02 April 2007

Discussion Paper in the Doldrums?

In 2005 the Commission announced a review of the application of Article 82 to exclusionary abuses leading to the publication of a Discussion Paper in December 2005. The gist of this was to move enforcement away from the current overly aggressive policy towards an approach based on 'mainstream economics'. Has the Court's recent judgment in Case C-95/04P British Airways v Commission (15 March 2007) killed the Discussion Paper off?

The case addressed BA's rebate scheme to travel agents. Virgin had complained and the Commission found an abuse even though Virgin's market share increased during the period the abuse was taking place. As I explain in Chapter 6 there are several policy reasons that animated the Commission's decision, not least the wish to liberalise air transport. The judgment of the Court is unremarkable, in that it confirms the more thorough analysis of the Court of First Instance, and in so doing confirms how easy it is to prove that rebates are abusive. The Commission needs merely to show that rebates have a loyalty effect, and a tendency that this will restrict competition, which is established by the first step in that competitors are selling less goods because the rebates make retailers loyal to the dominant firm. The burden of proof is very low. I think the Discussion Paper of 2005 would probably require somewhat more evidence before condemning rebates. So is the discussion paper dead after this judgment?

Advocate General Kokott
Her opinion is a must read. It is a reaffirmation of the 'ordoliberal' understanding of competition law, and agree with her or not, she makes a clear case for the status quo. Listen in particular to her general reflections on competition law:

68. The starting-point here must be the protective purpose of Article 82 EC. The provision forms part of a system designed to protect competition within the internal market from distortions (Article 3(1)(g) EC). Accordingly, Article 82 EC, like the other competition rules of the Treaty, is not designed only or primarily to protect the immediate interests of individual competitors or consumers, but to protect the structure of the market and thus competition as such (as an institution), which has already been weakened by the presence of the dominant undertaking on the market. In this way, consumers are also indirectly protected. Because where competition as such is damaged, disadvantages for consumers are also to be feared.

So antitrust in Europe protects an 'institution', or perhaps a market structure. In this light, BA's existing competitors form part of the institution that allows for competition in the airline market. This is not the language of mainstream economics the Commission wishes to embrace. Now track back and listen to her take on the Discussion Paper:

28. In this context it is immaterial how the Commission intends to define its competition policy with regard to Article 82 EC for the future. Any reorientation in the application of Article 82 EC can be of relevance only for future decisions of the Commission, not for the legal assessment of a decision already taken. Moreover, even if its administrative practice were to change, the Commission would still have to act within the framework prescribed for it by Article 82 EC as interpreted by the Court of Justice.

So basically, in her view there is no chance for the Commission to make any significant departure from the case law, since she is quite content that the current case law protects the 'institution' of competition.

The Court of Justice
There is slightly more hope for bits of the Discussion Paper to survive in the Court's judgment. At para.86 the Court accepts an efficiency defence designed along the lines of Article 81(3), which the Discussion Paper also envisaged. But even the Court at paragraph 106 backs up the Advocate General and decides that there is no need to prove consumer harm to find an abuse because an abuse is found when there is an impact on an 'effective competition structure.' And since loyalty rebates make retailers buy less of competitors' goods, market structure is affected.

One thought: in Oscar Bronner, the Court said that the defendant's alleged 'essential facility' was not essential because it was plausible for all competitiors to get together and design an alternative. Should the Court in rebate cases not take a similar line? BA can give deep discounts because of its financial strengths. But then can Virgin not enter into some sort of agreement with other airlines and offer packages of tickets to travl agents? Given that BA's maket share was 40% and falling, it should not have been too hard for say three airlines to offer some form of collective rebate to lure travel agents to promote their tickets. Instead, the law in this case is that no other company, idividually, has a big enough 'financial base' (para.76) to garnt rebates that compete with BA. This line seems to always favour small firms against big ones. As I argue in my book in chapter 5, dominance is too frequently associated with 'commercial power'. This is another manifestation of that approach.

In the national courts
Assume (as is expected) that the Commission publishes Guidelines on Article 82 this summer. Plaintiff wants to take a case in a national court for alleged abusive rebates. Does the national court apply the Guidelines (which may make life harder for plaintiff) or follow the case law? It seems to me that a national court will more likely follow precedent than a soft law measure. If so, even if the Commission follows its own guidelines and stops taking up the kinds of cases it took in the past, the current law on rebates may well live on in national courts.

It would be remarkable if national courts were to enforce Article 82 in one way and the Commission in another, but this is what you get when you try to reform hard law (cases) through soft law (guidelines). The Commission might have been better off admitting that its approach to Art 82 was wrong and start from scratch. But this was politically impossible because when the Discussion Paper was being worked on there were several significant cases going through the Courts (Michelin 2 and BA on rebates, Wanadoo on predatory pricing, and Microsoft on refusals to deal and tying...) With the case law still in development, should one not perhaps have waited before considering reform? (On this last point, and thinking VERY laterally, perhaps one can draw lessons from Giandomenico Majone's important critque of the European Union in his 2005 book Dilemmas of European Integration.)

3 comments:

Anonymous said...

The CFI's judgment can be said to endorse the Discussion paper's 'as efficient competitor' test, however.
Although I am sure you would retort that the Courts apply an 'as financially capable competitor test' what with BA's financial resources being so instrumental to its ability to grant generous debates.
Let's face it, in Europe big is bad.

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