER is Regulation 1218/2010.
PS2: The GCLC will have a conference on the horizontal package in February 2011.
Early Sunday Quote
Ronald Coase once said:
“One important result of this preoccupation with the monopoly problem is that if an economist finds something—a business practice of one sort or other—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.”
A quote worth ruminating, in light of the increased interest of antitrust agencies’ for unilateral conduct in dynamic industries.
Found on TOTM. The real source is Ronald H. Coase, “Industrial Organization: A Proposal for Research,” in Victor Fuchs, ed., Policy Issues and Research Issues in Industrial Organization (New York, NY: National Bureau of Economic Research, 1972), p. 69.
Wrapping up the week / Case T-427/08, CEAHR v Commission
This week was full of news, some of which we didn´t echo here. This is a quick overview of what has happened since Monday:
The European Commission adopted its new guidelines on horizontal agreements and, as anticipated on this blog -aren´t we good at this? -, appointed Kai Uwe Kühn as DG COMP´s Chief Economist.
The General Court issued two important competition-related judgments. In case T-141/08 the Court upheld the Commission´s decision sanctioning E.ON with a 38 million euro fine for the breach of a seal during a dawn-raid. Of a greater substantive interest is the Judgment in case T-427/08, discussed below.
On the “Google front”, the Conseil de la Concurrence issued the formal opinion commented here; the Commission took over the investigation of two additional complaints that been lodged before the Bundeskartellamt (which, as stated by the Commission´s spokespeople, won´t change the nature of the ongoing investigation). Unrelated to the investigation, but equally interesting, is a blog post written by Google´s Deputy General Counsel replying to a call for stricter antitrust scrutiny over Google´s acquisitions.
Gossip column: Nico was undeservedly promoted to the category of Professor. Also, it became known yesterday that Damien Geradin, a longtime co-author of his, is leaving Howrey and joining Covington&Burling (and stay tuned: similar news will be coming soon..).
Case T-427/08, CEAHR v Commission
So much for the headlines, let´s move on to a most welcome substantive development from the General Court.
The complaint: The European Confederation for watch repairers associations lodged a complaint before the Commission alleging that watch manufacturers had engaged in agreements and/or concerted practices and/or abused their dominant position by refusing to continue to supply spare parts to independent repairers.
The Commission´s decision rejecting the complaint. Now, guess on what grounds the Commission rejected the complaint… yep: lack of Community interest. The rejection decision arrived at that conclusion noting that (i) the complaint concerned a market of limited size and economic importance; (ii) there was no evidence suggesting the existence of an infringement, and that it was likely that the selective distribution schemes were covered by the block exemption for vertical agreements; (iii) it had reached the prima facie conclusion that repair services and spare parts did not constitute independent relevant markets and rather had to be assessed within the wider market for luxury watches; (iv) the allocation of more resources to the investigation wasn´t likely to allow the Commission to identify an infringement; and (v) national authorities and courts are well placed to deal with such complaints.
The Judgment. The judgment starts by emphasizing that the Commission´s discretion in the examination of complaints is not unlimited, and undertakes the review, one by one, of the reasons put forward by the Commission to justifify the alleged lack of community interest. In doing so, the Court provides valuable guidance on various fronts.
(This will be a bit lengthy; if you´re interested, keep on reading) Read the rest of this entry »
Job promotion
In Belgian academic life, job promotions are rare. In short, tenured academics can move along the following scale:
- Chargé de cours
- Professeur
- Professeur ordinaire
The dream of all academics is to move to grade 3. Means a little more money but more importantly, peer recognition.
Promotions typically happen every two years. Tenured academics can apply for promotion. Applications are reviewed, and ranked by ad hoc committees which scrutinize in particular (i) teaching skills; (ii) research record; and (iii) contribution to University affairs (with a strong emphasis on (ii)).
Yesterday, I moved from 1 to 2. I am now officially a (happy) Professor. This blog, and your visits, have likely contributed to this. Again, thanks for your trust and support.
GCLC Lunch Talk on EU-Korea FTA
Not much to report today.
I attach the slides presented at last week’s GCLC lunch talk. Thanks again to Dirk Van der Wee (EU Commission) and Peter Camesasca (Covington).
Word of warning
Today, the distance between Google and a competition law infringement has drastically narrowed down.
In a formal opinion (not a decision), the French NCA declared that Google occupies a dominant position on the search advertisement market. To tell the truth, this is far from surprising. Yet, this will certainly be bad news for Google, which has been willing to observe a low PR profile until recently.
Now, what’s more interesting is that the French NCA purports in its report to provide ex ante guidelines (“grille de lecture“, §297) on those of Google’s practices which may be deemed abusive under the competition rules. A good illustration of soft, indirect enforcement on the basis of consultative opinions.
Here are the possible abuses according to the French NCA :
- Elevation of barriers to entry on search and search advertisement markets (through content exclusivity, technical barriers, etc.)
- Leveraging of market position on search and search advertisement markets (through ranking manipulation, etc.)
- Unlawful discrimination in relation to the Adwords service
- Unbalanced revenue sharing mechanism in relation to the Adsense service
The French NCA further notes that competition law is the body of rules which should be solicited to allay concerns on those markets. In contrast, sector specific legislation is not needed.
Interestingly, the power of the French NCA to issue such opinions does not fall within the scope of the Commission’s monitoring powers under Regulation 1/2003. In other words, the Commission cannot influence the substantive conclusions of the French NCA under this procedure.
I plan to read the full opinion tomorrow. We’ll be posting on this regularly in the coming weeks.
New paper on ssrn
Here’s a link to a new paper which I just finalized with my good friend David Henry (Howrey). The paper will appear in the book on vertical restraints that I am currently editing with Charles Gheur, as a follow up to our conference last year.
Its main added value is, I believe, to offer a stepwise method to self-assess vertical agreements. Beyond this, the paper offers a few critical perspectives on selected issues. It contends in particular that (i) the double market share threshold is certainly a nice idea on paper, but that it does not pass the practicability test, especially for small firms involved in vertical agreeements; (ii) the new framework marks a clear extension of the scope of EU competition law, in particular because it turns buyer power upside down (from a pro-competitive factor to an anticompetitive one).
Finally, I cannot resist to share a moment of happiness with you. I learned today that Anne Perrot and Jean-François Bellis will use my paper on the effects based approach under Article 102 TFEU as suggested reading for their forthcoming BSC module.
European Commission vs Google
As anticipated, we will be devoting a series of posts to the investigation initiated by the Commission following allegations that Google discriminates against vertical search pages to the benefit of its own content.
The Commission’s announcement that it was formally initiating an investigation spurred all sorts of reactions. See here for Google´s reaction on its own blog and here for Microsoft´s.
I´m unfortunately not involved in the case, so I will express myself with no constraints. It will nevertheless be extremely interesting to hear from someone in the opposite situation: hopefully some of our colleagues in the blogosphere who are involved in it will eventually comment on the case.
Here are some general impressions which introduce various topics that we´ll be discussing in the coming weeks:
The inevitability of competition law: It was probably inevitable that Google would be facing such legal threats given its position as the de facto gatekeeper of the Internet, even if it has achieved its position via “superior product, business acumen or historic accident” or how we, more laconically, say here “competition on the merits”. A company certainly does something right when its name becomes a verb.
It was indeed predictable that antitrust authorities wouldn’t resist the temptation to act against them (in antitrust law, as in the laws of gravity, mass increases attraction). In fact, in a short period of time Google has faced investigations regarding its advertising agreement with Yahoo! (which could not be implemented precisely as a consequence of the antitrust concerns); the existence of interlocking directorates with Apple, and the GoogleBooks project. For my comments on the last two see here and here
In a sense, the investigation might even be good news for Google, since it affords it the chance to prove once and for all that it does not engage in unlawful behavior. Moreover, and in the case that Google did discriminate, the competition community would be provided with a great opportunity to shed light on the status of discriminatory practices under EU competition law and to make clear that not all discrimination is illegal. However, I´m also afraid of the truth that may lie in the aphorism “big cases make bad law”.
An attack against U.S. companies? Some have, once again, argued that this investigation is another illustration of the fact that U.S. firms constitute the Commission’s favorite target. Against such contention, one should note that also the complainants in this case have rather strong links with the US… If anything, what the investigation confirms (once more) is that the European Commission has certainly taken the lead, and a much harder stance, in the prosecution of unilateral conducts.
An anti-Google alliance?-. I was told this summer that several law firms in Brussels were closely working together with the aim of putting pressure on Google on as many angles as possible. If true, is this their first success?
If you can´t beat them..sue them! What this case does illustrate is that the resort to antitrust/competition law has certainly become one of the preeminent competitive tools at the service of competitors willing to obtain on a “court” what they weren’t able to do on the marketplace. Surely Microsoft learned this through its own suffering.
Market definition-. Last week we were discussing market definition teasers: what about online search advertising vs online advertising? what about online search vs a much wider content search market?
Is Google really dominant? The relevance of scale/network effects-. As in most major case of the past few years, allegations on the existence of network effects seems to instantly turn on competition watchdogs. Once again, a positive externality is viewed as a negative market failure justifying antitrust intervention and the instrumentalization of remedies in order to pursue regulatory goals Furthermore, can there be a dominant position as a result of network effects when, as often reminded by Google, “competition is just one click away”? To what extent is antitrust intervention in network/two-sided markets driven by old reflexes and insufficient understanding? This stuff (which is of particular interest to me) will also be covered on an specific post.
Should/ can we require neutrality from dominant companies? The conditions under which a dominant company is required to grant non-discriminatory access to its competitors under EU competition law are extremely narrow. There´s much to be said on this, but we leave the floor to Pablo Ibañez, a very good friend and one of the most brilliant and promising competition scholars, currently at LSE.
How can discrimination be proved/ remedied? Proving that Google´s algorithm is discriminatory appears to me like a herculean task. Not everyone sees this way, though (see here). As Nicolas mentioned on his post below, it is most likely that the Commission will be aiming for commitments on the part of Google, in which case it will be freed from this task. However, how could a commitment resolve the Commission’s doubts as to the existence of discrimination? Could we end up with another “must carry” remedy pursuant to which Google should advertise and link competitor search portals on a prominent part of its results page? Come on.
In sum, and in my view, the investigation implies departing from the Commission´s stated priorities when, moreover, there is no clear dominant position; there is no abusive conduct; how Google harms consumer welfare is certainly hard to see; and there does not seem to be an adequate remedy (which in itself should be an indication of the lack of a problem). A prediction: the Commission will most likely shelve the proceedings, the decision will be appealed by the complainants -who have the incentives and the means to go forward with this-, and we´ll find ourselves before another long legal battle before EU Courts…
*Sources: Every comment used for writing this post -both in favor of and againts Google- was found through Google. Something tells me that the Commission´s staff and, I would bet, the complainants too will resort to Google in order to obtain much of the information they will use in the course of the case (and eventually so would the Judges).
(Image possibly subject to copyright).
Chillin'Competition 