Professor Damien Geradin

The Decision of the Commission of 13 May 2009 in the Intel Case: Where is the Foreclosure and Consumer Harm

This new paper challenges the Decision of the European Commission against Intel, which I believe suffers from a number of serious flaws.

Abstract:

Abstract:      
On 21 September 2009, the European Commission published a provisional non-confidential version of its 13 May 2009 Decision in which it condemned Intel to a record fine of € 1.06 billion on the ground that it had granted conditional rebates and payments to a number of OEMs and a large retailer of consumer electronics purchasing its x86 CPUs, and that it had paid OEMs to delay, cancel or in some other way restrict the commercialization of specific AMD-based products. 
This paper shows that the Commission Decision contains a number of flaws. They include the facts that the Decision: (i) relies in substance on a per se prohibition of conditional rebates recognized by the formalistic case-law of the Community courts, notwithstanding that the Commission had clearly indicated in various important policy documents, including its Guidance Paper on Article 82 EC, its intention to move away from this approach for an effects-based analysis; (ii) states, contrary to sound policy, that it need not conduct an “as efficient competitor” test, but conducts a misguided one anyway; (iii) insufficiently supports its speculative theory that the OEMs’ purchasing policy was influenced by their understanding of Intel’s alleged intention to reduce or eliminate their rebates should they buy x86 CPUs from AMD; (iv) fails to demonstrate its contention that Intel’s rebates harm competition and consumers; and (v) conducts an excessively restrictive analysis of the efficiencies created by Intel’s rebates. 
The Intel decision thus stands for the dangerous proposition that any dominant firm is at risk under Article 82 EC if there exists evidence that employees of a customer believe that reducing present purchases from it could have repercussions with regard to the availability and terms of future purchases, even if the belief is ambiguous, equivocal or contrary to written assurances of the firm or its executives, and without any showing of foreclosure. While the foregoing may be considered as an overstatement and that an “agreement” on conditions (not a mere unilateral belief on the part of the customer) is necessary to find a violation, the Commission accords itself so much latitude on how it collects, interprets and weighs evidence that the distinction is illusory. 
The compatibility of the Commission Decision with EC competition law will now be examined by the Court of First Instance of the European Communities to which Intel lodged an appeal. Because of the wide-ranging implications of this Decision, not only for Intel but for all large corporations having to negotiate price incentives with their customers, it is to be hoped that the Court of First Instance of the EC will review this decision carefully and hold the Commission to the same rigorous standards it has applied in the merger control area. 
An important question (that will not be addressed by the Court of First Instance, but which is nevertheless relevant from a policy standpoint) is whether antitrust intervention was at all needed in a market characterized by increasing output, decreasing prices and sustained innovation. These characteristics alone should raise serious doubt about claims of anti-competitive foreclosure and consumer harm, especially when they are made by competitors. These characteristics also question the Commission’s wisdom of investing large enforcement resources in what turned to be a long and protracted investigation. As this paper will demonstrate, the market for x86 CPUs was competitive and there is no convincing evidence that Intel’s conduct was anti-competitive and foreclosed AMD and harmed consumers.

Abuse of Dominance in the Postal Sector – The Contribution of the Guidance Paper on Article 82 Ec

Please find hereafter the link to the paper I have co-author on the potential implications of the Commission's Guidance Paper for the postal sector:

 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1435362

 

Abstract:

 

On 3 December 2008, the Commission published its 'Guidance on the Commission’s Enforcement Priorities in Applying Article 82 EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings' (“Guidance Paper”), which essentially sets out the Commission’s enforcement priorities with respect to exclusionary abuses. In line with the approach already taken in the fields of Article 81 EC and merger control, the Commission, through its Guidance Paper, has vowed to take a more effects-based approach to exclusionary abuses by dominant undertakings. The Guidance Paper is not intended to be a statement or interpretation of the law, but instead lays out the Commission’s 'enforcement priorities' with respect to Article 82 EC. This raises the issue whether the Commission is bound to apply the principles developed in the Guidance Paper or whether it can apply the more restrictive and formalistic principles contained in the Community courts’ case-law. In the context of the postal sector the advent of the Guidance Paper is particularly propitious in light of the crucial changes that are taking place. The recently promulgated Third Postal Directive ('Postal Directive') provides the legal basis for the full market opening of the postal sector, which is to be accomplished by 31 December 2010. A corollary of the abolition of any remaining, exclusive or special rights is that new possibilities for increased competition in the postal sector will be created. At the same time, however, the removal of the reserved sector is likely to increase the frequency of claims by entrants that incumbent postal operators are engaging in abusive behavior to maintain their market power in liberalized markets. With this in mind, the Guidance Paper provides dominant (postal) undertakings with a set of parameters within which they can assess conduct addressed in it i.e. exclusive dealing, tying and bundling, predatory practices, and refusal to supply.

 

 

Damien

 

New Paper on International Antitrust

Here's a link to a new paper, and its abstract, to be published in th Chicago International Law Journal.

As Einer Elhauge and I noted in the preface to our recently published casebook, modern antitrust law is global antitrust law. This is not so much the case because large corporations are subject to global antitrust rules, but because their behavior is being reviewed under the antitrust rules of an ever growing number of jurisdictions. While the last six decades have seen repeated unsuccessful attempts to develop global antitrust rules, the 1980s and 1990s have witnessed significant growth in the number of countries adopting antitrust law statutes and setting up specialized antitrust agencies and/or courts. Thus, some 100 countries currently have antitrust rules in place, and the process has not ended yet. On August 1, 2008, China's Anti-Monopoly Law (hereafter, the "AML") entered into force and various factors indicate that China will become a significant actor on the global antitrust scene.

As a result, a typical merger between large U.S. corporations now ordinarily requires approval not just in the United States ("U.S."), but also in the European Union ("EU"), Canada, Brazil, South Africa, Russia, Korea, and the numerous other jurisdictions which have merger control rules and in which the activities of such corporations may produce market effects. Similarly, international cartels may trigger administrative, civil or even criminal investigations not only in the United States, but also in a range of other jurisdictions. The Microsoft case also bears testimony to the fact that firms engaging in certain practices, such as refusal to license or tying, may end up being condemned for abuse of dominance under the antitrust laws of different nations and, as a result, face a variety of remedies that are not necessarily consistent. Thus, businessmen, lawyers and policy-makers can no longer content themselves with understanding only the antitrust law of their nation. They must also be conversant with the other regimes that form part of the overall legal framework that regulates competitive behavior.

While I, like many other scholars, have supported and even to some extent contributed to the development and adoption of antitrust law regimes in a growing number of jurisdictions, my increased level of involvement in recent years in cases dealing with the application of antitrust laws and the participation of authorities of several jurisdictions has permitted me to gain first hand experience of some of the pitfalls of the process of "decentralized globalization" of antitrust, which has taken place in the last few decades as a result of the concomitant failure of nations or international organizations to develop a global antitrust law regime and the decision of many nations to adopt their own antitrust laws. While the notion of "decentralized globalization" may sound like an oxymoron, it represents an attempt to describe the fact that antitrust is today a global phenomenon, not through the adoption of supranational rules such as in areas pertaining to environmental protection, labor rights, or human rights, but through the adoption of national rules often varying in scope, objectives, methods, and the manner in which they are enforced.

There is no doubt that the adoption of antitrust rules in a larger number of nations generates benefits as it allows, for instance, these nations to protect their citizens against international cartels or excessive market concentration This process has, however, also given rise to challenges for global corporations, some of which are well known. The "decentralized globalization" of antitrust increases: (i) the cost of doing business and the complexity of large-scale antitrust investigations, which now often have a multi-jurisdictional component; (ii) the risk of contradictory decisions where a firm's behavior is reviewed by different antitrust authorities under different sets of rules; and (iii) the likelihood that some decisions be guided by protectionist motives.

The objective of this paper is to raise awareness of a particular problem, which relates to the fact that in a world where a conduct of a given is subject to different antitrust regimes, the most restrictive antitrust regime always wins, i.e. the firm in question will be required to ensure that its conduct conforms to whichever regime is most restrictive, hence leading to global antitrust over-enforcement. As will be seen, this issue, which I referred to as the "Strictest Regime Wins" problem, may lead to situations where the decision of an antitrust authority in one jurisdiction (for instance, taking a negative decision on a conduct that is otherwise considered to be pro-competitive) may deprive consumers in other jurisdictions of various efficiencies that are well-recognized by their own antitrust authorities. This paper also draws attention to a number of procedural issues, which may negatively impact the ability of corporations investigated in foreign jurisdictions to defend their case.

Against this background, this paper is divided into five parts. Part II describes the process of "decentralized globalization" alluded to above. Part III discusses the various benefits brought about by the adoption of antitrust regimes in an increasingly large number of nations, but also the challenges that this has created for multinational corporations. Part IV focuses on the problem of global antitrust over-enforcement described above. Finally, Part V provides for a short conclusion.

Damien

New paper on SSRN - A Proposed Test for Separating Pro-Competitive Conditional Rebates from Anti-Competitive Ones

I have just posted a new paper on ssrn. Here's the abstract:

While the granting of rebates is a common commercial practice largely used by dominant and non-dominant firms, the assessment of rebates is one of the most complex and unsettled areas of competition law. In the EU, the decisional practice of the European Commission and the case-law of the Community courts have been harshly criticized as unnecessarily strict, following a form-based approach that sits uneasily with modern economic theory. In response, DG COMP published in December 2005 a Discussion Paper that promotes an effects-based approach to the assessment of rebates. This approach was recently confirmed in the Guidance Paper of the Commission on Article 82 EC published by in December 2008. US courts have generally shown greater deference to conditional rebates adopted by dominant firms, but the case-law remains unsettled, notably in the area of bundled rebates. Against this background, this paper proposes an analytical framework, based on a three-step test, designed to separate pro-competitive rebates from anti-competitive ones. A particular emphasis will be placed on the treatment of single product retroactive rebates, which create complex issues.

Damien

CRESSE Material

The CRESSE 2008 CONFERENCE MATERIAL (to which Damien participated) has been posted here.

LL.M. in Competition and IP Law - New Programme/Brochure

As some of you may already know, I am the director of the LL.M in competition and IP law at the University of Liege (Belgium). We have just received the new brochure (see link at the end of this post) and I take the opportunity to make a little advertisement for the programme.

Our LL.M. is certainly unique here on the continent. Not that it is priced at a level that is almost predatory. Rather, it exhibits a number of other features which make it - in my opinion - a 5* education programme:

• Focus and exhaustiveness of the courses:  ranging from general IP and competition law to economics of competition law, market regulation in the pharmaceutical/food sector, competition and IP, patent law, etc.;
• Teaching team boasting academics and high-profile practitioners - J.Y Art, J.F. Bellis, J. Derenne, JJ. Evrard, D. Hull, A. Strowel, G. Van Overwalle, P. Wautelet, etc.;
• Numerous extracurricular activities - the many conferences and seminars we had this year were made possible thanks to the support of the students. Our students also write case summaries in the E-competitions online bulletin;
• Proximity from Brussels;
• The vast majority of our students finds a job prior to the end of the LL.M.

Please do not hesitate to contact me, should you have any queries on the programme. Our admission requirements have so far proven quite flexible and we aim at attracting students from everywhere inside and outside Europe.

Download brochure_llm_final_version.pdf

Nicolas

Two new papers on ssrn.com

Revisiting Injunctive Relief: Interpreting eBay in High-Tech Industries with Non-Practicing Patent Holders
Vincenzo Denicolò , Damien Geradin , Anne Layne-Farrar and A. Jorge Padilla

The Supreme Court's 2006 eBay ruling marked a turning point in injunctive relief policy. Unfortunately, there seems to be considerable confusion about the implications of the decision. Some authors, concerned over patent holdup and excessive royalty rates, interpret the eBay decision as giving a green light to district courts to deny injunctive relief to non-manufacturing patent owners. Using an error cost framework, we examine the theory and evidence behind patent holdup concerns as they relate to injunctive relief policy. We find that the holdup theory justifying categorical limitations on injunctive relief rests upon overly narrow assumptions. As a result, categorical limitations are likely to result in substantial false positives, where patent holders with no designs of patent holdup are nonetheless denied injunctive relief. Instead of advocating categories of denial, we argue that the majority opinion in eBay can and should be read as a return to a balancing test, where costs and benefits are weighed carefully before granting or denying a patent injunction.

Elves or Trolls? The Role of Non-Practicing Patent Owners in the Innovation Economy
TILEC Discussion Paper No. 2008-018

Firm structure and the degree of vertical integration lie at the core of a key intellectual property concern currently under debate: "patent trolls." While court opinions and competition agency decisions have focused on "non-practicing" patent holders as the source of anticompetitive exclusion and hold up problems, this view of upstream specialists is far too narrow. In fact, patents in the hands of non-practicing entities can increase competition, lower downstream prices, and enhance consumer choice. We explain why and argue for more business-model-neutral policy when it comes to patent licensing. Clearly, patents are a complex subject that cannot be portrayed as either all good or all bad; tradeoffs will always be involved. Without a better understanding of the many complicated effects of patents in high technology markets, we run the very real risk of misguided policy decisions

Damien

New paper

Damien has presented the following paper: "What's wrong with royalties in high technology industries" at the George Mason University School of Law and Microsoft Corporation’s second annual conference on The Law and Economics of Innovation: "Patents and the Commercialization of Innovation" on 15 May 2008 in Arlington, VA.

Link to ssrn: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1104315

Here is the abstract:

Over the past few years, there has been an unprecedented degree of interest among competition authorities, scholars, Standard-Setting Organizations (hereafter, SSOs) and trade associations with respect to the level of royalties that are charged by holders of intellectual property rights (IPRs). For instance, in the past two years, the US Department of Justice (DoJ) granted business letter clearance to two SSOs - VITA and IEEE - to implement new IPR policies designed to control the IPR costs. In April 2007, the DoJ and the Federal Trade Commission (FTC) jointly released a report on Antitrust Enforcement and Intellectual Property Rights. But the interest is not limited to the United States. The European Commission is currently investigating the compatibility of certain licensing regimes and conduct within SSOs against EC competition law. Reflecting the debate at the policy level, scholars have produced a large body of legal and economic literature on IPR and standardization issues, including patent hold-up (where the patent holder exploits ill-gotten market power in excessive licensing fees) and royalty stacking (where multiple patents must be licensed and thus the royalty rates stack up to excessive amounts).

Against this background, this paper addresses the issue of whether something has gone wrong with royalties in high technology industries. This paper seeks to answer this question first by looking at a number of concrete scenarios where firms holding IPRs seek to obtain a return on their patent portfolios by licensing them. As will be seen, the behaviour of these firms essentially depends on whether they are vertically-integrated or non vertically-integrated. Vertically-integrated firms engage in research and development activities, patenting at least some of their inventions, and also manufacturing products based on their own innovations and the innovations produced by others. Non vertically-integrated firms, in contrast specialize in one or the other layers of production. Pure upstream firms conduct research and development activities and patent their innovations, but they do not engage in manufacturing. Downstream firms specialize in manufacturing, but do not engage in R&D.

SSRN Ranking of competition law authors

Hereafter is a list of the most downloaded competiiton law authors on SSRN, over the past year.

1. Damien Geradin (College of Europe and Tilburg University) – 4,301
2. David Evans (University College London) – 2,932
3. Spencer Waller (Loyola Chicago) – 2,122
4. Jonathan Baker (American University) – 1,759
5. Keith Hylton (Boston University) – 1,476
6. Phil Weiser (University of Colorado) – 1,436
7. Randal Picker (University of Chicago) – 1,293
8. Josh Wright (George Mason) – 1,287
9. Herb Hovenkamp (University of Iowa) – 1,194
10. Daniel Sokol (University of Florida) – 1,014

Congratulations to Damien! (courtesy of D. Sokol's blog)

Nicolas

New SSRN Paper - Ex Ante Auction Model for the Control of Market Power in Standard Setting Organizations

Damien, J. Padilla and A-L. Farrar have recently published a new paper on SSRN. See here for a link to the paper. I paste the abstract hereafter:

RAND commitments — i.e., promises to license on reasonable and non-discriminatory terms — play a key role in standard setting processes. However, the usefulness of those commitments has recently been questioned. The problem allegedly lies in the absence of a generally agreed test to determine whether a particular license satisfies a RAND commitment. Swanson and Baumol have suggested that "the concept of a 'reasonable' royalty for purposes of RAND licensing must be defined and implemented by reference to ex ante competition." In their opinion, a royalty should be deemed "reasonable" when it approximates the outcome of an ex ante auction process where IP owners submit RAND commitments coupled with licensing terms and selection to the standard is based on both technological merit and licensing terms. In this paper we investigate whether the ex ante auction approach proposed by Swanson and Baumol is likely to deliver efficient outcomes, both from static and dynamic standpoints. We find that given the peculiar characteristics of some of the industries where standardization takes place, in particular the many different business models adopted by innovating companies in those industries, the ex ante auction approach proposed by Swanson and Baumol may not always deliver the right outcomes from a social welfare viewpoint.