Chillin'Competition

My paper on the (second) modernisation of Article 102 TFEU (see here) has been out on ssrn for around a week. I am really grateful to those who have already reached out with (their thoughtful and illuminating) comments, and would definitely welcome more.

A significant fraction of the paper is devoted to taking stock on the acquis on the notion of abuse and to identify the areas where some uncertainties remain. I thought the exercise made sense, given that the community is about to embark in a conversation about the codification of the case law.

The acquis on the notion of abuse

The picture above, which you will also find in the paper, seeks to capture the contributions made in the long decade that has passed since the 2010 Deutsche Telekom. It easy to underestimate how much the case law has evolved during this period. One can now identify a number of principles guiding the interpretation of the notion of abuse, which are useful both in relation to old and new categories.

If I were to summarise the fundamental contributions made by the Court, I would emphasise the following developments.

First, it is now clear some practices are abusive only where they are a source of anticompetitive effects in the relevant economic and legal context. As a result, an authority or claimant will have to establish foreclosure to the requisite legal standard at least in some instances. This point may seem obvious now, but it was anything but straightforward in the aftermath of British Airways.

Second, anticompetitive effects must be attributable to the practice for Article 102 TFEU to apply. In other words, there must be a causal link between the practice and the actual or potential impact of the strategy.

The corollary of the second development is, third, that Article 102 TFEU is concerned, at least as a matter of principle, with equally efficient rivals. Where the exclusion of a rival is attributable to the fact that the said rival is less efficient and/or less attractive in terms of inter alia, prices, quality or innovation, Article 102 TFEU does not come into play.

The paper discusses two other key functions that the (much misunderstood) ‘as-efficient competitor’ principle has in the system.

This principle is also important from the perspective of legal certainty. As the Court emphasised in Deutsche Telekom, a dominant firm should have the means to assess whether or not its behaviour amounts to an abuse. For instance, one cannot expect a firm to adapt its conduct to the costs structure of a rival (which is the example given by both the GC and the ECJ in Deutsche Telekom).

More generally, the ‘as-efficient competitor’ principle is a valuable reminder that Article 102 TFEU is a device to protect the competitive process, not to engineer market outcomes and/or to decide how many and which firms should operate in the relevant market. The latter task is the natural province of sector-specific regulation, not of competition law.

Third, the Court has defined a number of factors that need to be considered when evaluating the actual or potential impact of a practice on competition. Post Damark II identified factors such as coverage and the extent of the dominant position. In addition, the features of the relevant market (including the regulatory context) played a central role in the assessment in that case (more in this below).

In Servizio Elettrico Nazionale the Court ruled, in line with the Guidance Paper, that evidence of actual effects (or the lack thereof) are to be considered (even if it is not conclusive in and of itself).

The remaining uncertainties

In spite of the abundant clarifications provided by the Court over the past (long) decade, there are, inevitably, some issues that need to be clarified (surprising as it may sound, the case law is still a work-in-progress).

One such issue is the probability threshold that applies when the analysis is prospective (that is, when the assessment concerns potential, as opposed to actual, effects). As I explain in the paper, this question is distinct from the definition of the standard of proof, even though both tend to be conflated very frequently.

The probability threshold is not just an academic diversion: it has major consequences for the definition of the scope of Article 102 TFEU. It is one thing to say that the threshold of potential effects is satisfied when the probability of harm is in the region of 10-15%, and another one to say that the likelihood of harm should be of at least 50% for Article 102 TFEU to apply.

As I discussed in the paper (and in previous pieces), the Court has not defined the probability threshold, but I agree with Advocate General Kokott, for whom the notion of potential effects presupposes a probability of harm of at least 50% (see her Opinion in Post Danmark II). It is the interpretation that best captures, in my view, what the Court has actually done.

A second issue that needs to be clarified relates to the assessment of the counterfactual. I have mentioned in the past that debates around this matter may seem surprising. Establishing a causal link between a practice and its effects demands, by definition, identifying a counterfactual. One could argue, therefore, that the Court has (if only implicitly) addressed this point.

What is more, the Court has already had the chance to clarify that the counterfactual is necessary in the context of Article 101 TFEU. I cannot think of a valid reason why the analytical framework would change depending on the applicable provision (it would amount to attaching different meanings to the same concepts based on whether one or the other is applied).

Third, it is not clear when and why departures from the ‘as-efficient competitor’ principle are deemed justified. In Post Danmark II, the Court ruled that the exclusion of a less efficient rival could be a concern insofar as the legal context made the emergence of an equally efficient one virtually impossible. In such a context, Article 102 TFEU protects the modicum of competition that sector-specific regulation allows. It remains to be seen whether, and why, other departures from the principle are possible

My new paper, devoted to the (second) modernisation of Article 102 TFEU is available on ssrn (see here).

The point of the piece is, first, to provide the context behind the Commission’s ongoing initiative in relation to exclusionary abuses and, second, to discuss the way in which three central considerations (namely effective enforcement, meaningful judicial review and legal certainty) can be reconciled.

As the picture above and the figure below suggest, the exercise is not an easy one. It requires skilfully threading the needle to bring on board all three considerations.

The concern with effective and flexible enforcement (inescapable if Article 102 TFEU is to fulfil its role) must be addressed in a way that ensures that the law is uniformly applied across the Union and that judicial review remains meaningful (or, if one prefers, consistent with the allocation of powers in the EU legal order).

The paper suggests that the exercise, while challenging, can be assisted by a number of guiding principles and approaches.

First, the law must be administrable. If it were not, it would stand in the way of effective policy-making. It is submitted, in this regard, that administrability can be preserved by relying on ‘bright lines’ as proxies.

The AKZO case law already relies on a bright line (a 50% market share) as a proxy for dominance. It is submitted that several of the factors identified by the Court when defining the notion of abuse (coverage, nature and purpose of the practice, extent of the dominance) lend themselves naturally to this technique. For instance, effects could be deemed unlikely where coverage lies below 30%.

The use of bright lines would favour administrability (it would ease the burden of establishing an infringement), all while preserving legal certainty and allowing for effective judicial review.

It is submitted, second, that structured legal tests (a fixed, cumulative set of conditions with well-defined boundaries) are preferable to liquid or unstructured ones (that is, tests that rely on factors that may or may not be relevant in a given case and which therefore depend on a ‘holistic’ assessment).

It is explained, in this regard, that unstructured tests make it more difficult to ensure that EU law is uniformly applied across the Union. These tests are, by their very nature, a recipe for legal fragmentation (and particularly so in a decentralised legal order). They leave it, in effect, for national authorities and national courts to decide, case-by-case, the criteria against which the legality of practices is assessed.

For the same reason, liquid tests are not obvious to reconcile with full judicial review.

The paper argues, third, that substantive tests must be capable of being disproved. In other words, a set of conditions that are fulfilled always and everywhere is a bad legal test. It is submitted, in particular, that the interpretation of Article 102 TFEU cannot turn the analysis of effects into a mere formality.

The case law of the past decade suggests that this assessment is meaningful and context-specific. In the same vein, it cannot rely on a probatio diabolica or on a threshold of effects that would lead to a finding of foreclosure in virtually every instance.

Finally, there should be little doubt that the system must be allowed the necessary flexibility to evolve over time and adjust to new realities. An analysis of the case law suggests that there are ways to ensure that innovation remains compatible with the Court’s marked preference for continuity and consistency.

I will elaborate on some of these points in subsequent posts. In the meantime, I would really appreciate your thoughts on the paper (I am really grateful, by the way, to those who have alerady shared their comments). As usual, I have nothing to disclose.

Background

Earlier this week the General Court delivered its ruling in Valve (see here). It addressed some of the legal issues that the Court of Justice did not, and could not, tackle in Canal+ (and which I discussed here). Because the latter case was decided by means of a commitments decision, the ECJ could not ‘definitively’ rule on whether the contentious clauses restrict competition by object (see para 54 of Canal+).

Valve, like Canal+, is about restrictions to the cross-border provision of copyright-protected content within the EU. Both differ from plain vanilla market integration cases in two ways. First, intellectual property is exploited in an intangible manner (as opposed to incorporated in, say, a Hello Kitty t-shirt).

Second, they are not subject to the exhaustion doctrine. As a result (and as the Court held in Coditel I), a copyright holder (or its licensee) may rely on its exclusive rights to preclude the cross-border provision of content.

These two differences can be consequential in individual cases. Because the copyright holder (or its exclusive licensee) can exercise its rights in relation to every communication to the public, cross-border trade may be prevented by the intellectual property system itself (that is, irrespective of whether there is an agreement in place).

In other words (and to use the vocabulary employed in Generics), the intellectual property system may, in some circumstances, represent an ‘insurmountable barrier to entry’ preventing the cross-border provision of services.

We know from the case law (think of Toshiba and E.On Ruhrgas) that, where the absence of (inter or intra-brand) competition is attributable to the regulatory context (as opposed to firms’ behaviour), the agreement under consideration does not restrict competition, whether by object or effect (this case law is elegantly summarised in Advocate General Kokott’s Opinion in Generics).

The (seemingly) straightforward

These precedents suggest that the key question to raise in Valve is whether there were ‘insurmountable barriers’ to the cross-border offer of video games via the Steam platform.

While the outcome of individual cases is never the focus of my analysis, I will note that, as far as I could gather from the public version of the decision (many crucial bits of which were confidential), Valve had received a worldwide non-exclusive licence to distribute the relevant video games via its platform (and therefore, it would appear, the right to distribute the said video games across the whole of the EU).

In such circumstances, it seems very likely (this is at least what the public version of the decision suggests) that any restrictions to cross-border trade would be attributable to the agreements, not to the copyright regime. For the same reason, the qualification of the said agreements as restrictive of competition by object seems in principle inescapable.

Assuming that the agreements (as opposed the copyright regime) are what preclude the cross-border provision of content, there would be no plausible rationale for the restraints other than the limitation of passive sales. This is, almost word for word, what the Commission argued in the case (para 211).

Summing up, the case seems, on the surface, straightforward. Some of the points made about the relationship between competition law and intellectual property, moreover, are wholly uncontroversial (such as the fact that the non-exhaustion of the rights does not preclude, as held in Coditel II, the application of Article 101(1) TFEU).

The open questions: a new relationship with intellectual property?

Other points, however, appear to go further than exisiting case law. They may perhaps be irrelevant in the context of the case, but they are definitely worth discussing. In para 203 of the judgment, the General Court suggests that a restriction of passive selling would be restrictive by object unless and until a national court declares that such passive selling amounts to a copyright infringement:

‘203. […] as is apparent from recitals 305 to 309 and 352 to 354 of the contested decision, the question whether or not […] passive sales by the publishers’ distributors could be the subject of legal proceedings before the competent national courts is not decisive for the purposes of the application of Article 101 TFEU […]’.

In other words, competition law, according to Valve, does not defer to the intellectual property system for as long as an infringement has not been expressly declared. In the same vein, the General Court appears to imply that licensees in different territories are presumed to be potential competitors before a copyright violation is formally established.

If the logic of the General Court were applied in an agreement like the one in Coditel II, the absolute territorial protection granted by virtue of the exclusive licence would be treated as a restriction by object pending a final declaration of an infringement.

It is difficult to overestimate the consequences of this interpretation of Article 101 TFEU. The presumptive validity of intellectual property titles (and, more precisely, the question of whether they raise ‘insurmountable barriers’ within the meaning of Generics) would bear no relevance in competition law analysis. These titles would only come into the picture once a breach has been proved.

The General Court’s arguments draw from the Commission decision in Valve. The latter, in turn, appears to be based on a reading of Generics that turns the specifics of the case into a general rule. Paras 49 and 50 in Generics deal with a very particular factual scenario, namely one where the primary patent had expired and where the relevant process patent did not and could not preclude potential competition.

The Generics case, in other words, was about an instance in which a presumptively valid intellectual property right was not an insurmountable barrier to entry.

The General Court judgment in Valve (just like the Commission decision) suggests the conclusions drawn in paras 49 and 50 of Generics are relevant in a different context, that is, one in which a presumptively valid intellectual property right would constitute such an insurmountable barrier. By doing so, Valve fundamentally changes, in passing, the relationship between competition law and intellectual property.

It remains to be seen whether this expansive interpretation of Generics will be embraced by the Court of Justice (either in Valve or a different case).

What can be said for the time being is that Valve is a manifestation of a wider trend in competition policy. The discipline is becoming less deferential, over time, to intellectual property. I have been tracing this evolution in forthcoming work of mine, which I look forward to sharing with the wider world. In the meantime, I would very much welcome your thoughts.

We are now opening up registrations for the 27th edition of the competition law program at the IEB in Madrid, which will run from January to March 2024. The course will follow a hybrid format (attendees can participate either in person or online). It is taught partly in English and partly in Spanish. Lectures take place in the afternoon (16h to 20h CET) to facilitate the participation of students joining from Latin America and the U.S.

We are proud to have, once again, an impressive panel of international lecturers, including Judges from EU and national courts, officials from the European Commission, the Spanish CNMC and other national competition authorities, as well as top-level academics, in-house lawyers and practitioners.

In addition to the possibility of registering for the full course, it is also possible to register for individual modules or seminars. The modules and seminars in this upcoming edition will be the following:

–Introductory session (12 January- afternoon).

–Module I – Agreements and Restrictive Practices: Vertical and Horizontal Agreements (15-17 January-afternoon). Coordinator: Carmen Cerdá Martínez-Pujalte (CNMC)

–Module II – Cartels and Procedures (22-24 January- afternoon). Coordinator: Isabel López Gálvez (CNMC)

–Seminar 1- Recent Developments in EU Competition Law (2 February- afternoon). Coordinators: Fernando Castillo de la Torre (Legal Service, European Commission) and Eric Gippini-Fournier (Hearing Officer, European Commission)

–Module III- Abuse of Dominance (5-7 February- afternoon). Coordinator: Konstantin Jörgens (Garrigues)

–Module IV – Merger Control (12-14 February- afternoon). Coordinator: Jerónimo Maillo (USP-CEU)

–Seminar 2 –  Private Enforcement of the Competition Rules- New Challenges. (23 February- afternoon). Coordinator: Mercedes Pedraz (Magistrada, Audiencia Nacional)

–Module V- Sector Regulation and Competition (26 February-28 February). Coordinator: Pablo Ibáñez Colomo (LSE, College of Europe)

–Module VI – Public Competition Law: State Aid and Public undertakings (4-6 March- afternoon). Coordinators: José Luis Buendía (Legal Service, European Commission) and Jorge Piernas (Jean Monnet Chair, University of Murcia)

–Seminar 3 – The Digital Markets Act in Practice (15 March- afternoon). Coordinator: Alfonso Lamadrid (Garrigues, College of Europe).

We will also be holding three practical workshops dealing with inspections, distribution agreements and merger control.

Like every year, we are very grateful to the course’s sponsors, namely Araoz y Rueda, Clifford Chance, Compass Lexecon, Cuatrecasas, Garrigues, Gómez Acebo & Pombo, KPMG, Latham & Watkins, MLAB, NERA, Pérez-Llorca and Uría Menéndez.

For additional information, please contact competencia@ieb.es

Over the summer, I discussed Advocate General Rantos’ Opinion in in Case C‑331/21, AdC v EDP (see here for my post). I focused primarily on the notion of restriction by object. The case wonderfully illustrates why formalism fails when identifying ‘by object’ infringements.

While it may be tempting to claim that every market-sharing (or price-fixing) agreement between competitors is caught by Article 101(1) TFEU by its very nature, the case law abundantly shows (most recently in Super Bock) that it is not true. AdC v EDP will add to this body of case law when it comes out.

The Opinion hides a valuable gem that is equally crucial to make sense of the case law, that clarifies some perceived inconsistencies and that, as far as I have been able to see, has not been discussed elsewhere. It is a tricky point that lends itself to confusion and deserves to be addressed in some detail.

Advocate General Rantos is a case study on how restrictions by object are identified in theory and practice. It elaborates on every single key aspect. The anaytical sequence can be summarised around the following points:

• First, the clause is typically the relevant unit of analysis of restrictions by object.
• Second, whether or not the clause in question is restrictive by object is considered in light of the relevant economic and legal context, which certainly includes (if there was any doubt) the analysis of the agreement.
• Third (and this is where the Opinion kicks in), once the contextual analysis reveals that the clause is restrictive by object, it is no longer relevant that other clauses within the agreement are not (following the second step, in other words, there is no second bite of the cherry).

This clarification was particularly relevant in the context of the case. The question raised by the national court concerned specifically a market-sharing clause. We know that even restraints that, at first glance, come across as problematic (including price-fixing and market-sharing itself), are not necessarily restrictive by object.

As already discussed at length in the preceding post, the case law and administrative practice provide many examples showing that the agreement is a key aspect of the evaluation of the relevant economic and legal context. It often sheds light on the object of individual clauses. It may show that such clauses are not anticompetitive and/or that they do not restrict competition at all.

As explained by the Commission in its 2014 Guidance on restrictions by object, a price-fixing clause in an agreement between competitors may not be a ‘by object’ infringement when it is introduced in the context of a (pro-competitive) joint production agreement. In Erauw-Jacquery the contextual analysis led the Court to conclude that the export prohibition in the case (in principle a no-no) was not caught by Article 101(1) TFEU because of the role it fulfilled in the overall agreement.

Sometimes, the analysis of the clause in light of the agreement reveals that it is ancillary to the latter. In Pronuptia, for instance, the Court distinguished between the restraints that were integral to the operation of the franchising agreement (and thus fell outside the scope of Article 101(1) TFEU altogether) and those that were not (such as territorial exclusivity).

However (and this is where Advocate General Rantos’ contribution is particularly valuable), once the analysis of the clause in its economic and legal context reveals that its object is anticompetitive, it does not matter whether other clauses in the agreement are not restrictive by their very nature.

In other words: the agreement informs the contextual assessment of the object of the clause. Once the object is figured out (and it turns out that it is restrictive by its very nature), whether or not other clauses are pro-competitive is no longer relevant.

To some extent, this point is obvious. The parties to an agreement can try and disguise a cartel arrangement in an agreement that has a broader scope and set of aims. The fact that the rest of the agreement would be beyond reproach would not allow them to escape the prohibition (and the fines that come with it).

In other respects, however, it is a point that is worth making. For the sake of simplification, we often refer to the agreement, not the clauses (for very good reasons).

More to the point, Advocate General Rantos’ analysis is helpful because it helps us make sense of what might seem a tension in the case law but that, upon closer inspection, is not.

Thanks to the judgments delivered over the past five years, the picture on restrictions by object is as clear as it has ever been. Landmarks such as Generics and Budapest Bank make it clear that, where a restraint is a plausible source of pro-competitive gains, it is not restrictive by object (see here for an analytical framework I prepared when the second of these judgments came out).

Reasonably, someone may be tempted to reply to the above by asking: has the Court not held, in ANSEAU-NAVEWA and BIDS, that an agreement (or clause) may restrict competitio by object even if it has other, pro-competitive aims? Would this fact not show that the above interpretation is incorrect?

Advocate General Rantos gives us part of the answer to that question and shows that there is no tension between the two lines of case law.

It may well be that an agreement, taken as a whole, has other pro-competitive aims. As explained in the Opinion, however, this point is irrelevant once it has been established that a particular clause is restrictive by object (that is, once it is shown that it has no plausible objective purpose other than an anticompetitive one in light of the relevant economic and legal context).

Issue 5 of this year’s volume of the Journal of European Competition Law & Practice came out a few days ago. It is dedicated to the memory of Professor Valentine Korah.

We pay tribute to her life and achievements in an editorial, which is available for free here. As we point out, every issue of JECLAP (with its blend of academic scholarship and practical application of the law to specific problems) is in a way a celebration of Professor Korah’s approach to EU competition law.

As one would expect from a proper rentree, I have just uploaded on ssrn (see here) a new paper, entitled ‘Form and substance in EU competition law’.

The piece deals with the unlikely comeback of formalism in competition law discussions. Formalism may be back, but the tone and substance of the debates are different from those of yore. During the 1980s and 1990s, formalism was criticised by those that championed the ‘effects-based approach’ and favoured restraint in the enforcement of competition law provisions.

In the past couple of years, formalism has been questioned for the opposite reason. Some leading commentators and practitioners see formalism as an obstacle to effective policy-making. From this perspective, the use of structured legal tests (such as the three Magill conditions or the ‘five criteria’ introduced by the Court in Intel) would hinder authorities’ ability to deal with anticompetitive conduct.

Against this background, the paper seeks to clarify what we mean by formalism (or form-based approach). It seems to me that people refer to different realities when they use the term.

The term was originally used to refer to an approach whereby the (i) categorisation and (ii) lawfulness of practices depend on their form (and their form alone). The meaning changed over time. For some, the ‘by object’ treatment of conduct is synonymous with formalism. For others, the use of structured legal tests (as opposed to unstructured or ‘liquid’ approaches), is also a manifestation of the phenomenon.

One of the conclusions of the paper is that it would be incorrect to conflate ‘by object’ and formalism. The analysis of the restrictive nature of an agreement is not necessarily formalistic. It can also rely on a substance-based approach. In the same vein, the paper explains that the use of legal categories is not inherently (and not always) formalistic. As pointed out by Wouter Wils in his instant classic on Intel, categories are a necessity in any legal order.

Another conclusion is that the Court of Justice has consistently placed substance above form both when it comes to assessing the object of agreements and when defining legal categories. There are two salient (and relatively recent) examples in this regard.

Super Bock confirmed that the form of an agreement does not and cannot determine, alone, whether it is restrictive of competition by object. The so-called ‘object box’ is elegant, intuitively appealing and incredibly useful as a first approximation to the issue, but does not reflect how the Court really goes about it.

After Super Bock (which implicitly overrules Binon), the last remaining pocket of formalism has fallen: resale price maintenance can no longer be said to amount, in the abstract, to a ‘by object’ infringement. The need to consider the ‘economic and legal context’ knows no exceptions.

Slovak Telekom, in turn, illustrates the substance-based approach that the Court follows vis-a-vis the definition of legal categories. According to the judgment, the applicablity of the Bronner test does not depend on formal criteria, but on substantive factors, namely whether requiring a dominant firm to deal with third parties would interfere with its right to property and its freedom of contract.

It would be really wonderful to get your thoughts on the paper. Do not hesitate to contact me. And, as ever, I am delighted to clarify that I have nothing to disclose.

Valentine Korah left us a few days ago. It has been very moving to hear and read the tributes of those who worked with and were close to her. When I entered the competition law world, Professor Korah was no longer as active as she used to. However, her mark and contributions to the discipline were impossible to miss. She had greatly contributed to shaping the law and institutions I was discovering in the mid-2000s.

Professor Korah’s work on, inter alia, vertical restraints and technology transfer agreements was so foundational that there was simply no way around it. To this day, I still find interesting stuff in her articles. It is not unusual that I realise that something that I believed was a novel insight was already there, black on white, eloquently put.

If there is something I would highlight about Professor Korah’s legacy, is that how passionate she was about research in general and competition law in particular. The first memory that comes to mind is that of her sitting in the first row of a seminar room at UCL, well into her 80s, willing to learn from younger scholars, and keen to improve their work. May she rest in peace.

There will be no revolution in EU merger control after all. Today’s judgment in CK Telecoms sets aside the first instance ruling. However, it does so in a way that does not depart from Tetra Laval and the prevailing understanding of, inter alia, the principles governing the review of Commission decisions and the applicable standard of proof.

A close reading of the judgment shows that much of the appeal is about the specifics of the decision. The idea that the General Court ‘distorted‘ the Comission’s analysis pervades the ruling, and comes across as an element that must have been central to the outcome of the case. This post, as usual, will not focus on these specifics, but on the issues of principle addressed by the Court.

The most salient aspects of the judgment, which I examine in detail, can be summarised as follows:

• First, the General Court erred in law when setting the applicable standard of proof. ‘Strong probability’ sets the bar too high, the ECJ holds.
• Second, the ‘marginal review’ doctrine only applies to the legal characterisation of facts and only in relation economic assessments (para 124).
• Third, the General Court erred in law when laying down the conditions under which non-coordinated effects can arise absent dominance (and, similarly, by failing to take into account the full range of factors).
• Fourth, the General Court erred in law when defining the notion of ‘closeness of competiton’ and ‘important competitive force’.

Standard of review in EU merger control

As explained back in October, Advocate General Kokott had proposed in her Opinion a major departure from the Tetra Laval case law. If the Court had followed her approach, the review of merger decisions would have been confined to manifest errors of assessment.

The Court judgment makes it clear, first, that it is not for the Commission to interpret Article 2 of the Merger Regulation, including the concepts enshrined therein (para 129). In the same vein, the EU courts are not bound or constrained by the soft law instruments issued by the administrative authority.

Second, deference is only warranted, according to the judgment in relation to (i) the legal characterisation of facts and (ii) only insofar as economic matters are concerned.

The formula is repeated in several passages, but para 124 (with emphasis added) is perhaps the most explicit: ‘[…] the Commission has a margin of discretion with regard to economic matters for the purpose of applying the substantive rules of Regulation No 139/2004, in particular Article 2 thereof […]’).

Third, the fact that a particular concept requires the use of economic analysis when implemented does not mean that the Commission enjoys a margin of discretion when defining its scope and meaning. Para 127 gives several examples, including that of ‘dominant position’, ‘relevant market’ and ‘margin squeeze’.

Standard of proof

The standard of proof was one of the big bones of contention in the case (if not the biggest). The Commission took issue with the standard of proof (administered and/or declared) by the General Court in the first-instance ruling.

On this point, the Court makes a number of observations. First (para 74), it declares that the standard of proof does not change based on the type of decision (in other words, a decision declaring the compatibility of a transaction with the internal market is subject to the same standard as one declaring its incompatibility).

Second, the standard of proof does not change, either, based on the type of transaction. In other words, it would not be higher or lower depending on whether the transaction raises conglomerate, vertical and/or horizontal concerns (para 79).

Third, the Court seems to define the standard of proof in probabilistic terms (‘more likely than not‘), which is suggestive of a balance of probabilities standard (para 87). This point is to be welcome, if only because Advocate General Kokott’s Opinion had equated likelihood and plausibility. The judgment avoids the confusion that might have resulted from the conflation of these two concepts.

The legal test applied

The central substantive point of law at stake in the case is as exciting as it is unprecedented. When, absent dominance (individual or collective), is a impediment to effective competition significant? The General Court had tried to define a legal test inspired by the Preamble to Regulation 139/2004.

In accordance with this test, the Commission would need to show that the transaction would lead to ‘(i) the elimination of the important competitive constraints that the merging parties had exerted upon each other and (ii) a reduction of competitive pressure on the remaining competitors‘ (para 98).

The Court does not embrace this test, which it finds to be too restrictive (para 113). In this regard, the judgment appears to suggest that the first of these conditions would, alone, justify intervention. As explained in para 112, establishing such a condition is sufficient to prove a significant impediment to effective competition.

One should point out, in this regard, that, from an economic perspective, the two conditions defined by the General Court are one and the same (and therefore the test would not be as restrictive as one may assume). Pascale Déchamps and Maurice de Valois Turk explained in a piece for JECLAP (see here) that, if the first condition is fulfilled, one can safely presume that the second is, and vice versa.

Against this background, the change brought about by the ruling is more apparent than real.

The meaning of ‘closeness of competition’ and ‘important competitive force’

More significant and consequential than the legal test, in fact, are the passages devoted to the definition of the key concepts around which the decision revolved, namely ‘closeness of competition’ and ‘important competitive force’.

The General Court had construed both concepts with a seemingly clear rationale: require the Commission to show that there is something distinctive about the competitive relationship that would be lost as a result of the transaction.

The Court of Justice, by contrast, interprets them more expansively. As far as the closeness of competition is concerned, for instance, it holds that it is not necessary for the Commission to show that rivals were ‘particularly close‘ (para 191). It is sufficient that they are close.

How close? Reassuringly, the Commission is echoed in the judgment making it clear that not every firm within an oligopolistic market qualifies as a close competitor (para 173). Therefore, closeness of competition cannot be automatically assumed to exist in a tight oligopoly and would have to be established case-by-case.

The same is true of the concept of ‘important competitive force’. Contrary to what the General Court held, it would be sufficient to show that a firm is a maverick, that is, one that ‘has more of an influence on the competitive process than its market share or similar measures would suggest‘ (para 167).

The redefinition of these two concepts allows for more frequent intervention. The central challenge remains unchanged: how can they be construed so that judicial review remains meaningful, effective and faithful to the Tetra Laval principles?

The Journal of European Competition Law & Practice (of which I am the Joint General Editor alongside Gianni De Stefano) regularly publishes special issues devoted to topical questions (see here for the one on the first-instance judgment in Google Shopping).

We are now working on a new Special Issue on ‘The Second Modernisation of EU Competition Law’. We welcome proposals addressing any procedural and substantive aspects relating to the two central questions that are currently under review: Article 102 TFEU (and the potential adoption of a new set of Guidelines) and enforcement (that is, Regulation 1/2003).

Topics include (but are emphatically not limited to) the following:

• The analysis of anticompetitive effects in abuse of dominance cases.
• The ‘as efficient competitor’ principle vs the ‘as efficient competitor’ test.
• The evaluation of foreclosure in digital marktes.
• Towards market investigations in EU competition law?
• The future of interim measures.
• Remedies in EU antitrust enforcement.
• Decentralisation and cooperation: how to tackle the risk of fragmentation?

If interested in publishing in the Special issue, please get in touch via email (P.Ibanez-Colomo@lse.ac.uk) by Friday of next week (21st July) with a brief outline of your potential contribution.

The proposal should take the form of an abstract of max. 250 words in which you identify:

• The question on which you would like to focus; and
• The contribution your piece is expected to make.

If your abstract is selected for publication, we expect the final article (of around 7,000-10,000 words) to be submitted by mid-September. As usual, please clarify in your proposal whether you have any conflicts of interests.

Do not hesitate to contact me with any other questions you may have. We very much look forward to reviewing your submissions!