Welcome to the Competition Stories – a bimonthly exploration of recent courts and competition law agencies’ decisions. Authored by Makis Komninos, a renowned expert in the field, this new column aims to go through the latest and most important developments in competition law of the last two months. We call them “stories” because Makis has promised to include some anecdotes from time to time, and not just stay at the black letter. Enjoy!
Time for our “competition stories” for March and April! Which development would you consider as the most important? In my view, the Slovak Telekom judgment of 25 March 2021 definitely deserves the No. 1 position. Another important development is the Commission’s “change of practice” to no longer discourage the Member States to make Article 22 upward referrals of concentrations that are not notifiable nationally, since they are falling below national (and obviously EU) thresholds.
I. Court of Justice
- Slovak Telekom (refusal to deal)
Last year, I wrote that I hoped the Court of Justice does not follow AG Saugmandsgaard Øe’s Opinion in Slovak Telekom. As a reminder, the case is about refusal to supply and the bearing of the seminal Oscar Bronner ruling. So now the jury is out. Did the Court follow the AG’s Opinion? Yes and no. I think the Court had two “Opinions” in front of it and was quite selective. One was AG Saugmandsgaard Øe’s Opinion of 2020 and the other was AG Jacobs’s Opinion of 1998 in Bronner! The Court seems to have been influenced by both Opinions.
Starting from the pros, the Court confirms the centrality of Bronner in the strongest possible way. Rather than relegating it to a footnote in the textbooks, as the AG’s Opinion may have suggested, the Court confirms Bronner as a leading case. In para. 47, the Court also goes into a discussion of incentives and the balancing between short-term and long-term benefits. Normally, you have this kind of discussion in AG Opinions and not in the text of judgments. So this is very encouraging. It’s like reading para. 57 of AG Jacobs’s Opinion in Bronner, from which certainly the Court must have been inspired.
With regard to the description of the Bronner test, the Court intriguingly introduces some nuances, which at first sight may generate some concern or enthusiasm (depending on where the reader stands ☺️).
First, an unclear point is the use of the expression “tight grip on the market” (paras 48-49) (“mainmise” in French). I have to say I was quite puzzled by this seemingly novel concept. But after researching in a “clever” way the case law, eureka! The Court simply took it from para. 65 of AG Jacobs’s Opinion in Bronner: “It seems to me that intervention of that kind, whether understood as an application of the essential facilities doctrine or, more traditionally, as a response to a refusal to supply goods or services, can be justified in terms of competition policy only in cases in which the dominant undertaking has a genuine stranglehold on the related market. That might be the case for example where duplication of the facility is impossible or extremely difficult owing to physical, geographical or legal constraints or is highly undesirable for reasons of public policy. It is not sufficient that the undertaking’s control over a facility should give it a competitive advantage”. It’s just a translation issue (stranglehold / tight grip). Actually, as you see, AG Jacobs is making a very sensible point and the Court in Slovak Telekom approves of this approach.
Second, the Court included a qualification in para. 47: “in the long term, it is generally favourable to the development of competition and in the interest of consumers to allow a company to reserve for its own use the facilities that it has developed for the needs of its business”. The same qualification is found in paras 45, 46, 48 and 49. Does this addition mean anything for cases where the dominant company may not be reserving a facility “for the needs of its own business”? I think this reading would go too far. More than anything, the Court was again copying from AG Jacobs’s Opinion in Bronner, para. 57: “in the long term it is generally pro-competitive and in the interest of consumers to allow a company to retain for its own use facilities which it has developed for the purpose of its business”. Indeed, the facts in Bronner were that Mediaprint had developed a distribution system for the purposes of its own newspaper business (see para. 54 of AG Jacobs’s Opinion).
Coming now to the cons, the Court’s main finding that the condition of “indispensability” does not need to be fulfilled, is premised on a distinction between cases where the dominant company has decided not to deal and cases where it has decided to deal and applies unfair conditions (paras 50-51). No doubt, here the Court follows AG Saugmandsgaard Øe. I find the limitation of the Bronner test only to the first case problematic and economically wrong. It favours full vertical integration models and closed systems and creates perverse incentives for dominant companies, which would prefer not to deal at all in the first place, rather than run the risk of seeing their conduct being “regulated” later on under the “unfair terms” intervention of Article 102(a) TFEU. To reach that conclusion, the Court also relies on a legalistic argument: “[T]he competent competition authority or national court will not have to force the dominant undertaking to give access to its infrastructure, as that access has already been granted. The measures that would be taken in such a context will thus be less detrimental to the freedom of contract of the dominant undertaking and to its right to property than forcing it to give access to its infrastructure where it has reserved that infrastructure for the needs of its own business” (para. 51). I must admit, the idea that the substantive legal standard, i.e. whether indispensability is required, can be dependent on the procedural choice that the Commission has made as to the remedy, is highly problematic. That would give the competition authority the discretion to cherry pick the legal test, which cannot be right.
To be clear, my criticism relates to the reasoning and not to the Court’s decision on the specific facts of the case, on which I am not taking a position. I should also add that I do not have a problem with the fact that the judgment places emphasis on the regulatory context. In para. 57 the Court says that “a regulatory obligation can be relevant for the assessment of abusive conduct, for the purposes of Article 102 TFEU, on the part of a dominant undertaking that is subject to sectoral rules”. This seems to be nothing more than just a confirmation of para. 82 of the Commission’s Guidance Paper. One final related point on para. 57 of the judgment. The Court says: “In the context of the present case, while the obligation imposed on the appellant to give access to the local loop cannot relieve the Commission of the requirement of establishing that there is abuse within the meaning of Article 102 TFEU, by taking account in particular of the applicable case-law, the imposition of that obligation has the consequence that, during the entire infringement period taken into account in the present case, the appellant could not and did not actually refuse to give access to its local loop network”. What does this mean? I think the Court, in reality, is saying that when sectoral regulation has already imposed a duty to deal, the Bronner case law should not apply, since there is by definition no refusal to supply – indeed, in that case, Slovak Telekom could not have refused and did not refuse to supply! This is certainly a very enforcement-friendly stance but I do not find it problematic as such (it fully confirms the Guidance Paper). What I find problematic is the reasoning above, if seen outside the regulatory context of the specific case.
- Lundbeck (restriction by object)
On the same day, the Court of Justice also delivered its judgment in the Lundbeck “pay for delay” case. The General Court’s judgment and the Commission’s decision were upheld. The judgment does not break any new legal ground and closely follows Generics (UK). It confirms that the concept of “restriction by object” in Article 101 TFEU should be interpreted strictly and can be applied only to some agreements between undertakings which reveal, in themselves and having regard to the content of their provisions, their objectives, and the economic and legal context of which they form part, a sufficient degree of harm to competition (para. 112). Patent settlement agreements cannot automatically be considered a “restriction by object”, even if they include a value transfer from the originator to the generic. However, where the value transfer “cannot have any explanation other than the commercial interest of both the holder of the patent at issue and the party allegedly infringing the patent not to engage in competition on the merits”, the agreement can restrict competition “by object” (para. 114). According to the Court, “[f]or the purpose of that examination, it is appropriate to assess on a case-by-case basis whether the net gain of the transfers of value from the manufacturer of originator medicines to the manufacturer of generic medicines was sufficiently significant actually to act as an incentive to the manufacturer of generic medicines to refrain from entering the market concerned and, consequently, not to compete on the merits with the manufacturer of originator medicines; however, there is no requirement that the net gain should necessarily be greater than the profits which that manufacturer of generic medicines would have made if it had been successful in the patent proceedings” (para. 115).
Then, the Court clarifies its position on the “counterfactual analysis” (i.e. whether the generics producers would have entered the market absent the agreements) and stresses that such an analysis “cannot be required in order to characterise a concerted practice as a ‘restriction by object’”. In other words, in “object infringement” cases, no “counterfactual analysis” is necessary, otherwise “the clear distinction between the concept of ‘restriction by object’ and the concept of ‘restriction by effect’ arising from the wording itself of Article 101(1) TFEU [would] be held not to exist” (para. 140). This is a new point that was not clear in previous case law and I have to admit I am surprised with the Court’s strong language. Risking a prediction here, I think this is not the end of the story on this point. Lundbeck was a very strange case. The Commission was running an “object infringement” case but its decision sounds as if an “effect” case was being made. If there was a blurring between “restriction by object” and “restriction by effect” here, it was the Commission’s fault.
The judgment also provides helpful guidance on the concept of “potential competition”, albeit stepping again on the Generics (UK) ground. Thus, in order to assess whether an undertaking is a potential competitor the test is whether there are “real and concrete possibilities” of it entering the market and competing with the undertakings present in it (paras 54-55). In the particular context of the case, it was necessary to examine “whether the manufacturer of generic medicines has in fact a firm intention and an inherent ability to enter the market, and does not meet barriers to entry that are insurmountable” (para. 56).
- Pometon (settlements)
Pometon was a cartel case (steel abrasives). This was a so-called “staggered hybrid settlement”, i.e. the Commission took a first decision (in 2014) addressed to undertakings that participated in a cartel settlement but one undertaking (Pometon) withdrew from the cartel settlement discussions, so the Commission was obliged to adopt a full infringement decision against Pometon at a later stage (in 2016). Such cases are not ideal from the point of view of administrative efficiency, there is no doubt about that. The ruling here was expected with a degree of uneasiness by the Commission, because it had referred in its settlement decision to facts relating to Pometon. That was at a time when Pometon was still not found guilty. So the question arose whether its presumption of innocence was breached. The Commission’s nervousness was owed to the fact that four years ago – in another staggered hybrid settlement – the General Court found in ICAP that the Commission had breached a non-settling undertaking’s presumption of innocence, because, in its earlier settlement decision, it had attributed to it unlawful conduct.
In Pometon, however, the General Court held and the Court of Justice now confirmed, that this was very much an issue that had to be examined ad hoc, so not all staggered hybrid settlements are problematic. In the case at hand, the Commission had taken sufficient drafting precautions in the settlement decision, in order to avoid a premature judgment as to the non-settling party’s participation in the cartel and made reference to it only where necessary. Indeed, “it may be objectively necessary for the Commission to address, in the decision terminating the settlement procedure, certain facts and behaviour concerning participants in the alleged cartel which are the subject of the standard procedure […] it is nevertheless for the Commission to ensure, in the decision concluding the settlement procedure, to preserve the presumption of innocence of undertakings which have refused to enter into a settlement and which are the subject of an ordinary procedure” (para. 65).
Interestingly, the Court further reduced the fine imposed on Pometon, thus partially annulling the General Court’s judgment, because of violation of the obligation to state reasons and the principle of equal treatment in the calculation of the fine. The Court compared the situation of Pometon to one of the settling parties. Both undertakings had played a limited role in the cartel and had limited sales in the EEA. So a further discretional reduction of the fine was appropriate.
In short, everybody must be happy. The company managed, as a result of the whole appeal process, to reduce its fine by almost 60%, while the Commission managed to emerge unscathed, when it comes to staggered hybrid settlements.
- AG Pitruzzella’s Opinion in Sumal (private enforcement)
Another Opinion on private enforcement questions! This was a preliminary reference from Spain in a follow-on action for damages further to the trucks cartel decision by the Commission. The question at stake is whether the doctrine of the single economic unit developed by the Court of Justice provides grounds for extending civil liability in damages from the parent company to the subsidiary (downwards), or it applies solely in the reverse, i.e. in order to extend liability from subsidiaries to the parent company (upwards). AG Pitruzzella’s Opinion in Sumal supports a “downward” extension of liability (from subsidiary to parent) and provides guidance on the criteria that need to be fulfilled for such an extension of civil liability.
The AG starts first from the state of the law in public enforcement cases. After recalling the case law on parental liability, i.e. the “upward” extension of liability from subsidiary to parent, the AG then delves into the reverse scenario and proposes that “there are no valid reasons to exclude the possibility of attribution of liability not only ‘from bottom to top’ (from the subsidiary to the parent undertaking), but also ‘from top to bottom’ (from the parent undertaking to the subsidiary)” (para. 52, unofficial translation). However, for a “downward” extension of liability certain criteria must be fulfilled. In particular, it is not sufficient that the parent undertaking exercises decisive influence on the commercial policy of the subsidiary, but the latter’s economic activity must be necessary for the implementation of the anti-competitive conduct in question (for example, because the subsidiary sells the products that are the object of the anti-competitive agreement) (paras 56-57). There would no such extension of liability, if the subsidiary engages in an economic activity unrelated to the activities of the parent undertaking that were tainted by the anti-competitive conduct (paras 58-59).
Then, the AG makes the transition to private enforcement. We know from Skanska that although the doctrine of single economic unit and the corresponding attribution of liability is something that was conceived and developed in the context of public enforcement, as a matter of EU law, it also applies to the context of private enforcement and regulates attribution of civil liability in damages. As the Court of Justice put it in Skanska, “the concept of ‘undertaking’, within the meaning of Article 101 TFEU, which constitutes an autonomous concept of EU law, cannot have a different scope with regard to the imposition of fines by the Commission under Article 23(2) of Regulation No 1/2003 as compared with actions for damages for infringement of EU competition rules” (para. 47). So the AG relies on that case law (paras 60-67 of the Opinion) and actually stresses the public interest character of private enforcement (para. 67). I have long argued about that particular point – see here (pp. 11-15) and here (pp. 144-145). So in the end, the AG’s approach boils down to recognising a choice for the claimant to bring a claim against a subsidiary, to the extent the above conditions are fulfilled. The AG sees this as something positive that increases the effectiveness of the right to damages (para. 68). In short, rather a plaintiff-friendly Opinion, although I am not surprised since Skanska was already foreshadowing this.
II. European Commission
- Article 22 Guidance (merger control)
At the Commission level, the most important development was undoubtedly the Commission’s change of approach with the publication of its new Guidance on Article 22 of the Merger Regulation. This purports simply to change the Commission’s “practice” or “approach”.
This is about mergers that fall below EU and national notification thresholds and therefore there is neither EU nor national jurisdiction in the first place. Whereas until now, the Commission was discouraging Article 22 referrals of such transactions from Member States, from now on, it will welcome such referrals in appropriate cases.
Let’s just pause for a second and see what this is about. Under Article 22(1) of the Merger Regulation “[o]ne or more Member States may request the Commission to examine any concentration as defined in Article 3 that does not have a Community dimension within the meaning of Article 1 but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request”. The text says nothing about national thresholds and this is because this was historically a provision that aimed at dealing with cases where there was no national merger control (so-called “Dutch clause”). Nowadays, however, all Member States have merger control systems. So the question most often in the lips of Brussels lawyers these days is whether it is lawful for Member States to refer mergers that were not even notifiable nationally.
A literal interpretation of Article 22 would support the legality of this. The decisional practice also indicates that there have been cases where Member States joined a referral request, even though the merger fell below their national thresholds (but, to the best of my knowledge, there was always one or more Member States that had jurisdiction). A historic and teleological interpretation of Article 22 may, however, cast doubt on the question of legality. In the end, this is something that will be decided by the EU Courts. In fact, the first “victim” is already appealing the first such referral (see here).
In any event, the interesting element is that the new Guidance is intended to catch “in particular, transactions in the digital and pharma sectors” (para. 10). According to para. 19, the transactions targeted are those where “the turnover of at least one of the undertakings concerned does not reflect its actual or future competitive potential”. The Guidance includes an indicative list of factors to put flesh on these bones. It refers to cases “where the undertaking: (1) is a start-up or recent entrant with significant competitive potential that has yet to develop or implement a business model generating significant revenues (or is still in the initial phase of implementing such business model); (2) is an important innovator or is conducting potentially important research; (3) is an actual or potential important competitive force; (4) has access to competitively significant assets (such as for instance raw materials, infrastructure, data or intellectual property rights); and/or (5) provides products or services that are key inputs/ components for other industries”. In its assessment, the Commission “may also take into account whether the value of the consideration received by the seller is particularly high compared to the current turnover of the target”. In short, the Commission is in reality describing those cases which could fall within the pejorative term “killer acquisitions”.
And, by the way, according to para. 21, “the fact that a transaction has already been closed does not preclude a Member State from requesting a referral”! On this last point, the Commission points to Article 22(4) of the Regulation which seems to allow this. Respectfully, I have my doubts on this. If anything, this probably supports the historic / teleological interpretation of Article 22, mentioned above.
- Interesting decisions
It would be unfair to end this post, without mentioning some interesting Commission decisions. I would single out (i) the withdrawal of pay-TV commitments decision and (ii) the Aspen excessive pricing commitments decision.
Starting from the first case, you may have read my comments on the Canal+ judgment. As a result of that case, on 31 March 2021, the Commission withdrew its 2019 commitments decision that made commitments offered by film studios Disney, NBCUniversal, Sony Pictures and Warner Bros and broadcaster Sky UK binding. The Commission probably was unhappy that it lost but acted strategically. As I explained in my commentary, Canal+ was probably implying that the specific clauses in the contracts are incompatible with Article 101 TFEU. So the Commission was quite content with the judgments of the General Court and the ECJ as to substance, i.e. that the clauses restrict competition, and at the same time it also knew that the clauses have been abandoned and amended. Therefore, problem solved. In the Commission’s own words, “in view of […] the changes made to the agreements between the studios and broadcasters, the Commission sees no need to continue the investigation and has, therefore, closed the proceedings”. Now, what does this mean in terms of third parties such as Canal+, which was successful in its appeal against the commitments decision and had argued that the commitments may have resolved the Commission’s concerns but encroached on its own contractual rights based on its agreements with the studios? And what about the poor studios who are now found between Scylla and Charybdis? The Commission is totally indifferent. It throws the ball to the national courts. To be fair to the Commission, it did explain before the Court what the national courts could do (this is mentioned in para. 92 of the ECJ judgment). That was quite a saga!
The Aspen commitments decision is one of those rare cases where the Commission pursues an excessive pricing theory of harm, based on Article 102(a) TFEU. For a commitments decision, it is quite long, maybe because the Commission wanted to have a chance to give its own views as to the legal and economic tests applicable in such cases. A few interesting observations: First, it seems that the Commission was running a “strategy” case (para. 89). I have seen “exclusionary strategy” cases before, but this is the first time I see a decision about an “exploitative strategy”. Second, the Commission applied the United Brands test to the facts of the case and it explains in paras 102-201 the stages it followed. Finally, when it comes to the commitments themselves, to me, the most interesting commitment is the granting of a “rebate”, whereby Aspen would reimburse the overcharge to public and private entities that ultimately pay or reimburse medicine prices in the Member States. To the best of my knowledge, this is the first time the Commission has accepted a compensatory commitment. So we have a nice example of public enforcement with redress elements, which makes private enforcement unnecessary in this case. That’s something I fully endorse and have argued for in the past (see here). Competition authorities should think hard how to encourage consensual redress mechanisms through their policy on commitments.
Citation: Makis Komninos, Competition Stories: March & April 2021, CONCURRENTIALISTE (May 10, 2021)
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