Chillin'Competition

I really appreciate that people took the time to comment on my last post on Lundbeck. The point of the blog is after all to encourage discussion. As I write this, five readers have posted their thoughts on the blog. Xavier Boutin did so via our Linkedin group.

This time, I felt I would not to justice to these comments by replying to them one by one, as I usually do. I thought it was a better idea to address the main issues in this format.

The point of my post

A few of the comments discussed potential competition in general and uncertainty in general. These comments were interesting, and I agree with what I read. However, they do not really address the specific issue I raised in my post. Allow me to go back to the initial question:

Can one really say that a generic producer is a potential competitor if it needs to infringe a patent in order to enter a market?

The discussion that followed must be understood as relating to this narrow point of law. Kiko’s comment (thanks!) defines a useful framework. Potential competition presupposes the (i) ability and the (ii) incentive to enter a market. These are the two preconditions for potential competition to exist. Thus, the question can be rephrased as whether a generic producer has the ability and the incentive to enter a market when it would need to infringe a patent. One can think of at least two answers:

• No potential competition: The exclusive right (i.e. the patent regime) precludes market entry and thus the ability of the generic producer to do so. This answer is consistent with E.On Ruhrgas (in which the regulatory framework also precluded market entry) and with the principle according to which EU law does not question the existence of intellectual property rights. The decision in Lundbeck suggests that the Commission (para 632) and the General Court (para 628) have endorsed this approach in the past.
• Potential competition: The exclusive right does not preclude the generic producer’s ability to enter the market because the patent may be declared invalid, or because the patentee may choose not to bring an action against the alleged infringer. As I understand the decision, these are the arguments that the Commission advanced in Lundbeck.

I explained in the post that I am not persuaded by the second answer. Think in particular of the following:

• Substantive reasons: Because EU law does not question the existence of intellectual property rights, patents are presumed to be valid. If the existence of intellectual property rights is not questioned, I fail to see how considerations about the outcome of a potential challenge should play a role in the analysis. For as long as a patent is deemed valid, a generic producer would lack the ability to enter a market if doing so requires the infringement of a patent.
• Certainty and probability: Some passages of the judgment suggest that a generic producer is a potential competitor because it may be a potential competitor. In other words, potential competition is said to exist even though there is uncertainty about one of the preconditions (i.e. the ability to enter the market). It is not clear to me how a 50% or 60% probability of potential competition can be equated with the certainty of potential competition (i.e. a 100% probability). [note: uncertainty in my post refers to potential competition, not to uncertainty about entry, as some have suggested. The difference is important!].
• Economic and legal context: If the probability of potential competition is equated with the certainty of potential competition, a fundamental layer of complexity pertaining to the economic and legal context of the agreements is removed. It seems to me that the legal analysis that follows is inevitably affected. I had this specific issue in mind when I referred to the evaluation of the economic and legal context in the judgment.

‘Yes, but they were process patents’

Xavier suggests that the outcome might have been different if the case had concerned a basic patent, as opposed to a process patent. This is an interesting and plausible reading of Lundbeck. However, it is important to think about its implications. If the outcome of a case depends on the perceived strength of patent protection, competition law be second-guessing the patent system. The competition law system would become a parallel regime for the protection of intellectual property, which would refine and evaluate the merits of protection. Intervention in this sense would entail a fundamental departure from the case law.

‘Is it just that you dislike the outcome?’

I have already explained in the blog (in a post on which Joan also commented!) that I am not interested in the outcome of individual cases. As an academic, it does not matter who ‘wins’ or who ‘loses’ a particular case. What matters to me is the consistency of the system and the evolution of the law. To me, the legal route through which a given outcome is reached is as important, if not more, than the outcome itself. I believe the posts reflects this perspective well.

Someone who has carefully read Lundbeck can credibly claim that the points of law I discussed in the post are not even decisive for the outcome of the case. Arguably, the outcome could have been the same had the discrete points of law I raised been decided differently. I am sure other people will elaborate on this question. But it is not the one in which I am interested.

‘Is it maybe that the judgment does not reflect your understanding of the case law?’

Kiko’s comment is very timely. Alfonso and I have just completed a paper on the notion of restriction of competition. We will upload it soon on ssrn and look forward to your comments. In this paper, we build on some of our previous work.

I would say Lundbeck is in line with my understanding of the case law. As I point out in the post, if one considers that generic producers are potential competitors, it seems inevitable to conclude that the agreements are restrictive by object. A payment to a potential competitor to stay out of the relevant market has no plausible explanation other than the restriction of competition. But please note that, if a generic producer is not a potential competitor, then this explanation becomes implausible (as competition would not have existed even in the absence of the agreements). Interestingly, Lundbeck appears to be somewhere in between.

Perhaps because I actively seek to develop a global understanding of the case law, I may be more inclined to refer to rulings that others may not see as obviously relevant. Coditel II, Erauw-Jacquery or BAT spring to mind immediately when thinking about the scope-of-the-patent test or the restrictions that are inherent in the exploitation of an intellectual property right. More than the opposite, this exchange made me think that I should put together some thoughts and contribute to the ongoing discussions.

Thanks again!

Last week, the General Court delivered its judgment in Lundbeck. It is the first ruling on the pay-for-delay saga. As most of you know, the GC dismissed the action for annulment. It confirmed that, in the specific circumstances of the case, the payments to generic producers amounted to a restriction of competition by object. It also confirmed that generic producers were potential competitors on the relevant market.

The judgment is very long. I will certainly not try to summarise it in around 1,500 words. A substantial part of the analysis is devoted to factual questions. I will thus focus on the issues of law that may feature in an appeal and which are more relevant to draw conclusions that go beyond the peculiarities of the case.

Most readers will remember that the Commission claimed in its decision that Lundbeck had paid generic producers to delay the launch of their version of the drug once the basic patent had expired. At the time of the agreements, Lundbeck still held related process patents.

The fundamental question, against this background, is whether the generic producers were ‘potential competitors’ within the meaning of the case law. If these producers are indeed found to be potential competitors in the relevant economic and legal context, it is inevitable to conclude that the agreements are restrictive of competition by object. They would be cartel-like arrangements without a plausible explanation other than the restriction of competition.

My impression, however, is that the General Court may not have fully appreciated the complexity of the economic and legal context. Accordingly, the qualification of the agreements as restrictive by object seems controversial.

Were generic producers potential competitors?

The judgment correctly defines the applicable legal test in this regard. The relevant question is whether there would have been ‘real concrete possibilities’ for generic producers to enter the market (paras 98-99). This question, as many others, must be assessed against the counterfactual. What would have happened in the absence of the agreements?

One can think of various reasons why a firm may not have the ability and/or the incentive to enter a market. For instance, the applicable regulatory framework may preclude actual or potential competition between the parties to the agreement. This is the issue considered by the General Court in E.On Ruhrgas, which is abundantly cited in Lundbeck.

Potential competition and patent protection

Pay-for-delay cases are peculiar in which the pharmaceutical company typically benefits from patent protection. As a result, these cases often involve an instance in which market entry by a generic producer is precluded by an intellectual property right. In this sense, they are similar to E.On Ruhrgas. In the latter, exclusive rights (ie a legal monopoly) also precluded market entry.

Can one really say that a generic producer is a potential competitor if it needs to infringe a patent in order to enter a market?

According to the General Court, even when market entry depends on the use of a patented process, a generic producer that enters the market without the authorisation of the patentee would be a potential competitor.

It is worth summarising the reasoning of the General Court. It notes (para 120) that generic producers in Lundbeck were potential competitors because it was not certain (i) that they would necessarily have infringed the patent(s); (ii) that the patent(s) holder would have brought an action for infringement and (iii) that the patent(s) would have been found to be valid.

As I understand the ruling, the General Court suggests that a generic producer is a potential competitor so long as there is uncertainty around any of the above three points. For instance, the generic producers may not see the prospect of an injunction as realistic, either because they believe they would be successful in the event of a challenge (para 125) or because they do not believe that the patent holder would bring an action in the first place (para 126).

I admit I struggle with this part of the judgment, having read it a few times. I believe it is premised on a contradiction. To use a graphic example: the position taken by the General Court is tantamount to saying that Schrödinger’s cat is alive because it may be alive. A generic producer is a potential competitor, in other words, because it may successfully enter the market.

The General Court equates probability with certainty. As a result, it draws a somewhat simplified picture of the economic and legal context of which the agreements are part. Coming to the analogy used above, it is a bit like applying the logic of classical physics to quantum phenomena. Inevitably, this simplification leads to errors in the analysis. I can think of two main inconsistencies:

• Presumption of validity: The General Court accepts that patents are presumed valid. On the other hand, it emphasises that they may be declared invalid at a subsequent stage (para 122). These two statements cannot be reconciled. I struggle to see why the latter should play a role in the analysis. EU law does not dispute the existence of intellectual property rights. As a result, the assessment of a restriction should be based on the assumption that the patent is valid.
• Temporal aspects: The General Court seems to conflate ex ante and ex post considerations. It suggests that the generic producer is a potential competitor because it may appear, ex post, that it was able to enter the market without infringing the patent. These considerations seem to ignore that the very point of a genuine pay-for-delay agreement is to deal with ex ante uncertainty. By the same token, the nature of an agreement of this kind must be evaluated in an economic and legal context of uncertainty, not in light with an ex post reality that may or may not be manifested at a subsequent stage.

The Lundbeck judgment against the applicable case law

I have already pointed out that pay-for-delay takes place in a very peculiar economic and legal context. Traditionally, the Court of Justice has addressed similar issues in a way that differs significantly from the approach taken by the General Court in Lundbeck.

As the case law stands, an agreement is not restrictive of competition by object if it remains within the substantive scope of the intellectual property right. Think of a few examples, which I analyse in detail in this article of mine:

• Generally, an export prohibition is restrictive by object. This is not the case, however, where it remains within the substantive scope of the relevant intellectual property right (Erauw-Jacquery). Interestingly, the Commission submission in Erauw-Jacquery made exactly this point.
• Similarly, an agreement providing for absolute territorial protection is not restrictive by object when the licence does not go beyond the scope of the relevant intellectual property right – right of communication to the public (Coditel II).
• In the context of technology transfer agreements, an open exclusive licence, which remains within the substantive scope of the intellectual property right, is not restrictive by object (Nungesser).

I have to confess I do not understand why these cases are not discussed at length in the judgment. The most relevant of these precedents is perhaps BAT v Commission. The case concerned a trade mark delimitation agreement. These agreements are used to address the risk of confusion. In many ways, the underlying issues are the same as those found in pay-for-delay agreements.

In BAT v Commission, the Court of Justice held that such delimitation agreements cannot be compared with a market sharing cartel. Thus, they are not restrictive by object. They would only infringe Article 101(1) TFEU by their very nature when they fall outside the substantive scope of the trade mark. This is precisely what happened in BAT v Commission. The Court found that the agreement was restrictive by object because it gave BAT protection that it would not have enjoyed by virtue of the trade mark. In other words, it went beyond the substantive scope of the intellectual property right.

Another major ruling is Ideal Standard. In that case, the Court held that the assignment of a trade mark is not necessarily restrictive by object. It is also a judgment that shows that there is no potential competition where an intellectual property right can be invoked to prevent market entry.

What I would like to see in an appeal

As I was drafting this post, I was thinking that it would be great if legal academics were given the chance to challenge General Court judgments to clarify certain points of law. These are the issues of principle that I would love to see addressed in an appeal:

• Confirmation of the existence/exercise dichotomy: It would be important if the Court confirmed the long-standing principle according to which EU law does not question of the existence of an intellectual property right. In the same vein, considerations about the probability of a successful challenge should not play a role in the analysis.
• Article 101 TFEU and scope of intellectual property protection: Lundbeck departs from the principle whereby an agreement is not restrictive by object where it remains within the substantive scope of an intellectual property right. This principle, which explains the case law discussed above, is based on a venerable legal doctrine: qui peut le plus, peut le moins. If the holder of an intellectual property right can bring an action against a third party, it should by definition be able to settle with it.
• The notion of potential competition: The relevant precedents (Coditel II, Ideal Standard, BAT v Commission) suggest that potential competition does not exist where market entry depends on the infringement of an intellectual property right. The fact that the right in question may be declared invalid at a subsequent stage is not a relevant consideration under this case law.
• The analysis of the counterfactual: The Court of Justice has long taken the view that the analysis of the nature of the agreement and of the relevant economic and legal context must consider the counterfactual. In line with this case law, the General Court evaluates the counterfactual at various stages. Strangely enough, the General Court also denies doing what it does. It suggests in para 473 that the analysis of the counterfactual is only relevant for the analysis of the effects of an agreement. The Court of Justice should be given the chance to address this misunderstanding and clarify – in line with its long-standing case law – that it is impossible to determine whether an agreement restricts competition by object without considering the counterfactual.

From this year onwards the Brussels School of Competition’s programme in competition law will be jointly organised with the University of Liège (ULg) and Saint-Louis University (USL-B).  Students who pass their exams and dissertation will receive an ‘Interuniversity Certificate in Competition Law’ (for more info, click here).

Vey importantly, students will also get to do my simulation of case AT. 98765  Intergalactic droids  😉

On top of the annual programme, the BSC also organizes some of the best conferences in Brussels (second only to the upcoming Chillin’Competition conference…). The next one (on Wednesday 14 September) is about the implications of Brexit for competition law, and the line-up of speakers is remarkable: Richard Whish, Trevor Soames, Robert O’Donoghue, Sir Nicholas Forwood and Jacques Steenberger.

For more info click here:  What does Brexit mean for EU Competition Law?

Our readers have asked me a few times about the similarities and differences between Android and Microsoft. The question makes a lot of sense. If Microsoft was a resounding victory for the Commission, and Android is also about tying (and about software), should we waste time and paper discussing it? Is the outcome not going to be exactly the same? I believe that there are genuine differences between the two. This first post addresses some of them.

Allow me to start with a hypothetical that captures, I believe, the essence of the Android case.

A 24-hour news channel is immensely successful. It is so successful that all pay TV operators (cable, satellite, IPTV) see it as indispensable for their business. This channel does not carry advertising and is offered for free. However, pay TV operators wishing to carry the channel must also carry two tele-shopping channels, which are used to raise advertising revenues. In addition, pay TV operators are required to place these two tele-shopping channels immediately before and after the news channel, to ensure that the largest possible number of viewers watches them.

Is this behaviour anticompetitive and, assuming dominance, contrary to Article 102 TFEU? I do not think so, even though there is tying involved and even though the firm would insist on giving more prominence to its tele-shopping channels. Why? For two reasons that are also key to make sense of Android.

• In this example, the existence of the tying product (the 24-hour news channel) cannot be understood without the existence of the tied product (the tele-shopping channels). The tying of the two products, in other words, is what allows for the viability of the 24-hour news channel. Again, it is all about the counterfactual. It looks like the practice does not restrict competition that would have existed in its absence. As a result, it is not capable of having exclusionary effects.
• What is more, prohibiting the tie-in in this case would allow rivals to take a free ride on the investments of the firm. If a 24-hour news channel is immensely successful, rivals would probably want to place their channels immediately before, or immediately after it. Because it does not carry advertising, prohibiting the tie-in would allow rivals to make money at the expense of the company running the news channel. This firm would develop the channel, and rivals (alone or together with the firms’ customers) would benefit from these investments by reaping the advertising revenues.

These two features were not present in the Microsoft (Media Player) case. It is not very credible to argue that the tying product (the operating system) would not have been created without the tied product (the media player). The operating system existed well before the media player. The analysis of the counterfactual shows that the tie-in was at least capable of restricting competition that would have existed in its absence (whether it was likely to restrict competition is of course a different question). Similarly, it is difficult to say that an obligation to seek a version of Windows without the media player would allow Microsoft’s rivals to take a free-ride.

Consider now Android. I do not believe anybody seriously disputes that the Android ecosystem exists because Google Search exists. The mobile operating system was only developed because of the prospect of making money via advertising (ie, via Google Search). The same is true of Google Play and Google Chrome (after all, a web browser is also a way of performing searches).

This point is intriguing and important. Essentially, it reveals that the Android case turns the logic of Microsoft on its head. In Microsoft, the tied product owed its existence to the tying product. In this respect (but not in others), it was a plain-vanilla tying case. In Android, it is the other way around. The tying product owes its existence to the tied product.

As I understand Android, the Commission appears to argue that the tying product is Google Play and the tied product is Google Search. Can one argue that this practice is capable of having anticompetitive effects? Sure, but it would be necessary to show (i) that, when Android was launched, it was possible to enter the market with a different business model and (ii) that Google had the incentive to enter the market with a different business model.

In other words, it would be necessary to show, against the counterfactual, that the practice restricts competition that would otherwise have existed. If Google would not have entered the market for operating systems in the absence of the alleged restraints, we know from the case law (STM, Post Danmark II) that the threshold of ‘capability’ is not met. I am curious to see how this issue will be considered.

Next time, I will address the second point I identified above, which has to do with free-riding and the remedy. In this respect, I believe there are similarities between Android and the Microsoft saga. A taster: this second point reveals, in my view, none of these cases are really about tying at all. Stay tuned!

A new paper on Android, by Damien Geradin and Ben Edelman

A while ago, we invited our readers to send our way their thoughts and comments on the Android case. With some delay ;), Damien Geradin has sent us a paper he has written with Ben Edelman, from Harvard Business School. Here it is: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2833476

We have a date for the 2nd Chillin’Competition conference:

21 November 2016

We are working on the programme and will be contacting speakers throughout the week. Hold your breath; it may be you 😉

We nevertheless have invited one speaker so far, and she very kindly agreed to deliver a keynote. Many thanks to @vestager !

If your law firm or company may be interested in sponsoring the conference please drop us a line (we want to keep it accessibe and ideally not lose money….)

Registrations will open on 14 October (more info on this soon). Last year all available slots were gone in 36 minutes…

It seems State aid law is in fashion these days, and that experts in the field are flourishing.

This is in many ways a welcome development for some of us who have been working on tax State aid cases for over a decade (as I mentioned here once, my first contact with competition law 13 years ago while still at university was a not-so-ground-breaking paper on tax competition and State aid, and tax State aid is a significant chunk of our work; see e.g. here and here or my comments below the post here).

The Commission’s decision in the Apple case is responsible for putting EU State aid law under the world’s spotlight (even if some of the issues that are being re-discovered are pretty settled or had already been raised by the previous decisions on tax rulings).

The decision seems to have been mostly welcome, if only for apparent ethical reasons (the message that Apple pays 50 euros in taxes for every million in profits is quite powerful in that regard).

In fact, PR-wise this may be the most effective Commission action in years (well, in this side of the Atlantic and of the English Channel).

However, I’m not sure a morally desirable outcome should be achieved at the expense of stretching the boundaries of the law. The underlying problem here is a political one (tax competition due to lack of tax harmonisation) and should arguably be better tackled at the root.

[After publishing this post I  read an article (see here) that makes a similar point but that may be a bit more unexpected and controversial considering its author: former Commissioner Neelie Kroes…]

And as obvious as the advantage in this case may be, adopting a decision with regard to one/some specific company/ies without examining how other tax rulings treat other multinational companies (and whilst claiming that tax rulings in themselves are legal) is risky, as it deviates from the assessment of selectivity as we have always known it. I already made this point on day one.

Those interested in undertanding the legal issues that are key to this case should take a look at this recent presentation by one of the greatest experts in the field, my colleague José Luis Buendía. It illustrates wonderfully (and funnily) the apparent chicken-egg and apple-pear  problems in the Commission’s approach:

Are Tax Rulings Selective_JLB

By the way, the 13 billion figure has proven that my prescient, visionary, specific and detailed quote to the Financial Times in April 2015 was spot on: “We are talking about potentially very significant amounts of money, said Alfonso Lamadrid de Pablo, a senior associate at Brussels law firm Garrigues” (see here)

P.S.  And if interested in a timely conference on these matters, check this one out (co-organized by one of the sponsors of our own Chillin’Competition conference, Hart Publishing):  http://www.bloomsburyprofessional.com/uk/hart/conferences/ (Early Bird Discount if you book your place before 9 September 2016).

The University of Leeds has become in recent years one of the most active and ambitious academic institutions in the field of EU Competition Law.

On September 9 they will be hosting a top-level (and free) conference under the title that gives name to this post. 

The conference will comprise four panels on: Market Definition and Market Power in Digital Markets, Regulation vs. Competition in Digital Markets, Vertical Restraints in Technology-Driven Markets and Goods and Data in Online Markets  (I will be taking part in the latter).

More info is available here: 

http://www.law.leeds.ac.uk/events/2016/competition-and-regulation-in-digital-markets
Hope to see a good number of you there!

The EU and Spanish Competition Law Course is turning 20 this year (I was a student back in its 9^th edition and started co-directing it in the 14^th).

The course will run between 13 January and 17 March and it will once again feature an impressive line-up of international lecturers that includes Judges, officials from the European Commission and the Spanish authority and top-notch academics, in-house lawyers and practitioners. Lectures will be conducted in English and Spanish.

On top of the classic modules on cartels, vertical and horizontal agreements, abuse of dominance, merger control, State aid and the competition-regulation interface, we are putting together 3 one-day seminars (one focusing on all noteworthy developments that took place in 2016, one focused specifically on transport-related matters, and a final seminar looking back at the main cases of the past 20 years guided by those directly involved in them).

It is sponsored by the main international and national law firms and economic consultancies active in the Spanish market.

More information on the course will be out soon; for the time being, here is some advanced essential info in English and Spanish:

XX Curso de Derecho de la Competencia Europeo y Español

XX EU and Spanish Competition Law Course

If you want to know more feel free to drop us a line at competencia@ieb.es

Nobody doubts that the notion of selectivity is the single most complex issue in EU State Aid Law. There have been many genuinely hard cases in the past few years, and the issues raised by each of them are very different. On the other hand, I had the impression that we were coming close to reaching a point of consensus, and that, by bringing together the different strands of the case law, it was possible to come up with something that looks like a coherent framework.

I do not have this certainty anymore after reading yesterday’s Opinion by AG Wathelet in the Santander and World Duty Free Group (ex-Autogrill) cases (on which Alfonso has been working). The Advocate General proposes a major departure from the consensus that had been developing. The Opinion appears to go further than Gibraltar, which is the most controversial case of the past few years.

There is nothing wrong, per se, in advocating a change in the law. We have been there before in EU State Aid Law. I am ready to anticipate, however, that the position advanced by AG Wathelet will give rise to considerable controversy. I can think of three main lines of criticism:

• From a strictly positive perspective, commentators are likely to argue that the opinion is at odds with the case law. Interestingly, this case law (such as 3M and a Germany v Commission judgment from 2000) is discussed in the Opinion. I explain this point in some detail below.
• From a functional perspective, the Opinion, if followed, would have major consequences. The notion of state aid would be significantly broader, thereby leading to an appreciable increase in the range of measures that would be caught by Article 107(1) TFEU (and the volume of cases that the Commission could potentially handle).
• From an institutional perspective, the Opinion would lead to a significant shift in powers to the Commission. The Commission would have greater discretion to scrutinise (and to have a say over) national tax systems. When reading the Opinion, I thought of AG Jacobs’ Opinion in PreussenElektra, who discussed in detail the institutional consequences of broadening the scope of the notion of aid.

The case was, I thought, relatively straightforward (just to give you an idea, I mention it just in passing in class). It is about a measure that allows firms that are tax residents in Spain to amortise the goodwill resulting from the acquisition of shareholdings in undertakings which are tax resident abroad.

The question is whether this measure is selective. The General Court concluded that it is not. After all, it does not discriminate between firms that are tax residents in Spain, and it is open, in fact and in law, to all undertakings. Sure, some firms benefit more than others from it, but this has never been enough to qualify a measure as State aid (or so I thought).

I can illustrate this idea by reference to a classic example discussed in the Commission Notice on direct business taxation. Consider a reduction in the tax burden of research and development activities. Not all firms would benefit from the measure to the same extent (some of them do not benefit from it at all). Insofar as it is genuinely open to all undertakings, however, it is not selective (this is in fact what the Commission itself said in the Notice).

AG Wathelet’s Opinion departs from this position. In his view, both the deduction at stake in Santander and ex-Autogrill and the tax break for research and development activities would be selective and thus would qualify prima facie as State aid. AG Wathelet appears to argue that any deduction in the corporate tax system would be selective insofar as it would have the effect of treating some firms more favourably than others. If you are familiar with the reality of corporate taxation across the EU you may have thought ‘well, then it means that pretty much all of the tax code is State aid’. I thought that too when I read the opinion, which is why I referred to institutional and functional issues above.

As I pointed out above, the fact that AG Wathelet proposes to broaden substantially the scope of Article 107(1) TFEU is not a ground of criticism in itself. Why will the Opinion be criticised from a positive standpoint, then? I can think of the following reasons:

• The Opinion suggests that any derogation is prima facie selective. In doing so, it appears to conflate two separate questions. Contrary to what it is implied by AG Wathelet, not all derogations are selective, in the same way that a selective measure need not be derogation from a ‘normal regime’.
• I also note that the Opinion reveals a tendency to conflate the notion of advantage and the notion of selectivity. Again, contrary to what is suggested, an advantage within the meaning of Article 107(1) TFEU is not necessarily selective. This is something that the Court has always made clear, more recently in MOL.
• The Opinion can simply not be reconciled with the case law. Germany v Commission, which is a judgment that I have studied in some detail, is objectively at odds with the position taken by the Advocate General. Pretty much the same can be said of 3M. In essence, the Opinion is inviting the Court to overrule these precedents.

We will have to wait a few months. As I explained earlier this month, the Court has a preference for stability and continuity. But we know that changes happen, and this may be the occasion in which the notion of selectivity is given a whole new, much broader, meaning, to become something akin to an instrument to harmonise corporate taxation.

Intro by Alfonso: When the Commission recently announced the adoption of a commitments decision in the liner shipping case I asked my colleage Luis to write a post about the legal issues at stake (he was not involved in it, but wrote an expert academic report for a law firm involved). Luis, as you know, is a partner at Garrigues, a reputed academic, and the person responsible for me working in competition law (not sure that’s a good thing).  But what you may not know is that for 10 years he was a case handler at DG Comp dealing with transport cases, that he wrote his PhD on liner shipping and that he is about to publish the book “EU Regulation and Competition Law in the Transport Sector” (Oxford University Press). We leave you with him:

***

 On 7 July this year the European Commission adopted a Decision (not yet published) declaring legally binding the commitments offered by 14 container liner shipping companies allegedly aimed at increasing price transparency for customers and reducing the likelihood of coordinating prices and consisting on (i) stopping publishing and communicating General Rate Increases (GRIs) announcements, (ii) announcing figures including at least the five main elements of the total price, in order for price announcements to be useful for customers, and (iii) the binding character of the price announcements as maximum prices for the announced period of validity.

The European Commission formally opened infringement proceedings in November 2013 against container liner shipping companies that have regularly carried out similar price announcements (the General Rate Increases or GRIs), allegedly intentionally aligning them with the ones announced by other carriers.

The Commission had concerns that these GRIs announcements did not provide full information on new prices to customers but merely allow carriers to be aware of each other’s pricing intentions and make it possible for them to coordinate their behaviour, what may lead to higher prices for container liner shipping services and harm competition and customers.

Although no infringement has been identified, there are some aspects of the Commission’s intervention in this case that are worth noting:

First, the fact that more than two years elapsed from the inspections to the first requirements for information sent to the lines gives the impression that the initial intention of the Commission was not to put forward the theory of harm finally adopted; but rather that it was initially seeking to establish some form of explicit collusion and that this novel theory of harm might aim at not seeing the extensive efforts made by the Commission go to waste.

Second, the Commission is taking a very bold step, beyond the T-Mobile Netherlands and Wood Pulp case law. Indeed, the Commission’s case does not fit into what Wood Pulp would require to establish a concerted practice; neither does it fit into T-Mobile Netherland’s conditions required for a concerted practice to amount to an infringement by object. In fact, the Commission may have considered price announcements as an infringement by object in themselves and not as an evidence or sign of contacts or meetings between competitors as in Wood Pulp. Furthermore, while T-Mobile Netherlands established that the information exchange must be considered capable of harming competition depending on its legal and economic context, the European enforcer has refused to even consider such frame, eluding its duty to set up the whole picture of the case at hand.

Finally, the Commission has admitted that contrary to T-Mobile Netherlands, the information was disclosed to the public – making possible customers to benefit from it – and no evidence of contacts between the lines has been established.

The Commission apparently relies on ¶63 of the Horizontal Guidelines – which states that for unilateral announcements to constitute a concerted practice they must be shown to be a strategy for reaching a common understanding about the terms of coordination – and it seems to believe it has nothing to prove beyond that which is obvious and no one denies, i.e., that shipping lines make advance price announcements which they are not always able to implement. The Commission’s theory is not impossible, but clearly less likely to believe than alternative, simpler explanations of the facts.

Leaving aside all the above, the crucial question is whether the object or the effect of the announcement of GRIs is to create conditions of competition which do not correspond to the normal conditions of the market in question regard being had to the nature of the products or services offered, the size and number of the undertakings involved and the volume of that market (T-Mobile Netherlands, ¶33), as established by the Court of Justice case law. The Commission may believe it is indeed the object of these advance announcements to restrict competition in the internal market, on the basis that they allegedly do not benefit consumers as much as shipping lines, at least when they are made too far in advance.

In this respect two issues must be highlighted. Firstly, if the purpose of this practice is not clearly to restrict competition because it prima facie has a different purpose – to inform customers on future prices –, then it should not be considered a restriction by object. Secondly, and if the length of time between announcement and implementation of GRIs is of importance in determining whether this practice is restrictive or not, what is the maximum period of notice at which announcement is deemed to be restrictive (and possibly neither redeemable under Article 101(3) TFEU)?.

Considering that it is not really obvious that price announcements enable shipping lines to know the market positions and strategies of their competitors (T-Mobile Netherlands, ¶34) (as in the end many of them are not implemented as announced) and assuming both that there is a sufficient degree of parallelism in shipping lines’ conduct and that that parallelism is suspicious, it is necessary to determine whether this parallel conduct can be traced to the fact that competitors have adopted a concerted action with an anti-competitive object, [in this case] an exchange of information capable of removing uncertainties between participants as regards the timing, extent and details of the modifications to be adopted by the undertakings concerned (T-Mobile Netherlands, ¶41).

The answer to this question must necessarily be negative. Indeed, price transparency in respect of base rates and surcharges – a simple point of departure for real prices – is a fact in this industry and any non-public advance price announcement is bound to be known by all market participants very soon anyway, so that publicizing them simply makes lines’ lives easier given the number of customers they have.

Last by not least, according to the European Court of Justice case law, a concerted practice is a form of coordination between undertakings by which, without it having been taken to the stage where an agreement properly so called has been concluded, practical cooperation between them is knowingly substituted for the risks of competition (T-Mobile Netherlands, ¶26). Therefore an element of consciousness is required. Accordingly, the Commission should have at least gathered a reasonable amount of evidence showing that a non-negligible number of lines did knew that what they were doing might be anti-competitive.

All the above elements seem to indicate that price signaling is not the most obvious explanation for advance GRIs announcements; rather, the most obvious explanation is clients’ convenience and the dynamics in a market where list prices are easily available, with or without public announcements, but effective prices are not.

Will the commitments enhance the opacity of the market? One could think so. But will they solve a competition law issue? Many would say there was nothing to solve.