Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

The Ithaca Competition Summit moves to 2021

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Earlier this year we said a word about the Ithaca Competition Summit. You will not be surprised to learn that, unfortunately, and very much to the regret of Peter Alexiadis, it will not take place, as scheduled, in August of this year.

The event will have to wait for another year. As some participants mentioned, however unfortunate, this change of plans is at least very much in keeping with the venerable tradition of taking a bit longer than usual to get to Ithaca.

If you want a flavour of what the programme will look like, you can find what Peter put together here.

I will just mention that it features the President of the General Court, three heads of national competition authorities, the current as well as the three preceding chief economists at DG Comp, in addition to many amazing academic and practitioners (and, for some reason, yours truly).

Watch this space!

Written by Pablo Ibanez Colomo

24 June 2020 at 5:48 pm

Posted in Uncategorized

EU Energy Law: an audio-visual e-book (by Leigh Hancher et al)

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The Robert Schuman Centre - YouTube

Our friend Leigh Hancher needs no introduction. She has long been one of the pre-eminent State aid and energy lawyers.

I have always admired the energy law hub at the EUI’s Robert Schuman Centre, in which she has always played a key role. The team’s expertise, research and ability to take part in major policy discussions are most impressive.

As part of her activities at the Robert Schuman Centre, Leigh has put together (with Anne-Marie Kehoe and Kaisa Huhta) something that I had not seen before: an audiovisual e-book. Take a look at it here. You will see it is an combination of podcasts and videos coherently presented via a set of slides.

It is a really great way to share knowledge (and something I will definitely use – and might try to replicate – at LSE and the College of Europe). Enjoy!

Written by Pablo Ibanez Colomo

19 June 2020 at 12:33 pm

Posted in Uncategorized

AG Kokott in Case C-591/16 P, Lundbeck: the counterfactual that does not dare speak its name?

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AG Kokott’s Opinion in Lundbeck came out earlier this month. Because it was delivered after Generics, most of the issues raised by the case were already settled when issued. In particular, the legal tests to establish potential competition and whether an agreement amounts to a restriction by object have been clarified.

In many respects, Lundbeck is more straightforward than Generics, which in turn makes it easier to apply the tests to the facts of the case. This said, I would note that AG Kokott does not make use of the distinction between genuine and non-genuine settlements. This distinction, introduced in Generics, could be relevant in Lundbeck. The available facts suggest the agreements were a sham (and thus a blatant object infringement).

When reading the Opinion, I told myself that the Court may perhaps have to identify in the future some instances in which intellectual property rights are insurmountable barriers to entry. Such instances must surely exist (in the same way it is clear that, in the specific context of the Lundbeck case, the process patents were in no way an insurmountable barrier).

The counterfactual at the ‘by object’ stage: on names and substance

A central issue that has been settled in the meantime – albeit not in Generics – is that the evaluation of the counterfactual is relevant at the ‘by object’ stage (see here). In Budapest Bank (paras 82-83), the Court held that the conditions of competition that would have prevailed in the absence of the agreement are a factor to consider in this regard.[1]

Interestingly, AG Kokott does not refer to, or discuss, Budapest Bank (only AG Bobek’s Opinion, but not in relation to the counterfactual). What is more, she does not seek to take a definitive stance on this issue, which is left open (para 139).

In any event, she notes in the Opinion that, irrespective of the name that we attach to it, the General Court had indeed evaluated the conditions of competition that would have prevailed in the absence of the agreement. In fact, one of the main points I noted about the first instance judgment is that the GC had denied the relevance of the counterfactual while at the same time conducting an extensive evaluation of the issue. As mentioned, AG Kokott seems to share the same view (see para 139).[2]

AG Kokott’s brief analysis raises three main questions . The first is whether it matters that the evaluation of the conditions of competition that would otherwise have existed is called counterfactual. I do not think so. Whether this assessment is called counterfactual or given another name (say, rose, or tomato), what it entails in substance is now clear. This, I guess, is what matters.

The second is whether there are any advantages in not calling a spade a spade. I cannot think of any. Which takes me to the third question: why, then, the reluctance to use the c-word at the ‘by object’ stage? The most reasonable explanation is probably that, in the eyes of some, considering the counterfactual amounts to evaluating the effects of the agreement. I believe we have been here before. Remember the idea that the pro-competitive effects could not be considered at the ‘by object’ stage? Fortunately we have Budapest Bank now, which shows this fear is not warranted.

What is the role of the counterfactual at the ‘by object’ stage?

The counterfactual at the ‘by object’ stage may be relevant in two ways. First, it may show that the agreement is not capable of restricting competition that would otherwise have existed. This point was elegantly addressed by AG Kokott in her Opinion in Generics, where she referred to GC rulings like E.On Ruhrgas (in addition to the Court judgment in Toshiba). If it turns out there are insurmountable barriers to competition, for instance, it may be the case that the conditions of competition would have been the same with and without the agreement (and therefore there is no restriction, whether by object or effect, as explained in para 58 of AG Kokott’s Opinion in Generics).

Second, it may be the case that the agreement is capable of improving the conditions of competition and is thus not a ‘by object’ infringement. For how can one claim that an agreement that is plausibly pro-competitive has as its ‘precise purpose’ the restriction of competition? This is the key contribution made by the Court in Budapest Bank, although the point was already implicit in Generics (remember the Court considered arguments about the alleged improvements entailed by the agreement).

Why the appelants’ interpretation of the counterfactual seems at odds with the case law

If you read the Opinion, you will see that the appellants in Lundbeck argued that, if the counterfactual had been analysed properly, it would have revealed that generic producers would not have entered the market, and that the absence of entry would have been attributable to Lundbeck’s patents, not to the agreement (para 136).

These arguments seem difficult to square with the case law. As the Court explained in Generics, it is not necessary to show that entry would be certain for potential competition to exist. In the same vein (as held in T-Mobile), an agreement is restrictive by object where it is capable (as opposed to likely, or certain) of restricting competition.

In a case like Lundbeck, it seems enough to show that the originator and the generic producers were potential competitors (and thus that the agreements were capable of restricting competition that would otherwise have existed). Absent any arguments that the settlements were capable of having pro-competitive effects (which the parties did not put forward, as noted in paras 142-143 of the Opinion), no further evaluation was necessary at the ‘by object’ stage.

Read the rest of this entry »

Written by Pablo Ibanez Colomo

16 June 2020 at 3:12 pm

Posted in Uncategorized

Can This Be the New Normal? 10 Questions on the Proposed New Competition Tool

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Last week the European Commission launched a public consultation in relation to a proposed “new competition tool”. The impact of this “tool” on competition law and policy would be impossible to overstate. It would be likely to change competition law as we know it, and as developed over decades of thinking, debate, precedent and experience.

The goal of the tool is to identify “structural risks” that cannot be addressed under Articles 101 and 102, and under the merger rules. These include markets that risk tipping, unilateral practices by non-dominant firms or oligopolistic market structures. In the face of those risks, and even absent any infringement, the Commission could then impose behavioural or structural remedies (e.g. divestments, break-ups and other line of business restrictions). The Commission explains that the scope of this tool would not necessarily be limited to digital markets. 

This new initiative would have been unthinkable only a few months ago. But then again, we live in a strange new world. Let me give you just one additional example: in a report also published last week, the Austrian competition authority proposed to “reverse the burden of proof” in cases where “official investigations rapidly come up against natural or technical limits” (!).  As explained here, and by more authoritative people than myself, this was, and should still be, something “hard to conceive, at least in free democratic societies”. I have trouble accepting that these ideas might be the new normal.

The proposal of a new competition tool also raises too many important questions; here are just a few as an appetizer. We will have time for more in the future. [Disclosure: Just like virtually every competition lawyer/economist, I have a large number of clients that would be potentially affected by this proposal, and they might have different views about it; these are just my own].  Please feel free to engage with these questions, particularly if you have different views.

  1. Would there be an overlap between the new tool and Articles 101 and 102? The justification for the tool is that there may be concerns that “the EU competition rules cannot tackle or cannot address in the most effective manner”. Is the idea to cover alleged “gap” cases only, or also concerns that could be addressed under competition law but that it would be harder to prove under an infringement procedure (e.g. because there are clear evidentiary standards)? Overlaps could be problematic (see the next question below). And if the Commission wants to avoid potential overlap, then it should make clear the type of “concerns” that fall outside the scope of the competition rules (e.g. self-preferencing absent indispensability?) I doubt one may want to do that.
  2. The key question, and the limitations of the legal basis: Would the tool have the object or the effect of bypassing the intervention standards set by the EU Courts in relation to Articles 101 and 102? This is, in my mind, the real question. To the extent that there may be a material overlap, this would become inevitable. As explained here and here, I think it would be unwise to ignore the lessons learnt over the years (I don’t buy, and will actively combat, the new argument that “judges don’t get it”). But my point today is a different one: there is no legal basis for the Commission to bypass the content of Articles 101 and 102 as interpreted by the EU Courts. The Commission has explained that the competition legal basis for the proposal would be Article 103 TFEU. This provision only enables the adoption of legislation to “give effect to the principles set out in Articles 101 and 102”, “ensure compliance with the prohibitions” or “define the scope of the provisions”.  Any new tool based on Art. 103 TFEU would need to be consistent with the provisions of the Treaty as interpreted by the Courts (regarding, for example, the burden of proof, the notions of restriction of competition, dominance, anticompetitive effects…). The Treaty provisions deal with restrictions of competition, but can arguably not be the legal basis for measures that seek to create new competition. 
  3. Do we want to bring the definition of the substantive scope of the competition rules to the realm of politics? Competition law has historically been judge-made law, in the belief that this would ensure its flexibility, adaptability, and its isolation from small politics. Until now, only the Commission and the Courts have played a role in defining the material scope of the competition rules. Legislative initiatives under Art. 103 TFEU were limited to merger rules and procedural matters. Again, the times they are-a changin’. This may (for better or for worse) cross what until now was a red line, potentially changing the discipline. It may seem the Commission is obtaining new powers, but it may be at the risk of losing its preeminent role in defining the rules.
  4. Is there really a blind spot in competition law? We dealt with that in a recent post. There are few, if any, areas of the law as flexible and malleable as competition law. Are there really gaps? I, for one, trust in the ability of the Commission to bring, and win, cases where a real problem exists. Have DG Comp’s existing sectoral powers let us down? Remarkably, not so long ago the sentiment was that competition law was unduly harsh to dominant firms (I didn’t buy that then, and I don’t buy the opposite now). That competition law may not reach where some people would like it to doesn’t mean there is a gap. Having to analyze practices on a case by case basis is not a flaw, but the only way to get it right.
  5. Can the pace of competition enforcement give rise to irreversible consequences? Two questions here: is there any case where we know that earlier intervention would have made a change? If you think about it, even the tech cases that have taken a number of years (e.g. Google Shopping) were ultimately precautionary in nature (i.e. concerned about likely potential effects). If the decision had really come too late, it should have been easy to make a case about actual effects. Also, can we all agree that  competition authorities need more resources and that this would also help speeding up cases? 
  6. Are remedies the problem? You may have lately heard on the conference circuit that cases are good but remedies are horrible. It’s clear why one would say that, but it can be a legitimate view. The way we see it, though, remedies, and their outcome, often tell you a lot about how solid a case really is. Imagine a fictional case where there would be no causality between the conduct found as abusive and its alleged effects (for example, because the domco’s market share was due to superior quality). If you impose a remedy targeting that conduct, the remedy will of course not have any impact. Arguably, the remedy’s failure would simply expose that the conduct wasn’t a problem  in the first place. If one believes that the theories of harm underlying  a decision are sound, and we believe that a compliant remedy is insufficient, why don’t we simply draft decisions differently? 
  7. How to ensure the proportionality of intervention? Under current EU competition law (and except in Art. 9 commitment scenarios) remedies need to be proportionate to undoing the consequences of an alleged infringement. Some people believe that the advantage of the new tool is that it would enable the Commission to impose more far-reaching remedies because, as there would be no infringement, there would be no need to ensure proportionality to it. This is a curious logic: since a company did nothing wrong, it can be treated worse. Where would then lie the proportionality limits? The Inception Impact Assessment explains that “these remedies would increase costs for the companies concerned. The proportionality of the costs incurred would be ensured by the fact that such remedies have to be limited to ensuring the proper functioning of the market under scrutiny”. You can judge for yourselves whether that dispels concerns.
  8. What impact on international convergence? The EU competition law system of objective, expert-based and fair enforcement has been a model to other jurisdictions and has inspired many important legislative initiatives around the world. The creation of new standards, the imposition of remedies absent an infringement and the wide margin to identify the situations in need of intervention could also be replicated in other jurisdictions with arguably less guarantess. Be careful what you wish for. The CMA experience is cited as the basis for this new tool, but not all jurisdictions have the UK’s checks and balances. There are in any case lessons from the experience there. The UK has chosen not to use that tool for tech issues when it could have, believing that other tools would be preferable. Why? Where has the CMA done a better job in a market than DG Comp? Was it because the CMA could act faster or because of something else?
  9. Would the new tool be of a “non punitive” nature? The Inception Impact Assessment insists that the options considered would entail no finding of infringement, no fines, no damages claims. Why that emphasis? There may be an assumption that a new regulatory tool would be able to do away with some burdens, including the burden of proof. The “advantage” of the new tool is that one could impose even stricter remedies, without having to establish any wrongdoing. That seems like a win-win for some. But think about it again: companies may face stricter remedies than under quasi criminal competition law, with less procedural rights, and even if they haven’t done anything wrong. This doesn’t mean there is no punishment; it means there would be punishment without the crime and without limiting principles. Would a new tool compliant with the standards that the ECHR sets for liberal democracies? How would we be able to challenge other countries if they start adopting adopting harsh remedies (against companies or individuals) absent wrongdoing but in response to perceived threats?
  10. Do we really want this to be the new normal? The “new tool” would not be a mere technical refirenement; it goes much beyond that. We can no doubt make improvements, but we should be extremely careful not to cross red lines. In competition law (and perhaps even more in competition economics) we have become accustomed to the absence of bright lines and we dislike restrictions, but the law does by nature set some limits to what we all can do (and this goes both for companies and public authorities). Legal rules are but the wise restraints that make us free. It may be frustrating, but we know from experience that it is much better than discretion. This doesn’t mean we should necessarily be satisfied with the “status quo” (without some friction there may not be progress), but we shouldn’t compromise basic principles in the search for solutions. The European Union leads with values, and the balance of justice that makes us proud depends on our taking an evidence led approach to competition law subject to clear standards and thorough judicial review.

Written by Alfonso Lamadrid

11 June 2020 at 11:34 am

Posted in Uncategorized

Substantive Legal Tests and Standard of Proof: Rules Lost in Translation? (by Andriani Kalintiri)

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Evidence Standards in EU Competition Enforcement

The CK Telecoms (Three/O2) judgment has revived the interest in issues relating to the standard of proof in EU merger control (and competition law at large). It adds valuable insights on the question. As I read it for the first time, I was, yet again, reminded that there is some tendency by commentators to conflate two separate questions: (i) the standard of proof and (ii) the substantive legal test (and more precisely the applicable threshold of effects – capability, likelihood, certainty).

Our friend Andriani Kalintiri (King’s College London) knows these issues inside out, which is why I immediately thought of inviting her to present them in a post. The judgment, by the way, is very much in line with her own take on the standard of proof.

I leave you with her analysis, which hopefully will complement mine. If hungry for more, take a look at her superb book, from which I have learnt a great deal (on evidence, presumptions and judicial review). It is particularly timely now that discussions on presumptions and the burden of proof are all the rage. Thanks again, Andriani!

There is only one way to start this post. First, with a heartfelt ‘thank you’ to Pablo and Alfonso for the kind invitation! And second, with a confession: that the ‘misconception’ this note hopes to illuminate and caution against – i.e. the tendency to conflate substantive legal tests and standards of proof – has been the cause of many headaches during my research! Indeed, in the EU Courts’ antitrust and merger judgments, one often comes across various references to the ‘plausible’, ‘potential’, ‘probable’, ‘likely’ or ‘actual’ effects that a practice or arrangement must give rise to, in order to be prohibited. Are these references, I was wondering, indications of the applicable ‘standard of proof’ or of something else, and why?

BACK TO THE BASICS

To answer this, let me begin with a simple yet important reminder: competition enforcement takes place under conditions of ignorance and uncertainty (as does law enforcement in general). In an ideal world, courts, authorities, and businesses would possess perfect information and would always make correct decisions about the proper meaning of the antitrust and merger rules and their application. In real life, however, information is incomplete and resources, time and our cognitive capacity are limited. Yet, decisions must still be made, and the rules must be enforced.

Among other mechanisms, legal tests and standards of proof are what allows ‘the show to go on’. On the one hand, the legal tests developed by the EU Courts specify the scope of the vaguely worded antitrust and merger rules by setting out the conditions that must be satisfied for a practice to be prohibited – for instance, where the conduct has caused harm or where there is a stronger or lesser chance of such harm occurring. On the other hand, the standard of proof indicates the threshold, falling short of certainty, that the party with the burden of persuasion must surpass for the evidence to be accepted as proof of an allegation.

SO SIMILAR, YET SO DIFFERENT

­In practice, however, these two thresholds are commonly conflated – for instance, it is sometimes said that different ‘standards of proof’ apply to different types of unilateral conduct. Based on what I have said, a key – albeit not the only – explanation for this tendency may be already obvious: that when we think about competition legal tests and standards of proof, we consciously or subconsciously employ probabilistic language – i.e. we use words such as ‘plausible’, ‘potential’, ‘probable’, ‘likely’ and so on, in relation to both of them. For instance, we may say that a practice will be prohibited when it is ‘probable’ or ‘likely’ to foreclose competition. Or that an allegation is proved when it is ‘more likely than not’.

Despite any illusion of unity though, there are important differences between the two. For one, they serve distinct functions in that they answer different questions. The key question competition legal tests are ultimately preoccupied with is: ‘what level of harm is required for a conduct to be deemed unlawful?’ On the other hand, standards of proof address a different issue – i.e. ‘what level of evidence is sufficient for an allegation to be accepted as true in the eyes of the law?’

Most importantly, the considerations that inform their design – i.e. what the substantive legal test and the standard of proof should be – are different, too. As a starting point, both aim to minimise false convictions and false acquittals since either error entails costs. While, however, these costs are not entirely disassociated (at least in the longer term), they are not identical either – and nor are the factors that underpin their balancing. This discussion is particularly complex, but in rough terms the following may be noted.

As far as ‘erroneous’ legal tests are concerned, their primary costs are chilling procompetitive behaviour and encouraging anticompetitive conduct (including in both instances, the respective harm to competition and consumers). Their balancing in designing the ‘optimal’ legal test – and threshold of effects – largely depends on the nature of the conduct in question in the light of current knowledge about it, and the cost of enforcement as well as business compliance. This explains why the substantive legal test varies practice to practice – cartels, for instance, are not treated in the same way as refusals to supply, for which the required threshold of effects is much higher, given the implications for firms’ incentives to innovate.

By contrast, the primary costs of an ‘erroneous’ standard of proof are the undue interference with the freedom and rights of the defendant and of harm to society. Their balancing in designing the ‘optimal’ standard of proof largely depends on fairness considerations linked to the seriousness of the consequences involved for the person concerned and the specific features of the enforcement model, including any inequality of arms. This explains why the standard of proof is ‘static’ – the same standard of proof (i.e. ‘firm conviction’) applies to cartels and refusals to supply, and rightly so, since the consequences for the undertakings involved and the nature of the enforcement proceedings are the same.

MUCH ADO ABOUT NOTHING?

This discussion is not purely academic for several reasons, but I will confine myself to two.

First, conflating substantive legal tests and standards of proof may lead to confused discussions about what these are or should be. Two examples illustrate this risk. On the one hand, recent reports on digital competition policy suggested, among others, modifications in the burden and standard of proof; more accurately though, these proposals arguably concern the substantive legal test, and should be assessed as such.[1] On the other hand, in merger control it is often argued that the applicable standard of proof is – and should be – the ‘balance of probabilities’ due to the absence of fines and the prospective nature of the analysis. As I have explained elsewhere though, the case law suggests – and rightly so, in my opinion – a much higher standard of proof. The recent judgment in CK Telecoms seems to confirm this: as the General Court noted, ‘the standard of proof (…) is therefore stricter than that under which a significant impediment to effective competition is “more likely than not”, on the basis of a “balance of probabilities” (…)’, although it is ‘it is less strict than a standard of proof based on “being beyond all reasonable doubt”’ (para 118).

Second, substantive legal tests and standards of proof are equally important to the correctness and legitimacy of enforcement. Indeed, ‘correct’ legal tests may not compensate for shortcomings in the design of the standard of proof. Think, for instance, of cartels – the fact that they are rightly subject to a ‘by object’ prohibition could not ‘save the day’, if the standard of proof were too low – say, equivalent to the balance of probabilities (or similar threshold of belief) given the operation of the presumption of innocence. The opposite is also true: ‘high’ standards of proof may not rectify inappropriately formulated substantive legal tests. Think, for instance, of Google Shopping Service: even if the Commission has successfully established a ‘firm conviction’ that the elements of the substantive legal test – as it understands it – are met in the light of the evidence, this will not mean much, if the latter is eventually found to be incorrect.

BACK TO THE FUTURE

Ultimately, it is important to appreciate that substantive legal tests and standards of proof are different rules. Of course, the stricter the substantive legal test, the more difficult it will be to discharge the standard of proof – and vice versa, the stricter the standard of proof, the more difficult it will be to prove in specific cases the constituent elements of the substantive legal test. However, they remain distinct yet equally important for an authority’s decision to be not only lawful but also legitimate. In this regard, the discussion is not about semantics – rather, words such as ‘plausible’, ‘potential’, ‘possible’, ‘probable’, ‘likely’ and so on, may lead to very different perceptions of the applicable threshold of effects or standard of proof, depending on what they actually refer to, and we should thus use them more consciously and accurately to avoid confusion and misunderstandings.

And a final remark, for the avoidance of any doubt: I have no interest to disclose – other than a deep academic fascination with the topic!


[1] For example, in the Report on Competition Policy for the Digital Era, it is noted (p 4) that ‘(…) competition law should try to translate general insights about error costs into legal tests. The specific characteristics of many digital markets have arguably changed the balance of error cost and implementation costs, such that some modifications of the established tests, including allocation of the burden of proof and definition of the standard of proof, may be called for.’

Written by Pablo Ibanez Colomo

8 June 2020 at 5:27 pm

Posted in Uncategorized

Rubén Perea Award for young competition lawyers: how to participate

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As promised, we are coming back with the conditions to take part in the award set up in the memory of Rubén Perea. We encourage you to participate, and we call on university professors and senior lawyers/economists to encourage their students and younger colleagues to apply.

Who can participate?

You may participate if you have not reached the age of 30 by the submission date (i.e. if you were born after 15 September 1990). Undergraduate and postgraduate students, as well as scholars and practitioners are all invited to participate.

The Award

The winning paper will be published in the Journal of European Competition Law and Practice. The winner will be announced on Chillin’Competition, and will have the opportunity to present the work in a guest post. If the circumstances allow it, an award will be presented at the next Chillin’Competition conference.

What papers can be submitted?

You may submit a single-author unpublished paper which is not under consideration elsewhere. The paper may be specifically prepared for the award, or one originally drafted as an undergraduate or postgraduate dissertation.

The paper must not exceed 15,000 words (footnotes included); authors: do not fall into the trap of believing that more is necessarily better (the opposite is often true).

Submissions will have to observe academic conventions. It is strongly recommended that you follow the OSCOLA referencing guide (the citations of CJEU judgments should follow the ECLI method). Submissions should include a brief abstract in the form of three or four bullet points, as all papers published in the Journal of European Competition Law & Practice.

You may want to take a look at this paper to get an idea of the overall format and citation style followed by the Journal. [Warning, this is self-preferencing by Pablo aimed at increasing traffic to his papers]

What is the deadline?

Papers will have to be submitted by 23.59 (Brussels time) of 15 September 2020.

How to submit?

A paper, together with a cover letter, will have to be submitted via this link: https://mc.manuscriptcentral.com/jeclap.

The cover letter must simply indicate that the paper is submitted for the Rubén Perea Award.

The Jury

The jury will include a representative of the Journal of European Competition Law & Practice (Gianni de Stefano), two promising young practitioners and friends of Rubén (Lena Hornkohl and David Pérez de Lamo), an academic/enforcer/former practitioner and former teacher of Rubén (Damien Gerard) and a representative of Chillin’Competition/Garrigues (myself). The papers will be anonymised before they are sent out to the jury.

Written by Alfonso Lamadrid

5 June 2020 at 2:04 pm

Posted in Uncategorized

On the possible ex ante regulation of online platforms (II): line of business restrictions (OECD round table)

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OECD Competition Law and Policy | LinkedIn

Discussions about the ex ante regulation of platforms are becoming ever more prominent. I do not think any reader is unaware of yesterday’s announcements by the European Commission relating to the development of new tools in the competition and the ex ante regulation arena (see here and here).

As these debates gather momentum, the OECD has set up a panel on an issue that is central to them. You will be able to find here all the info on the upcoming round table (Monday of next week), including a background note and a set of videos featuring, among others, yours truly (feedback most welcome!). The presentation I used in the video can be found here. Big thanks, by the way, to Chris Pike (OECD), who also prepared the background note.

The panel is devoted to line of business restriction, that is, the different regulatory techniques used to limit the ability of a firm to take part in an adjacent activity. It is a topic address in Martin Cave‘s legendary ‘Six Degrees of Separation’, still one of the best titles of all time for a paper (see here).

The topic is a classic one in utilities regulation. A substantial fraction of debates in telecoms relates to the separation of the local loop from other activities (in particular, retail activities like broadband). In the energy sector, the separation of natural monopoly segments (transmission and distribution) from the rest of the activities (generation and supply) is also a central aspect.

The idea of separation has made a comeback. Some advocate the same approach to separation in relation to online platforms. Some advance the idea that Big Tech firms like Google or Amazon should be subject to some form of separation across their different activities.

In my presentation, I introduce the various degrees of separation as points along a spectrum: from the least intrusive (transparency obligations) to the most intrusive (structural divestiture). This is how I see it:

Line of business

The fundamental point I make in the presentation is that the choice between one end of the spectrum or the other seems to depend on two factors: the rate of innovation and the efficiencies resulting from the activity.

In particular, the greater the degree of innovation on a particular market or industry, the greater the reluctance to go for the most intrusive options. It is not a surprise that telecoms authorities have so far been very cautious about mandating the structural separation of the local loop from the rest of activities.

What about online platforms? What lessons can we draw from utilities regulation?

First, they are closer to telecoms in terms of innovation than to any other network industry. Thus, we should be greatly cautious about structural separation.

Second, online platforms makes the task of separation much more difficult. For all the innovation and the efficiencies, the set of problems in telecoms is relatively narrow and well-defined, and similar solutions make sense across the board.

In the context of online platforms, on the other hand, markets are much more heterogeneous. An online platform can be dominant in its core segment and have a marginal role in an adjacent one. As a result, the adoption of regulatory solutions can be considerably trickier. It is not clear how they can be crafted.

And with that open question, I leave it for the panel discussion…

I look forward to your comments!

 

 

 

 

 

Written by Pablo Ibanez Colomo

3 June 2020 at 9:31 am

Posted in Uncategorized

The Dangers of a Protectionist Revival: Digital Turnover Taxes under State aid law

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(by Alfonso Lamadrid and José Luis Buendía)

Our last blog post on State aid observed how the Covid-19 crisis may awake dangerous currents in Member States and how, absent concerted action or legal safeguards, unilateral measures could pose a threat to the EU internal market. We had in mind measures that could aggravate existing economic asymmetries between Member States. The Commission is now commendably pursuing a concerted approach on that front.

This post is about a different but related threat: that Member States may succumb to a renewed temptation to engage in backdoor protectionism through State aid.

The problem is not new. The Commission quickly realized about this risk and challenged the Polish and Hungarian taxes on retail and advertising, pointing to their clearly discriminatory nature (by virtue of progressive turnover thresholds, they affected almost exclusively companies from other Member States, and not domestic ones). We ourselves had also already discussed this on this blog (see here, and also here for Pablo’s take) when commenting publicly on the Digital Service Taxes announced in several Member States due to the absence of international or EU-wide consensus. Like the Polish and Hungarian measures, these also seek to tax non-domestic companies [Disclosure: we (but not Pablo) have since then written legal opinions for various companies on this subject].

Even if the problem is not new, it is now that this risk is acquiring a completely different dimension due to a combination of factors. First, Member States obviously need additional sources of income to support their economies (this is not only legitimate, but very necessary). Second, Member States might now have more incentives to obtain new income from non-domestic companies in order to support domestic ones (that is neither legitimate nor necessary). Third, recent Court Judgments may be read as suggesting that there is a creative way for Member States to pursue protectionist goals without contravening free movement and State aid rules.

These latter Judgments come from both the General Court (in Poland/Commission, T-836/16 and T-624/17, and Hungary/Commission, T-20/17) as well as, more recently, from the Court of Justice (Tesco-Global Áruházak, C-323/18, Vodafone Magyarország, C-75/18, and Google Ireland, C-482/18). In these cases the EU Courts would appear to have adopted a more lenient stance regarding Member States’ protectionist measures, refusing to follow the sensible positions advance by the European Commission (for a comment on the latter see also Prof. Nicolaides’ comment here).

What these Judgments have in common is that they have seemingly dismissed allegations of material discrimination, choosing instead a formal assessment of ad hoc taxes as reference systems of their own. In other words, they accept at face value the declared logic of each specific tax (for instance, the need to tax advertising and to do so based on turnover) without wondering if the said logic is consistent and fits within the objectives of a fiscal system as a whole.

Perhaps the EU Courts’ ambivalence and lack of decisiveness in the assessment of these measures has to do with political sympathy for other unilateral measures (Advocate General Kokott’s Opinion in the Hungarian cases suggests that the Court may have had in mind Digital Services Taxes when approaching these other recent cases). Political sympathy for a given set of measures, however, should not blind us to their possible illegality; arguably, it should even make us more alert to it.

Indeed, the problem is much bigger than DSTs or that the Hungarian and Polish taxes at issue in the recent Judgments and in other pending cases. If this new and recent line of case law were confirmed in the pending appeals against the General Court Judgments, it would open the door to deconstructing all the progress achieved in fiscal State aid in recent years.

Negating the potential discriminatory nature of progressive taxes could run counter to non-discrimination principles as well as to an established line of case law on asymmetric taxes (British Aggregates, T-210/02 RENV recently confirmed in ANGED, C-233/16). In these and other cases EU Courts have consistently established safeguards against artificial boundaries around fiscal measures, emphasizing the need to check whether the boundaries and conditions of specific taxes are coherent with their declared objective or are rather set in an arbitrary way.

The lack of a clear EU position on unilateral asymmetric/ protectionist measures can be the source of enormous problems at a time when the temptation to resort to them may be particularly high. Any Member State could simply decide to slice up the national tax systems into ad hoc taxes in order to avoid State aid control, and to create asymmetric taxes targeting not a public policy goal, but only certain players with a perceived capacity to pay. This would not just concern EU retailers in Poland and Hungary or a handful of US multinationals. These would simply be the first in a long list. And then, let’s not underestimate the capacity of other blocs around the world to reciprocate with similar discriminatory and distortive taxes.

One can only hope that the negotiations at OECD level to reform the international tax system will result in some international consensus on digital taxation. A very recent Commission Communication has confirmed that it supports the discussions led by the OECD and the G20 and stands ready to act if no global agreement is reached.

Pending these negotiations, it would be dangerous to EU law to permit unilateral discriminatory measures. Some may feel sympathy for measures designed to affect only global players, but one should keep in mind that exactly the same approach could be replicated to discriminate between different EU companies.

Written by Alfonso Lamadrid

29 May 2020 at 10:21 am

Posted in Uncategorized

Case T-399/16, CK Telecoms v Commission: a new Airtours moment and the future of effects analysis

with 5 comments

Law matters

The assessment of non-coordinated effects in ‘gap cases’ has attained its Airtours moment: earlier today, the General Court annulled the Commission decision declaring the incompatibility of the acquisition of O2 by Three (see here). The judgment is, to be sure, of major importance for that aspect of merger control. It is significant, however, for EU competition law at large. I can think of three contributions in this sense:

  • EU competition policy, the General Court confirms, is implemented through law, not discretion.
  • The analysis of effects is a meaningful one in EU competition law; this is true across all provisions.
  • The proposed reform of the EU competition system will not legislate away law and judicial review.

Why this case was so important: it was law vs discretion, and the law won

When the decision declaring the incompatibility of the transaction was announced in 2016, I discussed (see here) what was, in my view, the main potential problem with the assessment of non-coordinated effects under Regulation 139/2004. Because it is no longer necessary to establish dominance in the new regime, Article 2 could in theory be interpreted as allowing the Commission to block any horizontal merger.

Suffice it to think about the matter for a second: any concentration involving actual or potential competitors leads, by definition, to a reduction of competitive pressure and thus to an increase in market power (no matter how small).

Accordingly, one could make a not unreasonable argument that any such transaction gives rise, by definition, to non-coordinated effects. If this interpretation were accepted, then the Commission would enjoy, in effect, the discretion to decide which horizontal merger to allow and which to block.

The idea that the Commission would enjoy (de facto) discretion would not only be at odds with Regulation 139/2004, but with the logic of EU law at large, whereby it is for the EU courts, not an administrative authority, to state what the law is.

This central aspect is grasped by the General Court in CK Telecoms. The judgment is explicit about the risk of construing Regulation 139/2004 in the way described above.

Paragraphs 157-176 are of particular relevance in this regard. In its Three/O2 decision, the Commission had claimed that Three was an ‘important competitive force’. However, the General Court notes, the authority had defined the notion in such a way that any competitor in an oligopolistic market would count as an ‘important competitive force’ (thereby affording de facto discretion to itself). Para 174 is, I think, the crucial one.[1]

I read this aspect of the judgment as demanding a meaningful assessment of the ‘appreciability’ of the effects of a horizontal merger that does not give rise to dominance (that is, a ‘gap’ case). Appreciability is required by virtue of Article 2 of the Regulation, which refers to a ‘significant impediment’.

Most of you will remember that the Court of First Instance faced the very same issues in Airtours already. In that case, the Commission, by playing down the ability to collude, had defined the notion of collective dominance in a way that would afford it de facto discretion to block any horizontal merger in an oligopolistic market.

After today’s judgment, we now know that the ‘gap’ left open by Airtours (which in turn led to the adoption of Regulation 139/2004) is also driven by law.

In the same vein, the General Court confirms (paras 95-105) that, in order to establish a significant impediment to effective competition in a gap case, it would not be sufficient to show that the transaction would lead to a ‘reduction of competitive pressure on the remaining competitors’ (see Recital 25 of the Preamble to the Regulation).

It would be necessary to establish, in addition, that it results in ‘the elimination of important competitive constraints that the merging parties had exerted upon each other’. I feared that we might not have a structured legal test for the assessment of non-coordinated effects in ‘gap cases’. The General Court, fortunately, has provided one.

The analysis of effects in EU competition law is a meaningful one

More generally, the judgment provides confirmation that the analysis of effects is a meaningful one in the EU competition law system. The analysis can revolve around potential effects, true, and it is not necessary to establish that it is certain that such effects will occur. Still, the Commission would need to show, as a matter of law, that the practice or transaction would probably have such appreciable effects (paras 115-119 of the judgment).[2]

CK Telecoms provides several examples of the ways in which the Commission may fail to show effects. For instance, the authority did not establish, to the requisite legal standard, that Three was an ‘important competitive force’ (paras 155-226). It also failed to show that, prior to the transaction, O2 and Three were close competitors (paras 227-250). Finally, the quantitative evidence relied upon by the Commission was insufficient to establish that prices would rise significantly (paras 260-282).

The analysis of effects is central to the outcome of many pending cases (before the Commission and the EU courts). As a result, the very frictions observed in CK Telecoms are likely to be observed again.

One aspect should be emphasised in this regard: the notion of anticompetitive effects is the same irrespective of whether merger control, Article 101 TFEU or Article 102 TFEU are at stake. In fact, today’s judgment is in line with the most recent case law on Article 102 TFEU (e.g. MEO and Intel). It is only sensible that, as the case law shows, the concepts of ‘competition’ and ‘effects’ have the same meaning across the board.

On the reform of EU system: law and judicial review cannot be legislated away

CK Telecoms comes at a time when there are discussions aiming to take competition law in the opposite direction from where the EU courts have taken it over the years. Today’s judgment is just the latest of a trend of cases that show that competition policy is implemented through law (as opposed to discretion) and that administrative action is subject to full review of all issues of law and fact.

Some of the proposals to reform the system appear to hint at a different way of doing policy: discretionary fine-tuning of markets away from the law, away from the judges. I understand why this Copernican Revolution would appeal to some. However, CK Telecoms leads me to the conclusion that, at least in the EU system, law and judicial review cannot and will not be legislated away.

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Written by Pablo Ibanez Colomo

28 May 2020 at 4:25 pm

Posted in Uncategorized

State Aid Asymmetries and the Covid-19 Outbreak- An Update and an Offer

with 11 comments

covid

At the end of March, my colleague José Luis Buendía and I wrote a post on this blog (also here and here) pointing to the risk of massive distortions to the internal market caused by the asymmetric national responses to the Covid-19 outbreak. We put out there a proposal to mitigate these distortions that we think would be legally feasible.

This was not a prominent debate at the time. After all, there appeared to be more pressing issues, and pointing to this one was uncomfortable, and even politically incorrect. Things, however, have changed, and this debate is gaining prominence (see below for a list of recent pieces touching on it). President Von der Leyen and Commissioner Vestager have now also warned about the dangers of what’s happening. The consequences of what we decide to do on this subject might be felt for generations.

What was politically incorrect only two months ago has now become almost the consensus. To put it mildly, almost everybody recognizes now that may be witnessing the greatest competitive distortion of our lifetime. Having a correct diagnosis does not cure the illness but is at least a first step in the right direction. It is certainly much better than denying the existence of the problem.

We put a possible solution on the table that we think is legally feasible, but you might have other ideas about variants or alternative models that could also do the trick. We are confident that if the community of competition lawyers and economists puts its creative juices to work we might be able to contribute to the solution. After all, we can get really creative when it comes to market definitions and theories of harm…

If any of the readers of this blog has other ideas or suggestions on how to prevent, mitigate or correct these competitive distortions, we are happy to offer you a space in this platform.

For more on this see, for example:

-. Von der Leyen warns state aid ‘unlevelling the playing field’ in Europe (The Guardian, 13 May)

-. Vestager: Discrepancy in state aid distorts single market, hampers recovery (Euractiv.com and Reuters, 18 May)

-. EU Members clash over State aid as richer countries inject more cash (Financial Times, 1 May)

-L. Hornkohl and J. van‘t Klooster, With Exclusive Competence Comes Great Responsibility: How the Commission’s Covid-19 State Aid rules Increase Regional Inequalities within the EU, VerfBlog (29 April)

-M. Motta and M. Petz, EU state aid policies in the time of COVID-19 (18 April);

Macron: “We are at a moment of truth” (Financial Times, 17 April)

– JL. Buendía, Editor’s Note: Editor’s Note – State Aid in Time of Cholera (European State aid Law Quarterly, Vol 19, Issue 1 (1 April)

Written by Alfonso Lamadrid

19 May 2020 at 7:45 pm

Posted in Uncategorized