Competition Law Board

Forthcoming Art 82 case

2009-05-12T21:13:00.002+01:00

Apparently tomorrow the Commission will issue its Intel decision. Anticipating a finding of abuse, there is a working paper anticipating the decision from the AAI, here.

Bar the size of the undertaking, I am not sure that this decision raises any big legal issues. What will be interesting to observe is how much more sophisticated the analysis will be. It seems the likely abuses are pretty standard exclusionary stuff designed to foreclose the entry of a particular firm.

Good luck to those who will read it - it will likely be as long as the Microsoft decision. Legal issues and analysis hidden/blurred by countless passages of technological information.

No recoupment in predatory pricing claims

2009-04-21T18:26:00.002+01:00

In France Télécom v Commission (Case C-202/07 P, judgment of 2 April 2007), the ECJ disagreed with the Advocate General and agreed with my earlier blog posting (I am under no illusion that the ECJ is aware of my blog) that recoupment is not a pre requisite for a finding of price predation. There are three salient points in this judgment.

1. Objective evidence of a plan to eliminate competition
The Court confirms that you can use an undertaking's internal documents to furnish evidence of a predatory strategy. Wrong, I think.

2. A restatement of Article 82 principles
Paragraphs 103-114 are at the heart of the issue under appeal and also offer a restatement of the ECJ's approach to Article 82. I leave it to others to reflect on how much the ECJ's view tallies with that in the Commission's Guidance Paper.

3. Recoupment
The basic reason why recoupment isn't needed is that the aim of Article 82 is to protect a competitive market structure. Thus harm to the competitive process, not harm to consumer welfare is the factor that motivates Article 82, contrary to the views of the Advocate General.
Unfortunately the Court also inserted paragraph 111 which says that the Commission may find a reason to use proof of likely recoupment in certain cases: (a) when pricing is below AVC and the defendant advances an objective justifictaion, the likelihood of recoupment may be used to deny the defence (highly unlikely); (b) when prices are below ATC and above AVC then proof of recoupment can serve to show that there is eliminatory intent. (This I think is wrong because it does not sit well with the principle that you want to protect the competitive process. Though you might argue that if one is keen to punish predation when it threatens the competitive process, any proof of a 'plan' to damage competition is unnecessary because it is a poor proxy.

The Speeches of Commisioner Kroes

2009-04-14T20:52:00.002+01:00

The speeches of Neelie Kroes are hard hitting and delivered with good humor. Of late the outgoing Commissioner has upped the entertainment value in her public pronouncements. Those wanting punchy quotes to adorn their essays would do well to look at the speech she gave on 30 March 2009 at the Economic Club of Toronto: 'The crisis and the road to recovery.' The layout is like a free verse poem, here are some of the more quirky lines:

"It may seem crazy to draw a line between this belief in a shared humanity and competition policy, but if you will indulge me – that is what I will try to do this morning." (candidate for a future exam question)

"Do we have complete answers to the current problems? No, I would be a rich woman if I did have the answers!" (not as good as the 'known unknowns' of another gifted speaker)

"We cut down the red tape and favoured pragmatism over some of the ideas and processes that had put competition policy in a ghetto marked 'for lawyers only'." (but a pretty well remunerated ghetto of practitioners)

"After four years – when the financial and then economic crisis hit - the systems were lean and fast and ready to deal with a moving target. It's an approach that Wayne Gretzky calls 'skating to where the puck is going to be, not to where it has been.'" (the speech has another quote from the great man, plus a reference to Margaret Atwood)

"We aren't about to let EU Member States create inefficient national champions so they can patch up their pride.
Nor do we want to see two struggling banks cripple each other through a botched merger, or create another bank that is 'too big to fail.'
So it is business as usual in merger control – for all our sakes."
(serious point here - line 2. The Commission does not necessarily have the power to prevent a merger that causes a bank to become too big to fail. Such a bank need not have market power but is so interconnected in the financial system that its failure would spell disaster across the banking sector. So, is she hinting that the Commission may be prepared to intervene in a case where the merger does not substantially impede effective competition but where the merged entity is too big to fail?')

'Tough love is certainly the way to describe our subsidy control in banking and other sectors.' (another future exam question)

'We are working like hell to make recovery happen in Europe.' (puzzled looks from the audience)

'I want us to be able to turn around and look our grandchildren in the eyes and say that we did the right thing by them. ' (audience by now wiping tears away)

France Telecom judgment in peril?

2008-09-26T13:16:00.004+01:00

Advocate Ganeral Mazák has issued a call for less aggressive use of predatory pricing in his Opinion of 25 September 2008 relating to the Wanadoo decision where the Commission found that the appellant charged predatory prices below variable costs (AVC) until August 2001, and above AVC but below average total cost (ATC) from August 2001 onwards, as part of a plan to pre-empt the market in high-speed internet access during a key phase in its development. However, I think his views should not be followed by the ECJ.

Essentially the appellant won on three grounds:
1) CFI failed to state reasons when commenting on a dominant firm's right to align prices
2) CFI falied to state reasons why recoupment need not be shown
3) Likely recoupment must be demonstrated by the Commission in predatory pricing cases

In addition the AG also said that in his view a dominant firm should, on occasion, be allowed to align its prices with those of competitors.

Each of these four conclusions can be criticised.

1) Failure to state reasons regarding the dominant firm's right to align prices to competitors.
The passage of the CFI under appeal is this: "WIN cannot therefore rely on an absolute right to align its prices on those of its competitors in order to justify its conduct. Even if alignment of prices by a dominant undertaking on those of its competitors is not in itself abusive or objectionable, it might become so where it is aimed not only at protecting its interests but also at strengthening and abusing its dominant position." [187]

The AG's criticism was scathing because the CFI did not apply this paragraph to the facts at hand. In his words the CFI "should therefore have assessed whether or not that (new) formulation applied to the facts in the instant case, something which it manifestly did not do." [49]
With respect, this is wrong. Look at the passage in bold above and the facts of the case. On the facts of the case the CFI ruled that the firm's condct was predatory (below AVC for a period and between AVC and ATC with intention for another period). Therefore the pricing fell squarely withing AKZO [71 and 72]. So the behaviour is in itself abusive. Accordingly there was no need for the CFI to assess the formulation. It is merely an obiter dicta as to what the law is.

2) Failure to state reasons about recoupment
Here the AG notes that in Tetra Pak 2 the ECJ held that proof of likely recoupment was unnecessary "in the circumstances of that particular case" and criticises the CFI for not expaining whether there are also circumstances in this case that allow a finding of predatory pricing without recoupment. [58-60 of the Opinion]
This is a plausible line of attack, but another view can be taken of what the CFI said. It is worth quoting the CFI in France Telecom at length:
226 In relation to the recoupment of losses, the Court of Justice (in Tetra Pak 2) added, in paragraph 44 of that judgment: ‘[I]t would not be appropriate, in the circumstances of the present case, to require in addition proof that Tetra Pak had a realistic chance of recouping its losses. It must be possible to penalise predatory pricing whenever there is a risk that competitors will be eliminated. The Court of First Instance found, at paragraphs 151 and 191 of its judgment, that there was such a risk in this case. The aim pursued, which is to maintain undistorted competition, rules out waiting until such a strategy leads to the actual elimination of competitors.’
227 In line with Community case-law, the Commission was therefore able to regard as abusive prices below average variable costs. In that case, the eliminatory nature of such pricing is presumed. In relation to full costs, the Commission had also to provide evidence that WIN’s predatory pricing formed part of a plan to ‘pre-empt’ the market. In the two situations, it was not necessary to establish in addition proof that WIN had a realistic chance of recouping its losses.

So the reason why in Tetra Pak 2 proof of likely recoupment was unnecessary was because the Commission had proved that there was a risk that a competitor would be eliminated. This means that the risk that a competitor would be eliminated by predatory pricing one relevant circumstance when proof of likely recoupment is unnecessary. And at [227] the CFI gives reasons in conformity with this because the facts showed that the competitor was put at risk.

Of course you can argue that this is a bad reason. It is bad because it means that as soon as you satisfy the conditions set out in AKZO [71 or 72] then you have shown a risk of elimination and so you never need recoupment. But then perhaps this is what AKZO actually stands for (see below)

3) Likely recoupment in predatory pricing cases
This point is the most relevant for future cases. The AG takes the view that "case-law requires the possibility of recoupment of losses to be proven." [69] The reasoning is based on the fact that because the ECJ in Tetra Pak 2 said that proof of likely recoupment was unnecessary on the facts of that case, that it must mean that as a general rule proof of likely recoupment is necessary.
I think this is wrong. The bold part of para 44 of Tetra Pak 2 (see above) tells you that the rationale for penalising predtory pricing is to avoid the risk that a competitor is eliminated. Therefore whether the dominant company recoups or not is unnecessary, it is the risk to competitors that is the Court's concern.

The AG says that proof of likely recoupmet is supported by AKZO [71]. Let us consider this passage in full:
"Prices below average variable costs (that is to say, those which vary depending on the quantities produced) by means of which a dominant undertaking seeks to eliminate a competitor must be regarded as abusive. A dominant undertaking has no interest in applying such prices except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, since each sale generates a loss, namely the total amount of the fixed costs (that is to say, those which remain constant regardless of the quantities produced) and, at least, part of the variable costs relating to the unit produced. "

The passage in bold would seem to me to indicate that there is a presumption that recoupment is likely if a firm prices below cost. A presumption that does not therefore require the Commission to show likley recoupment. But, perhaps, a presumption that may be rebutted by the dominant firm who could try and say that recoupment is unlikely because, for example, it is selling off old stock.

Nor does Hoffmann La Roche [91] support the necessity of recoupment, quite the opposite: it supports a finding of abuse whenever the degree of competition in the market is hindered. This occurs once the rival leaves.

One can however feel for the AG because he aligns himself with the views of AG Jacobs in Bronner that the purpose of Art 82 is to protect consumers, not individual competitors. However not all Advocates General believe this (see AG Kokott for instance).

4) Price alignment by a dominant firm
Should a dominant firm be entitle dto align its prices with those of competitors? The plea is inadmissible, but the AG suggests that "one should allow for circumstances where a dominant undertaking is exceptionally permitted to show that its pricing below average variable cost is objectively justified. " [95]
True, most commentators would say that one such circumstance is when the dominant firm is selling off old stock. The difficult question is whether the dominant firm should do this when it is doing so with the clear intention of damaging a new entrant in a market where it was the incumbent for many years.

Summary
The AG is calling for a major change in the law on below cost pricing, by placing a greater focus on the impact on consumer welfare and less on the economic freedom of market participants. The problem is that the case law which seemingly creates the basis for this shift does not support it. AKZO and Tetra Pak 2 are clearly cases where the dominant concern is the preservation of rivalry, of a competitive process. The radical change called for here should be made by advising the Court to change its approach rather than by asking the court to reinterpret its case law.

I hope the ECJ does not follow the AG on the first two points, the CFI gave reasons that can be understood. That they are bad reasons is another matter, so perhaps the ECJ could require proof of likely recoupment. Though it might want to note that the requirement to show this in the US has led to no successfu predatory pricing prosecution as far as I know. Is the ECJ so Chicagoan to want this result?

Limits to Competition

2008-05-04T21:24:00.004+01:00

A peculiar leader in The Guardian of 26 April 2007, When Low Prices Come a a Cost. Commenting on the OFT's recent investigation of price fixing in tobacco and the Competition Commission's emergent thinking on BAA (holder of exclusive rights to several UK airports), it notes how while competition law enforcement might reduce prices and increase consumption, there is a doubtful public interest in encouraging smoking and more flying. It suggests that sometimes competition enforcement that is blind to the negative spillovers of the market being regulated might need tempering. Three responses are possible:
1) Rubbish: it is up to other regulatory fora to deal with the externalities directly.
2) Agreed, and the solution is to give the competition authority a degree of prosecutorial discretion where it can choose not to take a case where the overall balance of the result is negative - so prosecute a cartel in vitamins but not one in the tobacco market. (But a weak line of argument.)
3) Agreed, bu in UK competition law the Competition Act 1998 provides for how this kind of issue should be dealt with. Schedule 3, Paragraph 7 Competition Act 1998 empowers the government to determine that the applicaion of competition law to a given sector can be excluded when 'exceptional and compelling reasons of public policy' exist.
(a) An existing exclusion exists in the context of firms involved in the the development of 'complex weapons', the Competition Act 1998 (Public Policy Exclusion) Order 2007.
(b) The government appear to be considering an exclusion for off licence shops to allow them to compete less aggressively as a means of reducing alcohol consumption, or to allow supermarkets to collude to agree to stop heavy discounts. (Can anyone find some of the Home Office or Dept of Health studies upon which these proposals are based?)

Two questions about this legal basis:
(i) is an exclusion compatible with EC competition law? (cf. Article 3, Regulation 1/2003, internal market laws, Arts 3(1)(g), 10 and 81 EC).
(ii) can the government really secure an exclusion to allow alcohol retailers to restrict competition? Is public health comparable to military security as a public interest ground?

Wanted: Cartels - reward £100,000 (maybe)

2008-04-19T11:09:00.004+01:00

The OFT has recently announced that it is prepared to offer financial rewards of up to £100,000 (in exceptional circumstances) for information about cartel activity.

The sceme is innovative. In the literature I think some had suggested paying the firms, but this scheme is more clever because it pays individuals. Two problems strike me in reading the OFT announcement.

1) The award is entirely at the discretion of the OFT - there may be no investigation if the OFT decides it is not a priority case (no investigation, no reward); and the level of the award is up to them. From an economic analysis of incentives the certainty of a good reward is what gets people interested in taking a risk, so perhaps the OFT is too stingy.
2) The intersection between leniency policy and this 'bounty' scheme. The OFT says that an employee who is involved in the cartel will not (normally) get a bounty but should apply for leniency. But then this is qualified further by suggesting that employees with peripheral involvement with a cartel may get a bounty anyway. Given that leniency works well, do we really want to mess with it?

There is obviously a third risk: revenge. The name Stanley Adams comes to mind, see here for more detail. And there is a good book too: S. Adams Roche v Adams (Jonathan Cape, 1984) which was then made into a film, A Song for Europe, starring David Suchet.

One wonders whether an employee's best interests are to report the cartel to his manager, so that he helps the company deal with the cartel in the best way possible (e.g. apply for leniency etc.) The rewards of such loyalty may be worth more than the uncertain bounty coupled with the risks inherent in calling the OFT.

Snails in Bottles

2008-04-11T12:46:00.003+01:00

After two heavy postings, here is something lighter, and not competition law related; the future of law assignments maybe?

Donoghue v Stevenson

If you aren't an English or Scots lawyer, this is the case being discussed.

Parallel trade in pharmaceuticals and the quixotic search for meaning in Article 82

2008-04-10T09:26:00.004+01:00

On April Fools' Day Advocate General Colomer delivered his Opinion in yet another variation of the GlaxoSmithKline parallel trade saga (Joined Cases C-486/06-C-470/06). The English translation is not yet out, I have had a go at translating a few key passages below. You can get other language versions at the European Courts' website.

Background
This time GSK's refusal to provide Greek wholesalers with sufficient medicines to allow them to export these abroad to Member States where the price is higher was challenged in the Greek courts as an abuse of a dominant position. This dispute had been aired before in Case C-53/03 when the Greek competition authority referred a number of question to the ECJ on the application of Article 82. The ECJ then refused to answer them ruling that the Greek competition authority was not entitled to make a reference. However AG Jacobs had delivered a strong Opinion on the merits of the issues, and it is the merits that AG Colomer also addresses. It will be useful to compare the approaches of the two Advocates General.

1. Refusal to supply as an abuse (paras 39-46)
The AG rightly notes that the closest precedents are two old cases, Commercial Solvents and United Brands: (a) like the facts at hand, there was a refusal to continue to supply (not a refusal ab inito), (b) like in Commercial Solvents whose termination was followed by its entry in the downstream market, GSK had reorganised its sales through its exclusive distributor in Greece; (c) United Brands set out a principle that a dominant firm cannot terminate a contract with a long-standing client whose orders are not abnormal. Drawing these strands together at para 46: "... we can infer that an undertaking holding a dominant position that refuses to supply goods - especially in the absence of alternative products..., reserving to itself the market for parallel imports adops a form of behaviour that is an abuse under Article 82."

This passage is closer in spirit to Commercial Solvents than United Brands. This is to be welcomed because the ratio of United Brands is more akin to a contract doctrine than a competition law rule. The AG instead notes that the refusal to continue to supply has an adverse effect on the market for parallel trade. (We can debate whether this is an adverse effect but at least he looks for one...). Note also that the passage requires that the dominance held is significant - the wholesaler must be unable to find a substitute. This is different from United Brands where Olesen could easily find alternative suppliers of bananas. So market definition is crucial.

2. Intention and abuse (paras 47-54)
This is a strange part of the Opinion. The AG starts by noting that abuse is an objective notion but this is subject to two important aspects: (1) subjective elements can indicate that the dominant firm is pursuing ends contrary to competition; (2) (with reference to British Airways)since Article 82 does not contain any reference to the anticompetitive effect of the practices, it is sufficient to show that the abusive conduct tends to restrict competition, or in other words can have anticompetitive effects. I don't see how point (2) has to do with intent; nevertheless the AG continues to say that GSK never denied that its real objective was to eliminate parallel exports and (paras 53-54): "It is obvious that the intetion of GSK is in contrast with the obectives of the Treaty, because it affects the freedom of trade among Member States in a manner that can damage the internal market, according to the case law and Article 3(1)(g) EC, because it indisputably isolates national markets and modifies the structure of competition in the common market. In sum, these observations show that GSK has committed a grave violation of the Treaty that would deserve the label of an abuse 'in itself and per se' given that the basis of the behaviour has no other economic foundation than the intetion of elimitaing parallel trade from its competitors, the Greek wholesalers."

This analysis is unnecessary but the AG is obviously keen to participate in the debate on the reform of Article 82, so he has a go here at doing two things: first it seems he tries to find a role for intent to reconcile the case law; and this is to be welcomed, esp in that the observation about 'gravity' might suggest that intent is relevant also to the fine imposed. But second he seems to be crafting a theory of abuse akin to the 'no economic sense' test by which conduct is an abuse if it is not rational for the defendant absent a tendency to eliminate competition. (See
Gregory J. Werden 'Identifying Exclusionary Conduct Under Section 2: The "No Economic Sense" Test' (2006) 73 Antitrust Law Journal 413). I don't know if he intended to do this or not, but if he did, then it seems to run against the Commission's view in the Discussion Paper on Article 82 that seemed to apply an 'as efficient competitor' test to determine abuse (at least for predatory pricing, see para 63).
Also interesting how the AG construes the market relations: he treats GSK and the wholesalers as competitors in the market for selling pharmaceuticals to health care providers. So the abuse harms intra-brand competition. This is obviously a concern when there is an absence of inter-brand competition. But this has nothing to do with intent, instead it has to do with effects. Would it not be better to ground abuse on anticipated effects than upon intent?

3. No per se abuse (paras 62-77)
First the AG notes that the case law seemed to have classified three abuses as per se unlwful (exclusive dealing, loyalty rebates and predatory pricing under the AKZO rule), but that the more recent case law (British Airways) suggests that firms may offer justifications even for what may be per se abuses (loyalty rebates in that case). So the question of whether any practice is abusive per se is open. He then quickly shuts the door on any suggestion that we should develop a category of per se abuses, on legal and economic grounds.
Legal grounds: the absence of a provision for exemption like Art 81.3 meants that (para 67): "the analysis of abusive behaviour reqires a dialectical debate between the dominant undertakings and the competent authorities, whether national or EC, and also interested parties. ... (para 69): "In this scenario if certain behaviour were always togive rise to an irrebuttable presumption of abuse, dominant firms would be denied the right of defence."
Economic grounds: (1) per se abuses would be contrary to the need to examine each case on teh basis of its economic context; (2) the approach would commit the 'sin' of 'excessive formalism' (para 72). There is a third ground at para 74-5 which is somewhat opaque and possibly circular and seems to say that because there are two types of abuse (exploitative and exclusionary) and there is no hierarchy, the defence for a dominant firm must be based on the economic effects.

I disagree with this analysis. Per se abuses can be useful as a time saving device: granted we can formalistically condemn some efficient behaviour but the reason we put behaviour in a per se illegality box is because experience teaches us that normaly such behaviour is harmful and it is cheaper to condemn some procompetitive behaviour than run a full scale economic inquiry in all cases. The sound administration of justice can sometimes justify denying defendants a right to offer a justification, after all any legal system tolerates strict liability rules. A contrario we should also tolerate safe harbours, or per se legality.

4. Objective justification (paras 78-119)
This is the good bit. We start with something remarkable at para 79: "There are three justifications that can be invoked by firms in a dominant position that are accused of abuse: reasons related to the market in which they operate; legitimate defence of their commercial interestsl and proof of a positive balance." The first one is related to one suggested in the Discussion Paper (para 80 thereof) but the AG wants to widen it. This is remarkable because it is a bold, exhaustive formulation of what objective justification means which seems to be wider than the existing jursprudence.

(a) market conditions: The suggestion is that the Court should be willing to take into consideration the way in which a market is regulated (e.g. here the fact that prices are fixed by Member States and that there are statutory requirements about the quantity of medicine that should be available). The AG says this can be a plausible defence but it fails on the facts because while prices are set by the Member State, the undertakings are involved in discussions over price, and the obligation to keep minimum quantities does not explain the refusal to deal with wholesalers. (This defence seems to be a variation of the state action defence whereby if the Member State requires an infringement, then the undertaking is not responsible (the MS is under Arts 10 & 81/82)).
(b) defence of legitimate interests: This is apparently a well defined defence (para 99, exemplified by BP v Commission and United Brands) but this is subject to the principle of proportionality. I prefer to see BP as a case of force majeure, see Ekaterina Rousseva's analysis. This line of cases is applied to the following argument: that parallel trade reduces the profits of pharmaceutical companies and this does not allow them to recoup the R&D expenditures. On the facts this is rejected for lack of evidence of a causal link between parallel trade and the damage to the firm's profits. Also it is suggested that GSK could have chosen a different method of distribution, full vertical integration, which would then perhaps not have constituted an abuse. Further, it is argued that this line of argument is more about the incentive effects (that is, parallel trade may dent the incentives to invest in future medicines), but this is rebutted by stating that the EU offers a friendly environment for firms and R&D...
(c) positive economic balance: this is an efficiency defence, and GSK raises the argument that parallel trade does not benefit patients, nor the health service providers who buy medicines, but only serves to benefit the wholesaler. The response is amusing (para 118): "Aside from the description of the 'horrors' provoked by parallel trade, GSK does not indicate any positive aspect resulting from its decision to limit supplies to wholesalers save the recovery of its profit margins, something which is irrelevant." And so this fails for lackof evidence.

Brief comments: first it is nice to see a willingness to develop the law, especially on defences but also (see above parts 2 and 3) on theories of abuse the AG seems to be happy to give dominant firms a chance to prove they are not guilty but the scepticism over the arguments of GSK is a matter of concern, perhaps the national court will have a different view of the evidence. However the concern si that there are defences in theory but not in practice. Second it is unfortunate that the AG does not engage directly with the contrasting Opinion of AG Jacobs (who has slightly different views on the role of intention, a more subtle way of integrating defences (see para 72), and diametrically opposite views on the merits of the justifications proffered by GSK); third I think categories (b) and (c) of the defences are overlapping, it is best to treatthe cases in (b) as instances where the dominant undertaking is faced with no choice but to terminate, so leaving all the economic cost-benefit arguments for the efficiency defence. Moreover I think if you look at the three defences separately you miss the point of GSK's argument - It is a combination of the arguments in the three categories that gives rise to the defence, AG Jacobs' Opinion had recognised this. Accordingly I feel that the analysis of defences is flawed, and the Opinion does not solve the mysteries of Article 82.

White Paper on Damages Actions for Breach of the EC antitrust rules

2008-04-07T15:28:00.003+01:00

On 2 April 2008 the Commission published a White Paper on Damages Actions for Breach of the EC antitrust rules. COM (2008) 165. It is accompanied by a more detailed Commission Staff Working Paper on Damages Actions for Breach of the EC antitrust rules SEC (2008) 404 and an Impact Assessment Report SEC(2008) 405. All three documents are available at: http://ec.europa.eu/comm/competition/antitrust/actionsdamages/documents.html).

It begins by recalling the findings of the 2005 Green Paper that the dearth of private litigation is caused by ‘legal and procedural hurdles’ in Member States and that the primary objective of the White Paper is to lower these hurdles, guided by three principles: full compensation (inherently this leads to greater deterrence); that the legal framework should be based on a genuinely European approach, so the proposals are ‘balanced measures that are rooted in European legal culture and traditions’; and to preserve strong public enforcement so that damages actions complement public enforcement. A brief comment on these three principles is warranted before considering the proposals. The first one confirms the views of some scholars that the action for damage is premised primarily upon the principle of corrective justice and not on optimal deterrence. This means that preference is given to allow as many claims as possible rather than restricting claims to those plaintiffs whose lawsuits are most likely to deter future anticompetitive conduct. The second is designed to allay fears of a US-style approach so there are no proposals for punitive damages, class actions, contingency fees or other procedures that would jar with established civil law cultures. The third is a recognition that that too much private enforcement can undermine the Commission’s leniency programme: if a firm applies for leniency but is then liable to pay considerable sums in damages, it may decide to keep its involvement in cartels secret.

Turning to the detail, the White Paper addresses the following issues:

Indirect purchasers have standing to seek damages because this is now part of the acquis communautaire, following Manfredi. It means that for example, in a cartel in the cement market where a building company buys from the cartel and passes some of the price increase to the buyer of the buildings, the latter as an indirect purchaser is entitled to damages. No legislative measure on this point seems to be envisaged.
Collective redress should be facilitated because often the harm is diffuse (as in Manfredi, several hundred people are victims of a cartel but each loss is relatively small). Two mechanisms are proposed: (i) representative actions brought by qualified entities (e.g. consumer associations) and (ii) opt-in collective actions whereby plaintiffs can decide to combine their claims in one single action.
To facilitate access to evidence national courts should be empowered to order the defendant to disclose certain evidence (only when specific conditions are met, e.g. the inability to secure the evidence by other means, that specific categories of evidence are identified and that the disclosure is relevant to the case, necessary and proportionate). This should be coupled with penalties if the defendant refuses to comply, including the option to draw adverse inferences from the refusal.
National courts should be bound by findings of any national competition authority in the European Competition Network. This would allow a follow-on claim for example in a Slovenian court after the UK competition authority reached a final decision.
A defendant should be liable for damages unless he proves that the breach was caused by a ‘genuinely excusable error.’ An error is excusable if ‘a reasonable person applying a high standard of care could not have been aware that the conduct restricted competition.’ This is designed to harmonise different approaches in Member States as to the presence of a fault requirement and is said to be in line with the principle of effectiveness.
Codification of the scope of damages is recommended, to clarify that damages can be claimed for: (i) actual loss, and (ii) loss of profits resulting from any reduction in sales. Further a soft law instrument is proposed with ‘pragmatic guidance’ to quantify damages with simplified rules on estimating loss.
In claims by direct purchasers, the defendant should benefit from the passing-on defence so that a claimant who has bought goods from a cartel at a higher price but has mitigated this loss by passing the excess price to downstream buyers would see his damages claim reduced, otherwise he would be unjustly enriched. (So for example if the cartel causes the price to rise by €2 and the claimant resells the goods to the indirect purchaser at a price that is €1 higher than before the cartel, he has passed on half of the overcharge, so damages would be €1, not €2.). But the burden of proof is on defendant to show that claimant has passed on (some of) the overcharge, which seems a tricky burden to satisfy.
To facilitate claims by indirect purchasers, these ‘should be able to reply on a rebuttable presumption that the illegal overcharge was passed on to them in their entirety.’ (page 8) On the example above therefore the indirect purchaser is entitled to make a claim of €2 even if only a €1 overcharge was passed on to it. This is justified by indicating that indirect purchasers would otherwise find it too hard to prove the existence and extent of the passing on, but it is not particularly fair to ask the defendant to show how much of the higher costs were absorbed by the direct purchaser, so this proposal seems to lead to over compensation of indirect purchasers.
There are two proposals on limitation periods. The most significant is that in cases where anticompetitive activity is subject to public enforcement, a new limitation period of at least two years starts once the competition authority’s infringement decision becomes final. The second is that a limitation period in other instances should not begin to run before the day on which the infringement ceases (even in cases of continuous or repeated infringement) and not before the victim can reasonably be expected to have knowledge of the infringement and of the harm it caused. The duration of this limitation period is not harmonised.
Member States should reconsider their cost allocation rules to ensure that these do not put off meritorious cases, settlements should be considered, as well as limits on court fees, and cost orders that do not always make the losing party bear all the costs of the winning party.
To safeguard the attraction of leniency programmes: the confession made should not be disclosed before or after the adoption of a decision to ensure that the information supplied to the competition authority is as complete as possible, and the Commission considers that those who receive immunity should only face claims from direct and indirect contractual partners, so that by reducing the financial impact of damages claims leniency applications continue to be made. Two comments are warranted on the second proposal: first this qualifies the ECJ case law giving anyone a right to damages in all cases, second given that the defendant is liable to both direct and indirect purchasers (and so merely avoids claims by competitors) it is hard to see that this proposal actually reduces the amount of damages that the defendant would pay.

It will have become apparent that the White Paper is not a blueprint for a single legislative instrument: some of the proposals are recommendations for Member State action (on costs), some are suggestions for soft law instruments (on calculating damages) and some for discrete legislative tools whether directives (on representative actions) or Regulations (on the function of the passing on defence and the fault requirement). (On this, see also A.P. Kmoninos ‘Enter the White Paper for Damages Actions: A First Selective Appraisal’ (4 April 2008) available at http://www.globalcompetitionpolicy.org/)

The Commissioner for competition, Neelie Kroes said that ‘[t]he suggestions in this White Paper are about justice for consumers and businesses, who lose billions of euros each and every year as a result of companies breaking EU antitrust rules. These people have a right to compensation through an effective system that complements public enforcement, whilst avoiding the potential excesses of the US system.’ While the proposals seem well designed to achieve this, from the perspective of tort law, seeing rules designed to facilitate claims by victims of economic losses over other tort victims cannot be justified so easily (e.g. the difficulties faced by victims of asbestos exposure). What makes antitrust victims so deserving? The Commission’s justification seems to be that the estimated cost to antitrust victims ranges between €25 to €69 billion, and that ‘EU-wide infringements are becoming more and more frequent.’However this second finding is troubling: given that Regulation 1/2003 was designed to strengthen antitrust enforcement, has there been a failure of public enforcement? And if so might resources not be best allocated at that end?

Aftermarkets Discussion

2007-10-26T09:26:00.000+01:00

Read: Eastman Kodak Co v Image Technical Services Inc 504 US 451 (1992)

Please enter a brief discussion addressing one or more of these points.
1) who defined the market correctly in your view, the majority or the dissent? Should competition law bother with aftermarkets?
2) How would the EC Commission have defined the market applying the 1997 Notice? The OFT with its market definition procedures?

Book's Out

2007-10-10T12:46:00.000+01:00

Apologies for taking a long summer holiday with the blog. Normal service shall resume now that term has started.

The book aorund which this blog rotates is now out, you can buy it from the publisher (Cambridge University Press) and also Amazon (cheaper from Amazon). I am sure there is more intra-brand competition from retailers, if anyone knows where the book can be obtained more cheaply, do write a comment here and tell others - market imperfections can always be cured by savvy consumers.

Each post is usually earmarked with the relevant chapter of the book, I hope that helps. From time to time I will note specific pages which a posting updates too.

As always, comments on how I might improve this blog are welcome.

The End of Competition Part 2

2007-06-27T21:40:00.000+01:00

More on the politics of the Brussels summit. I have found a press conference held by President Sarkozy which is illuminating and I am just translating the juicy sound bites here.

In his speech, speech the President made the following comments:
“we have obtained a major reorientation on the objectives of the Union. Competition is no longer an objective of the Union or an end in itself, but a means to serve the internal market.’

‘the place of public services in Europe has been recognised and consecrated by a protocol that specifies that they play a major role, that the Europeans are attached to them and that their organisation is first and foremost, for the Member States. It is for another place to place this in harmony with competition, as a means and not an end in itself.

In the Q&A this exchange is interesting:

Question: To return to the objectives of the EU, on competition and the protection of citizens: what do these changes mean exactly in the daily life of the French and or the Europeans?

Answer: This perhaps gives a little more humanity to Europe. Because as an ideology, as dogma, what did competition give to Europe? It has give less and less to the people who vote at the European elections, and less and less to the people who believe in Europe. There was perhaps a need to reflect. I believe in competition, I believe in markets, but I believe in competition as a means and not an end in itself. This may also give a different legal direction to the Commission. That of a competition that is there to support the emergence of European champions, to carry out a true industrial policy. ….

It was not a question of making an economic Treaty or a liberal Treaty and explain it to the citizen. It was a question of turning our backs to ideology, dogma ad naivety.

Therefore, of course we can consider this doing politics. But precisely because we are political leaders, and it is perhaps because we have not done enough politics in Europe that we find ourselves in a Europe that people do not recognise themselves in anymore. From this perspective, I put pressed, with my friends, that France and The Netherlands were not late, that what happened to us could happen to others. In fact I find that [our decision] is an extremely important awakening. We are in a country which voted ‘no’ and it was a way of saying to our colleagues and friends in Europe: ‘wake up, you must see things differently.’ We have shown that this was possible even among 27 [member states] without leaving anyone behind…

The Commissioner for competition did not quite see eye to eye with these assertions.

Statement by European Commissioner for Competition Neelie Kroes on results of June 21-22 European Council - Protocol on Internal Market and Competition
An Internal Market without competition rules would be an empty shell - nice words, but no concrete results.
The Protocol on Internal Market and Competition agreed at the European Council clearly repeats that competition policy is fundamental to the Internal Market. It retains the existing competition rules which have served us so well for 50 years. It re-confirms the European Commission's duties as the independent competition enforcement authority for Europe.
Now I would like to get back to the job. The Commission will continue to enforce Europe's competition rules firmly and fairly: to bust cartels and monopolies, to vet mergers, to control state subsidies. That is in the interests of our Internal Market. It is in the interests of European citizens and consumers, it is what Europe's business community quite rightly expects and deserves, and it is a firm foundation for Europe's prosperity, notably by ensuring fair conditions for international investment.

Reform of the EC Treaties

2007-06-27T21:18:00.000+01:00

Some more clarity has emerged about the Treaty amendment. The official resource is the Presidency Conclusions of 23 June 2007. Essentially there will be a Reform Treaty that amends both the Treaty of European Union and the EC Treaty. The TEU will remain as named, and the EC Treaty will be called the Treaty for the Functioning of the European Union (TFEU). The Treaty will be ready by the end of 2007 and in force by, I think, 2009. Then the Community will be known as a Union for all its activities.

For competition lawyers the key changes are twofold.

First, the ‘end of competition’
The TEU will have a general article at the beginning about the ambitions of the Union (Article 3). This was supposed to contain some reference to undistorted competition, but it has now gone. However, I understand that in the TFEU there will still be an Article 3 (which lists the tasks of the Union) and this will include Art 3(1)(g) which states that one of the tasks is establishing a system where competition is not distorted.

Article 3(3) TEU is the section where I think the reference to competition was deleted. This is the wording as it stands (and apparently ‘undistorted competition’ should have followed after the ‘internal market’ phrase.

“The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.”

The reference to competition is relegated to a Protocol on internal market and competition“The High Contracting Parties, considering that the internal market as set out in Article 3 of the Treaty on European Union includes a system ensuring that competition is not distorted
Have agreed that, to this end, the Union shall, if necessary, take action under the provisions of the Treaties, including under Article 308 of the Treaty on the Functioning of the Union."

Is the deletion of competition significant? If you read the current version of Article 2 EC (which lists the Community’s tasks) as it stands, there is no reference to competition there either. From this perspective competition was never a basic ‘task’ (old Art 2 EC) and is now not an ‘objective’ (new Art 3 TEU). So all those press comments that competition was removed after 50 years are wrong. Competition was never a key objective, only ever a job the Community had to do. Accordingly, the deletion from the draft is a political gesture so that President Sarkozy can tell the French public that the Reform Treaty, unlike the Constitution, is not about importing Anglo-Saxon capitalism. (The fact that the Constitution did not have competition in its aims either is conveniently ignored).

An alternative interpretation (as I suggested in the earlier post) is that the ECJ sees this as a way of rethinking its deontological approach and becomes less daring in extending the law in cases of ambiguity, and perhaps even begins to accept more public policy considerations such as those listed in Article 3(3). But then, as I said above, since there is no substantive change from the new and the old Treaty why should the court change its stance?

The protocol is a messy compromise – competition is ‘subsumed’ into the internal market (if you are familiar with the Guidelines on 81(3) you will see that subsuming is something which the Commission likes to do!) but I don’t get the reference to Article 308. Anyone care to explain? (The only reason I can come up with is that legislation under Art 308 can only pass if it is designed to reach the objectives of the EC and so while competition is not an objective, it is possible to invoke Art 308 to inject more competition in the EU). Has this been done in the past?

Second, a protocol on services of general interest
The current wording is below. There is so much verbiage on this topic but does it mean anything in practice? Article 16 so far seems to have had little impact. So, more pretty language of political value but scant legal interest.

Protocol on services of general interestThe High Contracting Parties, Wishing to emphasise the importance of services of general interest
Have agreed upon the following interpretative provisions, which shall be annexed to the Treaty on European Union and to the Treaty on the Functioning of the Union:
Article 1
The shared values of the Union in respect of services of general economic interest within the meaning of Article 16 EC Treaty include in particular:
- the essential role and the wide discretion of national, regional and local authorities in providing, commissioning and organizing services of general economic interest as closely as possible to the needs of the users;
- the diversity between various services of general economic interest and the differences in the needs and preferences of users that may result from different geographical, social or cultural situations;
- a high level of quality, safety and affordability, equal treatment and the promotion of universal access and of user rights;
Article 2
The provisions of the Treaties do not affect in any way the competence of Member States to provide, commission and organise noneconomic services of general interest.

The End of Competition?

2007-06-22T21:51:00.000+01:00

Breaking news, the EU's committment to 'undistorted competition' looks likely to disappear if the revised Treaty is agreed during the German summit. Excellent coverage in the peerless Financial Times suggests that this is President Sarkozy's doing (funny that, he is supposed to be a right-winger elected on a reform ticket) who was still upset by his clashes with the Commission when he tried to bail out French firms.

This could be significant because of the European Court often referring to the basic principles of EC Law found in the foundational articles in order to interpret EC Law, the so called teleological interpretation (purposive interpretation for the common lawyers). Surely the court cannot but be persuaded that if competition was an objective under the old Treaty, its disappearance indicates that the Court should depart from some of its basic principles. The Daily Telegraph reports fears that this chips away at one of the few good things the EC was actually good at.

However, according to the British (who apparently traded this concession for something else) this is just cosmetic, see Spiegel Online. This is also how the issue is seen by the Commission, who suggest that this would not affect the key role competition plays.

We will have to see the text of the Treaty as a whole before being certain of what this all means, but this goes to show how the pendulum can swing quite quickly from the Lisbon agenda and Mario Monti's DG Competition promoting competition and today's increased protectionism.

Proving conspiracy

2007-05-25T15:45:00.000+01:00

In Bell Atlantic et al v Twombly et al handed down on 21 May 2007 the Supreme Court explained what a plaintiff must plead in order to bring a claim under s.1 Sherman Act. The Federal Rule of Civil Procedure 8(a)(2) requires "a short and plain statement of the claim showing that the pleader is entitled to relief." The Court (7-2) considered what sufficed and according to the dissent it made claims more difficult.

The facts are easily stated but we need a little background. The liberalisation of the telecommunications market in the US occurred in two stages. In the first stage the market was divided up and a competitive market created for long distance phone calls, while the market for local calls was left with regional monopolies (colloquially the Baby Bells). The Baby Bells were not allowed access to the long distance market. The then Telecommunications Act 1996 made two changes: (1) it abolished the Baby Bell's monopolies and gave entrants strong access rights to use the Baby Bells' facilities to enter the local market and (2) as a qui pro quo it allowed the Baby Bells (Now called ILECS - Incumbent Local Exchange Carriers) to enter the long distance market.

The defendants here are the ILECS. The plaintiffs are clients of some of the firms that had tried to enter the local markets (Competitive Local Exchange Carriers, CLECS). They alleged a conspiracy by the ILECS that had two strands: first the ILECS agreed to make life difficult for new entrants by making access to their networks expensive (here recall the Trinko case of 2004), second the ILECS agreed not to compete against each other, so that an ILEC in one part of the US agreed not to try and compete against another ILEC. The plaintiffs alleged that without this conspiracy the market would have been more competitive, they would have got cheaper telecommunications services and so suffered antitrust injury as a result of this conspiracy.

All well and good, but did the plaintiffs have any evidence to prove this? They had an interesting statement by the Chief Executive Officer of one of the defendants, who said that competing with another ILEC "might be a good way to turn a quick dollar but that doesn't make it right." Have we got enough here to bring a claim?

The majority said no. In line with the earlier case law, parallel behaviour is not sufficient on its own to prove that there is a conspiracy. From a procedural point of view, the Court said that the plaintiff must bring to the table more than an allegation of conspiracy, but some facts to show that the claim is not speculative, which would then entitle the plaintiff to discovery. But mere allegations based on parallel behaviour will not do.

In reaching this decision the Court was influenced by the size of this lawsuit it was a class action by 90% of the subscribes to local telephone or high speed internet against the largest telecommunications firms, for a 7 year conspiracy. The Court feared that if this case was allowed to proceed that the costs of discovery would be too high to bear and discovery too expensive to manage. So here is a tradeoff between the cost of litigation and the benefit of a successful claim. The Court's judgment has been described as a major win for defendants, especially corporate defendants.

This is probably a most significant judgment and it will be interesting to see how it affects stand-alone private litigation. If, before getting the right to discover evidence of a conspiracy you must already have some evidence, does it not create a Catch-22? (Obviously most corporations are sufficiently savvy to avoid placing in the public domain any confession of an agreement, so where is the plaintiff to get his evidence from?)

One small point which might go plaintiff's way is the reasoning of the Court when it considered the fact that the defendants did not try and compete against each other. The Court said: "In a traditionally unregulated industry with low barriers to entry, sparse competition among large firms dominating separate geographical segments of the market could very well signify illegal agreement, but here we have an obvious alternative explanation. In the decade preceding the 1996 Act and well before that, monopoly was the norm in telecommunications, not the exception. The ILECs were born in that world, doubtless liked the world the way it was, and surely knew the adage about him who lives by the sword. Hence, a natural explanation for the noncompetition alleged is that the former Government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same thing." So does this mean that if we find a scenario where say builiders based in Camden regularly refuse to carry out work in Westminster (these are London boroughs) and vice versa, that we have enough evidence to commence a trial?

The Court was not impressed with the CEO's statement either, and quoted this passage which I think is a helpful reminder that not everything that looks inefficient is anticompetitive: “[f]irms do not expand without limit and none of them enters every market that an outside observer might regard as profitable, or even a small portion of such markets.” Areeda & Hovenkamp ¶307d, at 155 (Supp. 2006). The dissent took a different line:

"What did he mean by that? One possible (indeed plausible) inference is that he meant that while it would be in his company’s economic self-interest to compete with its brethren, he had agreed with his competitors not to do so. According to the complaint, that is how the Illinois Coalition for Competitive Telecom construed Notebaert’s statement, id., ¶44, App. 22 (calling the statement “evidence of potential collusion among regional Bell phone monopolies to not compete against one another and kill off potential competitors in local phone service”), and that is how Members of Congress construed his company’s behavior, id., ¶45, App. 23 (describing a letter to the Justice Department requesting an investigation into the possibility that the ILECs’ “very apparent non-competition policy” was coordinated).
Perhaps Notebaert meant instead that competition would be sensible in the short term but not in the long run. That’s what his lawyers tell us anyway. See Brief for Petitioners 36. But I would think that no one would know better what Notebaert meant than Notebaert himself. Instead of permitting respondents to ask Notebaert, however, the Court looks to other quotes from that and other articles and decides that what he meant was that entering new markets as a CLEC would not be a “ ‘sustainable economic model.’ ”

On this basis, the dissent would at least have wished for a trial to hear what the CEO meant, and the dissent feared that now defendants would try and dismiss claims of conspiracy by hiring economists to 'prove' that it was not efficient to collude.

In a Europe thinking about expanding private action, the repercussions of this judgment are worth following closely.

Article 82 Guidelines in limbo

2007-05-03T10:26:00.000+01:00

According to this news report, the Guidelines on Article 82 will not be published until the Microsoft case is handed down. Given that this case is in the CFI and an appeal to the ECJ is pending, is this an indication that we won't have any guidelines on Article 82 for the next few years? Surely one would not want to risk publishing Guidelines before the case is heard by the higher court? and this could be interesting depending on which Advocate General is picked to hear any appeal.

And on Microsoft, the Commission is talking tough, challenging the way that the company is complying with the 2004 decision, by issuing a statement of objections.

In a fast moving market the wheels of the regulatory system move very slowly.

American Modernization Commission Report Published

2007-04-05T22:20:00.000+01:00

The AMC released its report on 3 April, making several recommendations, a few highlights of relevance are summarised below. The AMC is the latest in a regular review of antitrust laws, one of the more well-kown previos commissions is the 'Neal Report' that had suggested stronger action against oligopoly markets.

The AMC's report finds the state of antitrust law as essentially sound. Importantly the report emphasises that antitrust is not about making markets work better. It is not an industrial policy instrument. As I suggest in my book, EC Competition Law is still seen as forming an important part of the Community's industrial policy.

Highlights of the report include:

1) abolish the Robinson-Patman Act (this is a much disliked statute prohibiting price discrimination).

2) Bundled rebates should be handled differently, suggesting a three stage test: (a) after allocating all discounts and rebates attributable to the entire bundle of products to the competitive product, the defendant sold the competitive product below its incremental cost for the competitive product; (b) the defendant is likely to recoup these short-term losses; and (c) the bundled discount or rebate program has had or is likely to have an adverse effect on competition.
The gist of this is broadly to apply a predatory pricing type test to rebates. This is along similar lines to the EC Commission, although it is a much less aggressive standard than that advocated by the Commission or that applied in British Airways (see earlier post).

3) Facilitate private litigation by allowing law suits by direct and indirect purchasers. The idea is that both types of plaintiffs be able to sue, and that they damages (based on the higher prices charged by the defendant) are divided up between direct and indirect purchasers. This is interesting because there are similar debates in Europe. For example, in Germany the law provides that direct purchasers can sue but indirect purchasers cannot. Is this a matter for Community Law?

Resale Price Maintenance: the per se rule is going, going...

2007-04-03T16:37:00.000+01:00

The US Supreme Court is hearing a case (Leegin Creative Leather Products, Inc. v. PSKS, Inc.) where it is being asked to overrule the rule which makes resale price maintenance agreements per se illegal. Obviously these are also black listed in the EC under the Block Exemption for Vertical Restraints. Some think that the Court will overrule the per se rule established in Dr. Miles, and judging by the transcripts of the oral argument, this seems likely.

I'll debate the minutiae of the rule another time, but I can't help notice that the US government has submitted an amicus brief supporting the overruling of the old cases. This is how antitrust authorities should be getting rid of old doctrines. Not by publishing guidelines in the hope that people will forget the case law. Reform of Article 82 in Europe should follow this track: incremental or radical alterations by the European Court of Justice that erode precedents that are seen as unsuitable.

Discussion Paper in the Doldrums?

2007-04-02T23:07:00.000+01:00

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.)

The Chicago School, Pre-Chicago, Post-Chicago

2007-03-28T21:15:00.000+01:00

Last year Herbert Hovenkamp published an important book: The Antitrust Enterprise: Principle and Execution. It is a short, accessible overview of US antitrust, ideal both for those wishing to recap US antitrust before an exam, or those new to the subject. There is a good review and some pretty sharp commentary in the University of Chicago Law School Faculty Blog.

However, something about this book left me a little uneasy, and other on line observers have reached similar views: that the book advocates a fairly narrow, conservative vision of antitrust laws. You get this message early on at pp.10-15 where antitrust is described as a residual, reactive regulatory law. To explain why this is worthy of comment we need to track back a little.

In the 1970s two pathbreaking works were published, Richard Posner's Antitrust Law: An Economic Perspective (1976) and Robert Bork's The Antitrust Paradox (1978). The historical significance of these books was that they provided a blueprint (or a manifesto) for what we now call the Chicago School view of antitrust. Both authors were reacting to a 'populist' version of antitrust that seemed to protect the public interest. The effect of those books was to create and capture the intellectual mood of the time and led to the Chicago School approach to antitrust. Before the Chicagoans dominated the courtrooms, the major mainstream economic position was the Harvard School. I discuss key differences between these two schools in Chapter 3 of my book. Essentially, Harvardians believed that concentrated markets were an antitrust problem, while Chicagoans thought that the only problem antitrust laws should be concerned with is collusion, and that the only entry barriers were erected by government. This implied a significantly less aggressive antitrust policy. In 2001, Richard Posner published a second edition of his book, but this time the title was simply Antitrust Law. In the preface he explained that now there was no need for the subtitle, because now the ideological battle had been won: there was no other perspective to embrace.

However, in the 1980s a number of scholars began to speak of a post-Chicago approach to antitrust. In brief, this approach criticised Chicagoans for being too laissez-faire and suggested instead that, with the aid of new economic tools, especially game theory, one could endorse a more aggressive antitrust policy based on economic principles.

With Posner, I think it is best to treat these three schools of antitrust as historical labels representing the dominant economic paradigms rather than ideologies, so with some rough dates indicating the enforcement high-water marks:

Harvard (1960-mid 70s)
Chicago (mid 70s to mid 80s)
Post-Chicago (late 80s onwards)

Hovenkamp, at around page 37 of his book, suggests that the 'new Harvard position' is represented by the multi-volume Antitrust Law treatise, first authored by Harvard Professors Areeda and Turner. Hovenkamp is now one of the co-contributors to this work. So now every major American commentator has broadly the same economic outlook. The 'new Harvard' in this book is no different from the 'post-Chicagoan' (as defined above) take in Posner's book. What is a little disappointing about this state of affairs is that there is no antitrust alternative any longer.

However, I think that there is space for debate, there is room to assert a more aggressive antitrust policy. In fact, a close comparison suggests that Hovenkamp's 'new Harvard' might be a little more aggressive than the more conservative position of the new Chicago, for example Hovenkamp supports the failed attempt by the Department of Justice to challenge the predatory practices by American Airways to oust new entrants, which the courts rejected (I discuss this case in chapter 3, and see Aaron Edlin's on line comments). Perhaps what might have helped Hovenkamp's book is a more emphatic assertion of the key distinguishing features between his 'new Harvard' approach and the more conservative elements of the post-Chicago school. A nice textbook written with a more aggressive antitrust streak is Sullivan and Grimes' The Law of Antitrust: An Integrated Handbook (2nd ed 2006).

One reason many antitrust scholars might be a little wary of espousing aggressive antitrust policy these days is that they risk being criticised for returning antitrust to the pre-economic, populist approach, which perhaps still lingers on in European antitrust circles...

The Supreme Court and predatory bidding - lessons for the EU

2007-02-22T11:14:00.000Z

Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co. Inc. (20 February 2007)

Defendant and plaintiff were competitors, both operated sawmills and purchased red alder sawlogs for their mills. Some of the logs are purchased through long term contracts, some are obtained from the mill owner’s property, and some are acquired through bidding. Plaintiff alleged that defendant placed bids at very high prices, forcing the price of logs to go up, thereby forcing plaintiff to pay more for his logs too, which forced plaintiff to increase his sales prices. The result was that defendant’s predatory strategy drove plaintiff out of business. In the lower courts plaintiff was successful in an action based on s.2 Sherman Act, in particular the courts did not think that predatory bidding was comparable to predatory pricing, so the strict standards set out by the Supreme Court in Brooke Group (1993) did not apply.

The Supreme Court disagreed, ruled that predatory bidding is judged by the same standards as predatory pricing, and because plaintiff admitted it was unable to prove the elements required by Brooke Group, the claim was unsuccessful. The judgment comes a short time after the CFI ruled on predatory pricing (see earlier entry in this blog) and holds two lessons for the EU: (1) how to use economics to analyse disputes; (2) how to write judgments.

(1) The use of economics

First, the Court explored whether predatory bidding (the exercise of monopsony power; that is, buyer power) is comparable to predatory pricing. The logic is similar: in a first period the predator engages in a measure that raises rivals’ costs (here by bidding high, increasing the price of the inputs and forcing competitors to pay more); in a second period, once competitors have been driven out of business, the predator uses its monopsony power to force sellers of input to lower the prices. As with predatory pricing, the first period represent’s the predator’s ‘investment’ – he suffers losses of profit and his dominance allows him to survive while competitors go out of business. The second period is when he recovers that investment by getting low prices for the inputs, recovering the losses made in the first. Accordingly, the legal standard for predatory bidding should be the same as that for predatory pricing.

Second, the Court held that aggressive commercial tactics are the very essence of competition, and that there were a myriad of reasons why buying inputs at high prices could be innocent, or even pro-competitive: (1) miscalculation of input needs; (2) a response to increased consumer demand; (3) a more efficient firm might bid up input prices to gain market share in the output market; (4) a firm that adopted an input intensive production process might bid to increase the inputs; (5) a firm might buy a lot of inputs today to hedge against future shortages. ‘There is nothing illicit about these bidding decisions. Indeed, this sort of high bidding is essential to competition and innovation.’

Third, the Court noted that like predatory pricing, a failed attempt of predatory bidding is benign. The monopsonist who buys more goods, will be in a position to sell more to consumers, and provided he does not have monopoly power on the selling side, this means that consumers get more goods at competitive prices.

Two things follow from this analysis: (a) predatory bidding is a high risk strategy that has many efficiency justifications; (b) a failed attempt to achieve the rival’s exclusion does not harm consumers. Therefore, a high standard of proof is necessary or there is a ‘risk of chilling pro-competitive behaviour with too law a liability standard.’

The legal test therefore is the same as for predatory pricing: (1) the predatory bidding results in below cost output sales; (2) there is a dangerous probability that the losses in the first period will be recouped through the exercise of monopsony power.

When will European courts think about aggressive commercial behaviour in this way?

Even those who think that a more lenient standard should apply and that Europe is right to be tougher on predators might take an interest in the lower court’s decision. The 9th Circuit held that three things needed proof: anticompetitive conduct through predatory overbidding, intended specifically to eliminate competition, and a dangerous probability of achieving monopoly power .

On intention, the court used evidence which in my mind is more compelling than that in the Wanadoo case. The court used three types of evidence: (1) Defendant’s anticompetitive conduct itself, (2) the testimony of Defendant’s employees, and (3) Defendant’s business projections regarding sawlog prices. Note that (2) is trial based testimony, not internal memoranda. Note also how items (1) and (3) show that Defendant had calculated what it would take to outs plaintiff. This evidence is much more specific than that which the CFI relied upon.

(2) Judicial Style

This decision is 16 pages of a pdf file. The first paragraph is a concise statement of the key points. The facts are examined in a succinct manner. Quotes from previous cases are brief and to the point. Academic literature is mentioned. The case can easily be read, and understood, while commuting on the tube. It is unfortunate that the style of judgment in the European Courts cannot be as clear and as concise.

Interestingly perhaps, the Court eschews mention of wider debates about the nature of S.2 monopolisation claims, a topical issue in light of the current hearings on single firm conduct. Perhaps the Court thinks it best if the law develops incrementally rather than setting out general standards for anticompetitive behaviour like the no economic sense test, or the as efficient competitor test.

Predatory Pricing - bad intentions and no economic sense

2007-02-12T23:16:00.000Z

Case T-340/03 France Télécom v Commission (judgment of 30 January 2007)

The Commission’s Wandoo decision fining the firm for predatory pricing in the sale of high-speed internet access, was affirmed by the Court of First Instance. The Commission immediately issued a press release to show its delight. In this press release is an important passage: “Broadband is a strategic sector highly important to the European economy and the Commission's strategy for growth and jobs. The Commission is determined to prevent exclusionary practices by incumbent operators on strategic markets.” This is in line with its 2004 Communication, which sought to align competition law enforcement with the Lisbon Strategy (a bold attempt to make Europe more competitive). This is the ‘Community interest’ that guides competition enforcement post-modernisation. But if the pursuit of this interest leads to decisions like this one, we must wonder whether Europe is not made less competitive by competition law enforcement.

After a hundred or so paragraphs where the CFI rejects procedural points and checks the Commission’s arithmetic, the Court wrestles with several interesting points of principle that Wanadoo raised. Their rejection shows a complete failure to understand predatory pricing.

Meeting competition
There is some doubt as to whether a dominant firm can react aggressively when challenged by competitors. The CFI said that the dominant firm “cannot rely on an absolute right to align its prices on those of its competitors in order to justify its conduct. Even if alignment of prices by a dominant undertaking on those of its competitors is not in itself abusive or objectionable, it might become so where it is aimed not only at protecting its interests but also at strengthening and abusing its dominant position.” (para.187)

This is not novel, but it confirms that there is no meeting competition ‘defence’ in EC competition law. The only defence is for the dominant firm to prove that there was no abuse. But it is too easy for the Commission to prove abuse.

Intention
Prices above average variable cost (AVC) and below average total cost (ATC) are abusive only if there is a plan to eliminate competition. More clearly than in earlier cases, the CFI states that this requires proof of ‘intention’.

In this case, the Commission proves intention with a raft of internal documents where the dominant firm’s management explained how it wished to pre-empt the challenge of new entrants by selling goods more cheaply. The firm’s intention to acquire and hold on to market power is evidence of abuse. This is unwise. In previous cases, intent was shown by selective price cuts designed to harm certain rivals, this was a little more probative. In contrast here, intent is proven by evidence that I suspect we can find in any company. What company does not want to beat its competitors? To gain and hold on to a higher market share? Is the intention to compete evidence of abuse? Yes, it seems.

Admittedly Wanadoo was somewhat unwise to write in language that so fits the Commission’s legal standards, look at this note: ‘The high-speed and ADSL market will, for the next few years, continue to be conquest-driven, the strategic objective being to gain a dominant position in terms of market share, the period of profitability only coming later.’ (cited at 215) Nevertheless, can this really be sufficient evidence of anticompetitive intent?

Recoupment
Perhaps as a last throw of the dice, the defendant thought that if the Commission’s burden of proof is so light in showing intention, that the Court would see sense and rectify this by requiring proof that predatory pricing would create a dominant position and that Wanadoo would be able to recoup its losses. No such luck. In Tetra Pak 2 the ECJ said that on the facts of that case recoupment need not be shown. The CFI says that there is never any need to prove recoupment. (227). This removes the caution of the ECJ and is in line with the Advocate General’s view in Tetra Pak 2 that all predatory pricing should be condemned without the need to show the possibility of recouping losses.

Predatory pricing standards and the Lisbon strategy
To be clear, I am not suggesting predatory pricing should not go unpunished, nor that Wanadoo was not trying to harm its competitors. Rather, that the court sets such a low threshold of illegality that dominant firms are deprived of any incentive to compete hard. First, the fact that
recoupment need not be shown, is economically irrational: if a predator cannot recover the loss of profits, it means predation was unsuccessful, and competitors have not been harmed, so the predator is punished by the market for his irrational attempt to exclude rivals. Second, flimsy evidence of intention makes findings too easy, creating further risks of over enforcement. If dominant firms cannot respond aggressively to maintain their position (Wanadoo has to pay a fine of 10.35 million euros), what incentives are there to be successful?

Information Exchanges and the Consumer Interest

2007-02-10T19:15:00.000Z

Case C-238/05 Asnef-Equifax v. Ausbanc judgment of 26 November 2006

Spanish banks agreed to set up an electronic register of credit information that would disclose the credit history of potential customers. The effect is that each bank is aware of each potential client’s credit history and takes this into account when negotiating further loans. A horizontal agreement no doubt, but was it contrary to Article 81? The Spanish Court was in doubt and asked two questions of the ECJ.

Does the agreement restrict competition?
Wisely the Court noted that prima facie the agreement made for more competitive markets, since lenders were now better placed to offer loans based on a more informed understanding of each client’s credit risk (so the solvent client would get preferential loans, and the very risky clients no loans at all, thus preventing him from accumulating even more debt). Moreover, clients can now obtain credit more easily from financial institutions other than the ones from which they have borrowed historically, since all banks have their credit histories.

However, an anticompetitive effect might arise, said the Court, and three factors were relevant (this is not a cumulative test):
(1) The degree of market concentration (that is, how many banks are there, a few or many?)
(2) Whether the register discloses information that allows competitors to see the business strategy of other lenders (accordingly it is imperative that the names of lenders be invisible)
(3) Whether all lenders are able to have access to the register

Condition 3: making markets work better?
The ECJ rightly noted that the agreement, if anything, was more likely to benefit consumers than to harm them. Nevertheless, it is troubling that the Court said that the agreement was lawful only because any lender could join the scheme set up by the parties. The condition makes sense for all lenders because the more lenders join, the more information all have about the credit history of clients. But the Court’s analysis is slightly troubling because even if the first two criteria are met (the market is not concentrated and the information does not allow for parties to understand each other’s business strategies) the exchange of information is lawful only if it is open for newcomers, but the first two conditions are sufficient to prove that the agreement does not restrict competition. The third condition is designed to allow the market to grow, providing opportunities for new lenders to enter. But this is regulation, not the application of competition law.

The Consumer interest
Should the national court find (highly unlikely given the above reasoning) that the agreement restricts competition, the Court offered some guidance on how the consumer benefit test in Article 81(3) might be applied. The Court did not refer to the Guidelines on Article 81(3) that roughly have the same as the judgment: Paragraph 87: ‘The decisive factor is the overall impact on consumers of the products within the relevant market and not the impact on individual members of this group of consumers.’

But after stating that one should look at the benefits for consumers generally, the Court muddies the water, saying that two groups of consumers benefit: those who get better loans, and those who do not get loans because of their bad credit scores, and this is a benefit because it avoids over indebtedness. It is a little patronising for the Court to say that, but also one wonders why a private agreement is necessary to avoid over indebtedness, as surely this is a task for the legislature, not competitors. But this wider conception of consumer interest is part of the Commission’s practice – recall how reduced electricity consumption benefited all members of society in CECED.

In sum, this judgment shows the Court in full regulatory mode: it designs markets to ensure they facilitate the entry of new players, and suggests that agreements can be exempted if big spenders are denied loans, competition law as a device to protect improvident consumers. Real antitrust law shoudl be more humble about its capacities and its scope.

2006-11-13T00:25:00.000Z

Case T-186/01 GlaxoSmithKline v Commission (27 September 2006)
All change for Article 81?

In this groundbreaking judgment, the Court of First Instance explains: that not all agreements that segment the internal market infringe Article 81(1); that dynamic efficiencies may be considered in the application of Article 81(3); and finally that the aim of Article 81 is to protect the welfare of the end user. Even though the Commission lost the case, calling for it to seriously rethink its policy against pharmaceutical firms’ attempts to segment the market, these general points confirm much of the Commission’s recent policy on the application of Article 81.

The facts
GSK notified its sales policy for a number of medicines sold to wholesalers on the Spanish market. This provided (in clause 4) for a low sale price for medicines that the wholesalers resold on to the Spanish health authorities, and a higher price for medicines that the wholesalers were likely to sell abroad. The rationale behind this price discrimination is that medicines are bought by national health authorities at fixed prices. The price fixed in Spain is less than that fixed for the UK, and this creates an incentive for Spanish wholesalers to buy extra medicines and ship them to the UK (parallel imports). This causes GSK losses on the British market. Clause 4 was designed t thwart parallel imports. (This is a more direct strategy than that which another pharmaceutical company (Bayer) had tried a few years back, where it reduced the numbers of medicines sold to Spanish wholesalers. In this instance the Commission charged Bayer with entering into an agreement with Spanish wholesalers containing an export ban, but the CFI and ECJ had found that there was no agreement between the parties, only a unilateral move by Bayer).
It is little wonder that the Commission should seek to prevent this behaviour, as it partitions market, thus contrary to the creation of a single market.

The CFI’s assessment of Article 81(1): restrictions by object
The Commission found that the agreement had as its object the restriction of competition. Based on previous case law, this finding seemed unremarkable but the CFI disagreed.
The court said (118) that the objective of Art 81(1) is to prevent firms from restricting competition between themselves or with third parties from reducing the welfare of the final consumer.
The CFI cites three authorities in support of this assertion. It is important to read these closely to see how the CFI supports this statement.
First the CFI cites paragraph 115 of its judgment in Cases T-213 and 214/01 of 7 June 2006 where it said that the competition rules as a whole are there to improve the welfare of the consumer.
Second, it cites Consten and Grundig at page 493 (this page reference must be an error because the law report does not run to that page).
Third, it cites Case 28/77 Tepea where the ECJ ruled that an agreement that restricted intra-brand competition infringes Article 81(1) by harming consumer interests. The CFI generalises this ruling.
So no precedent seemed to support this conclusion directly but the CFI’s statement must surely be welcomed as in line with today’s economic approach to competition law. It is however curious that the court states that protecting consumer welfare is the objective of Article 81(1), and not of Article 81 as a whole (so there is a small but significant difference between this case and T-231/01). The significance is that if Art 81(1) is there to protect consumer welfare then is Art 81(3) there to protect some other interest?

The Court went on to say that not every agreement which partitions the market can be found to have an anticompetitive object: ‘while it is accepted that an agreement intended to limit parallel trade must in principle be considered to have as its object the restriction of competition, that applies insofar as the agreement may be presumed to deprive final consumers of those advantages.’ (para.121) Which means that sometimes agreements which partition the market might not harm consumers and s escape Article 81(1). This is a U-turn from the well-understood rule that these kinds of agreement are ‘hard-core restraints’. The court explained that in this sector, parallel trade was not going to lead to price competition and lower prices for consumers because their prices are fixed under national law. At the end of its discussion the court reminds us that this factual matrix was an unprecedented situation (147), which suggests that in most other goods and services, a ban on parallel trade will e deemed to have an anticompetitive object.

The implication of the court’s reasoning is that the anticompetitive object of an agreement must be looked at in its factual context. But then what is the difference between object and effect?

The CFI’s assessment of the effects of the clause
This part of the decision is peculiar because the court finds that the agreement might harm consumers… by transforming the definition of consumer. Recall how in the object category the emphasis was on the patient. Here (at 184) the court discovers an additional consumer – the sickness insurance schemes who, it says, suffer loss as a result of a diminution in intra brand competition. That is, the ability of Spanish wholesalers to export would have led to these consumers paying slightly lower prices, and in some Member States this might have led to lower prices for patients too.

This is puzzling. In the ‘object’ discussion the consumer is only the patient and the court says that his losses are not self evident after analysing the facts. Then in the ‘effect’ discussion, the consumers are the health insurance bodies and the patient, and both benefit from intra brand competition. This blurs the line between object and effect so much that it is invisible.

Article 81(3)
This segment focuses n the first condition ‘improving the production or distribution of goods or promoting technical and economic progress.’

Two interesting points here.
First, the court accepts the validity of GSK’s argument: restrictions on parallel trade can serve to allow it to raise money to finance research, and in this market, the key to inter-brand competition is innovation. The Commission was bound to trade off the improvements in efficiency stemming from innovation against the modest losses that some buyers suffered as a result of higher prices caused by the restriction in competition.

Second, in setting out some preliminaries we get this passage (244)
The Commission has, in particular, a margin of discretion which is subject to a restricted judicial review, in the operation consisting, once it has been ascertained that one of the criteria on which Article 81(3) EC makes provision for an exemption was satisfied, in weighing up the advantages expected from the implementation of the agreement and the disadvantages which the agreement entails for the final consumer owing to its impact on competition, which takes the form of a balancing exercise carried out in the light of the general interest appraised at Community level.

What is the general interest? (I doubt the court was quoting from Rousseau) does it mean that in 81(3) we look at more than just consumer benefits? This passage may be an aberration, later on the court ( like the Commission) reads the first condition of 81(3) as being about efficiencies.

The remaining questions

What does this case mean for the split between 81(1) and 81(3)?
(1) Maybe Odudu is right in suggesting that under Art 81(1) one shows a loss in allocative efficiency and in Art 81(3) one proves a gain in productive efficiency. See his recent book The Boundaries of EC Competition LawThe Scope of Article 81. However I don’t find this distinction helpful because an improvement under 81(3) is often one that improves allocative efficiency also, given that there must be a benefit to consumers for the improvement to count. Moreover, the court here suggests that GSK’s arguments were about increasing inter-brand competition. This kind of competition yields allocative efficiency.
(2) Maybe (the view I favour) the Commission looks for any loss of consumer welfare under Art 81(1) and then demands that the other party show any gains in consumer welfare. This allows the Commission to operate a quick look approach when some basic facts suggest a risk to competition.
(3) Maybe (and this is the view I would like to favour) under Art 81(3) we look at wider perspectives than just consumer welfare. After all, if you read paras 118 and 244 one after the other, consumer welfare is the objective for 81(1) and the general interest is the objective under Art 81(3). Public policy in Article 81(3)?

What is the difference between object and effect?
I have no idea after this case. Before, we had a fairly good idea that restrictions on parallel trade had an anticompetitive object. Now it seems that one has to have a perfunctory look at the market before being able to presume that any practice has an anticompetitive object.

Wasn’t notification such a good idea?
Note that notification/exemption (the system that the Commission killed off on 1 May 2004) is alive and kicking for this case and also O2 where the parties have been allowed to re-notify. This proves that a system where controversial cases can be notified ex ante is helpful in competition law. It had been mismanaged under Regulation 17, but a more modest scheme limiting notification to some agreements would have been beneficial.

Will GSK get the exemption now?
No predictions here but three indicators: first there seems to be considerable lobbying in support of clearance; second there seems to be considerable evidence that GSK has a point; but third the Commission has a margin of discretion. The worse thing that could happen is that the case gets settled informally, so that the Commission avoids publishing an uncomfortable precedent. This is the likely outcome.