Relaxing whilst doing Competition Law is not an Oxymoron

Our Curious Amalgam: The ABA’s Antitrust Podcast (and my take on the Apple Judgment)

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The American Bar Association’s Antitrust Law Section now has a weekly podcast program, called Our Curious Amalgam. I was the guest in an episode released yesterday where we discuss the General Court’s Apple Judgment. Coincidentally, the episode was released as I was participating in a hearing at the Grand Chamber of the CJEU where we also discussed fiscal State aid (fifth and hopefully final hearing in the Santander-World Duty free saga…). The podcast is available here.

We recorded this podcast over my summer holidays, and I made sure to listen to quite a few episodes before. It was a great use of time. Each podcast is about 20-25 minutes. They cover everything related to antitrust, consumer protection, data, and privacy and there are very insightful conversations freely available to anyone interested.

To catch new episodes that drop on each Monday, you can subscribe “Our Curious Amalgam” on Google Podcasts, Apple Podcasts, and Spotify.

Many thanks to Matthew Hall, Christina Ma and John Roberti for the invitation and the chat!

Written by Alfonso Lamadrid

8 September 2020 at 9:04 am

Posted in Uncategorized

On the Qualcomm (exclusivity payments) decision (by Max Kadar)

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Qualcomm (@Qualcomm) | Twitter

[The second installment of this series of guest blog posts is devoted to the Qualcomm decision on exclusivity payments, which was (finally) made public in June. The post has been prepared by Max Kadar, Deputy Head of Unit at the European Commission and Visiting Professor at King’s College London. He is uniquely placed to provide an overview of this landmark development. Thanks so much for accepting the invitation, Max!]

I confess that when Pablo got in touch a few days ago to invite me to write a blog post on the Qualcomm (Exclusivity Payments) decision, my instinctive reaction has been something along the lines of “after having spent the past months locked up at home, there’s no way that I am going to spend my holidays writing another article”. After some time reflecting on the matter, I ended up doing the only logical thing that I could have done in these circumstances: politely but firmly refusing the kind invitation writing the piece before going for holidays.

Before starting, I should say that I have a conflict of interest to declare, as I was part of the case team working on the Qualcomm (Exclusivity Payments) decision. In addition, as usual, I should say that my views in the following are personal and may not necessarily reflect the position of the European Commission.

The Qualcomm (Exclusivity Payments) decision adopted on 24 January 2018 (and a public version of which was published on the Commission’s website a couple of weeks ago) constitutes the first example of a Commission decision dealing with exclusivity rebates under Article 102 adopted after the Court of Justice’s Intel judgment.

As a brief reminder, in Intel, the Court of Justice clarified the Hoffmann-La Roche case law with regard to exclusivity rebates and stated that while such rebates by a dominant undertaking are subject to a presumption of anti-competitive effects, this presumption is a rebuttable one. In particular, if the dominant undertaking submits, “during the administrative procedure, on the basis of supporting evidence”, that its exclusivity rebates do not have the capability to restrict competition, the Commission will be required to engage in an analysis of such capability.

In the aftermath of the Intel judgment, academics and practitioners have engaged in an extensive debate on what exactly the Commission needs to show and how (my take on this here). Against this background, the Qualcomm (Exclusivity Payments) decision is important as it sheds light on the way the Commission interprets the standard of proof it has to satisfy under the Intel case law and in particular under paragraph 139 thereof.

The case concerns agreements between Qualcomm and one of its main customers, Apple. In a nutshell, pursuant to these agreements, Qualcomm granted significant rebates (in the form of direct payments) to Apple, in exchange for Apple exclusively incorporating Qualcomm baseband chipsets compliant with the LTE cellular communication standards (so-called “LTE chipsets”) in its iPhones and iPads. Such conduct was at the centre of the European Commission’s investigation in this case but was also pursued by the US FTC as part of its wider case against Qualcomm.

Qualcomm has historically been a leader in the supply of baseband chipsets and, at the time of the challenged conduct, was by far the world’s largest supplier of LTE chipsets, with market shares in the range of 90% or more for most of the infringement period. Although certain of Qualcomm’s customers were large companies such as Apple and Samsung, the Commission found that even these customers were to a large extent dependent on Qualcomm during the infringement period.

At first sight, one can say that the agreements between Qualcomm and Apple were similar to those challenged by the Commission in previous decisions on exclusivity rebates. On closer inspection, though, the agreements contained loyalty-inducing mechanisms that went even further. In particular, if Apple had incorporated LTE chipsets from a competitor of Qualcomm in some of its iPhone or iPad devices, it would not only (1) have lost all future payments from Qualcomm; but also (2) in the central years covered by the agreements (2013-2015), have had to return to Qualcomm a large part of the payments it had already received in the past (so-called “clawback” provision). Thus, it is perhaps not surprising that throughout almost the entire duration of the agreements, Apple sourced LTE chipsets exclusively from Qualcomm. Only in September 2016, when the agreements were about to expire and the cost of switching was reduced due to the limited future payments left and the termination of the clawback provision, did Apple start to source part of its LTE chipset requirements from one of Qualcomm’s competitors – Intel.

Building on these basic facts, the Commission decision first establishes that Qualcomm’s payments amounted to exclusivity payments or rebates within the meaning of the case law (see Section 11.3 of the decision). As a second step, the Commission analysed the capability of such payments to restrict competition on the basis of several elements (see Section 11.4 of the decision), namely: (i) the extent of Qualcomm’s dominance; (ii) the long duration (from 2011 until 2016) of the payments and their significance, both in absolute terms and as a percentage of Apple’s LTE chipset expenditure; (iii) the fact that Apple’s demand affected by the exclusivity payments covered a significant share of the LTE chipset market (up to roughly half of the worldwide market); (iv) the fact that Apple was a key customer for baseband chipset suppliers; and (v) a broad range of contemporaneous evidence, including Apple’s internal documents, showing that Apple gave serious consideration to switching part of its LTE chipset requirements for iPads to Intel but refrained from doing so, the loss of Qualcomm’s payments being a material factor in Apple’s decision-making.

As one can clearly see, the elements above are in line with those referred to by the Court of Justice at paragraph 139 of the Intel judgment to establish whether exclusivity rebates are capable of restricting competition. Notably, when it comes to the last point, one may even say that the Commission engaged in a form of actual effects analysis, which goes beyond the requirements of the case law.

As regards the so-called “as-efficient competitor” (AEC) test, the Intel judgment does not require the Commission to run such a price-cost test to prove an infringement of Article 102 (as recently confirmed by the UK CAT in Royal Mail). Against this background, the Commission did not have to rely on an “own” AEC test to establish that Qualcomm’s payments were capable of restricting competition. Nevertheless, in the decision, the Commission did analyse and rebut an AEC test that had been prepared and submitted by Qualcomm (see Section 11.5 of the decision).

In addition to submitting an AEC test, Qualcomm had also argued that by failing to carrying out an AEC test, the Commission breached Qualcomm’s legitimate expectations concerning the application of the Guidance Paper on Enforcement Priorities (see Section 11.7 of the decision). In this regard, the decision notes that Qualcomm had failed to submit contemporaneous evidence that it had indeed relied on the Guidance Paper in any way. For example, the AEC test submitted by Qualcomm was prepared specifically for the purposes of the proceedings and not at the time of the negotiations with Apple. In any case, the decision dismisses Qualcomm’s arguments, pointing inter alia to the fact that the AEC test is merely a tool that the Commission can use to establish its enforcement priorities and that in this case, there were many other clear reasons why the case should be handled as a priority (on a strictly personal level, I find it very difficult to argue that an agreement of the type at hand between two leading technology companies in a multi-billion market should not be investigated by the Commission as a matter of priority).

A final but important part of the decision’s effects analysis relates to Qualcomm’s claimed efficiencies (Section 11.6 of the decision). In essence, Qualcomm argued that its conduct was justified because the exclusivity was necessary to allow Qualcomm to recoup the alleged investments required for the design and production of tailor-made LTE chipsets for Apple. As is usual in Article 102 cases (see here), the Commission examined these claims in detail: there is indeed no doubt that efficiencies may outweigh the effects of anti-competitive conduct and it is the Commission’s task to look into this after having received a properly substantiated efficiency submission. In this case, however, the decision concludes that Qualcomm failed to prove the link between the exclusivity and the alleged need to recoup investments for tailor-made products. Once again, the decision also refers to the fact that Qualcomm failed to submit any contemporaneous evidence supporting its claims.

As a concluding remark, I note that, while the Commission adopted a Statement of Objections (SO) in this case well before the Court of Justice’s Intel judgment, the SO already contained an analysis on the capability of Qualcomm’s payments to restrict competition. This allowed the Commission to proceed to a final decision without the need to issue a supplementary SO after publication of the Intel judgment, which would have likely dragged on the proceedings for at least several more months. While the end-result was certainly good from an administrative perspective (as I hope we all share the importance of avoiding unnecessarily protracted legal procedures), it was certainly not a departure from the Commission’s recent decisional practice. Those who have been following the Commission’s approach closely know well that, regardless of whether the Commission is legally required to assess the potential effects of a given practice on competition, such an assessment is always included in the Commission’s decisions. While I would not go as far as saying that the debate between “by object” and “by effect” in Article 102 is purely of academic interest, I do think that the practical importance of such a debate should not be overstated.

What is in my mind, however, highly relevant, is the type of evidence that a competition agency can use to prove a case and the robustness of such evidence. The Qualcomm (Exclusivity Payments) decision confirms that the elements of evidence that can be taken into account to prove effects are many and varied. Furthermore, it confirms that there is no pre-determined hierarchy of importance between those elements. Depending on the specific circumstances in each case, its factual background and investigative history, a given element of the analysis may play a more important role than another. In this respect, one can say that the different types of evidence are like bricks used to build a wall: what matters is not whether they are of a given colour or shape, but rather that the wall in the end is solid and robust. Whether this was the case in this decision is a matter for the General Court to decide, in the context of the ongoing appeal of the decision by Qualcomm. In the meantime, one can only expect that exclusivity arrangements entered into by dominant firms, which have the potential of harming competition, will remain high on the Commission’s agenda, as shown for example by the ongoing Broadcom case.

Written by Pablo Ibanez Colomo

7 September 2020 at 7:36 am

Posted in Uncategorized

The pitfalls of preventing discrimination through ex ante regulation (by Daniel Beard and Jack Willams)

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[In the course of the coming weeks we will be publishing a number of guests posts on different topics (feel free to send ideas our way!). We start this series of guest posts with a contribution from Daniel Beard QC and Jack Williams on discrimination concerns underlying new regulatory initiatives]

Language is both beguiling and dangerous.  Being an author would be no fun if it were otherwise.  But being an author and being a regulator are very different jobs.  Sometimes compelling words and rhetoric can distract from the regulatory job at hand. The political force of a cri de coeur risks losing sight of the raison d’être.

The mood of regulators and governments across the EU is that, in relation to digital technology and the operation of competition law, something must be done.  All sorts of interesting suggestions are being made, from new governmental inquiry units and changes in merger scrutiny to whole new competition tools. 

Amongst the myriad reports and studies one thing comes out loud and clear: discrimination is bad. It is particularly bad where the discrimination is by a dominant undertaking in a digital industry characterised by high entry costs, low marginal costs, and network effects. Indeed, it is so obviously bad that a new ex ante regulatory regime is needed so we can make sure it never happens in the first place.

The level of support for this idea is striking. Perhaps it comes from the language itself: who is going to say that preventing “discrimination” is wrong?  After all, when we first think about the notion of discrimination, we do not think about digital service self-preferencing; we think, for example, about powerful struggles for freedom from race or gender inequality.  Legal battles to protect people from discrimination on the basis of the colour of their skin or their sex, religion, physical ability or sexual orientation have been long and hard fought. It is easy, and obviously right, instinctively to think discrimination wrong when that is our starting point.

Yet, transferring the concept of discrimination away from recognised status cases involving individuals, the analysis becomes problematic and the effective use of ex ante tools even harder to gauge. There are three types of issue: substantive difficulty; procedural complexity; and fairness.

Substantively, discrimination analysis can confuse as much as enlighten. If you want to change the way that electricity transmission pricing works, can you treat low carbon, renewables and traditional generators in the same way? The electricity they produce is the same.  The way they do it is not.  Does that mean that you say all the generators are similar? If they are comparably similar, is there a justification for different treatment?  The test in such economic cases is whether you are treating like cases differently (or different cases the same way) without justification.

The problem is that the same essential considerations are used for assessing whether the cases are alike and whether there is a justification for differential treatment. What is really being asked is whether the particular benefits of renewable generators mean that arrangements for charging them differently from, for example, gas fired plant is reasonable overall.  It is an assessment of priorities and objectives within the sector. Labelling the issue as discrimination does not itself assist the substantive analysis of whether the changes properly pursue the legitimate aims of the sectoral regulation. Indeed, using the language of discrimination in economic contexts may ultimately distract from the key policy issues which a measure is trying to address.

It might well be because discrimination assessments outside recognised status cases are hard that until recently we had not seen as many cases as we might otherwise expect applying Articles 101(c) or 102(c) TFEU.  Broadly, those provisions prevent agreements or provisions by dominant entities applying different conditions to equivalent transactions – stopping discrimination.  Aside from various music collecting societies cases these apparently very powerful tools have not historically been wielded frequently.  Plainly things have changed more recently with cases such as MEO, Google Shoppingor Royal Mail v OfcomYet none of those cases is an advert for the clarity and simplicity of using discrimination as a key tool.

Ex ante non-discrimination provisions are applied to regulate utility industries.  Where a legacy incumbent inherits a system monopoly such that they have significant market power, non-discrimination requirements are a standard feature of the regulatory regimes. Those requirements often focus on criteria and terms for access to established networks: what information has to be provided for a connection? How are connections to be made and paid for?

However, there is a real difference in assessing discrimination – and justification – where networks have built through investment and competition (rather than bequeathed), where the nature of the services being provided by the dominant entity are changing, and where the criteria for assessment have to consider different business models and types of demand.  The substantive difficulties involved in applying discrimination outside status cases are all the greater in dynamic rather than mature industries. And that is in addition to setting the thresholds for what sorts of entity are going to be subject to the ex ante tools in the first place. 

In addition to these substantive concerns about using discrimination as a key tool, there is the second problem of a new regulatory process introducing complexity and inertia. Experience shows that building a novel regulatory infrastructure can itself create another layer of definitional disputes and uncertainties. 

Sponsoring lawyers and compliance departments to be involved in extensive exchanges with regulators is an excellent means of shifting resources from technology developers to professional services providers.  But it is far from clear that social utility and consumer welfare is enhanced by such a process.  It can increase the risk of undue intervention by regulators. It can encourage undue conservatism on the part of operators.  In a fast-moving industry a complex regulatory process can be a real impediment to innovation. 

Such a regime may offer particular protection to a cautious undertaking.  After all, if it can reach agreement with a regulator on an ex ante approach, the prospects of ex post fines under existing rules must diminish. Affecting the dynamism and risk taking of large companies can damage innovation.   It cannot be assumed that the best and fastest development always comes from start-ups or scrappy mavericks.   Does having a prior regulatory clearance mechanism mean better outcomes for consumers or simply a slower digital industry in Europe? 

Then there is a third issue: fairness. It is perhaps not going to cause people to rally to the barricades (or blogs) where the new process is directed primarily at large multinational firms, but the rule of law should not pick and choose. 

If companies are required to pre-justify conduct, that is effectively a shift in the burden of proof: they are being required to prove what they are doing is acceptable rather than a regulator having to show the contrary later.   There is a reason the burden is placed on regulators.  It is not just to make their life hard.  It is because it is generally accepted to be unfair to assume that someone is doing wrong unless they can show otherwise. The use of presumptions against people is something to be cautious about.  The fact that they would be used in the complex and confusing territory of discrimination assessments might make that all the more concerning. 

Whatever course is to be taken on ex ante regulation it needs to recognise that big themes and buzz words do not equal good law. We must not get carried away with an easy reliance on prejudicial language.  Perhaps we need to be more discriminating on discrimination in order to decide what new tools we really need.

Written by Alfonso Lamadrid

4 September 2020 at 12:09 pm

Posted in Uncategorized

NEW PAPER | Vertical restraints after Generics and Budapest Bank

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I have just uploaded on ssrn a new paper (see here) on the legal status of vertical restraints following Generics and Budapest Bank. It is part of a series of short contributions on the topic that is forthcoming in Concurrences and that has been coordinated by Mario Marques Mendes (thanks very much for the invitation to contribute!).

I have already discussed the implications of these two landmark rulings on the blog (for instance here). The key conclusion I draw from them is that, as a rule, an agreement that is capable of having pro-competitive effects is not restrictive of competition by object.

This conclusion is consistent with the legal treatment of vertical restraints in the Court’s case law over the years. My paper focuses on two traditional pro-competitive justifications for vertical restraints: brand protection and the fight against free riding.

Free riding considerations are particularly relevant in the context of MFN clauses. As evidenced in the Support studies for the evaluation of the VBER prepared for the Commission (see here), this pro-competitive justification is valid both in relation to the ‘wide’ and ‘narrow’ varieties of the restraint.

Accordingly, there seems to be little support for treating MFN clauses as ‘by object’ infringements and/or hardcore restrictions within the meaning of the Block Exemption Regulation. One can imagine, however, ways in which the future Regulation could provide for some bright lines in relation to ‘wide’ MFNs (for instance, by treating them as excluded Article 5 restrictions above the 30% threshold).

As far as brand protection is concerned, the paper focuses on online selective distribution. Some clauses, such as a ban on the use of online marketplaces and/or of price comparison sites serve a brand protection purpose. In this sense, they are not different from other restraints typically found in selective distribution systems.

Accordingly, there seems to be no reason to give such clauses (specifically tailored to the needs of online distribution) a different (stricter) legal treatment. The conclusion would be the same irrespective of whether the good is a luxury or a non-luxury one (experience and economic analysis show that brand protection can be relevant also in relation to the latter).

I very much look forward to your thoughts. I am happy to clarify, as ever, that I have nothing to disclose.

Written by Pablo Ibanez Colomo

31 August 2020 at 7:19 pm

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State aid as the single most important obstacle to an EU-UK agreement: making sense of the EU’s position

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On the Level Playing Field - Bruges Group Blog

Teaching State aid at LSE is a particularly enjoyable experience. I will have to wait an academic year, alas, to do so again. I tell myself it is a sensible arrangement (even if not one I chose): 12 months from now the module will have become either a niche irrelevance for most students or an exciting window to explore an emerging legal regime (in the UK, that is).

The background story is well known. The EU has consistently insisted on the importance of a system for the control of subsidies and similar measures in any EU-UK trade agreement. State aid is the most salient feature of the so-called ‘level playing field’ provisions deemed necessary as part of the future relationship between the two sides.

The UK government is not inclined to remain bound by the substantive or institutional aspects of the EU system (and is very public about it). The idea of setting up a technocratic body that would constrain public authorities’ discretion to award subsidies and similar measures is resisted (see here). From a substantive standpoint, the UK government does not seem keen to make its domestic regime revolve around Article 107(1) TFEU (as interpreted by the Court of Justice over the years).

I was inspired to prepare this post after realising that the logic of the EU’s position does not come across very clearly on this side of the Channel. It is true that there are frequent references to the protection of the ‘integrity of the internal (single) market’. However, something tells me that these references sound so abstract that they are probably seen as suspicious pretexts to constrain the UK’s regulatory freedom post-Brexit.

The truth is that it is difficult to see how the EU State aid system would survive if the UK were allowed to depart from it in any significant way. For the same reason, one can understand why Member States may believe that giving up their own internal State aid regime is too high a price for a trade agreement with the UK.

State aid: a remarkable (and fragile) achievement of integration-by-law

My guess is that anybody who is reasonably familiar with the EU State aid regime marvels when thinking about the remarkable achievement it is (even if one disagrees about its pertinence).

A group of States decided to give up their discretion to award subsidies and similar measures and entrust a supranational authority with the task of deciding when they are in the interest of the community as a whole (as opposed to the interest of its individual members).

What is more, the boundaries of the system – the definition of what State aid is – are defined by law, not discretion. It is ultimately for the Court of Justice to decide whether a measure falls within the scope of Article 107(1) TFEU – a central question, for instance, in the recent Apple case, discussed by Alfonso here.

It is so unusual to see States agree such a regime that no similar system exists even within the US (see here). And precisely because it is so unusual it is also uniquely fragile. The temptation to abandon it and/or relax the rules is always present – every now and then, Member States float the idea of ‘decentralising’ State aid control (which is code for loosening it).

Can the EU State aid regime survive if the UK departs from it?

Hopefully the above gives an idea of why the Commission, and EU Member States, insist so much on State aid in the context of the EU-UK trade agreement. If the UK obtains a deal without an ex ante regime that is in essence similar to that applying within the EU, it will achieve what some EU Member States have always secretly – and not so secretly – wanted.

In other words: the one State leaving the bloc would enjoy greater leeway to engage in regulatory competition than EU Member States themselves. I find it difficult to imagine how the EU State aid system, as we know it, would survive in such circumstances. The pressure to abandon it, or to change it beyond recognition would be too strong. (And no, the issues raised by the trade agreements concluded with Canada and Japan are not comparable in this regard.)

Some may argue that the EU regime may need to change – there are commentators that claim that the notion of State aid is too broad and encompasses too many measures that fail to affect trade. Even if one assumes that this view is correct, it is probably not wise to amend the system to make sure that a trade agreement is reached with the UK. The impetus would have to come from within, not from an external stressor.

No easy way out

The above was an attempt to give an idea of what I believe are the reasons why State aid is seen as so fundamental from an EU perspective. It is not so much about emotions or curtailing the UK’s freedom as it is about making sure the EU’s own State aid regime survives the trade negotiations with the UK.

One may take the view that the EU is asking too high a price for a trade agreement and that the UK may be better off with no agreement and the regulatory freedom that comes with it. It is certainly a defensible one. On the other hand, I do not believe the EU’s demand is unreasonable, as sometimes suggested. It is reasonable to protect one’s fragile supranational arrangements.

If one takes account of the above, it becomes clear there is no obvious solution to the current situation. It makes no sense to try and anticipate the future, given the many issues at stake and given that both sides know that it is in their interest to reach an agreement (which is why they may both be prone to making compromises that would have seemed implausible ex ante).

In any event, I very much struggle to imagine a trade deal in which the UK does not agree to set up a regime that essentially mirrors the acquis on Article 107(1) TFEU and is enforced by an independent agency with powers comparable to those of the European Commission in the field. We will soon find out whether a compromise can be achieved.

Written by Pablo Ibanez Colomo

25 August 2020 at 3:53 pm

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Apple’s App Store: a microcosm capturing what digital cases are all about

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Developers using Apple’s App Store have been voicing their grievances for a while. These complaints reached a whole new level last week, when a high-profile developer (or so the younger generations say) very publicly defied Apple’s rules. As expected, the firm – Epic – was expelled from the app store and the confrontation made the headlines (see here).

Reading about this sensational story made me realise it captures effectively what is new and distinctive about disputes in digital markets. There are some patterns that cut across pretty much every case against Big Tech. The point underpinning the complaints – what these seek to achieve – is identical.

The rise of the powerful complainant

Epic is a large and successful firm that offers the most popular videogame these days. It shows. The video accompanying its confrontation with Apple deserves to be watched (here, via, ahem, another platform). It is a play on Apple’s iconic 1984 ad and an astute way of pitching Epic as the outsider siding with ordinary folks against the (fruit-shaped) establishment.

Epic exemplifies the rise of the powerful complainant. This development is perhaps the single most relevant change in the competition law ecosystem over the past decade. Until relatively recently, firms – in particular large and successful ones – were wary of proactive, far-reaching competition law intervention. They all sang to the same cautious tune.

Not anymore. In fact, a few large multinationals keep urging authorities to take risks and, if necessary, depart from the case law and/or introduce new ad hoc rules. ‘Act fast, deal with the unintended consequences later’ is the mantra on the rise. Just like Epic, these players seek to persuade the wider public that these changes do not just suit their agenda but are good for society at large.

The above can hardly be criticised. It would be surprising if firms did not attempt to advance their interests on all fronts, including the legal one. The point is that the changing ecosystem introduces new, fascinating and to some extent unprecedented dynamics [note: if you happen to be a political scientist reading this post, drop me a line!).

It is all about access and rents: the fight for a larger slice of the pie

If one looks at the past and ongoing investigations involving large online platforms, it becomes apparent that there is an overarching theme cutting across all cases. In essence, complainants seek to secure access on improved terms and conditions. More precisely, they intend to capture a larger share of the rents generated by the platform.

This conclusion is obvious to draw from disputes around the App Store. Complainants in these investigations have been candid about the thrust of their claim: they consider that the 30% commission charged is excessive and thus should be entitled to a larger slice of the (apple) pie.

The rest of cases are no different, whether they are said to concern exploitative or exclusionary behaviour.

The interim measures adopted by the French competition authority – and concerning press publishers – are an obvious example (see here). The struggle for ‘equal treatment’ in Google Shopping was in essence a struggle for the traffic (and thus the rents) generated via the search engine.

Even investigations on Amazon’s marketplace are, at their heart, about rents: the data shared by retailers using the marketplace is just part of the price they pay to access the platform. It is, in other words, a fraction of the commission charged by Amazon (and should be analysed as such).

How these cases may change competition law

EU competition law occasionally ventures into the allocation of rents within a value chain. It has never been disputed that Article 102 TFEU applies to exploitative conduct by dominant firms. It is not a secret, on the other hand, that the Commission has always been careful about opening exploitation cases, for very good reasons.

It will never be never easy to determine the appropriate remuneration for a firm developing an input or infrastructure, let alone the optimal allocation of rents across the value chain. The unintended consequences of intervention along these lines are also well known.

These questions – this is not a secret either – are considerably harder when it comes to online platforms. This is so for two reasons. One relates to the dynamic and fast-moving nature of digital markets, which makes the task more prone to errors than, say, getting the access price to the telecoms network right.

The second reason is not always acknowledged. Re-allocating rents across digital markets typically goes much further than tweaking the the price of a medicine or the tariffs of a copyright collecting society. It often involves changing a firm’s product, business models and/or degree of integration.

Just think of the aftermath of Google Shopping (the design of the search engine was modified) and Android (the business model was altered) or of the implications of ruling that Apple may not impose an in-app purchase system (intervention would add an additional layer of modularity).

As already explained (see here), EU competition law is even more careful about imposing remedies leading to such outcomes (which, in turn, is the reason the indispensability condition has traditionally acted as a legal filter to limit the instances in which the system is exposed to them).

As the ‘act fast, deal with the unintended consequences later’ mantra gains traction, the exception comes closer to becoming the rule, and the system closer to dealing, on a routine basis, with the very issues it has avoided for decades. Fascinating times indeed.

Written by Pablo Ibanez Colomo

21 August 2020 at 3:34 pm

Posted in Uncategorized

The legal test and the remedy are not two separate steps; they are two sides of the same coin

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Following two of my latest posts – a though experiment on smartphones and cameras, and an update on Slovak Telekom[1]– some of you have contacted me about the central argument I develop in them.

My main point in both is that the remedy is not an afterthought that is irrelevant when establishing an infringement. The remedy – or, more precisely, what a finding of liability would entail – is central to determine whether there is a breach in the first place.

This statement is true as a matter of positive law – Van den Bergh Foods encapsulates the essence of the case law – and is also true from a normative standpoint – as the post on smartphones and cameras sought to explain.

The messages I have received following these posts are certainly sensible. How can the remedy determine the applicable legal test? Is it not getting the case backwards? Should we not establish an infringement first and then figure out the way to remedy it?

These questions, no doubt reasonable, are based on a fundamental assumption, which is that the finding of an infringement and a remedy are two separate steps, independent of one another.

I do not believe this assumption reflects the reality of the interaction between legal tests and remedies. More importantly, I do not believe the Court treats the infringement and the remedy as separate steps. They are rather two sides of the same coin.

The remedy reliably tells us what a case is about, and what the legal test is

A finding of infringement and a remedy are so closely intertwined that the single most reliable way to tell whether there is a competition law breach is to inquire about how to bring the alleged breach to an end.

In other words: to understand what a firm has done (and whether what it has done is prohibited), the best approach is to ask the claimant what the alleged infringer would need to do to comply with the law.

This point can be illustrated by reference to refusal to deal scenarios. These cases are not always easy to spot, and the lines are sometimes blurred between them and other legal categories, including tying and ‘margin squeeze’.

How to tell apart one category from the other? Inquire what the endgame would be. If the endgame is one in which a court or authority mandates (directly or indirectly, implicitly or explicitly) shared access to an input or an infrastructure, then the case raises the issues that are typical of refusal to deal cases. For the same reason, indispensability would be an element of the legal test.

Suppose, conversely, the remedy is a different one. For instance, an obligation on the firm not to require exclusivity from its customers. If so, we would be in Hoffmann-La Roche and Intel territory (where nobody has ever thought of making indispensability an element of the legal test).

These statements are hardly revolutionary. It is, in essence, what the Court held in Van den Bergh Foods and then in TeliaSonera. In Van den Bergh Foods, the firm argued that indispensability was an element of the legal test. Both the General Court and the Court of Justice, in light of the endgame, concluded that the case belonged in the Hoffmann-La Roche/Intel family, and rejected the argument.

The remedy is routinely considered when calibrating the legal test

The history of competition law also teaches us that the remedy (that is, what the case would involve in practice) has been routinely considered when designing the appropriate legal test.

In particular, courts tend to craft strict legal tests where a finding of infringement would demand the administration of a regulatory-like remedy (such as mandating access obligations and setting the terms and conditions under which access is to be granted).

Again, this idea is hardly revolutionary, and is part of our law. Why is indispensability part of the legal test in refusal to deal cases? Magill and Bronner seem to reflect a deep awareness of the implications of a finding of infringement.

Think of Magill. Again, the question is: what is the endgame of ruling that a refusal to license copyright-protected information is abusive? Imposing a duty to license on the right holder. By definition, there is a tension between such an endgame and the logic of intellectual property systems (the very point of which is the right to refuse to license).

It is not a surprise, against this background, that the Court confined to ‘exceptional circumstances’ the instances in which Article 102 TFEU can be relied upon to impose a duty to license (thereby minimising the tension with intellectual property systems).

The uncertainties and complexities of administering a remedy have also been mentioned as factors to consider when crafting a legal test. In his celebrated article on essential facilities, Phillip Areeda – the ultimate centrist in our field – expressed the view that ‘[n]o court should impose a duty to deal that it cannot explain or adequately and reasonably supervise’ and went on to warn against the imposition of regulatory-like obligations.

The EU experience shows that competition authorities do not fare much better than courts when it comes to the administration of these proactive remedies. The failure of the media player remedy in Microsoft I often comes up in these discussions. The principles-based approach to the question in Google Shopping and Android, and the resulting state of limbo (which appears to continue), another one.

Big Tech and legal tests: the question that will not go away

The discussion above gives, hopefully, a sense of what is going on, from a legal standpoint, in relation to Big Tech. Many of these cases demand regulatory-like intervention, and this, more frequently and more intensely than in the past.

It would seem that some competition authorities are more confident than they used to about their ability to redesign products and to tweak business models (other authorities, like the CMA, are more cautious, as the Final Report on digital advertising shows).

This increased confidence tends to trickle down into the interpretation of competition law provisions. The link between the nature of the remedy and the legal test, which acted as a limit on intervention, is now questioned (with the institutional implications that follow, in particular in a decentralised system). Fascinating, and potentially transformative, times.

[1] Speaking of which, AG Saugmandsgaard Øe’s Opinion is out on 9 September.

Written by Pablo Ibanez Colomo

11 August 2020 at 5:33 pm

Posted in Uncategorized

On disclosure and conflicts of interests: three years later, we are in a better place

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A Better Place (@ABPMovie) | Twitter

With so much at stake in competition law disputes, one is hardly surprised by news about corporate funding and/or an academic failing to disclose potential conflicts of interests. These stories are bound to make the headlines every now and then. Two were featured last week (see here and here).

News about potential bad practice (and/or companies fighting by other means) are always concerning. This time around, however, I like to see the glass half full. I am reminded of the situation three years ago, when similar news broke in sensational fashion.

I wrote about disclosures and conflicts of interest at the time (see here) and I invited Cyril Ritter to do the same (see here).

My main concern then (other than the use of academics as fodder in a proxy war) was the absence of guidance: without clear rules on disclosure, any views could be potentially discredited as suspicious (the infamous ‘if you say that, it must be because someone is paying you’).

In that regard, enormous progress has been made. The ASCOLA declaration of ethics, an effort led by Ioannis Lianos, set the tone and defined the gold standard to be followed. Journals – including JECLAP – take the issue much more seriously than in the past (even referees are asked to disclose potential conflicts of interests these days).

A first consequence of the adoption of these guidelines – inspired by the long-standing rules of the American Economic Association – make it easier to identify bad practice.

We have now learned to become suspicious of disclosures that do not tell the whole story. When someone just mentions that they ‘have not received funding for THIS article’ or that they ‘are not involved in THIS matter’, it is typically the case that there is a potential conflict of interest that is being concealed.

A second consequence (and the most important one, in my view) is that clear and meaningful rules protect people that play by them. It is incredibly helpful to be able to clarify from the outset (in a paper or at a conference) that one has nothing to disclose.

Against this background, I am inclined to believe that last week’s news will be, on the whole, a positive development for the competition community. The need to disclose will be taken even more seriously, and I anticipate that key people will be more proactive from now on.

Taking the initiative and directly asking whether there are potential conflicts of interest to disclose will be seen, even more than at present, as the right thing to do (if only because it is fair to those who play by the rules).

The main challenge ahead: consensus and peer review as a safeguard against capture by special interests

The main challenge I see ahead is the risk of capture by special interests. Corporations advance ideas that conform to their agenda and worldview.

These ideas may seek to show that their practices are pro-competitive and/or that someone else’s are anticompetitive. They may also seek to persuade us that the sweeping changes that happen to be in the firm’s interest are also beneficial for society as a whole.

I am not concerned with the dissemination of these theories. It is natural for firms to advance their interests. And it is the case that some of these ideas survive the peer review process because they genuinely advance our understanding of some phenomena.

My fear is that these ideas drive policy before they are subject to proper scrutiny. Peer review and consensus are essential to prevent capture by special interests (something I also mentioned in my feedback on the New Competition Tool). They are the best allies of sound policy in the general interest. It is probably the case that, at this juncture, with so much at stake, peer review and consensus are needed more than ever.

Rushing to make decisions based on ideas that have not undergone proper expert scrutiny is the very opposite of progressive policy: it weakens competition authorities and favours corporate actors with disproportionate access to power and dissemination outlets.

It is true that peer review and the emergence of a consensus take time. Some people who genuinely want to advance the general interest feel that time is of the essence: they believe action is needed as soon as possible.

I understand the frustration some may feel. However, experience teaches us to be cautious: a policy that, on its surface, seems to be in the interest of society as a whole may only serve a small, well-organised pressure group. What is more, the opposite can also be true.

Rules on disclosure will help. Making sure that unscrutinised ideas are treated with the appropriate degree of scepticism, even more so. I am hopeful disclosure will strengthen the latter.

Written by Pablo Ibanez Colomo

29 July 2020 at 5:39 pm

Posted in Uncategorized

On Facebook’s application for the annulment of requests for information (T-451/20 and T-452/20)

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You may have seen in the news today (Mlex also anticipated it a couple of weeks ago) that Facebook has appealed two European Commission requests for information (RFIs), and that it has now obtained an interim suspension from the President of the General Court (see here).

Neither myself nor my firm have any business interest in this case. I have no detailed information, and therefore no views, on whether Facebook’s appeals are well-founded or not, but I am most interested in the legal questions it raises:

As long-time readers of this blog may remember, some years ago we devoted a number of blog posts to the issue of the legal limits on RFIs. That was partly because I was the lawyer in one of the cases in the cement saga (where the RFI was ultimately annulled by the CJEU and the Commission’s investigation was subsequently closed). Whereas other cases in that saga focused on proportionality and insufficient reasoning, our case revolved around the notion of “‘necessity”. Together with then AG Wahl’s Opinions in Heidelberg and other parallel cases, that case still stands as the main precedent regarding the necessity criterion in Art. 18 of Regulation 1/2003.

In a nutshell, and as I have told Global Competition Review today, the Commission enjoys wide investigative powers and it is certainly entitled to use them in full to confirm any reasonable suspicions of an infringement. The Courts will not get in the way of the Commission gathering sufficient evidence to show a competition infringement, but they might well intervene if the information requested lacks a connection with the presumed infringement, or if the Commission does not have concrete indicia constituting reasonable grounds for suspicion.

In these particular cases, the General Court might have to verify (i) whether the information requested might reasonably help the Commission establish an infringement; (ii) whether there were sufficient safeguards in place to mitigate any privacy concerns linked to the use of broad search terms (the ones regularly used in inspections should generally also be sufficient here).

Facebook must surely know that winning on a “non-necessity” argument will not enable it to shield relevant evidence, so its move could well be motivated by concerns unrelated to the competition investigation.

For more details on the interpretation of the notion of “necessity” in RFIs you can check out our previous posts, available here, here and here. A few years ago I tried to summarize those and explain the legal issues at play in this presentation at the Brussels School of Competition:

Lamadrid_ The Cement Judgments and their impact on future RFIs

Whereas further clarity on the law will be nice to have, the timing of Facebook’s application is somewhat inconvenient; one of my summer plans is to finalize reviewing the proofs of the chapter on RFIs I have co-written for the upcoming edition of the procedural bible, and we will now have to fit this in…

Written by Alfonso Lamadrid

28 July 2020 at 3:47 pm

Posted in Uncategorized

On Case C-165/19 P, Slovak Telekom: an upcoming development under the radar

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Under the Radar: How to Protect Against the Insider Threat

These days, attention in competition law circles seems to focus more on the policy dimension – new cases brought by competition authorities, new legislative initiatives – and less on developments before review courts. Keeping an eye on the latter makes sense, if only because major policy initiatives end up challenged.

Slovak Telekom is a key pending case for the future of Article 102 TFEU and the boundaries of the the various legal tests. More precisely, the Court will rule on the scope of the Bronner doctrine (and more precisely of the indispensability condition).

It is one of these cases where the outcome is probably far less relevant than the rationale underpinning the outcome. The former comes across as relatively straightforward, in my view; the latter is far more interesting.

Slovak Telekom: on ‘margin squeeze’ and… ‘margin squeeze’ by other means

Slovak Telekom is a chapter in the long saga of Commission decisions against incumbents in the telecommunications sector.

It is interesting because it involves non-price conduct. The trinity of Deutsche Telekom, Wanadoo and Telefonica revolved around pricing strategies, which were examined under the ‘margin squeeze’ and the predatory pricing labels.

Slovak Telekom, on the other hand, involves price-based strategies (‘margin squeeze’) and non-price-based ones (broadly speaking, unfair terms, such as withholding the necessary information to compete or reducing the scope of its obligation to provide unbundled access to the local loop).

The object and/or effect of both sets of strategies was in any even the same, according to the decision: hinder new entrants’ ability to compete in retail telecommunications markets.

Key point of law: is indispensability an element of the legal test?

The case was decided after TeliaSonera. And TeliaSonera had already clarified that, for better or worse, a ‘margin squeeze’ can be abusive even when the input involved is not ‘indispensable’ within the meaning of Bronner/IMS Health.

The point of law raised in the applications for annulment is interesting: does the TeliaSonera doctrine also apply to non-price-based conduct in a similar economic and legal context (recently liberalised industry subject to sector-specific regulation)?

Following TeliaSonera, it seems to me that indispensability is unlikely to be deemed a pre-requisite for intervention in a case like Slovak Telekom. I fail to see how one can justify applying different legal tests to practices that have the same object and/or effect.

If indispensability is not required for the ‘margin squeeze’ aspect of the overall strategy, I cannot think of a good reason why it would for its non-price aspects.

Explaining the most probable outcome of the case

While it seems relatively easy to anticipate the most probable outcome of the case, teasing out the logic underlying the outcome is far more interesting.

The General Court explored two possible justifications. One the one hand, it argued that, since there is already a regulatory obligation to give access, indispensability would no longer be required. On the other hand, it took the view that the scope of TeliaSonera could be read as applying beyond ‘margin squeeze’ conduct.

I can think of a way to reconcile these two justifications and in which they both make sense. As I have explained before, the key probably lies in Van den Bergh Foods. In the relevant economic and legal context, the Slovak Telekom decision did not amount to mandating the firm to transfer an asset or enter into agreements with persons with whom it has not chosen to contract.

In the circumstances of the case, the infringement could be addressed with an old-fashioned one-off negative obligation (that is, an obligation to cease and desist the conduct).

Because there is a regulatory apparatus in place, there was no need for the Commission to take over the role of a sector-specific agency. For the same reason, the issues raised in cases like Bronner (the imposition of access obligations on regulated terms and conditions) do not arise.

Which takes me to TeliaSonera. In a passage (occasionally criticised), the Court explained that, if indispensability were required in the context of a ‘margin squeeze’, then it would be required in every abuse case.

If you think about it, the passage makes sense. A ‘margin squeeze’, as a practice, typically raises issues that are not fundamentally different from those at stake in predatory pricing cases (as Wanadoo shows, the two labels are sometimes even interchangeable).

If one has never thought of requiring indispensability in a predatory pricing case, there should be no reason why it should be required in the context of a ‘margin squeeze’ (or any other case that would not demand the administration of proactive, regulatory-like remedies à la Bronner).

Summing up: the regulatory context is key, as suggested by the General Court. This is so insofar as, in such a context, a cease-and-desist obligation is enough to bring the infringement to an end. In the same vein: the key in TeliaSonera is not so much the pricing or non-pricing nature of the practice, but the nature of intervention.

Written by Pablo Ibanez Colomo

24 July 2020 at 1:28 pm

Posted in Uncategorized