an effects-based competition policy – legal perspectives

An effects-based competition policy – legal perspectives

Professor dr. juris Erling HjelmengUniversity of Oslo, Department of Private Law

2 Professor Dr. juris Erling Hjelmeng

Issues

• Substantive law– Legal rules and their application

• Prioritization – Effects-based prioritization of enforcement resources

• Remedies– Ensuring compliance or something more?


Article 101(1) – Anti-competitive Object• Point of departure: The legal test for anti-competitive

object:

• ECJ in T-Mobil (C-8/08)– "The distinction between ‘infringements by object’ and ‘infringements by

effect’ arises from the fact that certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition."

• Definition of object in STM (56/65): – ”first …to consider the precise purpose of the agreement, in the economic

context in which it is to be applied. … Where, however, an analysis of the said clauses does not reveal the effect on competition to be sufficiently deleterious, the consequences of the agreement should then be considered…”


Article 101(1) – Anti-competitive Object con't• Forms of restrictions by object (or hard-core

restraints): – Price-fixing (horizontal and vertical)– Market sharing, quotas– Absolute territorial protection

• Will agreements within these categories always have an anticompetitive object? – GlaxoSmithKline– The context may rebut a presumption of object, cf. AG Trstenjak

in Beef Industry (C-209/07 para 59).

• Relevance of economic context: Defence? – No per se rule but a (cursory) concrete assessment, i.e. whether

anti-competitive effects are contradicted by market characteristics


Article 101(1) – other aspects

• Actual vs. potential effect• Presumptions (shifting the burden of proof)

• Several legal techniques making effects-analysis less important– But an ECJ which recognizes the need for case-by-case

analysis

• Ancillary restraints– Restrictive clauses may escape the prohibition


Article 101(3)

• Burden of proof: Reg No 1 Article 2: – “The undertaking …claiming the benefit of Article [101](3) of the Treaty

shall bear the burden of proving that the conditions of that paragraph are fulfilled”

• Building on earlier case-law– “it is in the first place for the undertakings concerned to present to the

commission the evidence intended to establish the economic justification for an exemption.” (42/84 Remia p. 45)

• Policy-making by BER– Clear shift towards a more economic approach in most areas

– Guidelines


Article 101(3) - presumptions?• Taking the hard-core category into Article 101(3)• Vertical Guidelines para 46 on hard-core restraints

(RPM & absolute territorial protection): – ”Individual exemption of vertical agreements containing such

hardcore restrictions is … unlikely.” • General Court:

– ”the Court considers that, in principle, no anti-competitive practice can exist which, whatever the extent of its effects on a given market, cannot be exempted, provided that all the conditions laid down in Article 85(3) of the Treaty are satisfied” (T-17/93 Matra Hachette, para 85)

– C-501/06 Glaxo services• No irrebuttable presumption• Is there a connection between the classification as

”hard-core” and lack of efficiency?– Is the requisite standard of proof higher?

• RPM as a test case


RPM 1

• US Supreme Court in Leegin: RPM to be analyzed under the rule of reason– ”The Court has abandoned the rule of per se illegality for other

vertical restraints a manufacturer imposes on its distributors. Respected economic analysts, furthermore, conclude that vertical price restraints can have procompetitive effects. We now hold that Dr. Miles should be overruled and that vertical price restraints are to be judged by the rule of reason.”

• Assessment of RPM under Article 101(1) – truly hard-core? – 243/83 BINON, rejected arguments pertaining to the

characteristics of the market and pointed to (3)– Exemption is possible


RPM 2

• No automatic-exemption • General rule: No presumption of illegality outside

BER• Applies to RPM? • Is the presumption advocated by the Commission,

but poorly founded, the problematic issue– Law in books vs law in action – Commission policy hard to overcome– Article 267-references from national courts

• How bad is it? – Defences are available to companies– The alternative: Should RPM be per se lawful?


Conclusions on Article 101

• No per ser standard embedded in the legal rules

• A ”limited rule-of-reason” standard “modified rule-of-reason”/structured– Object– Presumptions– Article 101(3) presumptions?

• Burden of proof • “De facto” per se?

• Is it that bad – would't companies be best placed to justify their commercial practices?


Article 102

• No categorization in the wording; “abuse”• More leeway for the ECJ to establish its own

categories and to provide a definition of abuse– More like Sherman Act where per se vs. rule-of.-reason has

been developed in case-law

• Basic test (Hoffmann-La Roche)– “eliminating a competitor and thereby strengthening its

position by using methods other than those which come within the scope of competition on the merits” (85/76, para 354, emp. added)

• Categorization through case-law – Form-based tests (e.g. exclusive agreements/loyalty rebates)– Intent-based tests (e.g. below-cost pricing)– Effect-based tests (e.g. refusals to deal)


Article 102 con’t

• Is a form-based approach tantamount to per se?– ”aimed at..”, “such as to…”, “likely to..”, “tends to…”,

“capable of…” etc.

• Two-pronged test:– Specific features of the conduct (e.g. a rebate likely to

induce loyalty)– Anti-competitive effects presumed

• Anti-competitive object• Objective justification

– Burden on the undertakings– In line with Article 101(3)


Article 102 – loyalty rebates

• General conception: Loyalty rebates are per se prohibited– And such rule has been heavily critizised

• Is it so? What is the real scope of the per se-rule? – Rebates conditional upon exclusive (or almost exclusive)

purchase (Hoffmann-La Roche)– Individualized target rebates (Tomra, Michelin I, BA)

• Does a per se rule apply to retroactive rebates in general?


Article 102 – loyalty rebates con't• Test pronounced in BA:

– “it first has to be determined whether those discounts or bonuses can produce an exclusionary effect, that is to say whether they are capable, first, of making market entry very difficult or impossible for competitors of the undertaking in a dominant position and, secondly, of making it more difficult or impossible for its co-contractors to choose between various sources of supply or commercial partners.” (C-95/04 para. 68)

• Tomra:– “a rebate system in which the rate of the discount increases according to the

volume purchased will not infringe Article [102 TFEU] unless the criteria and rules for granting the rebate reveal that the system is not based on an economically justified countervailing advantage but tends, following the example of a loyalty and target rebate, to prevent customers from obtaining their supplies from competitors” (T-155/06 para. 213)

– ”In determining whether a quantity rebate system is abusive, it will be necessary to consider all the circumstances, particularly the criteria and rules governing the grant of the rebate, and to investigate whether, in providing an advantage not based on any economic service justifying it, the rebates tend to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties or to strengthen the dominant position by distorting competition”

– Appeal pending, case C-549/10 P


Article 102 – loyalty rebates con't

• Elements– ”Fidelity-building effect”, i.e. the immediate effect on the

trading partner– Based on an economically justified consideration? – Restrictive effect presumed (irrebuttable according to the

General Court in BA , T-219/99 para 297)

• Focus: Immediate effects on trading partner– Parallell with ”object” under Article 101– Rebuttable presumption

• What will be the definite position of the ECJ if called upon in an Article 267 ruling?


Developments

• “New” forms of abuse:– Submission of misleading information to public authorities – Case T-321/05 Astra Zeneca:

“the submission to the public authorities of misleading information liable to lead them into error and therefore to make possible the grant of an exclusive right to which an undertaking is not entitled, or to which it is entitled for a shorter period, constitutes a practice falling outside the scope of competition on the merits which may be particularly restrictive of competition” (para 355, emph. added)

• Focus on the immediate effect on the trading partner– A repeated mistake – “economic freedom” and Article 85

(now 101)


Prioritization

• Article 102: Guidance on enforcement priorities – The initial idea of reforming the substantive rules

transformed into a policy document with an unclear status: “This document is not intended to constitute a statement of the law…” (para 3.)

• Developing a new set of parameters for the prioritization of cases– A coherent set of parameters – Effects-based ”beyond law”? – Double standards?


Prioritization con't

• Enforcement pluralism – different standards? • NCAs

– will prioritize along the same lines as the Commission?

• Private plaintiffs – form-based rules facilitating vexatious litigation?

• Implementing compliance policy


Remedies

• Traditional remedies focus on – bringing infringements to an end– to avoid future infringements– To compensate victims

• Private enforcement – efficient remedy for inefficient rules?– Compensation costs vs. deterrent effect

• Effects-based public remedies? – Traditionally little focus on the effects of remedies (except for

deterrent effetc of fines)

• Positive vs. negative intervention• Cease-and-desist orders (Article 7):

– Bringing the infringement to an end – Strict proportionality test– The Commission may not ”impose upon the parties its own choice

from among all the various potential courses of action which are in conformity with the Treaty” (T-24/90 p. 52)


Remedies 2

• Commitment decisions (Article 9)– No need to establish infringement– Settlement meeting ”the concerns” of the Commission

• A drive towards decisions facilitating competition in the future– E.g. Microsoft

• Compare Windows N with ”Browser-choice screen”– Football broadcasting rights– TPA in downstream natural gas markets

• Remedies ”beyond law”? – Remedies of a regulatory nature


Overall conclusions

• Substantive law:– Flexible legal instruments in the Treaty – Narrowed down by policy & case-law

• But does the case-law rule out a flexible approach? – Problematic use of presumptions

• Prioritization – Partly a more flexible approach, but

• Development of “double standards”• Over-inclusiveness not eliminated

• Remedies– Article 9 has paved the way for more flexible remedies aimed

at restoring and facilitating competition – Need for more research on the overall impact

• Is the focus on per se vs. rule of reason appropriate?

an effects-based competition policy – legal perspectives

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