The Antitrust Hotch Potch

General Court on Inability to Pay

Today, the General Court has dismissed the appeals lodged against the Commission’s decision in the calcium-carbide cartel case (see Cases T-352/09, T-392/09, T-400/09 and T-410/09). In their appeals, the applicants argued inter alia that the Commission failed to take into account their inability to pay pursuant to paragraph 35 of the fining guidelines. In line with established case-law, the General Court rejected these grounds of appeal, holding that it was not sufficient to show that the fine risks leading – or even that it has led – to bankruptcy.

First, the Court found that “while a bankruptcy may adversely affect the financial interests of the owners or investors concerned, it does not necessarily mean that the undertaking in question will disappear from the relevant market. The undertaking may continue to exist as such, either where the bankrupt company is recapitalised, or where all the company’s assets – and thus the undertaking as such – are acquired by another entity. Thus, while it cannot be ruled out that the bankruptcy of a company and its disappearance as a legal person may also lead to the demise of an undertaking as an economic unit, the latter eventuality cannot be deemed to have been established merely on account of the bankruptcy.” (Case T-392/09, paras 131 and 132).

Second, the Court explained that it is necessary to examine the social and economic context by analysing the consequences that the payment of the fine could have, for instance, by increasing unemployment or deteriorating economic sectors upstream or downstream of the undertaking concerned (T-400/09, para. 99).

The Court held that it is only when these two conditions are met that it can be argued that the fine is disproportionate and contrary to paragraph 35 of the fining guidelines (T-400/09, para. 100).

An important issue that was not really addressed in the judgments is the fact that Commission decisions which grant fine reductions on the ground of inability to pay generally contain limited justification for the reduction of the level of the fine. Moreover, the information is often redacted (see e.g., Case COMP/38.344 - Prestressing Steel). While the need to protect confidential information and business secrets is undeniable, the problem is that there is very little transparency and therefore no real way of scrutinizing these reductions in the light of the principle of equal treatment.

Case C-457/10 AstraZeneca v. Commission

In a judgment of 6 December 2012, the CJEU dismissed AstraZeneca’s (“AZ”) appeal of the GC’s judgment that concerned an abuse of the undertaking’s dominant position.  The case deals with strategies adopted by AZ in relation to its blockbuster, Losec, which is a PPI (proton pump inhibitor) drug for ulcer.  Among other things, AZ was accused of using misleading statements to obtain extension of patent protection for Losec through a supplementary protection certificate  (“SPC”).  While the judgment covers many interesting legal issues, this post will focus only on two: the market definition for Losec and the misleading statements abuse.

In relation to market definition, the CJEU followed the Commission and the GC and adopted a very narrow approach.  PPIs (like Losec) were not considered to be in the same product market as H2 blockers, even though the latter were the leading treatment for ulcer when PPIs were launched. This approach can be dangerous: pharma companies entering the market with innovative drugs are always likely to be considered dominant.  The CJEU excluded H2 blockers from the relevant product market because allegedly they were not truly competing with PPIs.  According to the CJEU, the only reason why doctors continued to prescribe H2 blockers was not their efficacy but the uncertainty concerning the side-effects of PPIs.  The Court’s argument is based on a theoretical distinction and fails to engage with the logic of drug markets, where therapeutic efficacy and absence of side-effects are seen as the two sides of the same coin.

The part of the judgment dealing with misleading statements as an abuse of a dominant position was the one practitioners awaited the most. In the past, the GC had set the bar very low and provided that any objectively misleading statement to a patent office would be an abuse.  Had this been upheld, it would change fundamentally the way patent processes work.  In fact, according to EPO’s Facts and Figures, less than 50% of patent applications result in a patent being granted.  In all the other cases, inventions are presented by the companies as patentable, but are eventually found not to be so.  Would this always amount to an abuse in case the applicant is a company holding a dominant position?  The CJEU assuaged these fears, by noting that “the assessment of whether representations… are misleading must be made in concreto”.  It clarified that each objectively wrong representation made to a patent authority will not automatically constitute an abuse.  For example, in AZ’s case, the CJEU looked specifically at the deliberateness and duration of the alleged misrepresentations, to establish their abusive character.  However, the CJEU then set a very low bar when examining the conduct’s effects on competition.  It found that the misleading representations in question had a “potential” effect on competition, even though in certain jurisdictions the misleading statement was detected and corrected before any competitor learned of the possible grant of an SPC.  If this qualifies as a “potential” effect, what would then be a case of “unlikely” or “no effect” on competition?

The recent AstraZeneca judgment is not the only, and certainly not the last, case touching upon the competitive relations of originators and generic manufacturers.  The ongoing Commission investigations on reverse payment agreements (involving e.g., Lundbeck or Servier) are related to the exact same issue.  Although the legal issues are different there (these investigations are run under Article 101 TFEU), the underlying policy and business considerations are the same.  More headaches to come…

Linsey McCallum on patents at the CRA Conference on Economic Developments in European Competition Policy

CRA organised its annual Brussels conference on Wednesday. The number of attendees was amazing. It is true that the conference was free (which contrasts with the excessive fees that are charged for many other conferences), the line-up of speakers was impressive, and most importantly there was good food.

We attended the panel on patents and one of the speakers was Linsey McCallum (acting director at DG Comp). While she refused to comment on the ongoing investigations, she reiterated Vice-President Almunia's commitment to clarify the meaning ot FRAND and the circumstances in which standard-essential patents holders may seek injunctions.

Ms. McCallum referred to the Google/Motorola case where the Commission suggested that the threat of injunction, the seeking of an injunction or the actual enforcement of an injunction granted against a good faith potential licensee could significantly impede effective competition. Interestingly, she also noted that some were advocating a brighter line and referred in this context to the judgment in Motorola v. Apple where judge Posner supported a "no injunction" policy for standard-essential patents.

Ms. McCallum also commented on "commercially-essential patents". She explained that in cases involving commercially-essential patents, the appropriate framework of analysis was that developed in Magill, Bronner, IMS Health, Microsoft, etc.  As the Microsoft case has shown, patents that are essential have to be licensed on (F)RAND terms (like standards-essential patents). According to Ms. McCallum, no complaint involving commercially-essential patents has been filed so far. The reason is probably that the burden of proof on the complainant is higher in cases involving commercially-essential patents than in cases involving standard-essential patents. While in the latter case the licensor committed to license on FRAND terms, in the former case it did not make such a commitment and an obligation to license on FRAND terms can only be imposed on the licensor if the complainant proves that the commercially-essential patents are essential within the meaning of the Bronner line of case-law.

For a rigorous “effects based” analysis of vertical restraints: an analysis of the EU and Brazilian competition law

Today, Caio Mário da Silva Pereira Neto and I are presenting our paper on vertical restraints in Brazilian and EU law at a conference organised by  the Centro de Estudios de Direito Economico e Social (CEDES). The organizers did a great job gathering a large audience of officials, lawyers and academics in Brasilia. 

 

The Counterfactual Method in EU Competition Law: The Cornerstone of the Effects-based Approach

Here is the abstract and link of the paper I co-authored with Ianis Girgenson on the counterfactual method.

In Book IX of his History of Rome (written around 25 BC) Titus Livy speculates about a hypothetical confrontation between Rome and Alexander the Great.  What if Alexander had not died at the end of the Asian campaign but had returned to Europe to attack Rome?  Livy argues that Rome and Carthage would have joined forces to crush the Macedonian army.

Livy’s musings represent an early example of the counterfactual method.  This method can be used to assess the effects of an actual or a hypothetical event.  The counterfactual describes the world in the absence of that event.  If the event has already occurred, one needs to build an alternative past (this is what Livy does when he imagines Alexander’s return to Europe).  If the event has not yet taken place, it is necessary to contemplate an alternative future.

The use of the counterfactual under EU competition law goes back to the seminal judgment of the Court of Justice in the Société Technique Minière case.  However, until recently, this method was confined to the area of merger control.  Under Articles 101 and 102 TFEU, the European Commission and the EU Courts initially adopted a “form-based” approach.  This approach paid limited (if any) attention to the effects of the relevant agreement or conduct on competition and consumers.  Because the aim of the counterfactual technique is to analyse the effects of a given event it had little relevance under the form-based approach.

In recent years the Commission has transitioned towards the effects-based approach.  The modernisation of EU antitrust enforcement caused a renewed interest in the counterfactual technique.  Counterfactuals are discussed in various Article 101 guidelines and in the Article 102 Guidance Paper.  In June 2011 the Commission published a draft Guidance Paper on quantification of antitrust damages, which contains a detailed analysis of various counterfactuals.

In this paper, we examine the use of the counterfactual method in EU competition law.  In our analysis, we distinguish between ex ante control (merger control and Article 101 self-assessment) and ex post scenarios (investigations under Articles 101 and 102, damages litigation).

 

This blog readopts its original title

The Antitrust Hotch Potch was created several years ago by Nicolas Petit and myself. Three years ago, Nicolas created an excellent new blog "Chillin Competition" and this blog became became largely inactive under the name "Professor Damien Geradin". As I am now planning to feed this blog again, I decided to give it back its orginal name.

Damien

Industrial Policy and European Merger Control - A Reassessment

This paper, which was initially published in the annual proceedings of the Fordham antitrust conference, was selected as the best academic paper in the Mergers Article category in the inaugural Antitrust Writing Awards presented by the Institute of Competition Law and the George Washington University Law School.

Abstract:    

The relationship between industrial policy and merger control is one of the most controversial topics in European competition law. The debate has become particularly intense in recent years given the perceived failure of free markets and the return of government intervention into the economy.

In Europe, the concepts of industrial policy and competition policy conjure up “a great ideological divide.” Modern competition policy is inspired by the neoliberal ideas of the Chicago school that place great confidence in free markets. Industrial policy reflects a more interventionist approach, based on the assumption that markets are fallible and that governments should correct their imperfections.

Industrial policy dominated the early years of European merger control. However, following the adoption of the Merger Regulation in 1989, the European Commission largely ignored industrial policy considerations, focusing instead on the strict implementation of the competition-based test. This approach was unsurprising given the triumph of the neoliberal agenda and the corresponding lack of interest in or support for industrial policy.

However, the challenges of globalisation and the 2008 economic crisis inspired a growing number of observers to argue for an increased intervention of public authorities into the economy. The role of competition policy has also been called into question. In particular, some observers argued that EU merger control prevented industrial consolidation. In several recent cases, national governments set aside merger control rules to facilitate the creation of “national champions” or used them as a protectionist tool to disrupt undesirable transactions.

Against this background, we seek to address the issue of whether merger control rules should be relaxed in order to accommodate industrial policy objectives. Answering this question is complicated by the lack of clarity of the concept of “industrial policy.” In Section II of this paper we define industrial policy and summarise the debate relating to this concept. In Section III, we demonstrate that industrial policy has always been present in European merger control even though its influence has decreased considerably following the adoption of the Merger Regulation. In Section IV, we describe how globalisation and the 2008 economic crisis led to the revival of industrial policy in Member States and at the EU level. In Section V, we attempt to determine whether industrial policy should take priority over competition policy in the area of merger control in light of these developments.

Our conclusions are twofold. First, carefully selected industrial policies can successfully address market failures, e.g., by supporting national or European champions. Second, we do not think that merger control rules should be relaxed or set aside in order to facilitate the creation of industrial champions. On the contrary, correct application of merger control rules enhances the efficiency of industrial policies.

This blog is back

After three years of silence ... I have decided to start feeding this blog again, first by adding my most recent papers (and there have been quite a few lately), then by posting stories on antitrust developments.

Damien

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