On Privacy, Big Data and Competition Law (2/2) On the nature, goals, means and limitations of competition law
In my previous post I outlined the content of the main part of my presentation at the European Data Protection Supervisor’s recent workshop on Privacy, Consumers, Competition and Big Data, held in the wake of the EDPS preliminary opinion on the subject.
Today I’ll provide you with my views on the great question underlying both the workshop and the opinion: should data protection considerations be incorporated to competition law’s substantive assessments?
The (preliminary) view implied in the EDPS’ opinion is that they should. In essence, the opinion posits that competition law is or should be about consumers’ welfare, and that this comprises much more than only the narrow set of economic considerations that competition law currently looks at. The EDPS tends to believe that public interest would be better served that way. Some lawyers and the companies they represent also hold these views but perhaps for different –less public interest oriented- reasons.
The somewhat anticlimatic view I conveyed to the participants at the workshop on this point was the following (as in the last post, I’ll basically sketch my conference notes):
Competition law is certainly a most tempting instrument given both its flexibility to accommodate creative theories of harm and the ample remedial powers it offers. These reasons explain the recent use (or instrumentalization) of competition law to pursue other public policy goals [I also talked about the latter yesterday at another conference, but I might develop that in another future post].
But just because competition authorities have a hammer, that doesn’t mean they should view every problem –even if unrelated to competition law- as a nail.
In my view, competition law and competition authorities are not well-suited to factor into their analysis (perhaps more important) public policy considerations alien to the specific matters they are supposed to deal with. Competition law is a legal regime of last resort, which means that their existence is premised upon the assumption that, in those areas where regulation doesn’t say otherwise, competition is the best way to allocate resources. When this is not the case, I think the solution may lie in regulating more or in a smarter way, but not in blurring the already blurred contours of a legal regime that –let’s not forget- is of a quasi criminal nature.
Other reasons why competition law might not be well-suited to deal with privacy/data protection issues relate to the fact that it’s only triggered in very specific circumstances; that it is about conduct and not structure; that if authorities are reluctant to intervene in cases of apparent direct harm to consumers in the form of excessive price it’s not easy to see why they should focus on direct harm through lower privacy alternatives (when moreover there is an additional ad hoc legal regime precisely to establish minimum standards). And on top of those there are institutional factors: if competition authorities struggle to strike a balance between strictly economic factors, how would they be supposed to trade-off economic factors with fundamental rights or other public policy objectives? (environment, industrial policy, labor standards, effects on jobs …)
Coming back to the data protection world. The gap (if any) does not lie in competition law not reaching where it should, but on data protection law lacking adequate regulation and remedies. Accordingly, the way to fill in that gap would require devising an effective data protection regime with its own and more effective rules and principles, but not extending competition law beyond its natural limits.
Some person I very much appreciate personally and intellectually (can’t give names because Chatham rules applied) raised the point that the Charter of Fundamental Rights may perhaps be a game changer in that the European Commission would be bound by it and therefore should not only not violate those rights but also facilitate their exercise by citizens. I tend not to agree. In my mind the argument that the Commission would have any obligation not only to comply with the negative obligations Charter but also to positively ensure that private companies comply with it to an extent that goes beyond that required by specific ad hoc legislation –and that may moreover clash with the fundamental rights of others- is stretching the reach of the Charter too far.
I certainly don’t think public policy should be only or mostly about efficiency and competition (as an admired colleague often says, a world exclusively governed by competition would make a great subject for a dystopian novel). There are values, fundamental rights and public interests which might very well trump economic considerations. But my point is that even if one doesn’t trust market forces to promote optimal levels of privacy (due to consumers’ apparent indolence or for whatever reason), one shouldn’t entrust competition law with that task either.
If you ask me, there are issues far too important to be left to competition authorities and competition lawyers.
On Privacy, Big Data and Competition Law (Post 1/2)
As I self-advertised in my previous post, I participated yesterday at the European Data Protection Supervisor’s impressive workshop on Privacy, Consumers, Competition and Big Data, where, by the way, this blog received a few mentions.
My impression is that it provided a useful opportunity for various actors to reflect together on the nature, potential and limitations of each discipline in the wake of the EDPS preliminary opinion on these issues.
The workshop touched on competition issues several times. On the EU side, Kris Dekeyser gave the Commission’s view, and on the private side I was honored (and, frankly, a bit surprised) to be the sole EU competition lawyer speaking.
Julie Brill (FTC Commissioner; her speech is available here) and Pamela Jones Harbour (former FTC Commissioner now in private practice) also shared their views on the US approach to these issues.
I was asked to explain to a non-expert audience (by non-experts I mean those who retain the ability to realize sometimes that the king may sometimes be naked…) the notion of market power, why it is important for the application of our rules, how it is assessed in practice, and what are the particular challenges posed by digital markets and big data in this regard.
I’ll spare you the content on my intervention on the most basic issues; suffice it to say that I pointed out that the traditional means to define markets and market power are far from perfect in many ways, but that they’re not supposed to be used mechanically and in the abstract, that the Commission may depart from standard assessment tools to capture the dynamics of competition in any given sector, and that it enjoys wide discretion to act flexibly in this regard.
Moving on to the more interesting stuff. Following a conventional explanation of the main peculiar features of technology/digital markets and of their mixed competition law implications I gave my (non data protection expert) views on the big relevant issues addressed in the workshop, namely (A) What are the implications of data and big data for market definition and market power assessments and (B) Should privacy data protection standards be incorporated to substantive assessment under the competition rules
Today we’ll discuss A, and tomorrow [on Friday] we’ll deal with B, so:
What are the implications of data and big data for market definition and market power assessments?
(i) Data is without doubt an increasing important asset/input, and it should no doubts be acknowledged as such. As some of you may remember, some time ago I commented on an article that essentially posited this idea, which I consider to be fairly uncontroversial. In this sense, I’ve no objection to the idea that, depending on the circumstances, data-related issues may give rise to competition concerns.
At the same time, however, data is an important asset or even crucial asset, but no more; and I don’t see why competition law would be required to adapt its rules to when applying them to data-heavy markets.
(ii) I see one exception to the above. As I explained in a recent post, our current turnover thresholds are not well-suited to capture mergers in the subsidized side of two-sided markets (which may often be markets where non-traded data is important). Only jurisdictions envisaging market share thresholds (often criticized, also by me) may be competent to assess these transactions. Facebook’s very recent decision to try to have the EU review the acquisition of Whatsapp is to be read within this context. I don’t know what the solution is, but it’s worth a thought.
(iii) Some (including Pamela Jones Harbour in her dissent to the FTC’s Google/Double Click decision) have advocated for a definition of relevant markets for “data used for x [in that case targetted advertising] purposes”. I’m not persuaded by this proposal (except perhaps when the data is subject to trade) because I’m not sure the intermediate data market is a meaningful market in the sense of competition law. If the alleged problem is that the use of data might have consequences in some markets, then my take is that it makes more sense to assess those markets directly.
(iv) Regarding the big substantive issue, which is related to scale, aggregation, network effects playing to the benefit of allegedly dominant firms, I essentially said that:
- far from being an obvious competitive problem this also has mixed implications, for data can also be a source of very significant efficiencies (and big data a source of big efficiencies) in many and important fronts;
- it is true that access to data may in some circumstances be a barrier to entry and even a very important one depending on the facts (I also noted that barriers to entry are not in themselves a problem requiring intervention because competition law is about conducts and not structure);
- many people throw out “essential facility” as a buzzword in this context to support the contention that some firms should be mandated to share data. In my view the term is used too loosely. As I explained, the identification of an essential facility is subject to an extremely high legal burden (indispensability, elimination of competition in a downstream market…) which makes it difficult to think of instances where it could be satisfied;
- some people had formulated the idea that network effects and scale determine that users may be locked-in to a given provider and therefore have no meaningful choice as to the privacy policy applied to them. On this point I recalled, among others, that the recent Microsoft/Skype Judgment (yeah, I’m already starting to quote it) seems to close the doors to any argument based on laziness/stickiness when switching is technically and economically feasible.
(v) I also observed that the main issue where competition law and data protection policies may converge relates to data portability. In cases where it is shown that scale is of the essence, then practices that could deny rivals a minimum viable scale could fall within the scope of the competition rule (in fact, Google’s proposed commitments -see here and here– already incorporate a section on the portability of data for AdWords campaigns). On the regulatory front, the proposed new EU regulation on data protection (currently stuck at the Council) also incorporates a right to data portability. Btw, some of the major companies cited in these discussions already have tools to facilitate portability (see here or here)
(vi) My last comment on this point was that privacy policies can also be a parameter of competition (even if admittedly many users currently appear to confer more importance to other parameters).
Apologies for making it so schematic, but having quite some work to do I’ve chosen to basically to a transcript of my notes, plus this is already lengthy enough for a post.
On the next post I’ll state my views on whether non-economic privacy considerations should be included as part of the consumer welfare standard.
More on AG Wahl and restrictions by object: issues raised by the Commission pay-TV investigation
I gather from the comments to my last post that there is still at least one reader interested in discussing the issues raised by AG Wahl in Groupement de Cartes Bancaires. I could not think of a better excuse to write yet another post about some ongoing developments where the object/effect divide in Article 101(1) TFEU is relevant. This time, which will most probably leave all readers exhausted (more on exhaustion below), I will address some of the open questions raised by the investigation into pay-TV services launched by the Commission back in January.
AG Wahl emphasised in his opinion the importance of considering the context in which an agreement is concluded when determining whether it is restrictive of competition by object within the meaning of Article 101(1) TFEU. It follows from this principle that an agreement that would in principle violate the said provision by its very nature may not do so – and may even fall outside its scope altogether – in some circumstances.
The licensing of TV rights to broadcasters is a perfect example of an instance in which the context surrounding the agreement makes a real difference. It is well-established since Consten-Grundig that agreements giving ‘absolute territorial protection’ to a distributor are restrictive of competition by object. In Coditel II, however, the ECJ held that an exclusive territorial licence in favour of a broadcaster is not in itself contrary to Article 101(1) TFEU, even though it may amount to absolute territorial protection. Why? As the ECJ lucidly explained, what is true for physical goods is not necessarily true for intangible property. In this case, territorial exclusivity came within the scope of the intellectual property right (communication to the public) that was being licensed. The ‘exclusive right to authorise or prohibit any communication to the public’ (to use the wording of Directive 2001/29) can only be meaningfully exercised if the licensee is entitled to prevent others from broadcasting the work in the area subject to the agreement. In other words, and by reference to the expression used by the ECJ in Coditel II, this is an instance in which territorial exclusivity allows the copyright to perform its ‘essential function’ (that in fact is the very ‘object’ of the agreement). If the existence of the intellectual property right is not disputed, then it would be simply illogical to find that the licence is contrary to Article 101 TFEU by its very nature.
Coditel II, which makes perfect legal and economic sense (and which is yet another excellent example showing that the notion of restriction by object has never been interpreted or applied in a categorical or mechanical way by the ECJ), is now seemingly questioned by the Commission in the pay-TV investigation. Commissioner Almunia’s statement raises concerns about ‘provisions [that] ensure that the films licensed by the US studios are shown exclusively in the Member State where each broadcaster operates via satellite and the internet’. This sentence suggests that, in the Commission’s view, agreements that come within the scope of the right of communication to the public are contrary to Article 101(1) TFEU. This position seems to involve a departure from Coditel II and would as such amount to an expansion of the reach and scope of EU competition law, which has long remained deferential to intellectual property regimes and their internal trade-offs. It would also be based on an expansive reading of the notion of restriction by object.
Because the statement is very ambiguous, however, this is not entirely clear. The Commission, on the one hand, claims that some of these agreements give ‘absolute territorial protection’ to pay-TV operators (which would in turn mean that they are restrictive by object). The Commission, on the other hand, says that it is not ‘calling into question the possibility to grant licenses on a territorial basis, or trying to oblige studios to sell rights on a pan-European basis’. I guess we will have to wait and see how the case unfolds in the coming months. Ideally, the Commission would explain whether it takes the view that an exclusive licensing agreement that allows the copyright to perform its ‘essential function’ is restrictive by object simply because it prevents licensees in other territories from offering the same content.
It should be noted that in Premier League (the case without which this investigation cannot be understood) the ECJ was very careful not to question Coditel II. It made it clear beyond doubt that the ruling only concerned the circulation of physical goods (the decoding devices), as opposed to intangible property. It also pointed out that the general principle whereby an agreement granting absolute territorial protection is restrictive by object does not apply where ‘other circumstances falling within its economic and legal context justify the finding that such an agreement is not liable to impair competition’ (and went on to note that the FA Premier League had not put forward any arguments in this sense). This fundamental qualification is not mentioned in Commissioner Almunia’s statement. The fact that the boundaries of the ruling were so carefully defined by the ECJ suggests, in my view (and this irrespective of what we think of the outcome), that it sought to limit as much as possible its implications for exclusive territorial licensing (there is in fact a very marked difference between AG Kokott’s opinion and the judgment, which would go to confirm this reading).
Speaking engagements
Minutes after I published the post on endives’ right to be forgotten I received a call from the European Data Protection Supervisor’s office. At first I admit I thought it was someone (my first suspect was that guy from 21stcenturycompetition because he’d read a draft of the endive thing; don’t worry, Kevin, I won’t disclose you thought it was serious) returning the joke, but it wasn’t, and I got invited to speak next Monday the most interesting (but closed door) Workshop on privacy consumers, competition and big data (to be held at the European Parliament and arranged in the wake of the EDPS report that we –actually Orla- discussed here).
I’d solemnly committed myself to have a life and not take on any more non-work (non-billable, that is) stuff in the coming weeks/months, but it was an offer I couldn’t refuse. My topic is Market Power in the Digital Economy.
Three days later, on Wednesday 5 June I’ll be providing an overview of the commitment decisions adopted by the Commission since the enactment of Regulation 1/2003 at the Brussels School of Competition’s annual conference. This event you really should attend (click here for info: Programme_Commitments in EU Competition Policy – 5 June 2014).
[ I apologize in advance to all attendants at these two conferences: I’ve an important General Court deadline on Friday and then a bachelor party weekend, so preparing might be a challenge. Yes, this is the ol old expectation-lowering trick ! ]
Then on 8 July I’ll be lecturing on EU competition procedure and on Special and Exclusive Rights (Art. 106) at the College of Europe’s Competition Summer School for Chinese officials. Talking with Chinese officials about how competition law applies to public measures should be quite an interesting experience. And then on the 11th same procedural class in the context of the College’s summer course on competiiton law.
And then, following my first paternity leave in September, I really plan to take on less of these commitments.
Well, on 28 November I’ll be participating at the Swedish Competition Authority’s annual and always excellent Pros and Cons conference, which on this edition will be devoted to Two Sided Markets, but I couldn’t say no to that either…
Chillin’Competition faces a legal challenge
Chillin’Competition has encountered its first serious legal problem after a third party requested us to remove some content.
As usual readers will remember, we took particular interest in the French endives cartel case. A number of posts were devoted to endives (the best troublesome ones are here and here). Oddly enough those posts still rank among our most read, to the extent that when you type “Chilling competition” in Google’s search box the word “endives” quickly appears next to it. This is a testimony to how bad the rest of our posts must be as well as to the bizarre taste of our audience (and I thought no one liked endives…). In our defense, the endives cartel also earned some air time at the French Presidential debate. (I don’t know what’s with this vegetable, but Belgian endives were also a major feature of the U.S. 1989 Presidential campaign -see here-).
Since then we hadn’t paid any more attention to endives, even though every time there’s an infringement concerning food some readers sent press clips to us with all sort of weird post suggestions (a message to them: we are grateful, but there’s no need to do that anymore, really).
But two recent legal developments occurring within the lapse of two days have changed the landscape, and have exposed Chillin’Competition to legal risks.
– On 13 May the ECJ delivered its ruling in the Google Spain case, holding (I will oversimplify) that there exists a certain right to be forgotten under the Directive on the processing of personal data even in relation to information which is true and was legally published.
– And on 15 May (hold tight) the Paris Court of Appeal annulled the decision of the Autorité de la Concurrence sanctioning the endive cartel. No kidding; see here.
Following these developments, an organisation called “Les amis des endives” (French for Endive’s Friends) has requested us to withdraw all our posts regarding the endive cartel. They allege that the informations are inadequate and no longer relevant. For the record, this association has nothing to do –that we know- with the EndiveLover Twitter account).
I initially thought it was a joke. Then I thought that the Judgment doesn’t support their claim. First because, (I may get in trouble for saying this) endives aren’t natural or legal persons (arguably endive producers are, even if tasteless and heartless). Second, because -contrary to what many people seem to think- the Judgment only refers to “results displayed following a search made on the basis of a person’s name”, and people that get to our posts don’t do searching specifically for endives. Third, because –reading particularly para 80 of the Judgment- I get the impression that its establishing a lex specialis for search engines only, and perhaps only for Google (which once again gets treated as the SGEI of the new century). Lastly, I thought the information shouldn’t be withdrawn because of “historical statistical, scientific purposes” (para 92 of the Judgment).
In order to be on the safe side, I asked a team of eminent avocats about their view: Do endives have the right to be forgotten? Should our posts on endives be consigned to oblivion?
Grace Aylward (our endive expert; she’s the one who informed us about both the decision and its annulment) says: “I thought that when I grew up and became a Lawyer I could dislike whichever vegetables I wanted. Obviously I was wrong. I just hope I don’t start receiving endive hearts in the post.”
Orla Lynskey (privacy and competition expert at LSE) “the ruling does not apply to publishers. It applies to search engines (and most probably could be limited to Google). Even if they do fall within the scope of the DP rules (which is very unlikely to be the case if the piece only mentions legal persons), this does not automatically entitle them to have the original link removed. You need to pass the buck to Google to determine whether the processing is incompatible with the DP rules and the public interest test for removal is met”.
“I think they’re just bitter” says Mark English (a.k.a the guy who started wrapping his iPod in ham) (mate: you should think about your own right to have this forgotten; just sayin’…).
Other lawyers consulted coincide on the view that the Judgment doesn’t give mushroom to such requests and that this one in particular is nuts; if you see it differently, please lettuce know.
P.S . For the avoidance of doubt: this was a joke. Sadly, other absurd/ridiculous scenarios such as UKIP and the Front National winning the EU elections in England are France are not.
More on AG Wahl and restrictions by object: ‘pay-for-delay’ settlements as a case study
A while ago I wrote a post and engaged in some follow-up comments on the issue of restrictions by object. But since Alfonso is busy these days and has shown some persistence in chasing me to have me write another guest post, I thought it a good idea to add a few more thoughts on the matter. I see value in doing so given that the discussion in the preceding post remained (to my regret) overly abstract. I tell myself that if I illustrate my points by relating them to some on-going disputes/investigations, they may become clearer, and might even spark more discussion.
I explained back in March that the ECJ does not see the notion of restriction by object as a presumption of the likely effects of the agreement. I know this is a very popular understanding of Article 101(1) TFEU, but I see a clear difference – and so does the Court, may I add – between understanding what the agreement is all about (Article 101 TFEU refers explicitly to its ‘object’) and establishing its likely (negative) effects on the market. A ‘naked’ price-fixing agreement between competitors is prohibited irrespective of whether collusion can realistically be sustained on the relevant market (that is, irrespective of whether there are reasons to believe that the parties will ever be credibly committed to restricting competition). When reading the case law, it is pretty clear to me that the real question is whether the agreement is a plausible source of efficiency gains (there are myriad examples where this approach has been followed, some of which I mentioned in the other post). Put differently, the true issue is whether it is realistic to expect pro-competitive effects from the agreement in light of the context in which it is implemented.
Allow me to illustrate these ideas by reference to the on-going debates around ‘pay-for-delay’ settlements (Alfonso already wrote about this some time ago). It is fairly clear that a ‘naked’ (and the word ‘naked’ cannot be emphasised enough) agreement between two competitors whereby one of them agrees to delay the launch of a product amounts to a restriction by object within the meaning of Article 101(1) TFEU. The question is whether the agreements at stake in cases like Lundbeck can be likened to such ‘naked’ restrictions. Addressing this issue requires understanding, first and foremost, the point of these agreements in their context. What becomes immediately apparent in this sense is that they cannot be said to be ‘naked’. There is something else to these agreements, namely a background dispute between the parties relating to the validity or to the infringement of a patent. From this perspective, the question could be rephrased as one of whether putting an end to such a dispute by means of a settlement can be likened to a cartel agreement.
To me, the answer is a clear no. Nobody would deny that out-of-court settlements are an efficient way to deal with disputes. In paragraph 235 of the recently issued Guidelines on technology transfer agreements, the Commission is very explicit in this regard. If this is so, and to the extent that there is genuine uncertainty about the ability of a generic producer to enter the market, the applicable case law suggests that Lundbeck-like settlements should only be deemed to restrict competition after a careful assessment of their effects under Article 101(1) TFEU. By the same token, the ‘object’ category would only be appropriate where it is clear beyond doubt that the generic producer would have been able to enter the market without infringing the patent(s) in question or it is clear beyond doubt that the said patent(s) are invalid. Only then would it be justified to assess them in the same way cartels are (in such a scenario, the restraints would in reality be ‘naked’, as there would be no actual dispute to settle).
The ultimate discussion on Commitment decisions in EU Competition Law
If you want to know everything about the use of commitment decision in EU Competition Law…
The Diluted Legality of Competition law
In the past days a Commission official who ranks among my preferred legal minds expressed her/his though that our discipline may not be as legal as we often think. The thought, formulated on the fly (don’t click, very bad joke) (I told you..) , was triggered by the observation that whereas the law and legal reasoning should be cuasi cartesian, logic, certain, it’s nevertheless very often impossible to predict the outcome of a given case. [This may remind some of a Holmes’ quote: “prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law”].
Then on Monday a lawyer in the audience (not me, really) made a similar remark (this time at a conference in London regarding a certain case I discussed on my previous post, coincidentally published that day). The idea expressed there was that the Commission could have taken exactly the opposite conclusion it took in the face on the very same facts at issue, and it would very presumably also have been endorsed by the Court.
And a few minutes ago a colleague sent me an email discussing the spill-over effects that Alrosa has had in competition enforcement.
As much as I don’t like to admit it, all those are right and share a common theme. I guess Competition Law may indeed be partly losing its last name. I suppose an element of this could be found in other areas of law, but my feeling is that the issue is more acute in our field:
Is it because of the simplicity and vagueness of our main working provisions and the terms they use? (as I observed here, the Court itself recently acknowledged that “Article 101 or 102 TFEU are drawn up using imprecise legal concepts, such as distortion of competition or ‘abuse’ of a dominant position” ).
Is it because of the transformation of the discipline by the incorporation of economic analysis to the assessmente of legallity of market practices? (on that, you know my views). It has become popular to bash ordoliberals, but they crucially emphasised the need to preserve the competitive process through law-making, as opposed to unconstrained policy choices, and this is a lesson we may be forgetting.
Is it because of the Court’s inclination to show deference to (what they see as, and often are) specialized agencies?
Is it because of developments like Alrosa, that enable a disconnect between the problem and the solution and, in a way, may legitimize the abuse of an institutional dominant position?
Is it because of the number of the unavoidable yet more-or-less-reliable proxies (market definition, market shares, cost-assessments, object short-cuts, etc..) we use and the little certain tools we have?
Is it because law and policy-making are inextricably intertwined in our field? (in the sense that policy choices are often expressed through the choice of cases).
As with anything else, the answer is very likely cumulative and complex, but the fact is that competition law may have become a discipline where the authority’s self restraint, negotiations in the shadow of the law, disclaimers in lawyers’ risk assessments, administrative/judicial discretion, and therefore uncertainty, play a larger role than perhaps they should.
The fact that the law needs to be interpreted, or even the fact that legal reasoning can be played with has upsided (allowing me to earn a living or making the profession interesting are just two examples), but I can’t help feeling that there is something not right about it.
P.D. These are, as always, thoughts in progress. If you don’t agree with them, remember our disclaimer.
A comment on Case T-79/12 Cisco Systems and Messagenet v European Commission (Microsoft/Skype)
On 15 February 2012, Cisco Systems and Messagenet appealed the Commission’s decision authorizing the purchase of Skype by Microsoft. On 11 December 2013, the General Court rendered its Judgment dismissing the application for annulment.
As many readers of this blog will know, I was one of the lawyers representing the applicants, and was personally very involved in the judicial phase of the case, which I very much enjoyed. For the past 5 months I’ve read some succinct comments about and I think that there are many genuinely interesting things about it that might so far have been overlooked.
Whereas I –biased as I am- have issues with most of what’s in the Judgment (and particularly with what isn’t there), I’ve decided to try to get rid of any bitterness (some irony will be inevitable, I’m afraid) and approach it in a hopefully constructive way, leaving a myriad factual case-specific issues aside, and focusing only on selected matters of general relevance to any competition lawyer.
So instead of re-arguing the case –which would be of little use at this time- my intention is to shed light on some aspects of the Judgment which otherwise not attract the attention they deserve. I’ll touch on 6 selected issues, and will offer some personal views as a conclusion.
Needless to say, my opinions are, aside from non-objective, exclusively attributable to myself, not to anyone else, notably clients and colleagues, and neither Cisco nor Messagenet have anything to do with this post.
1) The Court ruled that the standards of proof and review applicable to Phase I (Art.6) decisions are identical to those applicable to Phase II (Art. 8) decisions
Whereas we argued that the merger should be annulled regardless of how the Court interpreted the applicable standards of proof and review, we also claimed that the standard of proof must necessarily be higher in the case of Phase I decisions because the Commission has to prove that the case couldn’t objectively give rise to “serious doubts” (which is the applicable legal test according to Art 6 of Regulation 139).
This interpretation, now held wrong, was fairly uncontroverted in academia (see e.g. the contributions EUI’s 2009 workshop on standard of proof in competition law), and had been formulated previous cases. In her Opinion in Impala AG Kokott went even further and explained that a “beyond reasonable doubt” standard applied to Phase I decisions “to compensate for the fact that at that stage the investigation of a concentration is merely a summary one” (…) “[a]t that stage, serious doubts as to the compatibility of a concentration with the common market will only prevented its being cleared to quickly and force the Commission to make a more extensive investigation in a formal procedure”. A test of absence of doubts also governs the initiation of in-depth reviews in the State aid domain, and the Court has established in that context that this test requires a review that “will, by nature, go beyond simple consideration of whether or not there has been a manifest error of assessment” on the Commission’s part (for more on this see, e.g. cases T-73/98, para 47 and T-119/02, para 77).
The Judgment in this case nonetheless states that “the standard of proof is no higher for decisions adopted under Article 6 of Regulation 139/2004 than those adopted under Article 8 of that regulation” (para 46). The Court then goes on to explain that even if we correctly argued that the Commission has no discretion as regards the initiation of Phase II whenever it has serious doubts, the Institution “enjoys a certain margin of discretion” to carry out the “complex economic assessments” required in merger cases (para. 49), and that therefore the standard of review for both Phase I and Phase II is the same: that applied to complex economic assessments (limited judicial review).
What the Court is effectively saying in paras 46 to 49 is that even if the notion of serious doubts is an objective one, the Commission has discretion to have doubts or not. In my mind, this would mean that the alleged objectivity of the concept is meaningless, but perhaps there’s a different reading, which I don’t yet grasp. Even if the standard of review is the same for Phase I and Phase II decisions, it seemed intuitive to me that what has to be proved in one case (no serious doubts) and the other (compatibility or incompatibility with the internal market) is different. By rejecting this previously uncontroversial interpretation I think the Court has importantly -rightly or wrongly- expanded the Commission’s margin of discretion in merger cases.
2) Unless I’m missing something in para. 67 the Court explains that competitive assessments in most Phase I decisions are not to be taken seriously because they do not assess the “real” relevant market.
“The applicants therefore base their complaint relating to market power held by the new entity on an incorrect assumption, in so far as the Commission did not define the existence of a specific market for consumer video communications on Windows based PCs. The Commission did not therefore establish in the contested decision that operators present on the narrow market could act independently of the competitive pressure from other means of consumer communications, such as services offered on other platforms or other operating systems. In addition, the applicants did not themselves submit any evidence or study to support the conclusion of the existence of such a narrow market. By contrast, they merely criticised the factors put forward in the contested decision in order to qualify the significance of market shares”.
What this paragraph says isthat the fact that the Commission chose to assess the market for video communications on Windows based PCs was irrelevant, and that we could only have challenged this assessment if we proved that the market was the real one (!). This is quite astonishing may perhaps be a bit surprising to some, because what we were challenging was precisely the conclusion that “the proposed transaction does not give rise to any competition concerns even on the narrowest possible definition of the relevant product market”. The market might have been hypothetical, but its assessment was the only one contained in the decision and therefore the only one that could be appealed.
Unless I’m wrong (again, let me know if you see it differently) what this means that from now onwards any party wishing to appeal a Phase I merger decision should not challenge the assessment actually carried out by the Commission, but will need to prove that the assessment of the “narrowest possible market” corresponds to a real market, which will almost never be the case! In other words, from now onwards the Commission could get immunity from Court review by carrying out assessments of markets whose definition is left open.
3) On the irrelevance of market shares in dynamic markets
The few paragraphs that have so far received public attention are the ones concerning the irrelevance of high market shares. In para 69 the Judgment states that “the consumer communications sector is a recent and fast‑growing sector which is characterised by short innovation cycles in which large market shares may turn out to be ephemeral. In such a dynamic context, high market shares are not necessarily indicative of market power”.
In fact, I agree with this statement. Market shares in these markets are “not necessarily indicative of market power”; they provide an indication which may be disproved by other factors. My problem with this is they do provide an indication, and even if it can be disproved by looking at countervailing factors, I still struggle to see those here.
In any event, there are a few paras in this section (mainly paras 79 to 84) that that are potentially quite troublesome for enforcement, particularly in technology and communication markets. No wonder these will from now onwards be cited by any company with large market shares.
4) On the irrelevance of network effects in a non-interoperable communications market
Paragraph 76 also marks –in my view- a change in the way network effects are assessed in EU competition law by stating that “the existence of network effects does not necessarily procure a competitive advantage for the new entity”.
This may seem at odds with all past Commission precedents, mainstream economics, regulation of other communication markets, the Commission’s soft law on market definition, 102 and mergers, as well as with Skype’s own repeated statements in official public submissions claiming that “the scale, global distribution and growth of our user base provide us with powerful network effects, whereby Skype becomes more valuable as more people use it, thereby creating an incentive for existing users to encourage new users to join. We believe that these network effects help us attract new users and provide significant competitive advantages”.
You may recall that the Decision’s argument to rebut the role of network effects was that users “make the majority of their voice and video calls to the small number of family and friends that make up their so called “inner cicle” (4-6 people) and that “it is not difficult for these groups to move between communication services”. This peculiar argument was endorsed by the Court. As I’ve repeatedly said over the past two years, I may well Skype the most with my wife, girlfriend (J), mother and best friend, but I would assume that my best friend has in turn a different mother, girlfriend and wife (or so I’d like to think…); in other words, groups of people are interconnected and do not communicate in movable autarkic nodules. On this point, the Judgment simply repeats (thereby endorsing) the Commission’s argument at the end of para 52 (“the network effects to which the concentration might give rise would be diluted by the fact that users tend to communicate in small restricted circles and use a range of operators. Those factors demonstrate the ease with which user groups switch to other communications services”). [On multi-homing, note that the “range of operators” meant the two merging parties –otherwise they couldn’t have a 90% market share- as openly acknowledged in footnote 52 of the decision].
4) On the identification of competitive constraints.
A paragraph that could also prove important for various markets where companies rely on others’ technology (and for private label products) is para. 72, which dismisses the claim that Facebook (the second largest player with an overwhelming 10% of the market, whose video call service runs on Skype, which has Microsoft as a shareholder and which interoperates with Skype) would not be an effective competitor with this reasoning.
“The only factor that they put forward in support of that argument is that Facebook is a licensee and strategic ally of Skype, which cannot use Skype’s software to offer services in competition with the paid services of Skype, called SkypeOut, which make it possible to, inter alia, call fixed or mobile telephone numbers and to conduct video calls involving more than two persons. However, they do not submit that that agreement prevents Facebook from offering its video communications services to consumers who might decide to switch away from the new entity if it decided to exert any market power.
So, being a “strategic ally”, using the same technology and the existence of a non-compete agreement do not indicate mitigated competitive vigor. Note taken.
5) On switching, statement of reasons and the comparison with the Microsoft (and Google) abuse cases
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Upcoming Conferences on the Intel Judgment and on Commitment decisions
Monsieur le Prof Petit is a quick guy in many respects. The most recent illustration of this characteristic of his is that, within a few days of the unofficial announcent that the Intel Judgment will be out on 12 June, he’s managed to arrange a seminar about it. It will take place on 16 June, and the program is available here: Conference Intel v Commission – Programme and Registration Among the speakers are two economist who were working at the Commission when the decicion was adopted (Damien Neven and Frank Maier Rigaud), as well as Robert O’Donoghue, Jean François Bellis and Damien Geradin.
A few days later, on the 5th of June, the Brussels School of Competition (“BSC”) and The Liège Competition & Innovation Institute (“LCII”) will be holding a half-day conference on “Commitments in EU Competition Policy” in Brussels. More info is available here.
Finally, Nicolas’ assistant at University has also asked me to advertise one more conference,this one about The repair of competition harms in France and in Europe: State of art and future changes. It’ll be held on Tuesday May 13th in Paris.
Chillin'Competition 
