Regulating TV markets to protect BT? Not again, Ofcom. Please
Many of you will have read the headlines about the recent auction organised by the Premier League. A couple of weeks ago, Sky and BT paid a record sum of £5.1bn (up from £3bn in 2012) for the TV rights to three seasons of the top English football championship (2016-17 to 2018-19). Sky secured the majority of the rights (126 matches per season out of a total of 168).
Victory for Sky? I am not convinced, and given the behaviour of Sky’s shares the day after the deal was announced, it would seem that I am not alone. In fact, the deal seems to have strengthened BT’s position. Unlike Sky, the incumbent telecommunications operator in the UK had nothing to lose, and everything to gain, in the process. Just consider the aftermath of the auction. BT has managed to force Sky, a major competitor, to pay an unprecedented amount for premium sports content (thereby harming its profitability), without fearing the consequences of not securing the rights in question. Why not? In 2010, Sky was required to supply its sports channels to its competitors. As a result, BT was confident that it would be able to offer top football to its subscribers irrespective of the outcome of the auction.
An analysis of the regulatory landscape indeed shows that the incumbent telecommunications operator benefits disproportionately from the multiple distortions progressively introduced by Ofcom and the European Commission on markets for the acquisition of the rights to premium sports content. Due to intervention by the latter, BT has been able to acquire part of the rights offered by the Premier League, as well as the rights to the UEFA Champions League. As a result of the regime set up by the former in 2010, it is able to offer Sky Sports channels to its subscribers (in addition to its own content). The combination of the two regimes has allowed BT to become a credible provider of pay TV services in little time.
Against this background, the immediate question that springs to mind is why Ofcom would set up regulation having the effect of strengthening the position of the incumbent telecommunications operator at the expense of two of its rivals, Sky and Virgin Media (the main cable operator in the country). In December 2014, Ofcom launched a consultation about whether the regime introduced in 2010 should be amended or removed. If this blog post is accepted as a response to the consultation, here is my reaction: ‘Please remove the compulsory licensing obligation, and the sooner, the better. It is not necessary in any way and is likely to do more harm than good’.
I guess many among you are unfamiliar with the regulation put in place by Ofcom in 2010. If you know little or nothing about it, I am sure you would find it interesting to take a look at the consultation document issued back in December by the authority. It illustrates very well the sort of issues that might arise in areas at the crossroads of competition law and sector-specific regulation. Premium TV content is in a grey area between the two. It is not part of the traditional focus of telecommunications regulation (which is primarily concerned with access to, and interconnection between, networks). At the same time, TV content is obviously relevant for broadband Internet providers offering television services as part of their triple and quadruple play bundles. The competitive advantage, in the form of exclusive rights, enjoyed by one provider is likely to influence downstream competition.
In essence, Ofcom’s seeks comments on whether it is convenient to treat premium TV content in the same way it treats the telecommunications network and thus whether it makes sense to impose compulsory supply and non-discrimination obligations on pay TV providers like Sky. Access to BT’s network ensures a level playing field between the incumbent telecommunications operator and its competitors. Imposing similar obligations in relation to Sky’s premium channels would ensure that all broadband Internet providers are able to compete on an equal footing with the leading pay TV operator in the UK.
You may have asked yourself already whether premium TV content and the telecommunications network are really comparable. If you read the consultation document you are likely to be even less convinced about the convenience of extending to content activities the regulatory regime applying to networks.
Is premium content indispensable for downstream competition? It would make sense to treat networks and premium TV content alike if the latter were an essential facility or an indispensable input to compete on the relevant downstream market. Interestingly, Ofcom’s consultation document provides extensive evidence showing that this is clearly not the case. I have in fact not found a more exhaustive and reliable source of data showing that premium TV content is a far cry from being indispensable for pay TV or triple play providers.
There is nothing anticompetitive in trying to exploit one’s competitive advantages. One should not be surprised that companies want to keep competitive advantages for themselves. Profit-maximising firms tend to be unhappy with the idea of subsidising a competitor. Authorities and courts have long understood that a refusal to supply is, absent exceptional circumstances, a manifestation of healthy rivalry. Curiously, Ofcom seems to claim that Sky’s lack of incentive to supply its premium TV channels to its rivals is anticompetitive. This is certainly the line of reasoning that a competition lawyer is more likely to find strange or surprising.
How do companies compete on the relevant downstream market(s)? It is interesting that the consultation document never seeks to define the relevant downstream market in a systematic way. The dynamics of downstream rivalry (where BT, Sky and Virgin Media compete across the whole range of convergent services) must be understood before one determines whether it is justified to take regulatory action in a particular market segment. The consultation document falls short in this regard. At times, it borders on the tautological. Here and there, Ofcom seems to suggest that obligations relating to the provision of premium sports channels are justified to promote competition on the market for premium sports content.
What are the unintended consequences of regulatory intervention? More than anything, I am concerned about the fact that Ofcom never considers the unintended consequences of regulatory intervention. By and large, pay TV and premium content are examined in isolation. The risk that intervention could strengthen the position of the incumbent telecommunications operator is never considered. Similarly, Ofcom does not question whether it makes sense to favour the commoditisation of triple and quadruple play offers. If premium TV content is far from indispensable, would it not make more sense to favour diversity, as opposed to homogeneous offers? What are the consequences of limiting operators’ scope for differentiating their products? Does regulatory intervention commoditising retail offers harm firms’ incentives to invest and innovate? These are questions to which I do not find a satisfactory answer in the consultation document.
I look forward to Ofcom’s next steps in relation to this consultation. We (read: I) will keep you updated about them. And now with the tradition: I do not have anything to disclose (funnily enough, I had to clarify this back in 2010, when I submitted this paper to a review). In fact, I do not even have a TV set at home. Although I do have a broadband subscription, which I hope to keep many years… with BT.
Much more on the Intel Judgment
Writing about the Intel Judgment seems to have become one of the favorite hobbies of some of our leading competition law experts.
One of the most downloaded and talked-about competition law articles of the year was Wouter Wils‘ one on “The Judgment of the EU General Court in Intel and the So-Called “More Economic Approach” to Abuse of Dominance“, which we discussed and first announced here.
Wouter’s piece was followed by other equally interesting ones, like Richard Whish‘s (see here), and like my current co-blogger’s, which also received considerable attention (see here for Pablo Ibañez‘s “Intel and Article 102 TFEU Case Law: Making Sense of a Perpetual Controversy” [Wouter’s and Pablo’s articles are by the way both nominated for the Antitrust Writing Awards (see the “Dominance” category here); for some reason Pablo is also co-nominated in the business category for two other pieces I wrote myself (I now understand why he likes to theorize about free riding… 😉 ]
The latest addition to this list of worthy reading is a paper just made available by our friend and founder of this blog, Nicolas Petit. His piece, titled, Intel, Leveraging Rebates and the Goals of Article 102 TFEU discusses the positive law standard applicable to exclusivity rebates following Intel. He finds that the GC’s Judgment sets a modified per se prohibition rule for exclusivity rebates, and endorses the theory of anticompetitive leveraging that formed the core of the Commission’s Guidance Paper on Article 102 TFEU. Nicolas also discusses the purposivist debate that has arisen in the scholarship, and whether it is right that the General Court endorsed a non-welfarist approach to Article 102 TFEU. In his view, this cannot be right, for non welfarist goals cannot be acclimated in moden competition law. Nicolas calls for clear dicta from the ECJ along the lines of Post Danmark.
Those interested in knowing even more (or, rather, in having even more mixed views) about the Intel case should (1) have attended Nick Banasevic’s (who was Case Manager in Intel) excellent talk about the Judgment last Friday in Madrid; and (2) take a look at a new competition law journal (Competition Law & Policy Debate) which, in its first number, features a bunch of Intel-related articles authored by a very impressive line-up of authors (the same issue includes as well an interesting piece on the Google case by the former President of the CFI, Bo Vesterdorf, also available in SSRN).
P.S. Following the publication of this post I have received another piece on the Judgment. This one is authored by Luc Peeperkorn -a European Commission official and one of the main proponents of the effects-based approach, currently on a one-year leave of absence at NYU-, and its title is self-explanatory: “Why the General Court is wrong in Intel and what the Court of Justice can do to rebalance the assessment of rebates“. The piece is also interesting, and unusual, for it is not every day that a Commission official criticizes (although in an academic capacity) a Judgment that the Institution won in first instance and is defending on appeal.
Non-working papers (on two-sided markets, object/effect, cartel evidence and Google)
I recently had to devote most of my non-billable work to finishing a few publications (the fact that after a few missed deadlines I was almost under death threat from editors also played a role) and preparing some courses. As if there weren’t better things to do with one’s time…
Anyway, since I did the work, I thought that it could perhaps be useful to post it or refer to it here, both to justify myself and in case any of you might find them interesting or have comments. These “non-working” papers include:
– A paper on “The Double Duality of Two-Sided Markets” which, to a large extent, is a beefed up version of my speech (the ppp is available here) at the Swedish Competition Authority’s Pros and Cons Conference back in November. The editors of Competition Law Journal have kindly offered to publish it, so it will appear there soon. The paper posits that competition law enforcement regarding multi-sided platforms may have not always accounted for the ambiguity of business practices carried out in these settings and attempts to identify the causes at the root of this problem and to propose some solutions. In essence, my take is that multi-sided platforms raise old questions but with renewed intensity, and that this must force us to go back to basics and recall some general principles that we should never lose sight of.
– A presentation on the Cartes Bancaires Judgment (here: Some additional reflections on Cartes Bancaires_Lamadrid ). It’s titled “some additional reflections” because it followed previous interventions at a seminar on the part of Javier Ruiz Calzado (Latham&Watkins; his very good ppp is also available here: Cartes Bancaires_Ruiz Calzado ) and Nicholas Khan, from the European Commission’s Legal Service. It was a privilege to share the panel with them.
– An absurdly lengthy not so succint paper I’ve co-written with my colleague Ana Balcells on cartel evidence in Spain: La prueba de los cárteles en España (Lamadrid_Balcells), forthcoming in JM Beneyto y J Maillo (Dirs): La lucha contra los cárteles en España, Aranzadi, 2015.
– Also, a few days ago the founder of this blog, Nicolas Petit, asked me (with a most kind anticipation of less than 24 hours…) to conduct a case study on the Google investigation at the Brussels School of Competition. It was a very interesting exercise. I only directed the debate asking questions and linking issues together and it was the students who brilliantly taught themselves and arrived to their own conclusions (I’m being nice to them because I told them that suscribing to the blog is a prerequisite for passing, so I assume they’re reading this). The legal issues underpinning the case (which have not always received the necessary attention) are very well-suited to reflect about some basic concepts of Article 102. In fact, Pablo also did this with his students at LSE a few days ago. Just in case any of you is interested in conducting a similar exercise, here is the (very hastily drafted) list of questions I used: Google Case study – BSC_Lamadrid.
Anyone for a spot of fishing? Opinion of AG Wahl in Case C-583/13 P Deutsche Bahn AG (and others) v European Commission
(by Alfonso Lamadrid and Sam Villiers)
Last Thursday AG Nils Wahl delivered his opinion on the Deutsche Bahn case, criticising part of the General Court’s September 2013 judgment (see here).
As you may remember, this General Court judgment served to confirm the Commission’s wide inspection powers under Art. 20 of Regulation 1/2003 when conducting dawn raids, stating specifically that there was no need for the Commission to obtain judicial authorisation prior to a raid and that documents discovered (genuinely) by accident which indicate a separate infringement may be used as evidence of that infringement, as long as the proper procedural requirements are respected.
The facts
The Commission had information that DB was offering its subsidiaries preferential rebates when supplying electric traction energy to operators.
During the course of the dawn raid at various DB premises in Germany, documents were discovered which the Commission considered may be indicative of separate anti-competitive conduct, outside the scope of the inspection decision (regarding the ‘strategic use of infrastructure’), but in relation to which it had also received a prior complaint. The Commission decided that a fresh investigation needed to be carried out in relation to this new conduct and so adopted a second inspection decision while it was still inspecting DB premises. (Seemingly not fully satisfied with the evidence gathered in the first two inspections, the Commission returned to DB premises later that year for a third inspection.)
DB was not all happy with the conduct of the Commission during the inspections and so brought actions for the annulment of all three Commission inspection decisions.
Prior judicial authorisation required for dawn raids?
DB argued that because the three inspection decisions were taken without prior judicial authorisation, various articles of the ECHR and the EU Charter (the right to the inviolability of private premises and the right to fundamental judicial protection) were infringed. With this plea the applicants were effectively challenging the current legal framework applicable to inspections under EU Competition law. AG Wahl dismissed this argument, agreeing with the General Court’s interpretation of the case law of the ECtHR.
Citing the ECJ’s Judgments in Chalkor and KME Germany, Wahl states that ex post judicial review carried out by the EU Courts offers an adequate level of protection of fundamental rights. He also makes a distinction between this case and the recent and interesting Czech case of Delta Pekarny, where the ECtHR ruled that fundamental rights were infringed, observing that this was due to the fact that the inspection decision was not subject to any—either ex ante or ex post—judicial review.
The opinion of the AG (and General Court) would seem to be sensible, in theoretical terms. Necessarily requiring prior judicial authorization, when ex post judicial review is available, seems excessive. A separate issue, though, is the quality of the judicial review itself. It is all very well catering for a judicial review – but it must be effective, and it is arguable that this has always been the case when it comes to, among others, the Commission’s investigatory powers (see here).
In any event, as we will explain below AG Wahl seems to strike the right balance in this regard.
‘Surprise’ discoveries
It is on the issue of the discovery of documents indicating a second infringement that the AG’s opinion differs from the General Court’s judgment. Although they both agree that under Art. 28 Reg. 1/2003 any documents collected during the inspection must be used for the purpose for which it was acquired (save for some exceptions in the regulation), and also that, by way of derogation, following the Dow Benelux case, documents found which aren’t covered by the inspection decision can be used to start a new investigation, AG Wahl thought that the GC neither correctly applied the Regulation nor the Dow Benelux case (paras 58-83) to the facts of this case.
The Commission’s undoing, it seems, is that before carrying out of the first inspection, Commission inspectors had been notified that a separate complaint had been filed against DB for a separate infringement. Dismissing the Commission’s argument that inspectors had been told about this merely for background information, AG Wahl suspected the “only plausible explanation […] is that information on the DUSS suspected infringement was given to the Commission staff so that they could ‘keep their eyes peeled’ for evidence related to the second complaint” (para 77). This means that the Commission effectively circumvented Art 20(4) of Reg 1/2003, either deliberately or through negligence.
In Dow Benelux the Court ruled that there was no reason why the Commission should disregard documents pointing to a different infringement if it was genuinely found by accident, but, as observed by AG Wahl in para. 82 “[t]his is clearly not the type of conduct which the Court meant to allow under its Dow Benelux case-law. There is, in my view, no difference between a case in which the Commission launches an inspection without a valid decision and one in which the Commission proceeds on the basis of a valid decision, but searches for information relating to another investigation, not covered by that decision”.
As Wahl states, there seems to be no good reason why the Commission did not just adopt two separate decisions, and simply carry out the inspections at the same time.
(For an interesting discussion on the subsidiary issue of the burden of proof, see paras. 84-99).
Final remarks
AG Wahl recommends the ECJ to annul the second and third Commission inspection decisions, believing that the breach of DB’s rights of defence and right to the inviolability of private premises is a sufficient basis. It will be interesting to see whether the ECJ takes the advice.
AG Wahl’s sensible and nicely drafted Opinion does a very good job summarizing the state of the law regarding inspections on the part of the European Commission, and only for that reason makes an interesting read. More importantly, in our view it also strikes a right balance by acknowledging that the Commission is to enjoy a certain leeway when it comes to investigations powers whilst, at the same time, advocating for an effective review over the use, and possible misuse, of those powers.
Competition law and sport (IX) – Competition law and sports arbitration
Old followers of this blog might remember that when we started it we had a fairly popular section on “Competition Law and Sport” in which we also anticipated a few developments which ended up materializing, such as the state aid investigations into football clubs (not that one had to be a genius to see that one coming…).
It had been quite a while since we wrote out last post in this series, but developments in this area haven’t ceased to arise. This is unsurprising because, as I often repeat, what happened with competition law in this area is a perfect example of a “be careful with what you wish for” situation. Sports always claimed special antitrust treatment, and it got it, but perhaps for worse; following the Meca Medina and Piau Judgments it is clear that virtually any sporting rule can be challenged under competition law in the light of the Wouters test (which implies assessing whether any effects restrictive of competition are inherent in the pursuit of legitimate objectives and are proportionate to them).
In the past few months we’ve had plenty of interesting developments in this area, like, among others, the O’Bannon v NCAA decision in the U.S. (in which the NCAA’s rules prohibiting the payment of compensation to former athletes in order to preserve the amateurism of college sports was quashed); the Pedro León v LFP case, in which a Spanish Court declared (in an interim measures order, available here) that the Spanish football league’s rules setting a limit on club expenditure on player’s salaries in the light of their debt ratios constituted an abuse of a dominant position given that they limited clubs’ ability to go into whatever debt they considered necessary. And in the past few days it was made public that the Spanish and Portugal leagues lodged a complaint targeting FIFA’s third-part ownership prohibition (see here).
On top of the above there have been a few developments regarding state aid and media rights, as well as some national cases that haven’t made headlines, such as the Swedish bodybuilders case (see here), or one concerning compensation for the release of players to national teams (see here) which is actually a follow up of a case in which I worked some years ago (see here).
We might comment on some of the least-discussed issues raised by the above-mentioned cases, but for now we’ll focus on the most recent development, which has great potential ramifications and that seems to have gone largely unnoticed, at least in the competition law world; I’m referring to the Judgment of Munich’s Oberlandesgerich of 15 January in the Pechstein saga.
Some background
Act 1- Switzerland. The Judgment concerns a longstanding legal dispute between speed skater Claudia Pechstein and the International Skating Union (“ISU”), who had banned her from all its competitions for two years due to her positive in a doping control. Mr. Pechstein unsuccessfully challenged this ban before the Court of Arbitration for Sport (“CAS”). The CAS was chosen in compliance with a dispute resolution clause in the registration form for one of the championships from which she was banned. The CAS’ award was subsequently appealed before Swiss Courts, but once again Ms. Pechstein didn’t have much success.
Act 2- Germany. Ms. Pechstein then decided to take the matter to German Courts and her luck started to change. The Regional Court of Munich held that the arbitration agreement had been invalid because of a “structural imbalance” between the athlete and the ISU, given that the latter’s dominant position in the organization of championships made Ms. Pechstein decision to go to arbitration “involuntary”. However, the Regional Court considered that, by not raising this issue in the proceedings before the CAS, Ms. Pechstein had validated and remedied the said imbalance. Showing once again her tenaciousness, Ms. Pechstein also appealed this decision before the Higher Regional Court of Munich.
The Judgment
The Higher Court takes the view that the arbitration agreement between Ms Pechstein and the ISU was invalid because it was contrary to mandatory competition law given that it was imposed by the ISU, which enjoys a dominant position and could therefore not impose non-competitive business terms.
The Court does not object to dominant undertakings requiring that an arbitration agreement be signed as a matter of principle, but it does rule, in casu, that forcing Ms. Pechstein to submit to arbitration before the CAS as a necessary condition to participate in tournaments constituted an abuse of a dominant position. The reasoning underlying the Court’s decision was that, at the time, sporting organizations such as the ISU had more influence than athletes in the designation of arbitrators; this, in turn, was considered to cast doubts on the independence of the CAS.
Interestingly, the Higher Court holds (in paras. 129 et seq) that the CAS’ award cannot be recognized in Germany in as much as it runs counter competition law, that is, to public order (the High Court refers to the ECJ’s seminal Eco Swiss Judgment in this regard) The Judgment states that “[t]he recognition of an award based on an agreement contrary to competition law would perpetuate the abusive conduct of the ISU, which would be contrary to the objective underlying the ban on abusive practices imposed by the competition rules”.
Comments
The Judgment does not go as far as to state that making participation in sporting championships contingent upon agreeing to an arbitration clause constitutes per se an abuse of dominance on the part of sporting organizations, but is rather carefully drafted in the light of the specificities of the CAS (some of which appear to have change pursuant to a reform of the rules in 2012).
In any event, this ruling (which ISU has announce that it will appeal to the Supreme Court) may provide weaponry for those wishing to contest arbitration clauses or to oppose to the recognition of arbitral awards in certain circumstances.
Whereas some have claimed that this Judgment is “revolutionary”, I recall that in the past the European Commission itself has also held a tough stance towards mandatory arbitration, considering that that provisions in private agreements whereby private parties in a situation of preeminence/dominance limited available legal actions to arbitration to the exclusion of national Courts could amount to anticompetitive conduct.
This position has been particularly evident from the Commission’s intervention precisely in sport cases, in which it was considered that the imposition by sporting federations of arbitration as the exclusive means of settling disputes would –in the absence of the possibility to appeal to national Courts- amount to a restriction of competition. In a case concerning FIA, one of the Commission’s concerns was to ensure that legal challenge against FIA decisions would be available not only within the FIA structure but also before national courts. Following the Commission’s intervention, FIA agreed to insert a new clause clarifying that anyone subject to FIA decisions could challenge them before national courts.
Similarly, the Commission insisted in the negotiations with FIFA on transfer rules that arbitration would be voluntary and would not prevent recourse to national courts, which led to FIFA modifying its transfer rules to this end. In fact, in that case the Commission also insisted on the need of creating an independent arbitration structure, with an independent chairperson and members designed on a parity basis by players and clubs.
So, in essence, the German Court in this case has reached very similar conclusions to the ones reached by the European Commission some time ago; the main difference is that the German Court has stated its position in a Judgment (which is what Courts do) and the Commission did it over negotiations (which is what the Commission does too).
State aid and investment arbitration: an improbable (and fascinating) conflict
A very good friend tells me that the world of international arbitration is discovering the mysteries of EU State aid law, and that some of its peculiarities have not been received particularly well (to put it elegantly). Curiously enough, these developments have not gathered much attention so far in the parallel universe of EU competition law. It is a pity, as the questions raised by the interface between these disciplines are genuinely interesting. May an arbitral award amount to State aid within the meaning of Article 107(1) TFEU? May the Commission order its recovery as a result? Imagine the implications of an affirmative answer to these two questions in other areas of the law.
If you are not familiar with the ongoing debates, you may be interested to know that these issues are being discussed in the Micula case. In December 2013, Romania was ordered to pay around EUR 82 million (plus interest) as a result of an investment dispute. The arbitration tribunal found that the said Member State had breached a Bilateral Investment Treaty with Sweden. Shortly thereafter, the Commission informed the Romanian government that the implementation of the award would amount to new aid within the meaning of Article 108 TFEU and would therefore have to be notified. In addition, it issued a suspension injunction to ensure that Romania would not take any steps in this regard. From the perspective of the Commission, the implementation of the award would conflict with a previous decision declaring a tax incentive to be incompatible with EU State aid law. Romania was thus left torn between two regimes.
If you take a look at the letter submitted by the Commission in Micula, you will realise that the legal and factual scenario is fairly straightforward from the perspective of EU State aid law. I was in fact struggling to find something unusual in the case. If a measure adopted by a Member State is found to be incompatible with the internal market, it is simply natural that any subsequent measure intended to compensate the recipients of the aid for the consequences of a recovery obligation is also found to run counter to the principles set out in Articles 107 and 108 TFEU. If it were possible for a Member State to grant damages in such a context, the whole system would collapse. The ECJ understood early on that, indeed, the ex ante control for the award of State aid would otherwise become meaningless. These ideas stem clearly from cases like Van Calster or Commission v Council (2006).
It does not matter how well-established these principles may be under EU State aid law. From the perspective of international arbitration, I can understand that the intervention of the Commission in cases like Micula is received with surprise, if not shock. How can it be argued that it is unlawful for a Member State to comply with its obligations under the ICSID Convention? The same that I said in relation to EU State aid law in the preceding paragraph could be said in relation to international arbitration. The whole system for the settlement of investment disputes could be jeopardised if such arguments were to be accepted. It is in fact not unusual for States to claim that their domestic regime makes it impossible for them to comply with the award.
Underlying the Micula case there seems to be something that looks like a primacy (or, if one prefers, a kompetenz-kompetenz) issue – a debate that brings me straight out of my comfort zone. It seems to be about determining which of the two legal orders prevails. There are other issues that may be less fundamental but not necessarily less interesting, and on which I hope to work in the coming months. If you read the Commission letter, you will see that the issue of legitimate expectations is understood very differently in EU State aid law and investment arbitration, respectively. It is well-known that legitimate expectations can be validly invoked only in truly exceptional circumstances under the former. Articles 107 and 108 TFEU would not be practicable if the possibility to circumvent recovery obligations were not limited to the narrowest set of scenarios. This is a distinct feature of EU State aid law that is very unlikely to be found in other areas of the law. It should therefore come as no surprise that the principle of legitimate expectations has a broader scope of application in the context of investment arbitration, the point of which is after all to provide a framework for the protection of international investments.
The Friday Slot (15)- Commissioner Margrethe Vestager
It had been a while since our last Friday Slot interview, and many of you had requested its return. In order to revive this section of the blog we decided to invite the person who is these days the most sought after interviewee in EU competition law, Commissioner Margrethe Vestager, who very kindly accepted our invitation. We are honoured and grateful for her availability to be interviewed for Chillin’Competition (and for the increase in visits that this interview will bring to our site).
- How are you enjoying your new job so far? And Brussels?
My job is challenging and demanding – and I like it very much. I have a profound respect for the consequences of the decisions the Commission take – so I take it seriously. And I enjoy working in different languages, in an international environment and with very skilled people. Brussels is also nice. I enjoy the walking to the office and to get to know the city again. More than 20 years ago I spent 6 month here as a stagiare – so the outlines of the city were familiar although much has changed since then.
- What would you say are the best and worst things about your job?
… many! The work in itself make sense: The Commission has a big challenge to contribute to a dynamic and innovative Europe. And on the everyday basis that vision can be boiled down to analysis, dialog, listening, deciding – and that in a setting of very skilled people.
- Many consultants make a living drafting background memos on your background, personality, tastes, etc. They are probably reading this; what would you tell them?
I always strive to be present as a person in whatever situation I am in – private or professional. When you are responsible for decisions that influence many people you have to be thorough and you have to understand the perspectives of a given matter so I take my job seriously. I often request more information, food for thought and conversations about how things should develop. In the end, as a minister or as a Commissioner you have to give directions and you often have the final say. But that should never prevent you from listening.
I find it important to know other peoples’ opinions just as I find it important for them to know mine. I’d rather disagree with someone knowing what they represent.
- What do you think about competition lawyers so far? In full frankness…
That they come in just as many varieties as everyone else.
- How did you “train” in competition matters prior to your arrival in office? Was reading Chillin’Competition enough?
It took a lot of reading and introduction to the area through preparatory meetings. Especially up to the hearing. The composition of my cabinet and the people I work with every day have also participated to the build-up of knowledge.
- What is your favorite book?
I enjoy to read and think it is difficult to pin point “the one and only”. However, one of the books that I found very inspiring is The Alexandria Quartet, which is actually three books. I am fascinated by the author’s description of different perspectives of the same set of events, with the same people involved. And right now I read “Looking at photographs” by John Szarkowski – 100 photographs from the Museum of Modern art. It is about the same – how seeing and the change in perspective can change everything.
- And favorite music?
I listen to a large variety of different types of music and I love to sing along which may be of mixed pleasure of my surroundings! When I run I mostly listen to the Danish singer Tina Dickow. It is probably not the most typical for running but I like the almost meditative mood in her music.
- Favorite movies?
I love to watch television. All types of series and movies. I have intensely followed the Danish version of The Great British Bake Off and do even re-watch favorite episodes J. Other than that I enjoy movies of all different types. Lastly I went to the cinema to watch the Polish/Danish drama Ida. But the movies I have seen the most are the “Die Hard” movies. I always look forward to when John McClane says Yippee ki-yay.
- We would have asked you about favorite food, but following your confirmation hearings at the European Parliament we all know about your taste for chocolate; how’s your chocolate market investigation evolving?
You are right about my strong taste for chocolate! And Brussels is a good place to be for that. I will indeed now investigate a chocolate merger: the acquisition by Cargill of Archer Daniels Midland’s industrial chocolate activities that was notified to us mid-January.
- Average working time/week?
I do not count my hours of work but of course they add up.
- And what do you like to do when you’re not working?
I spend time with family and friends. Love to cook, plan and prepare a meal – the process of the preparation: maybe consult cook books, get inspired in the shops and then come back home and begin the cooking and look forward to when friends come over later. I read books, knit, run and, as already mentioned, I am very fond of watching television.
- Why did you first decide to get into politics?
It wasn’t really a conscious choice. It started at school when I joined as a student council representative on order to us go get a fruit booth at school. Then one thing took the other and here I am.
- Most interesting, intense or funny moment of your career?
Cannot chose – there are many.
- What career/personal achievement are you most proud of?
I would not say proud but touched. Lastly that was when I went to Ikea to shop some days after the Hearing in October. The cashier said to me: “I saw you on TV Thursday – you did really well. I am proud of you”. She probably has a million different things in her life to take care of and still she had that extra to say that to me – it really touched me!
- Who do you admire?
Madeleine Albright and the personal responsibility she took as Secretary of State during the Balkan Wars in the 90’ies.
- Your favorite motto?
At Christiansborg Castle where the Danish Parliament resides there are friezes with different sayings. One of them says: Lev i dit værk mens det øves and translates more or less into “Live your life whilst you practice it”. To me it is a good reminder that we should look ahead but that it is equally important to remember to be present right now. To participate in your own life here and now.
- Websites that you visit the most (besides Chillin’Competition)?
I visit a lot of different news sites – mostly a mixture of English and Danish ones. And I do a lot of shopping online. It is very practical because online the shops are always open!
And now three harder ones:
- Your predecessor was not a man afraid of commitment; many observers have nevertheless criticized the use of Article 9 to secure concessions in unclear cases or in cases where procedural efficiencies haven’t been achieved; what is your stance on the pros and cons of commitment decisions?
Commitment decisions are one powerful tool in the Commission’s enforcement toolbox, a tool that can swiftly restore competitive conditions on the market, while allowing for procedural efficiencies. However, it is not the only powerful tool in the hands of the Commission. Prohibition decisions have a strong deterrent effect and precedent-setting value. As competition Commissioner, I will use any of these tools, when I consider they’re appropriate to solve the case at hand.
- In your view, should the Commission limit itself to applying the law or should it also try to develop and advance it?
Our main task is to enforce the competition rules on a case-by-case basis and to define and implement the orientation of the EU competition policy. The Court of Justice has been very clear on this. In fulfilling these duties we can only act within the boundaries of the law. If the Commission wants to advance the law to the extent of changing it, for example in order to fill a clear enforcement gap, it has to make a proposal for legislation.
However, new types of anticompetitive behavior or unusual market circumstances may require an assessment that has not been made before and for which there are no precedents in case law. In these situations the Commission still has the duty to take action if competition in the internal market is endangered. And of course we will set priorities for the enforcement activity and possibly also evolvement of the law.
For instance: not long ago the Commission had to tackle the misuse of standard essential patents – a novel phenomenon. On this occasion, the Commission made a new type of analysis and advanced its thinking while applying existing case law under Article 102. Any novel reasoning in Commission decisions is of course subject to the full and careful scrutiny of our Union Courts.
- How much law, how much economics and how much politics should there be in competition law enforcement?
Competition enforcement should be based on sound legal and economic principles which ensure a level playing field, give legal certainty to businesses and of course make good sense from an economic standpoint. When it comes to concrete cases, impartiality, neutrality and fairness are extremely important. All companies should not only abide by the same rules but also be treated equally. Competition cases should not be politicized, nor should political considerations obstruct the aim of competition policy which is to ensure fair competition, not to protect individual companies. I also believe that competition policy should not be used to pursue policy goals that can be better addressed with other legal and policy instruments.
That being said, competition enforcement remains crucial for attaining our internal market objective. It also makes European businesses stronger and more competitive and, in the end, competitive businesses in functioning markets will bring growth and jobs.
In no man’s land- Case T-355/13, easyJet
Last Wednesday, 21st January, the General Court rendered an interesting Judgment in Case T-355/13, easyJet v Commission.
It is well-known that the European Commission has always enjoyed great discretion to reject, shelve or prioritize cases, traditionally under the widely used justification (sometimes pretext) of lack of Community/EU interest (as the case-law has, ever since Automec, acknowledged it may do). With the entry into force of Regulation 1/2003 the Commission was granted another two reasons to dismiss cases (not that it needed them); pursuant to Article 13 it could now dispose of complaints where “one authority is dealing with the case” already (13(1)) or where a complaint “has already been dealt with by another competition authority” (13(2)).
easyJet v Commission concerns the latter scenario.
The facts in a nutshell
In 2008 easyJet lodged three complaints against Schiphol airport with the Netherlands Competition Authority, based on national legislation governing aviation law and on competition law. The authority rejected the complaints by relying on the laws governing aviation (said to be inspired on the competition rules) and by resorting to its priority policy, which enables it to pick the cases with which it deals.
In 2011 easyJet lodged an abuse of dominance complaint with the European Commission. It acknowledged it had lodged similar complaints in the Netherlands and explained that these had never been assessed on the merits.
After two years (so much for the best practices), in 2013, the Commission rejected the complaint arguing, inter alia, that a national competition authority had already dealt with it.
The Judgment
In Wednesday’s Judgment, the Court rules:
1) That the Commission is entitled to reject a complaint which has previously been rejected by a competition authority of a Member State on priority grounds even if the latter has not examined the merits of the case. The Court explicitly endorses an interpretation whereby what’s important is that the national authority has “formally”, however superficially, “reviewed” the complaint (see, e.g. recital 27 of the Judgment).
2) That the above is valid also where, as in the case at hand, the national competition authority rejected the complaint in the course of an investigation conducted under separate provisions of national law (aviation law in casu) “on condition that the review was conducted in the light of the rules of EU Competition law” (see in this regard para. 46 of the Judgment).
In sum, the General Court rules that when a national competition authority rejects a case without having examined its merits, and without having undertaken an analysis on the basis of the competition law rules this is enough to consider that the said authority has “dealt with” the case within the sense of Article 13(2) of the Regulation.
A few comments
It is also widely acknowledged that judicial review in these cases –also starting with Automec– has been rather lenient. At one point some –like me– saw a possible change of trend in CEAHR, but hopes were later dispelled by Protegé (see here for our comments). This Judgment fits within the classic very deferential stream of case law in this domain.
Whereas it’s true that the facts of the case are very specific, my first inclination is not to share the Court’s reasoning; if you see it differently I’d be happy to discuss.
– First of all, I wonder how this all fits with a stream of case-law (actually cited in this very same Judgment), according to which “where the institutions have a broad discretion, respect for the rights guaranteed by the legal order of the European Union in administrative procedures is of even more fundamental importance; those guarantees include, in particular, the duty of the competent institution to examine carefully and impartially all the relevant aspects of the individual case”. (In the same sense see also the often forgotten recitals 79 to 83 of Automec itself). Given that the EU Courts require –at least in theory- that the Commission examine carefully all the relevant aspects of a case prior to rejecting it out of lack of priority, why doesn’t the GC require the same from national competition authorities prior to concluding that they have “dealt” with a case within the sense of 13(2)? Moreover, doesn’t the case law require that the guarantees provided by EU Law be also applied by national bodies when applying EU provisions?
– Secondly, I’m not sure the Commission needed this favor in a domain in which it effectively already enjoyed almost unfettered discretion. Indeed, it didn’t need to invoke Art. 13(2); had it simply said the case lacked EU interest it would have got away with it
– The risk, in my view, is that after this Judgments authorities will be able to dispose of cases out of prioritization reasons without having examined first the relevant aspects of the case, at was required –at least formally- by EU case law, just because another authority chose to do just that before.
In a way, the Judgment might accordingly make it much easier for authorities to play hot potato. Wanna-be complainants would be in between, in no man’s land, with the frustrating feeling that no one wants to even cursorily look at their case.
– The Commission would probably reply to the above that national Courts are still well placed to deal with complaints, that they’re moreover under the obligation to examine the merits of cases and that they have wider powers (such as that of awarding damages). Query: I wonder how the experience of losing a case that the Commission thought was obvious before a Belgian Court (see here) may have altered the Institution’s perception as to how well placed judges are to deal with competition cases. I also think that the Commission often trusts judges to deal with cases that would need an EU-wide consistent solution, ideally from an experienced specialized agency. For instance, the Commission very recently rejected a complaint against the UEFA Fair Play Rules alleging that Belgian Courts were well placed to deal with it (see here; query: is that really a case that should be dealt with by a national Court instead of by the European Commission?)
A view from the hill: European Competition Law Annual (and my personal favourites)
Hart has been kind enough to send us (technically, to me) a review copy of the latest volume of the European Competition Law Annual series, and I thought I would devote this Friday slot to say a word about it. You do not need an introduction to the famous Florence workshops, which have proved to be enormously influential and which have anticipated some substantive and procedural developments in EU competition law. The vast majority of you do not need an introduction either to the beauty of the Tuscan landscapes surrounding the European University Institute. Even though I did my PhD there, I am amazed every time I have the chance to go back, which is less often than I would like to.
Because it would not make any sense to discuss the obvious, I thought it would say instead a few words about some of my favourite pieces published as part of the proceedings. These are articles which I use very often for research purposes or about which I find myself thinking quite often. My personal top 3 – in strict alphabetical order – is as follows:
- Ian Forrester, Sector-specific price regulation or antitrust regulation – A plague on both your houses?: If you have followed my work a bit you will know that I am interested in telecommunications regulation (as it is now called again, it would seem). Unfortunately, there is relatively little academic research in the area. This piece discusses the interaction between competition law and sector-specific regulation and the implications of some legislative developments. In particular, it provides an excellent critical analysis of the regulation of roaming. This was the first significant departure from the logic underpinning the EU Regulatory Framework for Electronic Communications. If Ian Forrester only knew back then what would happen in subsequent years.
- Luc Gyselen, Rebates – Competition on the Merits or Exclusionary Practice?: The first virtue of this piece is its clarity. If you want to understand DG Comp’s pre-Discussion Paper approach to exclusive dealing and rebates, this article is the best starting point. Many things make more sense after reading the piece (in particular some ECJ rulings such as British Airways). Its second virtue is its intellectual honesty. At the time of the workshop, in 2003, Luc Gyselen was Head of Unit at DG Comp. This fact did not prevent him from expressing in public his misgivings about Michelin II, which was controversial for several reasons even under the old approach.
- Heike Schweitzer, The History, Interpretation and Underlying Principles of Section 2 Sherman Act and Article 82 EC: Article 102 TFEU case law is frequently labelled as being ‘ordoliberal’. It is not always clear what people mean when they use this expression, no less because it is often relied upon to refer to any feature of the case law that is perceived to be problematic or controversial. This article explores some common misconceptions in this sense. Heike Schweitzer discusses the drafting history of Article 102 TFEU and explains post-war ordoliberal views and debates on the appropriate legal treatment of unilateral practices. The analysis of existing case law is valuable in its own right. I often refer in my work to her understanding of the principle whereby dominant firms have a ‘special responsibility’ under Article 102 TFEU. I agree with her views and I also believe that people tend to read too much into it. I only regret that the piece does not cover more practices!
On the (mis)application of Article 101(3): of judicial capture and cross-market assessments
We competition lawyers are probably more stupid than other lawyers (and that’s saying something!). Think about it, on the behavioral side many lawyers essentially work with only two provisions (Arts 101 and 102 TFEU) and they don’t really know what to do with them. Granted, I’m oversimplifying, but perhaps not so much: how many people have a clear idea of what a restriction of competition is? [my previous experiment on this point was used by some to criticize our discipline; see here] How many know how to extract the consequences of Article 101(2) [see here for my take]? And how many know how to apply Article 101(3)?
Today I’ll focus only on the last of these questions, to which the answer is: very few, and I’ll give you an example.
(Note: the first half of the post is mere background; the more interesting stuff is emphasized in bold at the end. The following may be a bit dense, but I bet that if you manage to read it you’ll find it quite interesting)
In the early days the Commission essentially did what it pleased with 101(3), using it often with common sense but with very little, and often divergent, reasoning, thus bordering on the arbitrary. The Court didn’t put much order in that mess: starting with Consten & Grunding it devised the manifest error of assessment test to review the legality of “complex economic assessments”, a label which was said to apply to the application of Art. 101(3). The result of this approach is that prior to the adoption of Regulation 1/2003 the Court only rendered a handful of Judgments (30 approximately) dealing with this sub-provision, which nevertheless is at the core of our enforcement system.
Following the adoption of Regulation 1 the Commission ceased applying Article 101(3) as well, seemingly acting under the assumption that its Guidelines on the application of what then was Article 81(3) would fill the void. But the Guidelines didn’t fix much and, in fact, as will be seen in a second they also created new trouble. Also, Article 5 of Regulation 1/2003 (later interpreted by the ECJ in Tele2Polska effectively precluded national competition authorities from adopting individual exemption decisions under Article 101(3) TFEU (they can only conclude that there are no longer grounds for action)
The result is that the Commission seldom undertakes a serious evaluation of 101(3) in its individual cases, that EU Courts very rarely have the chance to review its application and that national competition authorities can’t do it to a full extent either (in spite of the fact that decentralization was intended precisely to empower them to do it…). Passivity in this regard is so extreme that even when the ECJ has instructed the Commission to perform a 101(3) assessment, the Commission has felt free enough to take a pass (we’re currently working on a case wich is a perfect example of this).
Far from being unimportant, I often contend that many of the problems encountered in modern competition law (like the object/effect debate and the discussions on how far into the “legal and economic context” one must look within 101(1)) (see here, for instance) derive from the fact that 101(3) isn’t taken seriously in individual cases.
But what is even worse is that the very exceptional cases in which Article 101(3) is indeed applied, it doesn’t seem to be properly applied.
I’ll give you an example, resorting to an issue I dealt with in my presentation on two sided markets at the Swedish Competition Authority’s Pros and Cons conference a few weeks ago and which, I realized, not many seem to be aware of.
Let’s take a simple question which should have a straightforward answer:
Can you balance the efficiencies obtained in one market against the restrictions of competition caused in a different market?
–When this question first arose before EU Courts it was made it pretty clear that any positive effect should naturally have to be considered, regardless of the relevant market in which it occurs:
“For the purposes of examining the merits of the Commission’s findings as to the various requirements of Article [101(3)] of the Treaty (…) regard should naturally be had to the advantages arising from the agreement in question, not only for the relevant market (…) but also, in appropriate cases, for every other market on which the agreement in question might have beneficial effects, and even, in a more general sense, for any service the quality or efficiency of which might be improved by the existence of that agreement” (Case T-86/95, Compagnie Générale Maritime and others, [2002] ECR II-1011, paragraphs 343 to 345).
Sounds pretty unequivocal, right? Well, again, keep on reading….
– Then came the Guidelines on 81(3) and ruined it. Para. 43 of the Guidelines states that “[n]egative effects on consumers in one geographic market or product market cannot normally be balanced against and compensated by positive effects for consumers in another unrelated geographic market or product market. However, where two markets are related, efficiencies achieved on separate markets can be taken into account provided that the group of consumers affected by the restriction and benefiting from the efficiency gains are substantially the same”. In other words, they said precisely the contrary to what the case law said. And, cunningly enough, the Commission did so citing in its support the very same case law that it was departing from (not that EU Courts haven’t occasionally done the same regarding their own case-law…) Indeed, the footnote (57) accompanying this paragraph refers to Compagnie Générale Maritime (quoted above) but adds a long explanation aimed at confining the Court’s ruling to the very specific situation at issue in that Judgment, in which the group of consumers affected by the restriction and the efficiencies is said to have been the same. Read it for a good example of manipulation a lawyer-like interpretation of the case law.
– This very same issue returned to the EU Courts in the post-guidelines era with the Mastercard case. And instead of correcting the Guidelines’ intendedly wrong interpretation of the earlier case law, the Courts endorsed it, and I’m not sure that they did so consciously.
Click here to continue reading about how the Commission lawyered everyone:
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