Review of China’s Anti-Monopoly Law – The First Five Years (Adrian Emch & David Stallibrass, eds.))
On the occasion of the publication of “China’s Anti-Monopoly Law – The First Five Years”, our friend Adrian Emch (Hogan Lovells Beijing) has offered us two presents: 1. A hardcopy of the book; 2. A book review by no other person than Professor Bill Kovacic! Yes, you read well, Bill Kovacic himself. This is the second time Bill appears on Chillin’Competition. Thanks to him and to Adrian for doing us this honour.
Review of China’s Anti-Monopoly Law – The First Five Years (Adrian Emch & David Stallibrass, eds. Wolters Kluwer, 2013)
By William E. Kovacic, George Washington University Law School (c)
On August 1, 2008, China’s new competition law system opened for business. Three agencies — the Ministry of Commerce (MOFCOM), the National Development and Reform Commission (NDRC), and the State Administration for Industry and Commerce (SAIC) — began to implement China’s Anti-Monopoly Law (AML), and their work in the past five years has reshaped the global practice of competition law.
The fifth anniversary of the AML is a most suitable occasion for some stock-taking. The first five years have provided considerable experience with public and private enforcement. China’s immense and expanding economy ensures that firms engaged in global trade must take the AML seriously. Particularly for merger control, China is quickly acquiring the capacity to influence international competition law norms through the application of its own law.
The development of competition law in China has created a hunger for knowledge among academics, practitioners, and public officials about the AML’s origins, content, and application. This interest has inspired the publication of a fast-growing body of books on China’s antimonopoly system. A number of these volumes are exceptionally strong,[1] and other promising contributions are on the way.[2]
Amid the excellent modern commentary on the AML, China’s Anti-Monopoly Law – The First Five Years now stands atop the ladder. All observers with an interest in China’s competition law system will find that this book greatly enriches their understanding of China’s competition law system.
For several reasons, First Five Years will receive, and deserves, a broad readership. Five features of the book stand out. The first is the consistently superior quality of an exceedingly ambitious project. The book includes 27 essays authored by a total of 41 authors. In many instances, an undertaking of this scale suffers from unevenness in quality across the contributions. Reasonable expectations might lead a publisher to be pleased if half of the papers are superb, the rest are merely average, and only a handful are entirely forgettable. Through the skill and effort of its editors, Adrian Emch and David Stallibrass, First Five Years performs extremely well from the first essay through the last. This is a formidable achievement. The perspectives in each chapter typically are candid, fresh, and insightful. The extensive participation of Chinese authors, either writing their own chapters or collaborating with foreign specialists, ensures that the essays accurately portray China’s AML system’s broad conceptual architecture and its technical details. Foreign competition law experience is related in a manner that is meaningful to the Chinese context.
A second impressive contribution is the book’s examination of the institutional foundations of the Chinese competition law system. The first four chapters of the book are rich in history and political science, and they are worth the price of admission, alone. Huang Jong and Richean Zhiyan Li describe how the fragmentation of enforcement power among MOFCOM, NDRC, and SAIC have impeded the development of a “coherent antitrust policy.[3] Hao Qian sets out the antecedents of the AML and explains why China chose to distribute enforcement authority among three agencies.[4] Wendy Ng considers the aims that appear to have guided public enforcement against the backdrop of goals – a diverse array of objectives featuring some fundamental internal contradictions – that motivated the AML’s adoption.[5] Deng Fei and Gregory Leonard study how China’s economic conditions inform the AML’s application.[6] As a group, these introductory chapters supply necessary and enlightening context for understanding the AML’s current, and they set a valuable foundation for seeing how the Chinese system might evolve in the future.
A third noteworthy element of First Five Years is its insightful treatment of important developments in doctrine and policy. The examination of traditional enforcement focal points typically goes beyond a mere recital of activity and present informative interpretations of actions or omissions in the public enforcement program. Good examples include the chapters on refusals to deal (and the lack of effort to date to apply this concept to expand competition in sectors controlled by state-owned enterprises);[7] vertical restraints;[8] supplier cartels and information exchanges among rivals;[9] dominant firm pricing strategies having exclusionary or exploitative effects;[10] and merger control and the treatment of joint ventures.[11] The book’s treatment of these subjects is remarkably current, given the lag the inevitably occurs between the completion and publication of manuscripts.
“Member State” aid
Let’s start this post with a disclaimer, just as our good Commission friends:
Disclaimer: I am a nobody on State aid law. I do not teach State aid. And I do not publish on State aid.
With this initial caveat, here is a rumination triggered by a discussion with a colleague:
The rationale for State aid control is disputed in the scholarship. On the one hand, some say that the DNA of State aid control is to limit “subsidies race” amongst Member States. Under this approach the effect of State aid on market competition is irrelevant. What matters is that State subsidies distort the natural allocation of resources in the internal market (e.g., investments). Our friend Jose Luis Buendia Sierra – aka “Mr State aid” down here in Brussels – is one of the proponents of this approach. A variant of this approach consists in viewing State aid as a tool of budgetary discipline.
On the other hand, some consider that State aid control seeks to eliminate the distortions of market competition caused by selective State subsidies. The idea is that when aid is granted to a market player and not to its rivals, the former benefits from an underserved competitive advantage (e.g. free fresh cash). Under this approach, the effect of State aid on market competition is of utmost relevance. To assess whether the aid is lawful or unlawful, one needs to run a full-blown competitive analysis, similar to that undertaken under Article 101 and 102 TFEU (market definition, competitive assessment, theories of harm, efficiencies, etc.). This approach is generally the one supported by competition economists. This is why it is generally called the “economic approach” of State aid. Damien Neven, the former Chief Economist of DG COMP, has explicitly endorsed this approach.
For quite some time, I have been a buyer of the second explanation. After all, rules on competition should be applied consistently. So why draw differences accross 101, 102 and 107 TFEU?
But today, I had a revelation.
The wording of the Treaty on the Functioning of the European Union TFEU does not support the “economic approach“.
Take a look: Article 107 TFEU only covers “aid granted by a Member State or through State resources“.
If State aid was designed to eliminate distortions of competition in relevant markets, the instrument should also apply to State aid granted by non Member States – which it does not – just as Article 101 and 102 TFEU catch all conduct with anticompetitive effects in the EU, even if adopted by non EU firms.
In other words, under the economic approach, the nationality of the subsidising Member State should be irrelevant in the analysis, just as it is in standard antitrust proceedings. What should matter is that anticompetitive aid has been granted to a firm – EU or non EU – that does business in Europe. Full stop.
But the Treaty talks of aid granted by “Member States” only.
Of course, there might be a jurisdictional explanation to the fact that the Treaty only catches what I’ll call “Member State aid“.
Yet, to our knowledge, the Court could have decided to transpose Woodpulp and Gencor in State aid matters on the textual ground that Article 107 TFEU also talks of “aid granted through state resources” without explicitly requiring state resources to have EU origins.
The bottom line: with globalisation, non EU governments can freely dope national operators that do business in the EU, and distort competition in EU markets. This is prejudicial to EU domestic operators. The EU institutions don’t like people to say that. But this finding is inevitable. After all, if the EU institutions believe that France and Belgium can distort competition by granting subsidies in the EU, then the same reasoning should apply to firms financed by Chinese and Qatari subsidies (including sovereign funds).
The law as it stands thus creates a massive “discrimination à rebours“.
The European citizens (in France and Belgium at least) are well aware of this.
Their qualms with the process of EU integration – and more generally with globalisation – is in part attributable to the inability of Europe to protect them against the “unfair competition” of giant superpowers such as China or of wealthy oilocracies like Dubaï or Qatar.
The EU elites autism to this issue is a cause of (personal) concern, in particular with the upcoming EU elections next year.
Operation Ghostfruit
What if Google and Apple waged war at each other?
I mean real war, not patent war.
In one of the best tech columns of the year, F. Manjoo and M. Yglesias (Slate) take a try at wargaming.
Manjoo plays Google. Yglesias plays Apple. And the outcome is spectacular. A must read.
The story has several antitrust angles:
- Google’s “operation ghostfruit” shares analogies with the Commission’s “search bias” theory of harm;
- Google’s dominance is certainly undisputable in the narrow, antitrust sense. But it is far less clear from a business perspective. If anything, the story shows that a company deemed dominant by antitrust standards – i.e. in a given relevant market – can be seriously threatened by a company active in a wholly distinct market. Put simply, the battlefield in the high tech sector is not an antitrust relevant market. It is the sector as a whole. And companies that sell distinct unsubstitutable products may well – and do – engage in competition. A further reason to abandon market definition in high tech industries, and switch to novel concepts (the “relevant sector”)?;
- Dominant firms may rationally try to exclude non competing firms;
- Antitrust agencies (and governments) are instrumentalised by dominant firms to exclude other companies;
- Microsoft is no longer a player
SEP Injunctions under Article 102 TFEU
Two weeks ago, I was the lucky dude from academia attending a conference in Rome on the role of courts and agencies in innovation markets.
The conference was organised by Assonime, CASRIP and LUISS University.
Interestingly, the organisers had invited judges and officials at grips with injunction cases. I attach some of their presentations hereafter:
Grabinski-Orange-Book-Approach-Rome-15-July-2013 SEP Michael Adam Slide_July15_Giudici Takenaka_Very Final 071513 SEP Rome
I also attach my own presentation: Information Technology, Innovation and Competition Law – Assonime Conference (15 07 13) N PETIT
The teaser: my slides reveal what substantive test should apply to the act of seeking injunctions on FRAND pledged SEPS.
Breaking News
Appointments at the head of the new Belgian NCA are ongoing.
The following people are in the cards (subject to approval by the Council of Ministers this week):
President: Jacques Steenbergen
General Prosecutor: Véronique Thirion
Chief Economist: Alexis Walckiers
Chief of Legal Affairs: Joachim Marchandise
This means that no former official of the Belgian Competition Council will seat on top of the new agency.
But two incumbents from the Directorate General, Jacques Steenbergen and Alexis Walckiers, will take key positions in the agency.
The new kids on the block are Joachim Marchandise and Véronique Thirion.
Joachim is a very skilled practitioner who used to work as an associate for the Brussels office of Linklaters.
We do not know Ms. Thirion who is poised to occupy the critical function of General Prosecutor. For more on her background, see here.
Chilling Case
In hot Brussels, our friend Johan Ysewyn kindly points us out to a “chilling” case: abuse of dominance by freelance ski photographers. Seems I am not the only competition geek on this planet
The facts are cool (cheap punning again). CAPSA runs the ski lift infrastructure of Cerro Catedral, Argentina.
CAPSA has contractually reserved the provision of photography services to DEFOTOS.COM.
And CAPSA has imposed an an extra fee for the use of lifts by freelance photographers.
The Argentinian Competition Commission and the Ministry of Commerce have found abusive discrimination.
This looks to me like the Argentinian version of Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).
However, unlike the US gem, this case is about a secondary line injury discrimination (the sole type of discrimination covered under Article 102 c) TFEU).
Sexy Cases
Journalist, practitioners and scholars often accuse agencies of putting resources on “sexy” cases.
This would be particularly true in matters where agencies can prioritize cases and select enforcement targets: e.g., in unilateral conduct cases and to a lesser extent in merger cases (the argument has less traction in cartel and State aid cases).
True, untrue?
A sexy case can be defined as one which brings large public exposure.
Sexy cases often involve popular consumer goods/services: search engines, smartphones, LCD screens, etc. They may also concern “evil“, John Grishamesque industries: oil, tobacco, pharmaceuticals or finance. Or they may feature non EU firms which threaten domestic operators (Gazprom, Boeing, etc.).
With this background, there’s a good proxy to determine whether agencies focus on sexy cases: brands rankings.
And this recent ranking seems to confirm agencies interest for sexy cases: the top 5 brands are Apple, Google, Amazon, Microsoft and Samsung. All those companies are currently wrestling with DG COMP.
So much for the facts.
Public choice theory has an appealing explainer for public authorities’ focus on sexy cases: like standard businessmen, agency officials are profit maximisers. Yet, given that they cannot maximize revenue, they strive to make good on other variables, such as press recognition, reputation, etc.
In the week-end, I had some time to think on whether it is good for agencies to focus on sexy cases.
The answer to this is unclear. On the one hand, sexy cases are likely to improve the taxpayer’s knowledge of competition policy, and disseminate the “culture of competition” accross society. In brief, sexy cases are good in terms of competition advocacy.
On the other hand, sexy cases nurture disinterest for competition policy. Let me explain. Sexy cases generate the perception that competition policy is public policy for the rich and wealthy. On complainants’ side, if you don’t have a complaint against a Google or a Microsoft, you feel you are unlikely ever to attract agency interest. This, in turn, has a cost for society. Cases which are potentially serious, yet unsexy, will not be reported to the agency (a type II error). Similarly, on infringers’ side, firms with little public exposure know that there are quasi-immune from prosecution if the enforcement system is focused on sexy cases. Thus, they have little incentives to comply with competition law (another type II error).
With this background, I still fail to figure out which of those two effects – knowledge v disinterest – dominates the other.
Yet, I intuitively believe it is good administrative policy for an agency like DG COMP to also run ‘small‘ abuse cases like Tomra or the recent ARA case.
I conclude with a thought, which just sprung to mind whilst writing this post: may agencies be sometimes tempted to hide sexy cases? I mean look: the CDS and Libor investigations or the Gazprom case make remarkably little noise in the news, despite their considerable interest for society at large.
Just Married
Important message to all Chillin’Competition groupies:
Alfonso just exited the market.
He and Lali signed a very long term contract this week end in Reinosa, which includes exclusivity provisions, joint production, infrastructure sharing, information exchanges, financial integration, etc.
This alliance is welfare-enhancing. I can personally testify that a gargantuesque wealth of cheese, jamon and wine resources was put on table this week-end.
But what this pact first and foremost generates are non-economic efficiencies.
There is a lot of love, true, genuine, sheer love between the two parties (and amongst their families and friends).
Congratulations to Alfie (my co-blogger’s nickname) and Lali.
And a huge, enormous thank you for the amazing ‘turnkey‘ wedding.
Google Dissertation
A post to be taken with a grain of salt.
There’s a Google Prize at the College of Europe.
It rewards the best thesis on “EU competition rules and policy relating to information technology“.
This prize was just awarded. Here’s what has been published on the College of Europe website:
GOOGLE Prize – Open to all students from the legal studies department or following the ELEA programme in Bruges.- Best thesis on “EU competition rules and policy relating to information technology”.- Prize of €2000. Procedure : all thesis titles are submitted to GOOGLE which selects the theses with relevant topics. An electronic version of the preselected theses which receive the minimum mark of 15/20 will be sent to GOOGLE at the beginning of June 2013.
Decision taken by GOOGLE.
CALDINI Giuditta (DR) (IT) Thesis title : “Commitment Decisions under Article 9 of Regulation 1/2003. Does the Shortcut Arrive at Destination?” Thesis supervisor : Prof. L. ORTIZ BLANCO
I guess it is fair to congratulate Giuditta (and Luis too BTW) for the prize.
As for the rest, no comment…
Or maybe a comment: Google was again in the news yesterday. The concessions offered do not sufficiently meet the Commission’s concerns. My two cents on this here.
Weapon of Constitutional Destruction
On 5 July, the French Constitutional Court (FCC) issued a decision that may have massive repercussions in France (and which may trigger debate elsewhere).
In Société Numéricable et autres, the FCC was asked to rule whether the sanctioning powers bestowed upon the French regulator for Telecommunications (ARCEP) were compatible with the Constitution.
In brief, the litigated provision entitles the ARCEP to remove market authorisations and/or to slap financial sanctions on electronic communications operators.
The FCC analysis is straightforward, blunt, brutal:
“Considérant que, selon le premier alinéa de l’article L. 132 du code des postes et des communications électroniques, les services de l’Autorité de régulation des communications électroniques et des postes sont placés sous l’autorité du président de l’Autorité ; que, selon l’article D. 292 du même code, le directeur général est nommé par le président de l’Autorité, est placé sous son autorité et assiste aux délibérations de l’Autorité ; que, par suite et alors même que la décision de mise en demeure relève du directeur général, les dispositions des douze premiers alinéas de l’article L. 36-11 du code des postes et des communications électroniques, qui n’assurent pas la séparation au sein de l’Autorité entre, d’une part, les fonctions de poursuite et d’instruction des éventuels manquements et, d’autre part, les fonctions de jugement des mêmes manquements, méconnaissent le principe d’impartialité ; que celles de ces dispositions qui sont de nature législative doivent être déclarées contraires à la Constitution“
In English now: the disputed provision does not provide for the separation of investigative and decisional functions within ARCEP. This breaches the principle of “impartiality” . As a result, the sanctioning powers of ARCEP must be declared contrary to the Constitution.
The French competition authority will likely not be impacted by this ruling, given that it is built on the bifurcated agency model.
And other integrated competition agencies can sleep tight (e.g. DG COMP), given the lack of FCC jurisdiction over non domestic affairs.
However, the merit of the FCC decision is to show that the “prosecutorial bias” issue is not a rethorical invention, concocted by disgruntled EU antitrust lawyers at grips with DG COMP.
Even in a country like France, where there is a considerable sympathy towards public institutions and where government agencies are almighty, some fundamental procedural safeguards are to be observed. And it starts with the idea that “he who prosecutes shall not judge (and sanction)“.
Thanks to Elise for the pointer.
Chillin'Competition 