Ian S. Forrester QC LL.D. a Scot Without Borders Liber Amicorum - Volume II

Editors Sir David Edward Jacquelyn MacLennan Assimakis Komninos Ian S. Forrester QC LL.D. A Scot without Borders Liber Amicorum - Volume II

Peter Alexiadis, Jean-Yves Art, Carl Baudenbacher, Jean-François Bellis, Kent Bernard, Helmut Brokelmann, Eleanor M. Fox, Ayşe Gizem Yaşar, Rosa Greaves, Ayşe Güner, Gönenç Gürkaynak, Barry E. Hawk, Nicholas Khan, James Killick, Assimakis P. Komninos, Santiago Martínez Lage, Valérie Meunier, Jorge Padilla, Mark Powell, Francesco Setti, Luís Silva Morais, Jacques Steenbergen, Pablo Trevisán, Mathieu Vancaillie, James S. Venit, Denis Waelbroeck, Karen Williams.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II i Editors Sir David Edward Jacquelyn MacLennan Assimakis Komninos Ian S. Forrester QC LL.D. A Scot without Borders Liber Amicorum - Volume II

It is with great pleasure that we present this Liber Amicorum to Ian Stewart Forrester QC LL.D. on the year of his 70th birthday and at this point of transition in his extraordinary professional life. This two-volume Liber Amicorum is a collection of tributes to Ian Forrester’s outstanding career and of a series of articles signed by prominent academics and practitioners around the world on the most current topics in EU law and policies, competition law, human rights and intellectual property.

Born in Glasgow from a Scottish family, Ian Forrester practiced law in multiple cities, Brussels, New York and London, to mention some. He arrived in Brussels in 1973 as one of the first generation of UK lawyers at the time when the UK joined the European Union. He participated in many of the leading cases in the formation of key principles of EU law, particularly EU competition law such as Bosman, Bullock (Distillers), GlaxoSmithKline, Servier, Pfizer, Magill, IMS Health and Microsoft. Ian Forrester lived these and other cases professionally and academically, debating them with students, professors and researchers. He has been a mentor to many younger lawyers and is also a prolific writer of seminal articles. His good spirits and quirky sense of humour have made him friends and professional connections all over the world and this Liber Amicorum is an occasion to mark the outstanding merits of a remarkable man and express the long lasting and affectionate friendship.

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ii Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II IAN S. FORRESTER QC LL.D. A Scot without Borders

Liber Amicorum - Volume II

Editors Sir David Edward Jacquelyn MacLennan Assimakis Komninos

GO TO TABLE OF CONTENTS All rights reserved. No photocopying: copyright licenses do not apply. The information provided in this publication is general and may not apply in a specif- icsituation. Legal advice should always be sought before taking any legal action basedon the information provided. The publisher accepts no responsibility for any acts or omissions contained herein. Enquiries concerning reproduction should be sent to the Concurrences Review,at th e address below.

Cover and book design by Yves Buliard, www.yvesbuliard.fr

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Competition Digest – A Synthesis of EU and National Leading Cases — 2nd Edition Frédéric Jenny • 2015

Antitrust in Emerging and Developing Countries Eleanor Fox - Harry First • 2015

Consumer’s Choice: The Emergence of a Powerful Concept in Competition Law Paul Nihoul • 2015

Google, la presse et les journalistes – Analyse interdisciplinaire d’une situation de coopétition Guillaume Sire • 2015

Les grands arrêts du droit de la concurrence Laurence Idot • 2015

Les pratiques restrictives – L’application de l’article L. 442-6 du code de commerce à travers la jurisprudence Erwann Kerguelen • 2015

William E. Kovacic: An Antitrust Tribute – Liber Amicorum (Vol. II) Nicolas Charbit - Elisa Ramundo • September 2014

Competition Law on the Global Stage: David Gerber’s Global Competition Law in Perspective Nicolas Charbit - Elisa Ramundo • January 2014

Day to Day Competition Law: A practical Guide for Businesses Patrick Hubert, Olivier Lecroart, Marie Leppard • March 2014

A quoi sert la concurrence ? Martine Behar-Touchais, Nicolas Charbit, Rafael Amaro • October 2014

William E. Kovacic: An Antitrust Tribute – Liber Amicorum (Vol. I) Nicolas Charbit - Elisa Ramundo • January 2013

All books are published in print and electronic format.

GO TO TABLE OF CONTENTS Foreword Sir David Edward Jacquelyn MacLennan Assimakis Komninos

It is a great honour and a special delight to be able to present this Liber Amicorum to Ian Stewart Forrester QC LL.D. on the occasion of his 70th birthday. Ian comes from a formidable family of Scottish Presbyterian ministers and professors of divinity in whose footsteps he has followed as an elder and regular preacher at St Andrew’s Church of Scotland in Brussels. While firmly rooted in the faith of his ancestors, the intellectual rigour of David Hume and Adam Smith, and the civil law traditions of Scots law, he has, like so many Scots down the ages, sought broader horizons – mainly in Brussels, but now in Luxembourg, with more than a passing dalliance with the common law in New York and London, as well as the cultural life of Japan and the byways of Serbian politics. His endless good spirits and quirky sense of humour have made him friends as well as professional connections all over the world. Ian was born in Glasgow in 1945, the son of a well-loved and respected schoolmaster and outstanding cricketer – one talent that Ian did not, as far as we know, inherit. The youngest child of the family, who lost his mother tragically early, he was educated at Kelvinside Academy and Glasgow University where he took the traditional Scottish general arts degree (MA 1965) followed by a degree in law (LL.B. 1967). This was a glittering period in the annals of the University, marked by debating successes with the late Alan Rodger (Lord Rodger of Earlsferry) and later, in a North American debating tour, with James Douglas-Hamilton (Lord Selkirk of Douglas). He continued his studies at Tulane University (MCL 1969), Louisiana being carefully selected as a civil law island within a common law sea. Ian returned there to teach on many occasions. It was in New Orleans that he met Sandra Keegan, who became his wife. Before returning to Scotland after Tulane, Ian spent some time as an intern with Davis Polk in New York, and then returned to prepare for the Scots Bar as the ‘devil’ (pupil) of David Edward. But his time with Davis Polk had brought him into a case involving a Palestinian hijacked plane, which continued to take him to places like Beirut in the

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II V 1970s. This was somewhat disconcerting for his devil-master, while opening new casements onto the foam of international practice. Despite these distractions, Ian was admitted to the Scots Bar in 1972, and ‘took silk’ (becoming a QC) in 1988. In the meantime, he took the New York Bar in 1977, and he was later admitted to the English Bar in 1996.

Ian had moved in 1973 to Cleary Gottlieb in Brussels as one of the first generation of UK lawyers who arrived there when the UK joined the European Communities. For the next forty-two years Brussels was to be his home. It is where he raised a family, together with Sandra, becoming the proud father of two sons, Alexander and James, both of whom have resisted the law to date, despite bedtime stories which, Ian confessed, were a soporific means for him to find the clearest expression of his arguments in the case before him at the time.

Meanwhile, he moved from Big Law to Boutique Law, creating Forrester & Norall with Chris Norall, later joined by Alastair Sutton, and then back to Big Law when Forrester Norall & Sutton merged with White & Case. His appointment to the Luxem- bourg bench will round off Ian’s illustrious career as a practitioner.

Ian belongs to the generation that ‘made’ the English-speaking competition law bar in Brussels, until then the monopoly of a few continental law professors and some Belgian French-speaking lawyers. He was fortunate to participate in many of the leading cases in the formation of key principles of EU law, particularly EU competition law. Examples are Bosman on freedom of movement in sport; Bullock (Distillers) on restricting exports through discriminatory pricing; GSK on parallel trade of pharmaceutical products; Servier and Pfizer on the precautionary principle; Magill, IMS Health and Microsoft on the interface of competition law and intellectual property law, and in particular, on compulsory licensing; Rambus on standard setting bodies and Article 102; Intel on unilateral conduct/discounts; Chalkor on the standard of judicial review of Commission decisions; and Servier on what promises to be a defining case in EU law on reverse settlements.

Ian has not just lived these cases professionally but also academically. He toured the amphitheatres and debated these and other cases with students, professors and researchers. There was never a conference he declined, to the despair of his faithful secretary and PA, Pauline Tart, who had to manage an unmanageable calendar.

Ian is also a prolific writer of seminal articles. His ‘Laicisation of Community Law - Self Help and the Rule of Reason: How Competition Law Is and Could be Applied’, co-authored with Chris Norall and published in 1984, remains a must-read for students of EU competition law. His articles on the modernization of EU competition law, when Regulation 1/2003 was being prepared, and on due process in EU competition law enforcement have also been influential, and he has written about the EU judicial system from a comparative law perspective.

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VI Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Ian is generous with his time and talents and has been a mentor to many younger lawyers. A typical scene is Ian in an office full of papers and books surrounded by younger colleagues discussing a case. He has had a long association with the Jessup Moot Court and has also been the head of White & Case’s global pro bono practice. He has also been a trustee and strong supporter of the European Baroque Orchestra, and recently embarked on a new career side line as narrator in ‘The Snowman’ concert and Master of Ceremonies at the Brussels Christmas Carol Concert.

His many qualities have been recognized in his appointment as Honorary Professor of European Law and the award of an LL.D. at his alma mater the University of Glasgow, and as an Honorary Bencher of the Middle Temple.

This Liber Amicorum is an occasion to mark the outstanding merits of a remarkable man and express the long lasting, deep, affectionate friendship by three generations of colleagues in this preface and in the contributions themselves. In this point of transition in an extraordinarily full professional life, we wish Ian all the best for an ever fruitful and rewarding time at the EU Bench.

David, Jacquelyn and Makis

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II VII Contributors

Peter Alexiadis Gönenç Gürkaynak Dal Negro Setti Gibson Dunn ELIG Luís Silva Morais Jean-Yves Art Barry E. Hawk Luís Silva Morais Sérgio Microsoft Fordham University School of Law Gonçalves do Cabo & Associados Carl Baudenbacher Nicholas Khan EFTA Court European Commission Jacques Steenbergen Belgian Competition Authority Jean-François Bellis James Killick Van Bael & Bellis White & Case Pablo Trevisán Estudio Trevisán Abogados Kent Bernard Assimakis P. Komninos Fordham University School of Law White & Case Mathieu Vancaillie Helmut Brokelmann Santiago Martínez-Lage Ashurst Martínez Lage, Allendesalazar Martínez Lage, Allendesalazar & Brokelmann & Brokelmann James S. Venit Skadden Arps Eleanor M. Fox Valerie Meunier New York University School of Law Compass Lexecon Denis Waelbroeck Ayşe Gizem Yaşar Jorge Padilla Ashurst ELIG Compass Lexecon Karen Williams Rosa Greaves Mark Powell University of Glasgow White & Case European Commission

Ayşe Güner Francesco Setti ELIG Avvocati Associati Franzosi

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II IX Table of Contents

Foreword...... V

Contributors...... IX

Table of Contents...... XI

Ian S. Forrester QC LL.D. Biography ...... XV

Part IV - Competition Law

Merger control in regulated sectors: a bridge too far?...... 3 Peter Alexiadis

Interim relief in EU competition law: a matter of relevance...... 57 Jean-Yves Art

‘[M]ust be interpreted in the light of economic considerations’: some reflections on the case law of the EFTA Court...... 77 Carl Baudenbacher

Use and abuse of the ‘single and continuous infringement’ concept in EU cartel cases: the implications for follow-on private actions for damages..... 99 Jean-François Bellis

Transatlantic competition law convergence: looking for a chimera?...... 113 Kent Bernard

Industrial policy, China and the world: are there norms?...... 131 Eleanor M. Fox

EU competition rules and maritime agreements post-2004...... 139 Rosa Greaves

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II XI Competition law and personal data crossing in digital markets...... 153 Gönenç Gürkaynak, Ayşe Güner, and Ayşe Gizem Yaşar

Competition law and consumer protection in pre-industrial societies...... 173 Barry E. Hawk

Patent settlements as by object restrictions: a European approach, but is it the right one?...... 185 James Killick

Arbitration and damages claims based on competition law infringements...... 201 Assimakis P. Komninos

The relationship between public and private enforcement of EU competition law: some thoughts on recent developments...... 219 Nicholas Khan

Parallel trade after the GlaxoSmithKline judgments...... 233 Santiago Martínez Lage and Helmut Brokelmann

Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law...... 249 Luís Silva Morais

Should reverse payment patent settlements be prohibited per se?...... 271 Valerie Meunier and Jorge Padilla

Has merger control spun out of control? The effects of a quarter of a century of EU merger control...... 291 Mark Powell

Relations between regulatory and competition law in the light of Lucentis/Avastin (Novartis/Roche) case law...... 307 Francesco Setti

Some thoughts on legality and legitimacy...... 329 Jacques Steenbergen

Compensation for damages as a result of antitrust violations: European Union and Argentina...... 337 Pablo Trevisán

Ordoliberalism and the modernization of EU competition law...... 353 James S. Venit

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XII Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II ‘Oh illustrious Caesar! If it is sufficient to deny, what hereafter will become of the guilty?’ On the presumption of innocence, the burden of proof, and the standard of proof in EU competition law...... 373 Denis Waelbroeck and Mathieu Vancaillie

The current role of the hearing officer: another step change...... 405 Karen Williams

Contributors’ Bios...... 421

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II XIII IAN S. FORRESTER QC LL.D. Biography I. Career Ian S. Forrester QC LL.D. is a teacher, author and practitioner specialising in European law. He is partner at White & Case LLP (to September 2015), based in its Brussels office, and head of the Firm’s worldwide pro bono practice. He has lectured widely on EU legal and policy topics and published extensively on these themes, particularly competition, customs, dumping, pharmaceuticals, sport, the precautionary principle, and human rights. Several articles concentrate on due process in competition cases.

Honorary Professor and Honorary Doctor of Laws at Glasgow University since 2009, he is a member of the Faculty of Advocates (the Scottish Bar) since 1972; he is also a member of the bars of England (1996), Belgium (1998) and New York, to which he was admitted in 1977 after examination, under special order of the New York Court of Appeals, following a challenge to the constitutional propriety of excluding non-resident aliens from bar membership. He was appointed Queen’s Counsel in 1988, and Bencher, Middle Temple in 2012.

His early career was spent with Maclay, Murray & Spens in Scotland; Davis Polk & Wardwell in New York; and Cleary Gottlieb Steen & Hamilton in New York and Brussels. He co-founded the boutique firm Forrester & Norall in 1981, which enlarged to Forrester Norall & Sutton in 1989, and merged with White & Case in 1998.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II XV Professor Forrester has appeared before the European Courts, European Commission and national courts and agencies in several leading cases, including Magill (compulsory licensing); Bosman (football transfers); Microsoft (compulsory licensing); IMS (compulsory licensing); Pfizer Animal Health (the precautionary principle); Government of Gibraltar v Council (status of Gibraltar Airport); Glaxo Spain and Syfait et al v GlaxoSmithKline (parallel trade in pharmaceuticals); Les Laboratoires Servier (settlement of patent disputes); Chalkor (due process and judicial review); Canon (dumping); A and Others v. National Blood Authority (can a blood transfusion be a ‘defective’ ‘product’); Bellona Foundation v EFTA (environmental protection). He is a Trustee of the European Union Baroque Orchestra; a Member of the Dean’s Advisory Board, Tulane University School of Law; a Member of Glasgow University School of Law’s Advisory Committee; and a Member of the Board of Trustees, Academy of European Law, Trier.

II. Education

Attended Kelvinside Academy, Glasgow; graduated from Glasgow University (MA 1965; LLB 1967; LL.D. honoris causa 2009); received an MCL from Tulane University of Louisiana (1969). III. Selected publications

Books ‘The German Civil Code, a translation and introduction’, 1975 ‘The German Commercial Code’, 1979 ‘The German Marriage Law’, 1976, North Holland/Kluwer/Fred Rothman (co-author) ‘The German Legal System’, 1971, pamphlet, Rothman (co-author)

Articles and Papers ‘Maintaining Trade Secrecy’, Georgia Law Review, 1970; reprinted, Patent Law Review, 1970 ‘Jurisdiction of National and Community bodies in competition matters after SABAM’, Common Market Law Review, 1974 ‘Distribution and Agency Agreements in EEC Competition Law’, Revue Suisse du Droit International de la Concurrence, 1978, and Journal of the Law Society of Scotland, 1978

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XVI Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II ‘EEC Customs Law: Rules of Origin and Preferential Duty Treatment’, European Law Review, 1980

‘Developments in EEC Competition Law’, chapter on decisions of the EC Commission and judgments of the European Courts in the field of competition in the Yearbook of European Law; annual survey (1981-1996); biennial survey (1997 to date); Clarendon Press-Oxford (22 chapters to date) (co-author)

‘Legal Professional Privilege: Limitations on the Commission’s Powers of Inspection following the AM & S Judgment’, Common Market Law Review, 1983

‘The laicization of Community law: selfhelp and the rule of reason: how competition law is and could be applied’, Common Market Law Review, 1984; also in Fordham Corporate Law Institute, Matthew Bender & Company Inc., New York, 1984 (co-author). Reprinted in EC Competition Law Reform, Fordham Corporate Law Institute, Juris Publishing, Inc., Huntington, NY, 2003

‘Software Licensing in the Light of Current EC Competition Law Considerations’, European Competition Law Review, 1992

‘EC Intellectual Property Law and the Single Market’ (co-author) in The Regulatory Affairs Journal, Vol 5, No 7, July 1994

‘European Law and its implications for football’, paper presented to the Scottish Council for Civil Liberties and the Scottish Trades Union Congress Conference on ‘Football, the Law and Civil Liberties’, Glasgow, March 1996 (unpublished)

‘Pharmaceuticals: Test Bed for European Themes on Trademarks & Free Movement of Goods’, paper presented at the Fifth Annual Conference on International Intellectual Property Law and Policy at Fordham University School of Law, April 1997, Fordham Intellectual Property, Media & Entertainment Law Journal, Volume VIII, Autumn 1997, Number 1 (co-author)

‘The Repackaging of Trademarked Pharmaceuticals in Europe: Recent Developments’, paper presented at the Eighth Annual Conference on International Intellectual Property Law and Policy at Fordham University School of Law, April 2000, European Intel- lectual Property Review 2000, Issue 11, p. 512

‘The EU and Japan: Priorities and Prospects for the Coming Decade’, published in Japanese in JMC Journal, February 2001

‘The Reform of the Implementation of Articles 81 and 82 Following Publication of the Draft Regulation’, in Legal Issues of Economic Integration 28(2), 173-194, 2001

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II XVII ‘Compulsory licensing of intellectual property rights in Europe: a rare cure to aberrant intellectual property rights’, paper presented at the US Department of Justice/Federal Trade Commission Hearings on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy: Comparative Law Topics, May 22, 2002. Published in October 2002 in English in the Chinese International Business Daily (web edition). Published in Chinese in 2003 in The Forum of Politics and Law. Published in Japanese in two parts in the CIPIC Journal, Vol 134 (2003/3) and Vol 136 (2003/5), under the title ‘Yohroppa niokeru kyousei raisensingu mondai nituite: ikinaikoku no ijyoutomoieru chitekizaisanken no enyou o naosu ryouyaku to naruka’. ‘Trademark Exhaustion in Europe’, published in Japanese in the CIPIC Journal, Vol 139 (2003/8), under the title ‘Yohroppa niokeru syouhyou no syoujin mondai nituite’ (co-author) ‘The EFTA Court confronts re-labelling (Paranova AS v Merck & Co., Inc. and Others, Judgement of the EFTA Court of 8 July 2003, Case E-3/02)’, in European Law Reporter 7-8/2003 at 278 ‘The exhaustion of trademark rights in the EU and the possible action against pirated and counterfeit goods’ (published in Japanese only in the CIPIC Journal, Vol 142 (2003/11), under the title ‘Ousyu-niokeru heikou-yunyu-mondai oyobi mohouhin/ kaizokuban no torishimari nituite’ (co-author) Contribution to ‘Roundtable on Trinko’, Global Competition Review, Volume 7, Issue 2, March 2004 ‘Competition Law and Intellectual Property in Europe’, Twelfth St. Gallen International Competition Law Forum 2005, University of St. Gallen, published in Neueste Entwicklungen im europäischen und internationalen Kartellrecht, Zwölftes St. Gallen Internationales Kartellrechtsforum 2005, Helbing & Lichtenhahn Verlag, Basel, 2006 ‘Precaution, Science and Jurisprudence: An Evaluation’, Journal of Risk Research, Vol 9, No 4, 297-311, June 2006 (co-author) ‘Regulating Intellectual Property Via Competition? Or Regulating Competition Via Intellectual Property? Competition and Intellectual Property: ten years on, the debate still flourishes’, European Competition Law Annual 2005: The Interaction between Competition Law and Intellectual Property Law, Hart Publishing, 2008 ‘How The Monopolist Gained More Power By Abjuring Its Monopoly’, paper delivered to the Swedish Journal of European Law/Swedish FIDE Association conference on The modernisation reform of EC antitrust enforcement and its effects in the national legal order, Stockholm, 2 December 2005, Europarättslig Tidskrift, Nummer 3 2006 Ǻrgång 9, November 2006 ‘The judicial function in European law and pleading in the European Courts’, Third Annual Wendell Gauthier Lecture, Tulane Law School, 2006, 81 Tul. L. Rev. 647, 2006 ‘Agenda de Lisbonne et droit de la concurrence’, Editorial in Concurrences 3-2006 (co-author)

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XVIII Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II ‘Ex-post assessment of Regulation 1/2003’, Global Competition Policy, October 2008, Release 2

‘Exceptional approval of major mergers: London and Brussels compared’, Global Competition Policy, May 2009, Release 1

‘Due Process in EC competition cases: a distinguished institution with flawed procedures’, (2009) 34 E.L. Rev. 817

‘Google: The Benign Monopolist?’, GCP: The Antitrust Chronicle, October 2009 (Release 2)

‘A European Paradox: Imposing Market Reform ‘Voluntarily’’, paper delivered at the 1st Annual Concurrences Conference, ‘New Frontiers of Antitrust’, Paris, February 15, 2010; Concurrences No 2-2010

‘Due process in competition proceedings: a practitioner’s view from Brussels’, Concurrences No 3-2010

‘Obstacle to creation of EU-wide patent court’, World Intellectual Property Report, BNA International, October 2010 (co-author)

‘European Competition Law and the Indian Experience: A practitioner’s view from Brussels’, Competition Law Reports (Commemorating the 1st Anniversary of the Competition Appellate Tribunal), Vol 1, New Delhi, 2010

‘A Challenge for Europe’s Judges: The Review of Fines in Competition Cases’ (2011) 36 E.L.Rev. 185

‘Google Books: Game and Set to the Sceptics; the Match Continues’, Competition Policy International Antitrust Chronicle, June 2011 (2)

‘Antitrust judicial review: Highlights of EU and national case laws’, Concurrences N° 2-2011

‘In Praise of “A Safe and Honourable Dispute”’, presented at the International Rounds of the Philip Jessup Moot Court competition, 31 March 2012, Washington DC; ILSA Quarterly, volume 20, issue 4, May 2012

‘Competition Law: the unpredictable ally of business’, foreword to Asian-Mena Counsel Special Report, Anti-Trust & Competition, Vol. 10, Issue 4, 2012

‘Is Common Sense Doomed? Choosing Between Rigid Clarity and Flexible Unpre- dictability’, Social Science Research Network 19th St. Gallen International Competition Law Forum 2012 (ICF)

‘A dangerous practice? Settling patent litigation is not such a bad idea’, Competition Law Insight, 15 April 2014

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II XIX ‘To Seek Leniency or Not To Seek Leniency: That Is The General Counsel’s Question,’ paper delivered at the Seminário sobre Compliance e Defesa da Concorência, 28 August 2014, Conselho Administrativo de Defesa Económicà/Centro de Estudos de Direito Econômico e Social, São Paulo, 2015

Chapters EEC Section in A Lawyer’s Guide to International Business Developments, edited by W. Surrey, Philadelphia, 1980 (co-author) ‘EEC Competition Law on Agency’ in A Survey of Commercial Agency, edited by H. Lidgard, Sacramento, 1984 Chapter on ‘Distribution’ in International Anti-trust Law, Vol II, edited by Julian Maitland-Walker, ESC Publishing Limited, 1984 ‘Recent Developments in EEC Trade Law’ in Legal Aspects of International Business Transactions II, edited by D. Campbell and C. Rohwer, North-Holland, 1985 (co-author) ‘EEC Trade Law and the United States’, in Annual Proceedings of the Fordham Corporate Law Institute, Matthew Bender & Company Inc., New York, 1987 ‘Le rôle des avocats dans ce domaine: le lobbying’ in Union des Avocats Européens Conference Papers: Le Rôle du Parlement Européen pour la Défense des droits des opérateurs Economiques et citoyens communautaires, 1993 ‘Sports and the EC’ in Sports Law & Finance, IBC Legal Studies Publishing Ltd., Vol 2, Issue 3, September/October 1994 ‘The End of Innocence’ in Rules of Origin in International Trade: A Comparative Study, edited by Edwin Vermulst, Paul Waer & Jacques Bourgeois, University of Michigan Press, 1994 ‘Opening the Procedure and its Effects: Notification of Complaints - the Statement of Objections’ in Droits de la défense et droits de la Commission dans le droit communautaire de la concurrence / Rights of defence and rights of the European Commission in EC Competition Law, Bruylant, Bruxelles, 1994 ‘Competition Structures for the 21st Century’, Annual Proceedings of the Fordham Corporate Law Institute, Matthew Bender & Company Inc., New York, 1994 ‘Le Lobbying’ in L’entreprise dans le marché unique européen, Travaux de la CEDECE, La Documentation française, Paris, 1995 ‘The Role of the Lawyer’ in Robert Schuman Centre Annual Conference on European Competition Law 1996, Kluwer Law International, 1997 Chapters on ‘Costs, Legal Aid, Discontinuance, Service, Time Limits and Stay of Proceedings’ in European Courts Practice and Precedents, Sweet & Maxwell, London, 1997 (co-author)

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XX Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Chapter on ‘Community Customs Law’ in Practitioners Handbook of EC Law, Bar European Group/Trenton Publishing/Bar Council, 1998 (co-author) ‘Current Goals of EC Competition Law’, in European Competition Law Annual 1997: Objectives of Competition Policy, Hart Publishing, Oxford, 1998 ‘Modernisation of EC Competition Law’, paper presented at the 26th Annual Conference on International Antitrust Law & Policy, Fordham Corporate Law Institute, October 1999, Fordham Corporate Law Institute 2000, Juris Publishing, Inc., New York, 2000; Fordham International Law Journal, Volume 23, April 2000, Number 4; reprinted in EC Competition Law Reform, Fordham Corporate Law Institute, Juris Publishing, Inc., Huntington, NY, 2003 ‘Regulating Deregulation: Achieving and safeguarding conditions for fair and efficient competition in the telecommunications industry: to whom should the task be entrusted?’, in European Competition Law Annual 1998: Regulating Communications Markets, Hart Publishing, Oxford-Portland Oregon, 2000 ‘The Modernisation of EC Antitrust Policy: Compatibility, Efficiency, Legal Security’, European Competition Law Annual 2000: The Modernisation of EC Antitrust Policy, Hart Publishing, 2001 Chapter on ‘The European Law Background’, in European Employment Law and the U.K., Sweet & Maxwell, London, 2001 (co-author) ‘The role of comparative law in the development of European law’, paper on Intellec- tual Property aspects presented at the Swiss Institute of Comparative Law colloquium, April 2000 (Publications de l’Institut suisse de droit comparé, Volume 43, Schultheiss Zürich 2002) ‘The Dangers of Too Much Precaution’, chapter in A True European: Essays for Judge David Edward, Hart Publishing, 2003 ‘The use of comparative law in A & Others v. National Blood Authority’, chapter in Comparative Law Before the Courts, British Institute of International and Comparative Law, 2004 (co-author) ‘Diversity and Consistency: Can They Cohabit?’, European Competition Law Annual 2002: Constructing the EU Network of Competition Authorities, Hart Publishing, 2004 ‘Modernisation: an extension of the powers of the Commission?’ chapter in Moderni- sation and Enlargement: two major challenges for EC competition Law, D Gerardin Ed., Intersentia, 2004, pp. 83-97 (paper presented at Global Competition Law Centre, Bruges, First Annual Competition Conference 2004) ‘Article 82: Remedies in Search of Theories?’, paper presented at the 31st Annual Conference on International Antitrust Law & Policy, Fordham Corporate Law Institute, October 2004, 2004 Fordham Corp. L. Inst. 167, Juris Publishing, Inc., New York, 2005; and Fordham International Law Journal, Vol 28, Juris Publishing, Inc., New York, 2005

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II XXI Chapters on ‘Customs Valuation’ and ‘Customs Classification’ in The World Trade Organization: Legal, Economic and Political Analysis, Vol I, 2005 Springer Science & Business Media Inc. (co-author)

‘EC competition law as a limitation on the use of IP rights in Europe: is there reason to panic?’, European Competition Law Annual 2003: What is an Abuse of a Dominant Position?, Hart Publishing, 2006

‘Where law meets competition: is Wouters like a Cassis de Dijon or a platypus?’, European Competition Law Annual 2004: The Relationship Between Competition Law and the (Liberal) Professions, Hart Publishing, 2006

‘The Tension Between Regulation and Competitive Market Forces in Europe’, chapter in Companions and Crossroads: Essays in Honor of Shael Herman, Tulane European & Civil Law Forum, Volume 21, 2006 (co-author)

‘Beneath the Cherry Tree, in the Garden: European Thoughts on How to Enhance the Task of Uncovering and Thereby Deterring’, European Competition Law Annual 2006: Enforcement of Prohibition of Cartels, Hart Publishing, 2007

‘Remedies and Sanctions for Unilateral Conduct in Competition Cases’, paper presented at the 34th Annual Conference on International Antitrust Law & Policy, Fordham Corporate Law Institute, October 2007, 2007 Fordham Corp. L. Inst. 559, Juris Publishing, Inc., New York, 2008

‘Sector-Specific Price Regulation or Antitrust Regulation – A Plague on Both Your Houses?’, European Competition Law Annual 2007: A Reformed Approach to Article 82 EC, Hart Publishing, 2008

‘L’Europe des juges. Recent criticism of ECHR and ECJ judgments; the American debate on judicial activism versus judicial restraint’, paper delivered to the Europaïsches Forum Alpbach/University of St. Gallen conference on ‘The Role of International Courts’, Salzburg, May 3-4, 2007; published in The Role of International Courts, German Law Publishers 2008

Chapter on ‘Competition Law Adjudication’, for American Bar Association 6-volume publication, The Administrative Law of the European Union, August 2008 (co-author)

‘Parallel trade in prescription medicines in the European Union: the Age of Reason?’, Yearbook of Antitrust and Regulatory Studies (2008), Centre for Antitrust and Regula- tory Studies, Warsaw University School of Management

‘On Remedies, Abuses and the Links Between (Article 82 EC and Structural Remedies after Microsoft)’, in Current Developments on European and International Competi- tion Law, Carl Baudenbacher (Editor), Fifteenth St. Gallen International Competition Law Forum, University of St. Gallen, Helbing & Lichtenhahn Verlag, Basel 2008

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XXII Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II ‘Creating new rules or closing easy cases? Policy consequences for public enforcement of settlements under Article 9 of Regulation 1/2003’, European Competition Law Annual 2008: Antitrust Settlements Under EC Competition Law, Hart Publishing, Oxford and Portland Oregon, 2010 ‘Victa placet mihi causa: the Compulsory Licensing Part of the Microsoft Case’, chapter in Microsoft on Trial: Legal and Economic Analysis of a Transatlantic Antitrust Case, L Rubini (Editor), Edward Elgar Publishers, 2010 ‘Compulsory Licensing in European Competition Law: The Power of the Adjective’, chapter in Intellectual Property and Competition Law: New Frontiers, S Anderman and A Ezrachi (eds.) Oxford University Press, 2010 (co-author) ‘Due process after Menarini and Halcor: is there any more to say?’, Guide to the World’s Leading Competition and Antitrust Lawyers/Economists, Euromoney Institu- tional Investor PLC, March 2010 ‘L’oralité devant les cours du Royaume Uni et européennes’, paper delivered at the colloquium organised by the Ordre des avocats au Conseil d’état et à la Cour de cassation, Paris, 15 December 2008, published in Thème et commentaires, Dalloz, Paris 2011 ‘A Bush in Need of Pruning: the Luxuriant Growth of ‘Light Judicial Review’’, European Competition Law Annual 2009: The Evaluation of Evidence and its Judicial Review in Competition Cases, Claus-Dieter Ehlermann and Mel Marquis (Editors), Oxford and Portland Oregon 2011 ‘Magill Revisited’, chapter for Liber Amicorum in honour of Jacques Bourgeois, Edward Elgar, 2011 ‘Arbitrating Competition Law Matters in Pharmaceutical Matters’, chapter in EU and US Antitrust Arbitration, G Blanke and P Landolt (eds.) Wolters Kluwer, 2011 (co-author) ‘The Interplay Between Standardization, IPR And Competition Law’, in Competition Law and Intellectual Property: A European Perspective, ICLS-50, M Tavassi, G Muscolo, G Caggiano eds. Wolters Kluwer, 2012 ‘Facts are chiels that winna ding’, paper presented at the 38th Annual Conference on International Antitrust Law & Policy 2011, 2011 Fordham Corp. L. Inst., B. Hawk (Ed.), Juris Publishing, Inc., New York, 2012 ‘A Challenge for Europe’s Judges: The Review of Fines in Competition Cases’, The Role of the Court of Justice of the European Union in Competition Law Cases, GCLC Annual Conference Series, M Merola and J Derenne (eds.) Editions Bruylant, 2012 ‘Post plures unum: Streamlining and Simplifying Merger Procedures in an Era of Multijurisdictional Merger Filings’, European Competition Law Annual 2010: Merger Control in European and Global Perspective, Philip Lowe and Mel Marquis (eds.) Hart Publishing, 2013

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II XXIII ‘Market Forces and Private Enforcement: A Start but some Way Still to Go’, European Competition Law Annual 2011: Integrating public and private enforcement of competition law. Implications for courts and agencies, Philip Lowe and Mel Marquis (eds.) Hart Publishing, 2014 (co-author)

‘Public enforcement and remedies in EU antitrust law’, Rights & Remedies in a Liberalised and Competitive Internal Market, Eugène Buttigieg (Ed.), Gutenberg Press, Hal Tarxien, Malta, 2012

‘Judicial review and competition law’, 2013 Competition Case Law Digest (N Charbit, E Ramundo, M Op-Courtaigne (eds.) Institute of Competition Law, 2012

‘From Regulation 17/62 to Article 52 of the Charter of Fundamental Rights’, General Principles of EU Law and European Private Law, Ulf Bernitz, Xavier Groussot & Felix Schulyok (eds.) Wolters Kluwer, 2013

‘Judging the judgments: official creativity and judicial quality control’, Focus on Competition/Trends & Developments 2013-2014, Karanovic/Nikolic, Belgrade, 2013

‘Competition Law and Public Policy Considerations’, European Competition Law Annual 2012: Competition law, public policies and economic insecurity, Philip Lowe and Mel Marquis (Editors), Hart Publishing, 2014

‘Quis custodiet ipsos custodies? Assessing the judicial role in a lawful system of competition enforcement’, European Competition Law Annual 2013: Effective and Legitimate Enforcement, Philip Lowe and Mel Marquis (eds.) Hart Publishing, 2014

‘In Honour of the 20th Anniversary of the EFTA Court: The Style of the EFTA Court’, chapter for inclusion in the EFTA Court’s 20th Anniversary Festschrift, Hart Publishing, 2014

‘Quinquennial Thoughts: 2009-2014’, 41st Annual Conference on International Antitrust Law & Policy 2014, 2014 Fordham Comp. L. Inst. 345, B Hawk (Ed.), Juris Publishing, Inc., 2015 (co-author)

‘The European Commission and the ECN: Imagining the New Era – I would not start from here’, European Competition Law Annual 2014: Institutional Change and Competition Authorities, Philip Lowe and Mel Marquis (eds.) Hart Publishing, 2015

‘Trade policy in 2015 -- delivery time?’, Euromoney International Trade Expert Guide 2015 (co-author)

‘Leniency: The Poisoned Chalice or the Pot at the End of the Rainbow?’, The Leniency Religion: Anti-Cartel Enforcement in a Contemporary Age, Prof. Caron Beaton-Wells (Ed.), 2015 (co-author)

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XXIV Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Part IV Competition Law

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 1 Merger control in regulated sectors: a bridge too far?

Peter Alexiadis*

I. Introduction The introduction of European Union (‘EU’) liberalisation measures1 in the 1990s with respect to hitherto ‘utility’ sectors such as energy and electronic communications has triggered significant volumes of merger activity taking the form of market entry and market expansion, on the one hand, and market exit, on the other. Some of the mergers have been prompted by expansive designs to grow the domestic market and to engage in pan-European scale operations, while others have been no doubt prompted by more defensive designs to foreclose entry into national markets to others by denying them the benefits of scale and scope. It has often been the case that these fundamental changes to industry structure have occurred in response to, or in anticipation of, EU liberalisation measures. Numerous reviews of mergers have followed suit under the EU’s Merger Regulation (‘EUMR’), given the large size of most major market participants. Since the late 1990s, it has become clear that the process of merger review in ex-utility sectors is heavily influenced by concerns which have little or nothing to do with the immediate potential restriction of competition allegedly flowing from the merger being

* The author would like to thank his colleague, Charles Clarke, for his invaluable assistance in marshalling the research necessary to put this paper together. All errors of analysis or judgement, however, remain the sole responsibility of the author. 1 Namely, those sectors characterized by elements of ‘natural monopoly’ which involve the provision of services which have an avowed ‘public service’ component.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 3 Merger control in regulated sectors: a bridge too far?

reviewed under the EU Merger Regulation (the ‘EUMR’). Whether this is due to the fact that market dynamics in ex-utility sectors are already distorted because of intrusive ex ante regulation, or whether it is simply a question of the European Commission (the ‘Commission’) pursuing overarching industrial policy goals, is a matter of some controversy. The rationale for merger review in these sectors is in stark contrast to other industrial sectors, where the Commission’s traditional policy goal of conducting its analysis solely on the basis of competition grounds seems to be largely satisfied. Drawing upon cases predominantly from the respective energy and electronic communications sectors2 as a basis for analysis, we explore below the intersection between merger control enforcement and regulatory policy in determining the extent to which the Commission may have strayed from its traditional role in merger review. To this end, we will examine: • the extent to which the Commission has permitted Member State Competition Authorities to exercise sole, joint or concurrent jurisdiction over mergers in regulated network sectors, whether because: (i) the markets affected are ‘distinct’ or; (ii) there is a ‘legitimate interest’ that a Member State needs to consider; • the Commission’s tendency to bring forward regulatory milestones agreed by the European institutions and Member States, and/or to ignore the fact that certain aspects of competition are not vulnerable to being ‘restricted’ in the absence of those legislative measures being implemented; • whether the Commission has engaged in the creative ‘restructuring’ of industry, either by seeking to foster ‘pan-European’ or regional markets, on the one hand, or by seeking to establish an ideal industry structure in the most important parts of the generation/transmission/service value chain, on the other; • the Commission’s approach to improving or widening the scope of sector-specific access remedies, including the prescription of forward-looking wholesale access obligations; and • the prescription of changes to governance structures in order to ensure that vertically integrated firms cannot leverage their market power into other levels of the value chain or by engaging in discriminatory practices or degradation strategies. In conclusion, consideration will be given to whether or not the Commission’s ‘regulatory creep’ into merger policy needs to be constrained. In the alternative, given the failure of any existing institutional constraints on the Commission taking into account regulatory policies which are arguably extraneous to a competition analysis, we examine whether the worlds of merger control and sector-specific regulation (both of which take a forward-looking approach to market failure) should be better aligned under an institutional framework that promotes their interaction rather than their mere co-existence.

2 Especially given that both sectors reflect high levels of vertical integration, high levels of regulation and account for a large number of merger filings.

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4 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Peter Alexiadis

II. Key issues

1. Jurisdictional competence The normal ‘one stop shop’ rule for the Commission to exercise its merger review jurisdiction under the EUMR is subject to a significant number of requests from Member States for them to review mergers affecting regulated network sectors. The reasons for such requests are numerous, but the more commonly cited ones relate to the fact that networks are often sub-national (and licensed by National Regulatory Authorities), the effects of the deal have no real cross-border impact, and the national public is very sensitive to potential post-merger price rises for goods which have a ‘public’ dimension. Requests by national bodies for a referral from the Commission usually take one of two forms, namely: (1) requests under Article 9 EUMR for the power of exclusive merger review where ‘distinct markets’ are involved; or (2) requests for parallel reviews under Article 21 EUMR on public policy grounds where the sectors involved are susceptible to legitimate non-competition concerns.

In addition, a large merger in a regulated sector might escape the reach of the EUMR where it satisfies the so-called ‘two thirds rule’.3 Although the two-thirds rule applies irrespective of the industry involved, it raises particular issues in certain regulated sectors because of the inherent difficulties of apportioning revenues generated by international access and interconnection services and other cross-border sales.4

(a) Identifying ‘distinct’ markets

Article 9 EUMR (also known as the ‘German clause’), permits a Member State to request a referral of a notified transaction from the Commission to its National Compe- tition Authority, where the transaction ‘threatens significantly to affect competition in a market within that Member State which presents all the characteristics of a “distinct

3 Under that rule, Article 1 of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) (hereinafter ‘the EUMR’), OJ L 24, 29.01.2004, pp. 1-22, prescribes that a concentration which satisfies the various revenue requirements needed to constitute a ‘Community dimension’ is reviewable by the Commission under the EUMR ‘unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.’

4 In the energy sector, the application of the rule was particularly controversial in the Case No. COMP/37.542 Gas Natural/Endesa (2002), where the Commission found that two-thirds of the parties› turnover was achieved within Spain. As such, the transaction did not have a ‘Community dimension’ under the EC Merger Regulation and was thus not notifiable to the Commission. Endesa appealed to the Court of First Instance (the predecessor of the General Court) to annul the Commission Decision and its failure to calculate its turnover correctly; these arguments were rejected on the facts (especially as regards the turnover calculations and adjustments relating to distribution operations and to gas exchanges). The Court was convinced that that Commission had identified the likely problem and had appropriately where resolved it. At the time of writing, the BT/EE merger review is taking place before the UK’s Competition Market Authority (CMA) because of the satisfaction of the two-thirds rule; see documents referring to this point under the case file on the UK Competition and Markets Authority’s website at; https://www.gov.uk/ cma-cases/bt-ee-merger-inquiry, https://www.gov.uk/government/news/btee-merger-fast-tracked-to-phase- 2-investigation.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 5 Merger control in regulated sectors: a bridge too far?

market”’.5 The Commission may also, on its own initiative, invite a Member State to make such a request where it considers that the circumstances are appropriate for its application (e.g., sub-national markets, those characterized by public service obligations, etc.). In addition, the parties involved in the merger can also make a similar request at the pre-notification stage.6 Because of the localised nature of many networks, the Article 9 reference mechanism has been sought in a range of merger reviews affecting regulated network sectors.

(i) Broadcasting In, 2002, the case of Sogecable/Canalsatélite/Vía Digital,7 the Spanish government requested the Commission, in accordance with Article 9(2)(a) EUMR, to refer the case to its National Competition Authorities, on the basis that the merger threatened to hinder competition in ‘distinct markets’ that were geographically limited to the territory of Spain. The merger concerned the combination of the largest and second largest pay TV operators in Spain. Based on the Commission’s investigation of the relevant affected markets, it concluded that the post-merged entity threatened to create or strengthen a dominant position within the pay TV market in Spain, where the two parties were clearly the two largest operators and had a combined market share of around 80% by numbers of subscribers and 80-95% by sales.8 It was also pointed out that the merging parties would also jointly own a large pool of exclusive rights for premium films and also own exclusive rights to football matches in which Spanish teams participate, which was cited as the main reason for their large market shares in terms of sales and

5 See paras 2 and 3 of Article 9 of the EUMR, which stipulates that: ‘(2) Within 15 working days of the date of receipt of the copy of the notification, a Member State, on its own initiative or upon the invitation of the Commission, may inform the Commission, which shall inform the undertakings concerned, that: (a) a concentration threatens to affect significantly competition in a market within that Member State, which presents all the characteristics of a distinct market, or (b) a concentration affects competition in a market within that Member State, which presents all the characteristics of a distinct market and which does not constitute a substantial part of the common market. (3) If the Commission considers that, having regard to the market for the products or services in question and the geographical reference market within the meaning of paragraph 7, there is such a distinct market and that such a threat exists, either: (a) it shall itself deal with the case in accordance with this Regulation; or (b) it shall refer the whole or part of the case to the competent authorities of the Member State concerned with a view to the application of that State’s national competition law. If, however, the Commission considers that such a distinct market or threat does not exist, it shall adopt a decision to that effect which it shall address to the Member State concerned, and shall itself deal with the case in accordance with this Regulation. In cases where a Member State informs the Commission pursuant to paragraph 2(b) that a concentration affects competition in a distinct market within its territory that does not form a substantial part of the common market, the Commission shall refer the whole or part of the case relating to the distinct market concerned, if it considers that such a distinct market is affected.’

6 See Article 4(4) of the EUMR, which states that: ‘Prior to the notification of a concentration within the meaning of paragraph 1, the persons or undertakings referred to in paragraph 2 may inform the Commission, by means of a reasoned submission, that the concentration may significantly affect competition in a market within a Member State which presents all the characteristics of a distinct market and should therefore be examined, in whole or in part, by that Member State. The Commission shall transmit this submission to all Member States without delay. The Member State referred to in the reasoned submission shall, within 15 working days of receiving the submission, express its agreement or disagreement as regards the request to refer the case. Where that Member State takes no such decision within this period, it shall be deemed to have agreed. Unless that Member State disagrees, the Commission, where it considers that such a distinct market exists, and that competition in that market may be significantly affected by the concentration, may decide to refer the whole or part of the case to the competent authorities of that Member State with a view to the application of that State’s national competition law.’

7 See Case No. COMP/M. 2845 Sogecable/Canalsatélite/Via Digital, Commission Decision of 14 August 2002. 8 Op. cit., at para. 52.

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6 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Peter Alexiadis

subscribers to its pay TV channels.9 On the understanding that the markets affected by the transaction were national in scope and did not appear to have obvious spillover effects into surrounding EU Member States, the case was referred back to the Spanish authorities.10 By contrast, the Commission had adopted a substantively different view of relevant affected markets when it assessed a Joint Venture for development of pay TV services in France in the 1998 Canal Plus/NumériCable Case.11 In that case, the Commission held that, due to the structure of the pay TV markets, there would be spill-over effects in the Spanish wholesale pay TV market. This was because the creation of the joint venture could have led to the coordinated behaviour of pay TV operators Sogecable and Cableuropa (affiliated with one of the French joint venture partners) in the Spanish market as regards their respective terms of access to content rights required to operate and compete in the Spanish pay TV market. Concerns about discriminatory access to content for the Spanish pay TV market was another concern that arose during the Commission’s market investigation. In response, the Commission extracted a FRAND licensing commitment from the notifying parties whereby Canal Plus agreed that any negotiations with Spanish cable operators with respect to theme channels or other television programmes over which Canal Plus had Spanish distribution rights, were to be conducted in a fair and non-discriminatory manner.12 Sogecable also committed not to discriminate among cable operators in Spain in relation with the distribution of theme channels or any other television programs over which it had exclusive or any distribution rights within the Spanish market.13 In these two cases, the Commission displays a fundamentally different approach as to the way in which it sees market dynamics operating in the pay TV sector in Spain. When reviewing the Sogecable/Canalsatélite/Vía Digital Case, the Commission adopted a narrow demand-side led approach when determining the impact of the merger on competition, determining that Spain constituted a ‘distinct market’ for pay TV services. By contrast, its greater focus on supply-led content provision in the Canal Plus/ NumériCable Case drove it to broker remedies which worked on the presumption that the market had clear trans-border ‘spillover’ effects on competition. However, given that the focal point of analysis in each case was the pay TV sector in a given EU Member State (Spain and France), the Commission’s rationale can best be explained by more complex, non-competition rationale. In one case, the Commission seems to be interested in fostering cross-border premium content access, irrespective of the geographic scope of national markets while, in the other, Spanish consumer concerns are felt to be appropriately addressed by the local Spanish authorities.

9 Supra, at paras. 30 – 55. 10 Supra, at paras. 118 – 121. 11 See Commission Decision of 03/12/1998 declaring a concentration to be compatible with the common market (Case No IV/M.1327 NC/Canal +/CDPQ/Bank America) according to Council Regulation (EEC) No 4064/89. 12 Op cit., at para. 40. 13 Supra, at para. 41.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 7 Merger control in regulated sectors: a bridge too far?

(ii) Energy In the energy sector, the EDF/Segebel Case14 saw the Belgian Authorities submit a referral request for the acquisition of the Belgian electricity undertaking Segebel by France’s EDF, due to the concern that the transaction would result in negative effects on the Belgian economy post-merger. In the Commission’s view, competition concerns on most of the relevant markets in question were unlikely to occur post-merger, given that there were limited or non-existent horizontal overlaps between the respective undertakings’ energy sector activities. Nevertheless, there were specific competition concerns about various Belgian wholesale electricity markets which had been of particular concern to the Belgian Authorities. Evidence suggested that, post-merger, EDF would have been removed as a ‘potential significant entrant’ in these markets, as it would be unlikely to enhance additional generation capacity in Belgium.15 Considering the total new generation capacity that EDF was planning to deploy (an additional 10% of the total Belgian capacity),16 the Commission took the view that this would possibly encourage EDF to increase its presence in downstream markets. Commitments, including asset divestitures, were offered by EDF with a view to encouraging market entry. The Commission took the view that these asset divestitures and their development by another operator would benefit Belgian consumers and customers.17 Consequently, the Commission took the view that it was not necessary for it to refer the case to the Belgian Authorities.18 In EDF/London Electricity,19 the UK authorities submitted a request for the merger to be referred back to the UK on the understanding that the merger threatened to create or strengthen a dominant position on a ‘distinct market’ within the UK. In the alternative, it was argued that the proposed merger affected competition on a ‘distinct market’ within the UK which did not affect a ‘substantial part of the common market’. The Commission adopted a Decision pursuant to Article 9(3) EUMR which denied the right to the UK authorities to intervene in the merger. The Commission’s rationale was that the operation did not strengthen a dominant position on either of the distinct markets concerned, as required under Article 9(2) (a) of the EUMR. The risk of dominance was said to be non-existent because, based on the relevant geographic market (England and Wales), London Electricity’s market share was less than 15%.20 Further, the UK authorities argued that the merged entity, in furtherance of its strategy of vertical integration, would generate negative effects on competition by creating ‘internal trading’ between its respective generation and supply businesses, which would

14 See Case No. COMP/M.5549 - EDF/Segebel, Commission Decision of 12 November 2009. 15 Op. cit., at para. 83. 16 Supra, see paras. 65, 69, 73-83. 17 Supra. see paras. 229 - 246. 18 Supra, at para. 9. 19 See Case No IV/M. 1346 – EDF/London Electricity, Commission Decision of 27 January 1999. 20 Op. cit., at paras. 26-29.

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8 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Peter Alexiadis

have rendered exceedingly difficult the task of the UK’s Director General of Electricity Supply to detect or to prevent discriminatory or predatory pricing by London Electricity. In addition, it was believed that London Electricity would have the incentive to discriminate in favor of EDF (‘embedded generation’) and that London Electricity would cross-subsidize EDF’s operations post-merger.21 In considering these arguments, the Commission maintained that London Electricity was already subject to regulation by the UK authorities, who were able to prevent and detect discriminatory or predatory behavior through such ex ante mechanisms. It was also highlighted that London Electricity could also favor itself instead of EDF, as it had similar incentives to do so and that cross-subsidization was not a realistic competition concern as EDF had no interests in the UK supply and distribution markets affected by the transaction (with its generation capacity also being small).22 These cases suggest that remedies play a twin role in the Commission’s jurisdictional decisions. On the one hand, the existence of a detailed ex ante framework in the Member State affected by the merger is seen as providing the rationale for why a referral to that Member State might not be necessary. On the other, a referral is deemed to be unnecessary because the merger remedy imposed at EU level removes the Member State’s competition concerns. With respect, the analysis used in both cases seems to be missing the point – the jurisdictional question as to whether the existence of a ‘distinct market’ justifies the referral of the merger to a Member State is one that should not be answered by reference to the efficacy of remedies in either case, but should be answered by reference to whether the Member State is best placed to review the competition issues at stake, given the existence of unique Member State-specific characteristics of the merger which justify the circumvention of the ‘one stop shop’ principle of Commission merger review under the EUMR.

(iii) Mobile communications In the mobile communications sector, the approach taken by the Commission has been consistent in outcome, even if inconsistent in terms of its rationale. Thus, in T-Mobile/ Orange,23 the UK’s Office of Fair Trading (‘OFT’) requested that the Commission refer the merger of two UK-licensed mobile operators back to the UK Authorities for the analysis of its likely effects post-merger.24 The Commission declined to accept the referral request, concluding that it had demonstrated that there were no specific fears concerning three specific product markets, namely, those for: (a) the provision of mobile telecommunications services to end-consumers; (b) the wholesale market for access and call origination on public mobile telephony; and (c) the wholesale market for international roaming and related markets.25 Post-merger, there was a risk that

21 Supra, at para. 30. 22 Supra, at paras. 33-42. 23 See Case No COMP/M.5650 - T-Mobile/ Orange, Commission Decision of 1 March 2010. 24 Op. cit., see paras. 14 -17. 25 Supra, at para. 19.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 9 Merger control in regulated sectors: a bridge too far?

T-Mobile’s Network Sharing Agreement with 3UK (the UK’s smallest Mobile Network Operator at the time) would be disbanded, thereby jeopardizing 3UK’s competitiveness and resulting in its possible elimination from the mobile communications sector. The two major concerns identified post-merger were: (i) the reduction in the market to four Mobile Network Operators, which could lead to competitive problems downstream; and (ii) the volume of combined spectrum held by the parties would mean that the post-merger entity would be the only Mobile Network Operator in a position to offer next-generation mobile data services through ‘Long Term Evolution’ technology (i.e., 4G) within a reasonable timeframe.26 Subsequently, commitments were offered by the parties which included the divestiture of spectrum and the revision of the Network Sharing Agreement with 3UK, so as to foster a competitive force within the UK marketplace. Following the commitments presented by the merging parties, the UK authorities withdrew their referral request and the transaction was cleared. Further, in Telefonica Deutschland/E-Plus,27 Germany not only asserted that it was best placed to deal with the proposed transaction, but that it should be referred by the Commission because the transaction threatened to significantly impede competition on the German market for retail mobile telecommunications services, as well as the wholesale market for access and call origination, both of which were said to be ‘distinct markets’ within the meaning of Article 9(2)(a) of the EUMR (pursuant to Article 9(5)). In exercising its discretion to reject Germany’s two applications for a referral,28 the Commission noted that it was not appropriate to refer the proposed transaction back to Germany for a number of reasons, including: (i) the need to ensure a coherent and consistent approach when assessing mergers in the telecommunications sector across Member States; and (ii) the fact that the Commission had developed significant expertise in European mobile telecommunications markets over the past few years. A similar approach was adopted in the mobile communications merger involving Hutchinson 3G Austria/Orange Austria.29 The Phase II merger conducted by the Commission in that Case required the analysis of the reduction of the number of Mobile Network Operators in wholesale and retail mobile markets in Austria from four to three, with the merged entity enjoying only 22% of the national market. The Austrian Competition Authority, Bundeswettbewerbsbehörde (‘BWB’) on the basis of Article 9(2)(a) EUMR, requested a referral of the merger given its effects on the ‘distinct’ telecommunications market of Austria. Aside from the expressed concerns that the loss of the fourth Mobile Network Operator would diminish the competitive constraints exercised among the remaining the remaining three, it was also clear that the merging parties H3G and Orange were price leaders within the Austrian market. The removal of Orange from the market was thus believed to lead possibly to H3G pricing less aggressively in the future. The potential for collusive behavior and the unlikelihood

26 Supra, at paras. 111 – 139. 27 See Case COMP/M.7018 - Telefonica Deutschland/E-Plus, Commission Decision of 2 July 2014. 28 Op. cit., see paras. 18 – 23. 29 See Case No COMP/M.6497 – Hutchison 3G Austria/Orange Austria, Commission Decision of 12 December 2012.

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10 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Peter Alexiadis

of potential Mobile Network Operator entry were additional factors raised in the request for referral. The Commission refused referral to the Austrian authorities on the understanding that it decided to deal with the same points raised by the BWB under its own power, as mandated under Article 9(3)(a) EUMR. The precedents reflect a relatively consistent approach on the part of the Commission to assert exclusive jurisdiction over all purely mobile-to-mobile mergers. The rationale seems to be that mobile sector deals by definition cover the whole territory of a Member State, quite often involve undertakings operating beyond their ‘home’ Member State boundaries, and have a trans-border impact because of the impact of roaming relationships. Moreover, the Commission has been clear that its policy goal of developing a consistent policy approach across the EU has been of paramount importance in denying Member States referrals of such deals. While the author accepts the reasonableness of this rationale, practice suggests that it is prone to some weaknesses. First, the Commission has taken nuanced approaches to remedies in each of the mobile sector cases, suggesting that a true harmonization in approach has its limits.30 Given the different values attributable to spectrum, different licensing obligations, differences in environmental and so forth, there is a case to be made that markets have a unique national character. Second, the very public disagreements between the various Member States and the Commission as to jurisdictional competence31 has left the distinct impression that Member State concerns are often intruding into the Commission’s merger review process, thereby keeping the Commission’s ‘feet to the fire’ by ensuring that Member State’s concerns are reflected in the ultimate remedies crafted to justify the clearance of the deal.32 Third, the virtual disappearance of differences in intra-European roaming rates brought about by regulation has all but stripped the trans-national significance of roaming as a relevant factor in determining whether there is ‘spillover’ from a national market into another (which in turn renders the international character of the operators less important).

(iv) Cable TV In March 2014, the Dutch Competition Authority requested a referral of Liberty Global’s planned acquisition of cable company Ziggo.33 The Liberty Global/Ziggo merger brought together the two major cable operators in the Netherlands and the only two suppliers

30 For example, neither the scale of spectrum divestitures nor the precision with which new entrants are defined is subject to a uniform application in the cases. At the time of writing, the pending appeal in Telefónica/E-Plus calls into question the efficacy of remedies accepted in Case COMP/M.7018 -Telefónica Deutschland/E-Plus, Commission Decision of the 2 July 2014. See Press Release of the appeal brought by Airdata, in the Financial Times article, ‘Telefónica’s KPN deal challenged over impact on competition’, of 8 June 2015. Available at: http://www.ft.com/ intl/cms/s/0/e08be7de-0dd8-11e5-aa7b-00144feabdc0.html#axzz3d91zLfY7. See also the appeal brought by 1+1 against the merger: MLex article ‘Telefónica E-Plus deal draws ne questions from Brussels’, of 16 June 2015.

31 For example, many of the recent cases have been subject to multiple requests for referral from the affected Member State.

32 A very recent example of a referral request in the fixed sector can be found in Case COMP/M.7421Orange/Jazztel , Commission Decision of 26 January 2015, where the Commission decided not to refer the transaction to the Spanish Competition Authority following a referral request under Article 9(2)(a) EUMR. The Commission concluded that it was better placed, in terms of experience, to deal with the case whilst ensuring consistency in the application of the merger control rules in both the fixed and mobile telecommunications sectors. It also maintained that it would cooperate closely with the Spanish Competition Authority during the assessment of the case.

33 See Case COMP/M.7000 - Liberty Global/Ziggo, Commission Decision of 25 June 2014.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 11 Merger control in regulated sectors: a bridge too far?

of premium pay TV film channels, although they operated in different regions of that Member State pre-merger. While the deal was said to be of ‘national concern’,34 according to the Head of the Dutch Competition Authority, Commissioner Almunia conveyed amazement at the request and opened an in-depth review of the transaction.35 The Commission concluded that the Dutch Competition Authority was no better placed to examine the proposed merger and maintained that it: (i) had better experience in assessing mergers in the converging media and telecommunications sectors; (ii) Liberty Global was present in many EU Member States, rather than only operating within the Netherlands and; (iii) the necessity for a consistent application of the merger control rules. Moreover, it could not be excluded that the transaction could possibly have spill-over effects outside the territory of the Netherlands, such as in the Flemish part of Belgium (given the common linguistic and cultural heritage of those regions). Based on the initial investigation, the Commission identified that the proposed merger raised competition concerns in a number of Dutch markets for: (i) the acquisition of individual Dutch language audio visual content; (ii) the acquisition of TV channels; (iii) the wholesale supply of premium pay TV film channels; and (iv) the retail provision of fixed Internet access, TV and fixed telephony services.36 Following the in-depth review, and with a view to ensuring that the typical Dutch consumer would continue ‘to enjoy the benefits of innovative services and choice for watching audio visual content’,37 Liberty Global offered commitments to: sell Film1, its premium Pay TV film channel; terminate clauses in channel carriage agreements that limit a broadcasters’ ability to offer their channels and content over the Internet; and removing such clauses in future channel carriage agreements for a period of eight years. By contrast with the Liberty Global/Ziggo Case, the Commission referred the review of the Liberty/KBW38 Case to the German authorities upon the request of the latter for a referral. The proposed transaction between Kabel Baden-Württemberg and Liberty Global was originally notified to the Commission, with the German authorities maintaining that it threatened to significantly impede competition in some of its domestic TV-related markets by the bringing together of the second and third regional cable TV operators in Germany. Following an initial investigation, the Commission

34 This is because cable TV plays a very significant role in The Netherlands and Belgium, given that cable TV has historically been associated with funding by local communities in those EU Member States and because of its ubiquity (and relative lack of competition from satellite TV).

35 See Commission Press Release ‘Mergers: Commission continues investigation of Liberty Global/Ziggo merger without referral to the Netherlands’, IP-14-726, 25 June 2014 available at: file:///C:/Users/18605/Downloads/ IP-14-726_EN.pdf.

36 See http://europa.eu/rapid/press-release_IP-14-540_en.htm. 37 See http://europa.eu/rapid/press-release_IP-14-1123_en.htm. 38 See Decision of the Commission of 16 June 2011 - COMP/M.5900-LGI/KBW) (available only in German) and see also, the Press Release of the Bundeskartellamt, ‘Clearance of merger between Liberty and Kabel BW subject to conditions and obligations’, of 15 December 2011. Also see: http://www.bundeskartellamt.de/SharedDocs/Meldung/ EN/Pressemitteilungen/2011/17_06_2011_Liberty_Kabel-BW.html?nn=3591568. The decision of theBundeskar- tellamt was effectively overturned by the Oberlandesgericht Düsseldorf following the decision of 14 August 2013 in case VI-Kart 1/12 (V). However, please note that the appellants (Deutsche Telekom and Net Cologne) withdrew their appeals so that the decision of the court is meaningless and the deal could go ahead. Liberty paid the appellants EUR 183 million in total.

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concluded that there were competition concerns that might significantly affect competition in the market for the provision of free-TV services to housing associations, which was a significant market linked only to the territory of Germany. The case was referred to Germany’s Bundeskartellamt in its entirety, as all the markets that were potentially affected were either national or regional (i.e., sub-national) and the Bundeskartellamt has significant experience in this sector. The moral of the story is a complex one. If, as in Liberty Global/Ziggo, the merger covers the whole territory of a Member State, a merger loses much of its uniquely ‘distinct market’ character. By contrast, if it is truly a regional (i.e., sub-national deal), as occurred in the case of Liberty/KBW, and regardless of the size of the parties involved and their international pedigree, the Commission is much more likely to consider it to be worthy of a referral to a Member State under Article 9 on the basis that it relates to a ‘distinct’ market. In doing so, however, one risks losing the benefit of the harmonisation goal, as was evidenced by Liberty/KBW and other recent examples of cable TV mergers in Germany.39 Germany takes a very fragmented view of cable TV markets which is arguably at odds with all other 27 EU Member States;40 in such circumstances, given the importance of Germany in the Digital Single Market, the question of whether the pursuit of a harmonised approach should be pursued at the risk of a Member State being denied its review of a ‘distinct market’ seems very finely balanced.

(b) The parallel protection of ‘legitimate interests’ Aside from those cases referred back to Member States under the Article 9 EUMR procedure, Article 21(4) EUMR provides that Member States are entitled to ‘take appropriate measures to protect legitimate interests other than those taken into consideration by [the ECMR] and compatible with the general principles and other provisions of Community law’. However, any ‘legitimate interests’ cited as justification for such a parallel Member State review must fall within the narrowly defined categories of ‘public security, plurality of the media or prudential rules’.41 Moreover, any measures adopted pursuant to such legitimate policy goals must themselves be proportionate in nature, while it is also necessary for the Commission to authorise the appropriateness of the exercise of such a parallel power of review. In doing so, the Commission must determine whether or not the Member State’s request is in accordance with the general principles of Community law, namely, it must be ‘appropriate, proportionate and non-discriminatory’.

39 For example, see the Case B7-70/12 Kabel Deutschland/Tele Columbus (Decision of Bundeskartellamt – Federal Cartel Office, February 22, 2013).

40 Historically, the German broadband cable network is divided into the following four network levels (NLs): (i) NLs 1 and 2 which transport signals from broadcasters to the head-end; (ii) NL 3 reaches from the head-end to the transfer points outside of the subscribers’ homes; and (iii) NL 4 is the portion of the network from the transfer point to the cable jack in subscribers’ homes. This degree of technical segmentation is not seen as being relevant in other EU Member States, which generally considers Cable TV networks in an integrated manner.

41 For a discussion of the concept of ‘legitimate interests’, refer to A. Jones & J. Davies, ‘Merger Control and the Public Interest: Balancing EU and National Law in the Protectionist Debate’, King’s College London Dickson Poon School of Law, Legal Studies Research Paper No. 2015-12. Refer to discussion at pp. 31-36.

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The need for the exceptions listed in Article 21(4) EUMR to be interpreted narrowly, and for Member State concerns to be genuine in pursuit of such specific exceptions, is demonstrated in the case of Abertis/Autostrade,42 in which both parties to the proposed merger were involved in the management of toll motorways in Italy. Initially, an opinion was delivered in August 2006 in Italy by the respective Ministers of Infrastructures and Economic Affairs. This was followed shortly thereafter by a decision of the public entity responsible for the granting of motorway concessions in Italy (ANAS), whereby it rejected Autostrade’s application for an authorization to merge with Abertis. Irres- pective of this national measure, the parties notified the Commission of the transaction and, in September 2006, with the Commission adopting a clearance Decision for the merger in which it did not identify any competition concerns. Despite the subsequent removal of the problematic Italian measure in late 2006, the merger was subsequently abandoned by the parties. The Commission took the view that Italy had breached Article 21 EUMR by seeking to prevent the merger being realized through its resort to the protection of national interests, which were unjustified under the regime set forth in the EUMR. On the facts, there was no factual or legal basis to prevent the merger taking place, as the Italian authorities could not define clearly what harm would occur to the public which could not otherwise be protected under a Concession Agreement, and no pre-existing law or practice had been communicated to the Commission before the measures adopted by the Italian authorities. The Commission stressed that the national authorization process used in Italy should relate to changes brought about by the merger itself, and should not be used to obtain concessions regarding past regulatory failures, nor to address possible future hypothetical problems that might arise from the provisions of an existing Concession Agreement.43 It was clear that Autostrade would not undermine the financial security of the Italian highway system (as believed by the Italian authorities), given that Albertis would introduce other assets and cash flow post-merger. As a result, the Italian authorities were considered to have failed to substantiate their measures with clear reasoning, based on any reasonable and proportionate public interest test.44

(i) Relevance of ex ante framework Notably, the Commission has in the past refused to entertain requests under Article 21(4) EUMR on the basis that the objective being pursued by the requesting national body could be achieved post-merger through the exercise of national powers provided for in sector-specific regulation. For example, in EDF/London Electricity, the UK government, having had its request under Article 9 EUMR denied,45 later submitted a

42 See Commission Decision Case No COMP/M.4249 - Abertis/Autostrade of 22 September 2009. 43 See Commission Press Release, ‘Mergers: Commission sends new preliminary assessment to Italy on measures blocking Abertis-Autostrade merger’ (IP/07/117), 31 January 2007. Available at: http://europa.eu/rapid/press- release_IP-07-117_en.htm.

44 Consequentially, the Italian government proposed to draft rules clarifying its regulatory framework, as a pre-condition for the Commission deciding not to pursue the case against Italy for a breach of Article 21(4).

45 Refer to discussion above.

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request under Article 21 EUMR for the recognition of certain public interests as ‘legitimate interests’ which had to be taken into consideration beyond those specified in the EUMR. The Commission denied the particular request, holding that: ‘the measures described in the request were being taken pursuant to the existing system within that Member State for the ongoing regulation of the electricity industry and were not aimed at the concentration itself [and that] such ongoing regulatory activity was not precluded by the Regulation’.46

The UK authorities had argued that the UK’s Director General of Electricity Supply (‘DGES’) should have been able to take certain measures to ensure regulatory transparency and to protect consumers and customers from competitive issues that had the potential to arise post-merger. The proposed measures by the DGES included: (i) preventing internal trading between the generation and supply businesses involved; (ii) precluding the construction or acquisition of ‘embedded’ generation plant without the prior consent of the DGES; and (iii) securing a regulatory ‘ring fence’ around the electricity supply business of London Electricity and the placing of the generation function outside it.47 According to the Commission, these regulatory measures were similar to those which had been applied previously by the UK authorities in a number of cases in the sector. These measures fell to be examined under national laws, rather than under EU merger control law. As such, they could not serve as a separate legal basis to review the merger.

In Lyonnaise des Eaux!Northumbrian Water,48 the Commission for the first time accepted the UK regulatory framework for the water industry as a legitimate interest, given that it required a sufficient number of independent water enterprises active within the market place. The Commission conveyed the message in its Decision that the UK authorities, when looking at the merger, should pay specific attention to the requirements mandated under the Water Industry Act, to the exclusion of other issues.

The approach taken by the Commission is analytically coherent, insofar as EDF/London Electricity offered little more by way of regulatory oversight than the usual behavioural constraints imposed under the EU liberalisation regime for energy, which would apply with equal force to the merged entity post-merger and were not compromised as a result of the merger. By contrast, in the case of Lyonnaise des Eaux!Northumbrian Water, the national regulatory regime in question was directed towards the very same type of competitive concern that was at issue under the EUMR, namely, concerns relating to greater concentration (although those concerns took into account grounds other than those associated solely with competition rules). Given that the EU libera-

46 See Case No IV/M. 1346 – EDF/London Electricity, Commission Decision of 27 January 1999, at para. 8. 47 Op. cit., at para. 9. 48 See Commission Decision of Case COMP/M.567 - Lyonnaise des Eaux!Northumbrian Water of 21 December 1995.

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lisation regime for water was still in its infancy at the time,49 deference by the Commission to the Member State pursuing its own regulatory agenda was justified; even so, the Commission emphasized the importance of the Member State pursuing a limited mandate.

(ii) Media plurality The plurality of media exception under Article 21(4) EUMR is designed to respect the legitimate concerns of EU Member States in the maintenance of diversified sources of information and media content. Each and every Member State has a different historical legacy as regards its media traditions, and hence guards its powers to preserve pluralism with great enthusiasm.50 The use of the exception arose in two noteworthy merger decisions focusing on UK media mergers, namely, Newspaper Publishing51 and NewsCorp/BSkyB.52 In those cases, the Commission raised no formal objections to additional review of the mergers on media plurality grounds by the relevant UK National Authorities. Although the Commission cleared the NewsCorp/BSkyB merger without having requested structural or behavioural remedies, given that NewsCorp’s increased shareholding would not significantly impede effective competition, NewsCorp had little choice other than to offer undertakings to the UK Secretary of State to ‘remedy, mitigate or prevent the potential threats to media plurality’ that had been identified by the UK’s sector-specific regulator, OFCOM.53 There is nothing in Commission policy which suggests that media consolidation, ownership and plurality issues will in the future not be considered to remain largely a national matter. What remains a constant source of confusion and fragmentation, however, is the fact that media pluralism standards at Member State level are is not susceptible to any uniform standard of review such as ‘dominance’ or a ‘significant lessening of competition’ in the sphere of competition law. Consequently, the ‘pluralism’

49 Coupled with the liberalization of public service and the Maastricht Treaty of 1992, the 1990s saw a drive from the EU to act both in an environmental context and on the basis of internal market principles. For example, see Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy, OJ L 327, 22.12.2000, pp. 1–73; Council Directive 91/271/EEC of 21 May 1991 concerning urban waste-water treatment, OJ L 135, 30.5.1991, pp. 40–52; Council Directive 98/83/ EC of 3 November 1998 on the quality of water intended for human consumption , OJ L 330, 5.12.1998, pp. 32–54. See also Council Directive 92/13/EEC of 25 February 1992 coordinating the laws, regulations and administrative provisions relating to the application of Community rules on the procurement procedures of entities operating in the water, energy, transport and telecommunications sectors, OJ L 76, 23.3.1992.

50 See, for example, K. Donders, C. Pauwels, J. Loisen, ‘The Palgrave Handbook of European Media Policy’, Palgrave Macmillan 2014. See also, R. Rooke, ‘European Media in the Digital Age: Analysis and Approaches’, Routledge, 2013 - Social Science. See also, Mónica Ariño, ‘Competition Law and Pluralism in European Digital Broadcasting: Addressing the Gaps’ (2004) Communications and Strategies, No 54, pp. 97-128. See E. Komorek, ‘Media Pluralism and European Law’, Kluwer Law International, 2012.

51 See Case No IV/M.423 - Newspaper Publishing, Commission Decision of 14 March 1994. 52 See Case No COMP/M.5932 – News Corp/ BSkyB, Commission Decision of 21 December 2010. 53 Given that NewsCorp/BSkyB merger was ultimately abandoned by NewsCorp in the face of a phone hacking scandal, the UK Authorities did not need to conclude their media plurality review. For example, see the Financial Times article, ‘News Corp abandons BSkyB bid’ of 13 July 2011, available at: http://www.ft.com/intl/cms/s/0/ddfd8b70- ad52-11e0-a24e-00144feabdc0.html#axzz3d91zLfY7.

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exception is likely to continue to pose questions about the ability of the Commission to achieve true harmonization in a Digital Single Market,54 especially given the fact that so many of the digital platforms delivering media content will progressively need to be taken into account in future analyses of mergers on pluralism.

(iii) Security of supply Despite the fact that the issue of security of supply issue is very much at the forefront of the EU’s policy concerns as a unified trading bloc,55 energy sector mergers have often been characterized by ‘security of supply’ concerns at a purely national level, with each EU Member State’s energy policy being very particular to that country, despite a common regulatory framework having been established under EU law for energy matters.56 Following the Commission’s approval of the E.ON/Endesa,57 merger, post-merger obligations were imposed on the merged entity by the Spanish Minister of Industry, Tourism & Trade. These obligations required that: (i) Endesa maintain its brand for a five year period; (ii) the companies owning electricity assets outside mainland Spain were to be kept within the Endesa Group for a period of five years; (iii) Endesa’s power plants using domestic coal were requested to continue using such coal as an energy source, as required under national mining plans and; (iv) E.ON was to not adopt strategic decisions regarding Endesa and affecting security of supply, contrary to the Spanish legal order.58 The Commission found the ‘security of supply’ conditions imposed to be incompatible with EU law and required their repeal.59 No supplementary obligations were allowed to be imposed on the merged entity that were not already clearly obligations set forth under the general Spanish legal framework. Notably, the Spanish Authorities gave explicit assurances that the conditional authorisation granted to E.ON by the Commission could not be revoked in the event that the conditions imposed by the Spanish Authorities were not satisfied. In the words of Competition Commissioner Neelie Kroes at the time: ‘I regret that the Commission has once again been obliged to intervene to avoid that a Member State places unjustified conditions on a major European takeover. No

54 Refer to Commission Press Release of 6 May 2015, IP/15/4919: ‘A Digital Single Market for Europe: Commission sets out 16 initiatives to make it happen’. Available at: http://europa.eu/rapid/press-release_IP-15-4919_en.htm.

55 For example, see Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC Text with EEA relevance , OJ L 295, 12.11.2010, pp. 1–22 ; Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment (Text with EEA relevance) , OJ L 33, 4.2.2006, pp. 22–27.

56 See, for example, the Common Rules for the Internal Market in Electricity Directive (2009/72/EC) ; the Common Rules for the Internal Market in Natural Gas Directive (2009/73/EC) ; Regulation Establishing an Agency for the Cooperation of Energy Regulators (713/2009/EC) ; Regulation on Conditions for Access to the Network for Cross- Border Exchanges in Electricity (714/2009/EC) ; Regulation on Conditions for Access to the Natural Gas Trans- mission Networks (715/2009/EC).

57 See Case No COMP/M.4110 - E.ON/Endesa, Commission Decision of 25 April 2006. 58 See Case No COMP/M.4197 - E.ON/Endesa, Commission Decision of 20 December 2006, see paras. 35 – 46. 59 Op. cit., at paras. 91 – 94.

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one should doubt the Commission’s commitment to ensuring Europe’s businesses can operate on a level playing field to the benefit of Europe’s consumers, businesses and the economy as a whole’.60 The Spanish government was seeking to assert a ‘legitimate interest’ in the E.ON/ Endesa merger to protect Spain’s gas supply within its national energy market, which was the relevant geographic market affected by the deal (along with Germany). As the Commission concluded, however, there was nothing unique in the fact that Spain represented a national market: ‘[…T]he market investigation has shown that electricity and gas markets in Spain, Italy, France, Poland and Germany are generally likely to be still not wider than national in scope.’61 Moreover, the Commission acknowledged that pan-European gas and electricity markets were not expected to arise within the foreseeable future as (at the time of the adoption of the Decision), due to the lack of interconnection capacity;62 the ‘rapid expansion’ of the available capacity was not a realistic option in the short term. Based on Commission investigations into European gas and electricity markets, it was clear that Member State energy markets were national in scope. If the merger were investigated by the Spanish Competition Authority and the conditions listed above were to be imposed on E.ON, the goals of European energy liberalisation and integration agenda being pursued by the Commission would have been further delayed. In a similar vein, in the 2007 case of Acciona/Enel/Endesa,63 the Commission contended that Spain had infringed Article 21 EUMR due to the fact that there had been obligations imposed by the Spanish National Authority on Enel and Acciona in relation to their acquisition of Endesa, which had already received unconditional merger clearance from the Commission.64 Subsequently, in 2008, the European Court of Justice (‘ECJ’) held that Spain had infringed EU law by not withdrawing the ‘security of supply’ conditions for E.ON’s acquisition of Endesa.65 The Court also held (in the same year) that the comparable ‘security of supply’ restrictions established by Spain in Acciona/ Enel/Endesa constituted a breach of its obligation under the principles of free movement of capital and freedom of establishment.66 The consistent policy message derived from these cases is that the Commission will not allow the ‘security of supply’ exception found in Article 21(4) EUMR to be used as a metaphorical ‘Trojan Horse’ which undermines the Commission’s exclusive powers of merger review under the EUMR. In the event that an EU Member State wishes to rely on such an exception, it needs to articulate a coherent, objective and transparent

60 See Commission Press Release: ‘Mergers: Commission decides that Spanish measures in proposed E.ON/Endesa takeover violate EC law’, of 20 December 2006, IP-06-1853.

61 See Case No COMP/M.4110 - E.ON/Endesa, Commission Decision of 25 April 2006, at para. 20. 62 Op. cit. 63 See Case No COMP/M. 4685 – Enel/Acciona/Endesa, Commission Decision of 5 July 2007. 64 See Case No COMP/M. 4685 – Enel/Acciona/Endesa, Commission Decision of 5 December 2007. 65 See Case C-196/07Commission v Spain, Judgment of the Court (Third Chamber) of 6 March 2008, ECR I-41. 66 See Case C-207/07 Commission v Spain, Judgment of the Court (Third Chamber) of 17 July 2008, ECR - I-00111.

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system in advance of a merger taking place which explains why regulatory intervention is necessary as a response to a merger and the justification of the steps taken in application of such regulatory intervention. Thus, the ad hoc involvement of Member States in energy measures on the basis of the security of supply exception has been severely limited in practice.

2. Timing issues The pursuit of liberalisation policies in the EU is fundamentally by the adoption of secondary legislation in the form of Directives,67 which is often supplemented by the issuance of ‘soft law’ instruments in the form of Guidelines or Recommendations68 that are designed to assist National Regulatory Authorities and courts in their application of the principles enshrined in those Directives. Where action needs to be taken quickly, Community policymakers have had recourse to the more directly enforceable options available in the form of Regulations,69 or Decisions issued under Article 106 TFEU,70

67 For telecommunications, refer to current Directive 2009/140/EC of the European Parliament and of the Council of 25 November 2009 amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities, and 2002/20/EC on the authorisation of electronic communications networks and services, OJ L 337, 18.12.2009. In the gas and electricity sector see Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, OJ L 211, 14.8.2009, pp. 94–136; Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC,OJ L 211, 14.8.2009, pp. 94–136.

68 For example, in telecommunications see Commission Recommendation on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/ EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, 9.10.2014 C(2014) 7174 final; Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services, 11 July 2002, OJ C 165/6. For energy, see for example Regulation (EU) No 283/2014 of the European Parliament and of the Council of 11 March 2014 on guidelines for trans-European networks in the area of telecommunications infrastructure and repealing Decision No 1336/97/EC.

69 For example, see Regulation (EU) No 531/2012 of the European Parliament and of the Council of 13 June 2012 on roaming on public mobile communications networks within the Union, OJ L 172, 30.6.2012, pp. 10–35; see also Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on unbundled access to the local loop, OJ L 336, 30.12.2000, pp. 4–8. See also in the energy sector, Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003, OJ L 211, 14.8.2009, pp. 15–35 and Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005, OJ L 211, 14.8.2009, pp. 36–54; Regulation (EU) No 994/2010 of The European Parliament And Of The Council of 20 October 2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/ EC OJ L 295/1 12.11.2010; Commission Regulation (EU) No 838/2010 of 23 September 2010 on laying down guidelines relating to the inter-transmission system operator compensation mechanism and a common regulatory approach to transmission charging, OJ L 250, 24.9.2010.

70 Article 106(3) TFEU provides that: ‘The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decisions to Member States’. For example, see Commission Directive 90/388/EEC of 28 June 1990 on competition in the markets for telecommunications services, OJ L 192, 24/07/1990, pp. 0010 – 0016; See Commission Directive 94/46/EC of 13 October 1994 amending Directive 88/301/EEC and Directive 90/388/EEC in particular with regard to satellite communications, OJ L 268, 19.10.1994, pp. 15–21; and see Commission Directive 96/19/EC of 13 March 1996 amending Directive 90/388/ EEC with regard to the implementation of full competition in telecommunications markets, OJ L 074 , 22/03/1996 P. 0013 – 0024. See also Commission Decision 97/114 of 27 November 1996 (Telecom Eireann). OJ 1997, L 41/8; Commission Decision 97/314 of 12 February 1997 (Portugal), OJ 1997, L 133/19; Commission Decision 97/568 of May 1997 (Luxembourg), OJ 1990, L234/19; Commission Decision 97/603 of 10 June 1997 (Spain), OJ 1997, L 243/48; Commission Decision 97/607 of 18 June 1997 (Greece), OJ 1997, L245/6. Commission Decision of 26 June 1997 pursuant to Article 90 (3) of the EC Treaty on the exclusive right to broadcast television advertising in Flanders; see Commission Decision of 18 December 1996 concerning the conditions imposed on the second operator of GSM radiotelephony services in Spain; see Commission Decision of 4 October 1995 concerning the conditions imposed on the second operator of GSM radiotelephony services in Italy.

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although these options are used rarely as they are generally considered to circumvent the democratic process in lawmaking which otherwise exists with the current balance of powers between the Commission, Council and European parliament. The fundamental problem in adopting regulatory change through Directives is that their implementation into national law is often not timely, whether because they have allowed Member States (under the terms of the relevant Directive itself) a long period of time for implementation (in some cases, measured in years) or because the Member State in question has failed to implement the key elements of the Directive within the available timeframe.71 This means that, especially in those cases where mergers have taken place in advance of liberalisation measures having been implemented through Directives, the merger review analysis is being conducted in a context where notional ‘restrictions of competition’ are being assessed at a time when a state of legal monopoly or very limited competition is compatible (and often mandated) by the domestic legal order in question. This dilemma raises two issues under the EUMR, namely: (1) the extent to which markets can be considered to be truly ‘contestable’, and hence susceptible to any restriction of competition in practice as a result of the notified merger; and (2) the extent to which the Commission, regardless of the regulatory mandate in place, pursues clear regulatory policies designed to circumvent the usual implementation period otherwise afforded to Member States under the Directive(s) in question.

(a) Contestable markets The existence of a contestable market presumes that there are low barriers to entry and exit. It is just as clear that the issue of whether or not certain segments of a value chain are contestable (e.g., such as energy supplies) can only be considered where the market has in fact been liberalized. The Commission’s administrative practice under the EUMR, however, is anything but consistent on this issue. Thus, in EDP/ENI/GDP,72 the Commission in 2004 prohibited the merger between the respective national gas and electricity incumbents in Portugal for fear of hampering its liberalisation goals. At the time of the proposed merger, although the electricity markets in Portugal had been liberalized and open to competition since 2004, the gas sector was still operating under a legal monopoly. The Second Energy Package underlined that 33% of the gas market should be open to a degree of competition only by 2007 and fully open to competition by 2010 (following the Third Energy Package Directives).73 According to the understanding of the merging parties, Portugal had tabled initiatives to liberalize the market in the course of 2005.74 During the investigation

71 In cases where there has been a failure to implement a Directive, private party right scan only be asserted on the basis of the doctrine of ‘direct effect’: see discussion in Hartley, Trevor C., ‘The Foundations of European Community Law’, Oxford University Pres, 1998, Fourth Edition, p. 191.

72 See Case No COMP/M.3440 - EDP/ENI/GDP, Commission Decision of 9 December 2004. 73 Op. cit., at para. 202. See also Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC, OJ L 176, 15.7.2003, pp. 57–78.

74 Supra, at paras. 417, 503 and footnotes 310, 367 of the Commission Decision.

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under the EUMR, however, the Commission took into consideration that there was ‘possible’ regulatory movement within Portugal coming into effect and, based on this understanding, identified four separate gas markets that would be affected adversely by the merger.75 In particular, it was the market for the supply of gas to power producers that would be the first to be fully liberalized in Portugal.76 The market investigation further revealed substantial differences between power producers, local gas distribution companies and large industrial customers, whether in terms of margins, customer relationships, commercial needs or growth dynamics. GDP was clearly dominant in the Portuguese gas markets, which were not effectively contestable at the time (other than for the distribution of gas in the Porto area, where Portgás, a company in which EDP had acquired joint control, was active)77 and was expected to continue to enjoy a dominant position in such markets even after the market was to be liberalized. In the eyes of the Commission, however, GDP’s dominant position would have been further strengthened post-merger, as a result of which effective competition would have been significantly impeded. The Commission’s rationale was based on the understanding that EDP would be a strong potential competitor for supply to large industrial consumers and to small customers if the merger did not proceed.78 The threat of potential entry was real, according to the Commission, given the evidence that many other electricity incumbents had entered into gas markets in other EU Member States.79 The fact that EDP had a large quantity of gas to supply to its gas-fired power plants that were currently supplying electricity constituted sufficient evidence for the Commission to conclude that EDP was a potential entrant into the Portuguese gas market; it could also rely on its own electricity customers, to which it could have offered a joint supply of gas and electricity, while also benefiting from the brand reputation and customer base of its regional gas distributor (Portgás). Upon the scheduled opening of the market, Portgás was predicted to be the only gas distributor which would be ready to compete with GDP immediately and effectively for the supply of gas to small (not large) customers.80 The Commission’s conclusion was that, post- merger, there would have been a removal of GDP’s main potential competitor, EDP, and this would have raised further the entry barriers in the relevant markets (which were at the time not contestable). This would significantly impede effective competition through the strengthening of GDP’s dominant position on the wholesale gas supply market in Portugal. Accordingly, the Commission proposed that the merger be blocked.81

75 These markets were: (i) the supply of gas to power producers (gas-fired power plants, so-called ‘CCGTs’); (ii) the supply of gas to LDCs; (iii) the supply of gas to LICs; and (iv) the supply of gas to small industrial, commercial and domestic customers.

76 See Case No COMP/M.3440 - EDP/ENI/GDP, Commission Decision of 9 December 2004, at paras. 206-208. 77 Op. cit., at paras. 476-477. 78 Supra, for example , see paras. 216, 363 and 737. 79 Supra, at paras. 731 and 832. 80 Supra, at paras. 467, 476, 580, 586 and specifically at para. 596. 81 Supra, at para.914.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 21 Merger control in regulated sectors: a bridge too far?

On appeal, the General Court in EDP/GDP v. Commission82 disagreed with the Commission’s approach, pointing out that, as a result of the derogation provided for in the Second Gas Directive, Portuguese gas markets were as a consequence not open to competition on the date of adoption of the Commission Decision, as GDP held a monopoly over almost all relevant Portuguese gas markets i.e., a monopoly which could not in theory be strengthened. Thus, in the eyes of the Court, there existed no competition that could be significantly impeded by the concentration. The Court concluded that, by basing its prohibition of the concentration on the strengthening of a dominant position which significantly impeded competition on those gas markets not as yet open to competition because of the derogation, the Commission had disregarded the effects, and thus the scope, of that derogation. However, the Court noted that the Commission’s manifest error was made merely in relation to the relevant gas markets under review, and that the assessments relating to the electricity markets before and after the concentration were not affected.83 Thereafter, the Commission proceeded to re-adopt its Decision, asserting in the process that it was adhering to the Court’s Judgment in doing so. The author, however, does not feel that the Commission could have been following the Court’s Judgment while arriving at an identical conclusion to its previous Decision. Clearly, the Commission held the view that its approach was legitimate given the breadth of its usual powers to assess the effects of a merger on potential competition (with the incumbent gas operator being found to be the most ‘likely’ potential competitor to the dominant electricity provider). With respect, there is a difference between markets closed by law and potential markets that are in theory open to competition and vulnerable to leverage from positions of existing market power. Insofar as the merged entity was in any event to be regulated in the near future under the EU regulatory framework applying to energy firms, the working assumption should have been that the access obligations and unbundling requirements of that framework would adequately address many of the hypothetical market failures identified by the Commission in its ex ante (i.e., forward-looking) analysis conducted under the EUMR.

(b) Fast- forwarding of liberalisation agendas Moving beyond the EDP/ENI/GDP Case, where the Commission assumed a competitive dynamic which did not exist at the time of review, there is ample evidence that the Commission has also considered merger review situations to provide the ideal setting for the crafting of regulatory policy foreseen on the regulatory policy agenda. The pursuit of such goals, it is submitted, goes well beyond the legitimate merger review goal of addressing undesirable levels of anti-competitive concentration. For example, there to date been three legislative packages specifically adopted for the energy sector over the past sixteen years, each of which has impacted upon the

82 See Case T-87/05 EDP - Energias de Portugal, SA v Commission, Judgment of the Court of First Instance (Second Chamber) of 21 September 2005, ECR 2005 II-03745.

83 Op. cit., see paras. 131 – 133, 195 – 197 and paras. 212 - 214.

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Commission’s approach methodology when approaching mergers in the energy sector.84 The major market actors in the energy sector, having witnessed the impact of telecommunications liberalisation on the fortunes of incumbent operators, sought to protect their revenue streams being threatened by these waves of regulation. They sought to do so by building scale and scope across national borders through aggressive merger strategies, as opposed to the costly exercise undertaken by telecommunications companies of establishing de novo licensed operations in multiple Member States.85 In doing so, they were supported in their merger plans by their home Member States who, having ultimately lost the political battle with the Commission regarding energy liberalisation, sought to protect their ‘national champions’ indirectly by allowing them to build cross-border scale operations, while at the same time ensuring that their ‘security of supply’ obligations for their home jurisdiction was not compromised. From the Commission’s point of view, the wave of energy mergers provided it with an ideal geopolitical outcome that has not been achieved thus far in the telecommunications sector – the emergence of truly pan-European operators who could sustain a truly European scale energy market. From the perspective of competition analysis, however, the pros and cons of merger activity were more finely balanced. For example, mergers notified consistently brought together the horizontal and vertical segments of the merging parties’ operations. This allowed the merged entity to reduce costs and to invest in new infrastructure. In parallel, it provided the merged entity with an opportunity to extend its existing market dominance by insulating itself from competition in national markets, thereby foreclosing entrants outside the relevant Member State from market entry, or by creating a national oligopolistic structure which deterred investment. Immediately prior to the energy liberalisation process having formally commenced, merger activity was taking place at national level. For example, the merger between VEBA and VIAG in Germany created E.ON,86 while in parallel RWE also acquired VEW.87 Given the high market shares, high levels of vertical integration and lack of

84 See the Directives for the First Energy Package: Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas, OJ L 204, 21.7.1998, pp. 1–12; Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity, OJ L 27, 30.1.1997, pp. 20–29. The Directives for the Second Energy Package included: Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC - Statements made with regard to decommissioning and waste management activities, OJ L 176, 15.7.2003, pp. 37–56. Finally, the Third Energy Package Directives` include: Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, OJ L 211, 14.8.2009, pp. 94–136; Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC, OJ L 211, 14.8.2009, pp. 55–93.

85 Under the EU regulatory framework for electronic communications, an operator is free to apply for an authorization to provide telecommunications services, and can only be denied the right to do so if scarce resources need to be limited to a limited number of entities (e.g., spectrum and numbers).

86 See Case No. COMP/M.1673 - VEBA/VIAG, Commission Decision of 13 June 2000. 87 See Case RWE/VEW, B8 - 309/99, Decision of the Bundeskartellamt of 3 July 2000. For more detail, see the Press Release of the Bundeskartellamt, ‘Bundeskartellamt clears merger RWE/VEW with conditions’, of 4 July 2000, available at: http://www.bundeskartellamt.de/SharedDocs/Meldung/DE/Pressemitteilungen/2000/04_06_2000_RWE. html.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 23 Merger control in regulated sectors: a bridge too far?

price transparency generated in both cases, clearances in both cases were made subject to commitments ensuring the dissolution of overlaps between the two new entities and the sale of shares in other electricity providers. In the UK, a number of national mergers also took place, including Powergen/East Midlands Electricity in 1998 and National Power/Midland Electricity in 1999. Within the gas sector, mergers were less frequent at the time, taking into account the timing of liberalisation measures in the gas sector and the market dynamics of gas storage and transport (notable exceptions include the merger of Norsk Hydro/Saga88 in Norway and that of Totalfina/Elf89 in France).

(i) Merger review as an instrument of energy regulatory policy As it became clear to Commission policymakers that the first and second rounds of liberalisation measures had seen fewer material competitive benefits than they had anticipated, while also having given rise to significant merger activity, the need for a more sweeping third round of liberalisation became clear. Industry responded by a spike in new merger activity in the sector. This gave the Commission the opportunity to ‘fast forward’ the liberalisation process through its powers of merger review. Another example of the Commission’s approach can be found in its Decision in Gaz de France/Suez,90where it sought to render the respective Belgian and French energy markets contestable through the adoption of sweeping remedies. Gaz de France had activities both in France (gas) and Belgium (gas and electricity), while Suez had activities also in both countries. In Belgium, Suez owned Electrabel (electricity services), Distrigaz (gas supply) and Fluxys (transmission and gas storage). The Commission’s major competition concern related to the possible foreclosure of the gas market in Belgium, which threatened to jeopardize enacted liberalisation policies, given that the merged entity would have erected high barriers to entry for all potential new entrants. After the process of liberalisation had commenced in the gas sector, Suez became one of the main competitors of the incumbent GDF, who were both active in Belgium.91 In all the markets in which response to the Commission’s concerns, GDF and Suez presented remedies designed to remove the Commission’s concerns and to allow the markets to become contestable to other operators. In all of the relevant markets in which the Parties were active, they had very high combined market shares (mostly above 80%)92 and the already dominant position of Suez in Belgium would be reinforced post-merger through its merger with GDF. The Commission identified high barriers to entry to both the French and Belgian energy markets, which were consolidated by the horizontal effects triggered by the merger. The markets identified, however, were not contestable in practice, given that both Parties held: (i) access to most of the gas

88 See Case IV/M.1573 – Norsk Hydro/Saga, Commission Decision of 5 July 1999. 89 See Case No COMP/M.1628 – TotalFina/Elf, Commission Decision of 9 February 2000. 90 See Case No COMP/M.4180 Gaz de France/Suez, Commission Decision of 14 November 2006. 91 Op. cit., see paras. 755, 758, 763, 789, 804 and 814. 92 Op. cit.; see, for example, Tables 2, 3, 4, 5, 8, 9, 10 and paras. 146 and 837 within the Commission Decision.

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imported into Belgium; (ii) the access and management over essential infrastructure (i.e., Fluxys); (iii) complete control over the LNG terminal in Belgium (having reserved all the capacity crossing the Dutch border); and (iv) access to H gas storage in Belgium, with the next best substitute outside Belgium being owned by GDF.93 In response to the Commission’s concerns, Suez divested its gas supply business in Distrigaz and relinquished its control over the Belgian gas transmission network operator, Fluxys. The Italian gas company ENI purchased Distrigaz, on the understanding that it carried the best chances of challenging GDF/Suez becoming the monopoly provider in Belgium.94 GDF also divested its shareholding in the Belgian electricity supplier SPE and dissociated itself from its subsidiary ‘Cofathec Coriance’ (which was active in the district heating market).95 Structural and behavioural remedies were used to implement the Commission’s liberalisation package so as to impose unbundling of the sector via the EUMR (i.e., GDF/Suez had to relinquish control of its upstream activities in gas network transmission in order to ensure that the arrival of ENI to the Belgian market would not be undermined. To render the affected markets even more contestable, in addition to the divestitures agreed, the Commission ensured that there would be a number of investment projects in progress on both the Belgian and French gas markets which were directed towards an increase in capacity.96 This last requirement is a clear entry assistance remedy designed to supplement the structural vertical unbundling measures achieved through the divestitures agreed upon, as it is directed towards dramatically improving the contestability of the affected markets from both potential domestic and external market entrants, rather than simply restoring the markets to their pre-merger status quo. The Commission approach in this Decision, it is submitted, provides emphatic support for a broader industrial policy of growing cross-border interconnector capacity in energy markets. Thus, rather than addressing the immediate behavioural problem of whether access was available to the merged entity’s network, the Commission actively sought to grow the total volume of energy being transmitted by obliging the merged entity to build out its network to effectively provide access that was hitherto unavailable. This approach has found its way into subsequent Article 102 TFEU actions in the energy sector, and has over time crept into the Next Generation Access regime for telecommunications network (whereas its predecessor regime considered such access requirements to be disproportionate in light of the existing market failure being addressed).97

93 Supra, see paras. 21 – 55. See also paras. 162, 164, 168 – 174, 192, 400. 94 Supra, for example, see paras. 1148 - 1154. See Case No COMP/M.5220 – ENI/DISTRIGAZ, Commission Decision of 15 October 2008. See also, the Press Release of ENI, ‘ENI completes its acquisition of Suez’s majority shareholding in Distrigas’, of 30 October 2008. Available at: http://www.eni.com/en_IT/media/press-releases/2008/10/2008-10- 30-Eni-completes-acquisition-Suez-majority-Distrigas.shtml.

95 Supra, see paras. 1138, 1144, and 1227-1228. 96 Supra; see paras. 248, 249, 250, 1113, 1114, 1160, 1164, 1194 and 1202. 97 See the Recitals within the 2010/572/EU: Commission Recommendation of 20 September 2010 on regulated access to Next Generation Access Networks (NGA), OJ L 251, 25.9.2010, pp. 35–48.

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In the earlier case of E.ON/MOL,98 the German gas and electricity incumbent operator E.ON acquired 75% of two of the subsidiaries of Hungary’s MOL, with the option to purchase the remaining shareholdings at a later point in time.99 MOL was Hungary’s vertically integrated incumbent gas supplier, with one of its subsidiaries being dominant at the wholesale level and the other being active in storage,100 while E.ON was active in Hungary at the retail level. The Commission’s analysis suggested that the E.ON/ MOL post-merger entity was likely to thwart liberalisation goals as it threatened to foreclose the entire gas supply chain in Hungary, as it would have been able to pool both entities’ upstream and downstream activities on the Hungarian gas market.101 As occurred in GDF/Suez, the anticipated post-merger effects of the merger in the absence of behavioural or structural remedies would have hindered the Commission’s liberalisation goals, as they would have fostered a vertical concentration which would have foreclosed potential competition. Based on the Commission’s investigation, the likely foreclosure effects included: (i) the possibility that the long-term supply contracts that MOL had in place would in effect have prevented third parties from entering the Hungarian gas market; and (ii) discriminatory practices were foreseen as occurring in relation to MOL’s transmission pipeline, thereby preventing access to E.ON’s competitors.102 A behavioural remedy was tabled which would allow third parties to supply the Hungarian market (i.e., a gas release program), combined with a structural remedy in the form of a divesture of the MOL Transmission pipeline.103 In doing so, the Commission, acting under its EUMR powers of review, enforced a policy of full ownership unbundling through a combination of structural and behavioural remedies, which brought into effect the policy agenda of the Second Regulatory Package in energy, which was years away from finalization and implementation (i.e., the breaking up of vertically integrated incumbent entities into separate business units). Another merger where the Commission also pushed forward its liberalisation agenda on the eve of the adoption of the Third Regulatory Package was RWE/Essent.104 Horizontal and vertical effects concerns had arisen in the Commission’s investigation of that merger, with the key concern being expressed to be third party foreclosure on the respective retail and wholesale sectors (within a specific region of Germany), even though impact of the deal was not material.105 RWE was active on both the gas and electricity markets, with Essent active in both in the Netherlands and in a northern region of Germany, where it supplied gas at the retail level (through Essen SWB).106

98 See Case No COMP/M.3696 E.ON/MOL, Commission Decision of 21 December 2005. 99 Op. cit., at paras. 5, 738, 765. 100 Supra, at paras. 47, 71, 284-287, 390, 395, 427, and 479-485. 101 Supra, at paras. 282, 358, 399, 400, 402, 451, 462, 517, 534, 537, 549, 552 and 588. 102 Supra, at paras. 400, 404, 408, 419, 429, 430, 431, 440, 441, 536, 549, 666, and 694. 103 Op. cit., see commitments listed within Sections B and C of the Decision itself. 104 See Case No COMP/M.5467 – RWE/Essent, Commission Decision of 23 June 2009. 105 Op. cit., at paras. 9, 260, 266, 278, 341 359 – 364, 394, 395 and 409. 106 Supra, at paras. 95 – 97.

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The Commission identified: (i) horizontal overlaps in the retail activities in the identified German region; and (ii) vertical foreclosure within the same region.107 It was considered that RWE, through Essen SWB, would have control of a significant portion of the retail sector. In these circumstances, customer foreclosure would have occurred downstream as new wholesalers would have been prevented from entering the market due to high barriers to entry.108 A structural remedy (the divesture of Essen SWB) was required by the Commission in order to preserve its overarching liberalisation goals, even though the competition being restricted involved only a particular region of a certain region of a Member State. The above mergers pay testimony to the Commission’s desire to use its powers of merger review under the EUMR to reinforce the EU’s wider regulatory strategy in the energy sector in advance of the regulatory timetable agreed by legislators at EU and national levels. In doing so, the Commission was mindful of the fact that remedies brokered with private parties are arguably more enforceable than obligations based on the enforcement of general provisions in directives before national courts. As a result, the energy sector has arguably been shaped as much by the resolution of cases reviewed under the EUMR as it has by formal liberalisation measures, rather than the efficiency criteria that should otherwise be applied on a fact-specific basis under its EUMR analysis. A combination of structural and behavioural remedies under the EUMR have thus been relied upon by the Commission to speed up the unbundling process despite the existence of legislation prescribing that specific liberalisation measures be implemented by a certain date and be monitored by National Regulatory Authorities.109 In adopting this approach, the Commission has been well aware that Member States were not implementing or enforcing effectively the Energy Package110 that should have been in force at the relevant time.111 However, questions must be asked about the legitimacy of an approach which seeks to circumvent the process that has been agreed upon by European legislators. One can arguably rationalise the legitimacy of such an approach by

107 Supra, at paras. 383 – 409 and 266 - 278. 108 Supra, at paras. 47, 253, 255, 256, 268 and 271. 109 Supra, at paras. 304 – 311. 110 For example, the Third Energy Package Directives should have been transposed by Member States 18 months following their entry into force by 3 March 2011. However, none of the Member States had achieved full transposition of the Directives by that deadline. In 2011, the Commission opened 38 infringement proceedings against 19 Member States for not transposing, or not fully transposing, the Third Energy Package. During the course of 2012 and 2013, the Commission was able to terminate many of these infringement procedures as the efforts of Member States to transpose the Directives gained momentum. In 2012, the Commission referred several Member States to the European Courts, namely: Poland, Slovenia, Bulgaria, Finland, Estonia, the UK, Romania (in relation to both the Third Electricity Directive and the Third Gas Directive) and Ireland (the Third Electricity Directive). 111 In October 2014 the Commission released an analysis of the progress which had been made, to date, towards completing the Internal Energy Market (See Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Progress towards completing the Internal Energy Market COM (2014) 634 final). The Commission first focused on ensuring the full transposition of the Third Electricity Directive and the Third Gas Directive within the national laws of the Member States before identifying any incorrect transposition or bad application of the prescribed rules. As of 13 October 2014, national legislation fully transposing the Directives was in place in all but two EU Member States, one of which recently adopted transposition measures.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 27 Merger control in regulated sectors: a bridge too far?

concluding that it is the will of the parties to accept undertakings which warrant the clearance of their merger, rather than the imposition of such terms by the Commission in advance of the legislative timetable. Having said that, this rationale is arguably more compatible with a clearance available under a Phase I review, where the remedies must indeed over-compensate for the Commission’s competition concerns, as a form of trade-off for the truncated review and clearance procedure.112

(ii) The telecommunications agenda Although not quite as profound in their effects, remedies prescribed in a number of telecommunications sector mergers have produced results which clearly anticipate major structural market changes through the advent of legislation that is due to be implemented. In Telia/Telenor113 the Commission identified strong vertical links between the merging neighbouring incumbent fixed line operators of Sweden and Norway, in combination with high market shares. This vertical integration, when seen in light of the geographic contiguity between the merging operators and the impact of technological convergence, compelled the Commission to seek inter alia the divesture of fixed and cable TV overlaps and their mobile operations overlaps in other jurisdictions such as Ireland. Most importantly, however, the Commission secured remedies which ensured that, post-merger, there would be unbundled access to the respective local loops.114 The unbundling remedy was prescribed in advance of the Local Loop Unbundling Regulation115 coming into force in late 2000, which would in theory have achieved the same result by legislation in the near future. Upon the dissolution of the Telia/Telenor deal for commercial reasons, a comparable deal was struck between the Swedish and Finnish incumbents in both the fixed and mobile sectors. Thus, in Telia/Sonera,116 the Commission identified similar vertical concerns with respect to the upstream markets for wholesale call termination to Telia’s and Sonera’s respective fixed and mobile networks, with respect to the provision of wholesale international roaming,117 and as regards the vertical effects on Internet access services in Finland, given Telia’s position of market dominance in neighbouring Sweden.118 The Commission took the view that the operators’ respective dominant positions on these upstream markets would create a serious risk of the merged entity having the ability and incentive to harm competition in the downstream markets for mobile services and corporate communications services

112 See, for example, Recital 30 of the EUMR. 113 See Case No COMP/M.1439 Telia/Telenor, Commission Decision of 13 October 1999. 114 Op. cit., see paras. 20 – 211, 381 – 385. Also refer to points 2 and 3 of the commitments offered to the European Commission pursuant to Article 8(2) of Council Regulation (EEC) NO 4064/89, within the Decision itself.

115 See Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on unbundled access to the local loop, OJ L 336, 30.12.2000, pp. 4–8. See especially Annex to the Directive for a minimum list of items to be included in a Reference Offer for unbundled access to the local loop.

116 See Case No. COMP/M.2803 - Telia/Sonera, Commission Decision of 10 July 2002. 117 Op. cit., see paras. 83-88 and 89-113. 118 Supra, see paras. 20, 43-45. Also see paras. 66- 71, 11-112 and para. 113.

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supplied to firms with significant pan-Nordic communications demands.119 As a result of these concerns, the Commission required the legal separation of fixed and mobile networks and services from their respective retail units (structural remedies), supported by behavioural remedies which included non-discriminatory access to both fixed and mobile networks (and to international roaming services in Sweden). In addition, the Commission took advantage of its one-time opportunity to promote infrastructure-based competition by compelling Telia to divest its cable TV network in Sweden (with the new entrant being able to provide triple-play services over upgraded cable).120 In doing so, it went beyond the terms of the Cable TV Directive, which only required that a telecommunications operator used a separate legal entity to operate a cable TV network.121 The Commission’s modus operandi in telecommunications merger reviews, while similar in a number of respects to its approach in the review of energy sector mergers, is arguably more proportionate, and hence more justified. For example, unbundled access to the fixed incumbent’s local loop is fundamentally different to the use of the concept of ‘unbundling’ in the energy sector. The former in telecommunications is a more intrusive form of behavioural access regulation which can be accommodated by operators under their existing network architecture, whereas the latter form of unbundling involves a fundamental structural change to the business operations of a vertically integrated energy operator. Similarly, the governance positions designed to keep independent the operations of fixed (PSTN) operators from cable TV operators were prescribed by European legislators as a minimum standard to be followed; their improvement in the context of a merger review seems a logical upgrade in light of the commercial benefits available to the merging parties as a quid pro quo.122

3. Industrial policy issues In the course of its deliberations over mergers in regulated network sectors, the Commission has, on a number of occasions, been in the invidious position of exercising its powers under the EUMR (which supposedly are in furtherance of competition goals only) against a backdrop of clear industrial policy signals being given by EU legislators and policymakers more generally.

119 Supra, see para. 113. 120 Supra, see the list of commitments in detail at paras. 117 - 119. 121 See Commission Directive 1999/64/EC of 23 June 1999 amending Directive 90/388/EEC in order to ensure that telecommunications networks and cable TV networks owned by a single operator are separate legal entities, OJ L 175, 10.7.1999, pp. 39–42. Refer also Commission Directive 95/51/EC of 18 October 1995 amending Directive 90/388/EEC with regard to the abolition of the restrictions on the use of cable television networks for the provision of already liberalized telecommunications services, OJ L 256, 26.10.1995, pp. 49-54.

122 By comparison, the recent legislative intervention regarding Slot Divestitures (see Regulation (EC) No 793/2004 of the European Parliament and of the Council of 21 April 2004 amending Council Regulation (EEC) No 95/93 on common rules for the allocation of slots at Community airports, OJ L 138, 30.4.2004, pp. 50–60) was preceded by years of political stalemate in the aviation sector, with Member States not being able to agree on the conditions of their divestiture. In the interim, the Commission proceeded to include slot divestitures as a standard remedy in aviation sector mergers. See, for example, Case No. COMP/M.3280 - Air France/KLM, Commission Decision of 11 February 2004; Case No. IV/M.259 - British Airways/TAT, Commission Decision of 27 November 1992; Case No. IV/M.616 - Swissair/Sabena, Commission Decision of 20 July 1995; Case No. M/JV-19 KLM-Alitalia, Commission Decision of 11 August 1999; Case No COMP/M.5335 – Lufthansa/SN Airholding, Commission Decision of 22 June 2009; Case No. COMP/M.5440 – Lufthansa/Austrian Airlines, Commission Decision of 28 August 2009; Case No. COMP/M. 5364 – Iberia/Clickair/Vueling, Commission Decision of 8 January 2009; and Case No. COMP/M.6447 - IAG/BMI, Commission Decision of 30 March 2012.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 29 Merger control in regulated sectors: a bridge too far?

At times, the Commission has struggled to maintain its objectivity in pursuing competition law solutions which are not tainted with broader industrial policy considerations, especially as regards regulated network sectors where the political stakes are always high. Quite often, sensitive competition law analysis has had to turn on the issue of the ideal industry structure capable of delivering competitive outcomes, or on the desire of the Commission to foster the creation of pan-European markets – both goals, however, are susceptible to broader political considerations, even if their net results can be justified by reference to pro-competition criteria.

(a) Industry restructuring While the breadth of the concept of ‘industrial policy’ is elusive and arguably does not find its way explicitly into EU legislation or decision-making,123 it is nevertheless always a relevant concern when one deals with strategic issues such as merger control in regulated sectors. When one considers the strategic importance to the EU of both the energy and telecommunications sectors, it is not plausible to argue that that EU policy is ‘agnostic’ with respect to the types of industry structures that are preferred, nor is it realistic to disavow the importance of an internal market being created. The mechanics for achieving such goals have varied over time and as between sectors. Energy markets are characterized by high degrees of vertical integration, not only because the major industry actors were once State-owned monopolies across all levels of the supply chain, but also because the level of functional integration was considered by many member States to produce more effective results in terms of security of supply. The Commission’s 2007 Sector Inquiry Report on the gas and electricity sectors explained that a fundamental reason for the lack of cross-border activity was due to the vertical integration of energy suppliers, along with the failure of national unbundling rules to progress at proper speed, which prevented competitive energy markets from developing at a European level.124 In this regard, the Report identified structural conflicts of interest relating to the failure to split networks from the more competitive segments of the value chain.125 In addition, there were found to be gaps in cross-border regulation

123 A notable exception lies in the energy sector. Non-EU owners of stakes in European energy undertakings face two separate restrictions. First, according to Article 11 of Directive 2009/72 (electricity) and of Directive 2009/73 (gas), in order to prevent control of transmission systems by companies from non-EU countries, such companies must comply with the unbundling requirements that apply to EU companies and request and obtain the same certification of compliance from the relevant National Regulation Authority. Such certification must be refused by an NRA if the relevant entity does not comply with the unbundling requirements and if certification would put the security of energy supply of a Member State or the EU at risk. The Commission‘s opinion must be requested by the NRA on these two points. A Member State can always reject certification on the grounds of protection of legitimate public security interests. Second, In its White Paper published in July 2014, the Commission proposed a ‘targeted’ transparency system allowing potentially problematic transactions to be targeted through the identification of transactions which create a ‘competitively significant link’, thereby ensuring that such transactions can be effectively controlled by the Commission, even without the need for a full notification obligation. A ‘competitively significant link’ would arise where there is a prima facie competitive relationship between the acquirer and the target‘s activities; both active in the same markets or sectors, or active in vertically related markets. The system would only apply to situations where the acquirer is able to influence materially the commercial policy of the target and its behaviour or grant it access to commercially sensitive information. Only acquisitions of a ‘competitively significant link’ would require the submission of an information notice to the Commission (paras. 45-46).

124 See Communication from the Commission of 10 January 2007 entitled ‘Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors’, (Final Report) SEC(2006) 1724, 851 pp. 7-9.

125 Op. cit., para. 52.

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which lacked uniformity, thereby preventing cheaper producers supplying consumers in other Member States.126 These market failures were seen to exemplify the reluctance of Member States to condone full liberalisation through their failure to enforce the directives effectively and in a timely manner, thereby rendering consumers unable to influence market conditions. Accordingly, it was believed that the Second Energy Package would open the markets for all gas and electricity customers by 2007, providing them with competitive supply options.127 Such expectations were as ambitious as they proved to be unattainable in practice, with few Member States implementing the various liberalisation Directives effectively. Within the electricity sector, the Commission identified significant failings in the market.128 It was concluded that consumers and businesses alike were being harmed because of inefficient and expensive gas and electricity markets.129 This was in turn seen to be due in large measure due to the fact that markets were still characterised post-merger by vertically integrated national or regional monopolies, which reduced choice and prevented switching.130 The Report conveyed the view that it was essential: ‘[to] resolve the systemic conflict of interest inherent in the vertical integration of supply and network activities, which has resulted in a lack of investment in infrastructure and in discrimination. It is crucial to ensure that network owners and/ or operators do not have incentives that are distorted by supply interests of affiliates’,131 while also concluding that the public consultation had ‘not revealed any significant synergy effects linked to vertical integration.’132 Based on these conclusions, the Commission has proceeded to use its powers under the EUMR as the basis upon which vertical foreclosure concerns in the energy market can be overcome, engaging in a widespread feat of industry restructuring across the European energy sector. Given that a considerable number of mergers within the energy sector have involved the combination of transportation and storage infrastructures, the consistent Commission concern has been that downstream competitors would not be positioned to gain effective network access, as the vertically integrated merged entity would have an incentive to retain the combined transportation and storage capacity

126 Ibid. 127 http://www.euractiv.com/energy/liberalising-eu-energy-sector/article-145320. 128 See Communication from the Commission of 10 January 2007 entitled ‘Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors’, (Final Report) SEC(2006) 1724, 851 available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/07/26&format=HTML&aged=0&language=EN&gu iLanguage=en

129 Ibid. 130 See Commission’s Press Release, ‘Mergers: Commission opens in-depth investigation into merger between Gaz de France and Suez group’, of 19 June 2006, IP-06-802; Commission Press Release, ‘Merger: The European Commission adopted a ‘Statement of Objections’ regarding the merger project between Suez and Gaz de France’, 19 August 2006, IP-06-1109; Commission Press Release, ‘Mergers: Commission approves merger of Gaz de France and Suez, subject to conditions’, 14 November 2006, IP-06-1558. See also, EurActiv Article, ‘Commission threatens EU power giants’, of 11 January 2007: Available at http://www.euractiv.com/energy/commission-threatens-eu- power-giants/article-160804.

131 See Communication from the Commission of 10 January 2007 entitled ‘Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors’, (Final Report) SEC(2006) 1724, 851, at para. 53.

132 Op. cit., at para. 56.

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for its own use, refuse access to competitors or offer them access to capacity on discriminatory or unfair terms and conditions. By contrast, Member States concerned with security of supply issues have been less concerned about vertical integration, while National Regulatory Authorities were incapable to take pro-active measures that would restructure energy markets where national legislators had failed to enact EU legislation achieving similar ends. Aside from its insistence on the importance of having independent energy regulators,133 the Third Energy Package also includes critical rules regarding the unbundling of networks and a series of new guidelines on the functioning of retail markets. However, there were many commentators who felt that the unbundling rules did not go far enough to unravel ownership relations.134 The resistance of EU Member States such as Germany and France led to a regulatory compromise in which energy companies were permitted to maintain their ownership of the grid while at the same time being regulated by an independent body, thereby preventing effective unbundling from taking place.135 In order to dilute the oligopolistic market power of the very large energy companies, it was felt by the Commission that it was necessary to achieve full ownership unbundling in order to achieve full consumer benefits, namely, the separation of supply and production activities. Furthermore, the regulatory package does little to enforce price transparency for consumers and does little to eliminate regulated tariffs, which in turn does little to incentivise cross-border activity.136 Moreover, even insofar as the Third Energy Package has been formulated to reflect a radical re-orientation of the internal energy market policies of the EU,137 it was still the case that, by June 2011, no Member State had satisfied its transposition commitments by the specified date, while there are actually still some Member States which have yet to adopt the measures required in the Third Energy Package.138 However, some Member States have agreed to initiatives aimed at intensifying transparency measures, raising levels of transport capacity usage and facilitating cross border trade.139 While the adoption of such policies is a significant development, the initiatives are voluntary and it is unlikely that the Member States in question will carry out the proposals in full, as the protection of national infrastructure is at the very top of their agenda. As regards telecommunications markets, the quest for a clear vision of industry structure has been hampered by the fact that, in a sector characterised by high levels of technological

133 See J. Feldner, D. Thalhammer, Eisenberger & Herzog, ‘EU Industry Sectors – Energy’, The European Antitrust Review, 2012, at Section 3. 134 See J. Christian Pielow & E. Ehlers, ‘Ownership unbundling and constitutional conflict: a typical German debate?’, European Review of Energy Markets - Volume 2, Issue 3, [2008]. 135 http://www.euractiv.com/tag/Energy%20-%20’ownership%20unbundling’. 136 See K.J. Cseres, ‘What Has Competition Done for Consumers in Liberalised Markets?’, The Competition Law Review, Volume 4, Issue 2 pp. 77-121, [2008], pp. 86-87. 137 See Per Ove Eikeland, FNI Report [2008], ‘EU Internal Energy Market Policy: New Dynamics in the Brussels Policy Game?’ A Canes Working Paper, at p. 4. 138 EC, Brussels, [2011], Commission Staff Working Document; [2009-2010]]: ‘Report on progress in creating the internal gas and electricity market’, at p.4.

139 Op. Cit., at p. 8.

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innovation and fundamentally different patterns of network deployment, it has been difficult to sustain a unitary image of preferred industry structure across all Member States of the EU. Thus, Member States where cable TV networks have been historically deployed140 exhibit fundamentally different competitive dynamics to those Member States whose fixed line sector is dominated by the historical legacy PSTN (traditional copper line) incumbent operator. Similarly, there has been a wide variation between Member States, both as regards the number of Mobile Network Operators (MNOs) which each Member State has licensed and the number of ‘Virtual’ Mobile Network Operators (MVNOs) which maintain an active presence in each Member State upon being hosted by MNOs. In turn, there are fundamentally different patterns of converged service offerings as between Member States for ‘triple play’ or ‘quadruple play’ service offerings,141 which shape the particular competitive dynamic in each Member State. While there is little doubt among EU policymakers that infrastructure-based competition is superior to services-based competition, and regulatory policy has been geared to operators climbing the metaphorical ‘ladder of investment’,142 it is also the case that the regulatory agenda for telecommunications has been shaped, until very recently, by the understanding that both infrastructure and service models of competition could exist in parallel. As profit margins have become squeezed and as certain services have become increasingly commo- ditised, pressure has mounted for the Commission to adopt a more relaxed view on merger review in the sector, thereby allowing European operators to achieve scale and scope.143 At the same time, the proliferation of so-called ‘Over the Top’ (OTT) operators, the most significant of which are of US origin, has called into question whether our understanding of what constitutes an ideal industry structure is fundamentally outdated.144

140 Classic examples of Member States with ubiquitous cable TV coverage include Belgium and The Netherlands, while larger Member States such as Germany, the UK, Spain and France exhibit patchy regional variations of cable TV availability.

141 A triple play offer refers to the bundled offering of voice, Internet access and audiovisual content, while a quadruple play offering adds mobile services also.

142 See, for example, M. Cave, ‘Encouraging infrastructure competition via the ladder of investment’, Telecommunica- tions Policy, of April 2006, pp. 223-237. Also see, M. Cave, ‘The ladder of investment in Europe, in retrospect and prospect’, Telecommunications Policy, Volume 38, Issues 8-9, September 2014, pp. 674–683. The objective of the framework is to provide new entrants with the opportunity to offer their services initially via the infrastructure of the existing operator. As a result, the revenue generated by new entrants should allow them to effectively ‘climb the ladder of investment’ and thus have the eventual ability to be able invest into their own network infrastructure. The ideal conclusion is that as soon as there exist competing infrastructures, access regulation will be in a position to be phased out, leaving the market subject only to competition law.

143 See, for example, Financial Times article, ‘Telecoms groups hope for shift in EU regulation’, of 30 October 2014 and the Politico article, ‘Vestager on telecoms collision course with Juncker’, of 13 May 2015: Available at http:// www.politico.eu/article/busy-signal-vestager-gives-telecom-deals-a-close-look/. See, also for example, Financial Times articles, ‘Lex in-depth: European telecoms’, available at http://www.ft.com/intl/cms/s/0/c7f6f716-6b5f-11e4- ae52-00144feabdc0.html#slide0: ‘The door is open. Europe’s telecoms need only step through it. Jean-Claude Juncker, the President of the European Commission, wants a single market in digital communications to spark growth in employment and output. This cannot happen without increased investment from the telecoms industry. So the commission, with support from German Chancellor Angela Merkel, is looking favourably on consolidation of the sector’.

144 An OTT operator refers to those operators which provide video, television and other services over the internet rather than via a service provider’s own dedicated, managed IPTV network. OTT is delivered directly from provider to viewer using an open internet/broadband connection, independently of the viewer’s ISP, without the need for carriage negotiations and without any infrastructure investment on the part of the provider. It is a ‘best effort’,

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(b) Creating pan-European markets At the heart of EU policy in the energy and telecommunications sectors is the desire to complete the internal market for such services. However, policymakers are usually not content to establish merely the conditions which permit operators to establish themselves across borders with a view to providing trans-national services. Rather, through the medium of merger review, the creation of pan-European operators has become a major policy driver for the crafting of appropriate remedies.

(i) Energy sector Although the support of ‘national champions’ in the energy sector is frowned upon by EU merger policy, a merger that results in the creation of an ‘EU champion’ will invariably be seen in a more favourable light, especially where the merger brings together operations from different EU Member States that allow it to provide services across many Member States.145 Commission merger decisions in the energy sector are without doubt aimed at encouraging cross-border trade, while at the same time not promoting such activities by vertically integrated dominant operators. The Commission’s merger decisions continue to define antitrust markets in the energy sector along national lines, while at the same time acknowledging that a major competition concerns lies in the potential for cross-border competition (through interconnectors) that would eventually foster a truly pan-European energy market. In Endesa/E.ON,146 the Commission reflected that E.ON could become the first ‘pan-European energy operator’. However, this was at the same time considered to create possible incentives to block the expansion of interconnection capacities between Member States and/or that multi-market contacts between E.ON and other market players. Such concerns would need to be balanced against the ability and incentive of any company with activities in several Member States to be able viably to transport natural gas or electricity.147 Thus, the creation of a pan-European footprint was considered, at least at the relatively early stages of liberalisation, to create laudable efficiencies which might, however, lend themselves to market abuses through the leveraging of market power (i.e., in other words, the creation of an efficiency ‘offence’ rather than ‘defence’). Similarly, in VEBA/VIAG,148 the Commission sought the freeing up of grid capacity in order to facilitate cross-border exports so as to foster the internal market policy.149

unmanaged method of content delivery via the internet that suits providers who are primarily broadcasters rather than ISPs. See also the Forbes article, ‘Cable TV Model Not Just Unpopular But Unsustainable’, of 14 October 2013. See also, the BCG AND ENTO report, ‘Reforming Europe’s Telecoms Regulation to Enable the Digital Single Market’, of July 2013.

145 As noted by Damien Neven in ‘European champions and enforcement: Is DG COMP in ideological denial?’, Graduate Institute of International and Development Studies Working Paper No:15/2014, a more constructive application of the concept of ‘efficiencies’ may yield results similar to the creation of a ‘European champion’.

146 See Case No. COMP/M.4110 - E.ON / ENDESA, Commission Decision of 25 April 2006, at para. 31. 147 Ibid. 148 See Case No. COMP/M.1673 – VEBA/VIAG, Commission Decision of 13 June 2000. 149 In the closed Case 37811, concerning territorial restriction clauses between EN/Gazprom in 2003, that the Commission somewhat arbitrarily addressed restrictions relating to the territory of Italy in relation to the operation of the TAG pipeline by seeking to preserve competition in Member States such as Austria and Germany. While creating a remedy that has much more of a European impact, it is difficult to justify how the remedy could be seen to extend

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In GDF Suez/International Power,150 the Commission cleared GDF’s acquisition of sole control over International Power, despite the Commission’s efforts at the time to create a ‘pan-European’ energy market.151 The notified merger gave rise to overlaps in electricity-related markets in eight EU Member States and the Commission defined the affected markets along national lines.152 Importantly, the merged entity’s combined market shares post-merger were low and the Commission uncovered no apparent competition concerns within the markets in which the merging parties were active.153 The specific issue that concerned the Commission was the fact that the merged entity would have the capability to access the capacity management information of RWE Essent.154 As such, it was believed that the merged entity would be able to price less aggressively on the Belgian wholesale market given that it would have access to this information (due to the existence of a tolling agreement).155 Finally, the Commission considered that RWE would be placed at a competitive disadvantage, with the merged entity having decisive control over RWE in the Belgian market. The parties agreed to divest International Power’s interest in the Belgian power plant and to transfer the tolling contract with RWE to an interested third-party.156 Thus, Commission precedents suggest that the remedies will often be tailored to promote pan-European operations. By the same token, the precedents are also consistent with the view that dominant firms should not be permitted to leverage market power which might inure to them in numerous Member States.

(ii) Telecommunications markets In the telecommunications sector, the desire of the Commission to actively promote a pan-European market has not always been self-evident, especially given that the conditions for market entry across the EU Member States have been relatively straight- forward for a number of years (other than for those wishing to use scarce resources such as spectrum).157 Accordingly, during the course of the 1990s, whether through the acquisition of multiple licences or through engaging in mergers with a pan-European

legitimately from the territory of Italy. See Commission Press Release of 6 October 2003, IP-03-1345.

150 COMP/M.5978 GDF Suez/International Power of 26 January 2011. 151 See, for example, the ‘pan-European’ policy applied within other merger Decisions concerning the energy sector with this article.

152 Op cit., see, for example, paras. 23, 24, 33 – 34, 58, 69 – 71 and 116. 153 Op cit., at paras. 46 and 75. 154 Op cit., at paras. 76 – 78, 84 – 85 and 95 – 115. 155 Op cit., at paras. 74 – 75, 78 and 85 - 88. 156 Op cit., at paras. 140 - 145. 157 Refer to Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorisation of electronic communications networks and services (Authorisation Directive), OJ L 108, 24.4.2002, pp. 21–32 – see for example, at Recitals 11 and 12. Even where authorizations need to be limited in number because of the need to use scarce resources such as spectrum, the procedures to be followed must nevertheless be open, transparent and non-discriminatory (see, for example, Articles 5 and 7 and Recital 12); this usually results in an auction mechanism being established, or, more rarely, the establishment of a ‘beauty parade’ selection process.

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focus, investors sought to create pan-European networks.158 Those ventures focused on addressing the needs of business users or by taking advantage of arbitrage opportunities and being able to internalise externalities such as roaming costs. Others sought to develop new markets on a pan-European scale, especially to take into account increasing broadband penetration and technological convergence. With the minimisation of roaming charges, the gradual commoditisation of voice services and the prevalence of high costs for spectrum, the patterns of expansion seen in the 1990s have now most recently given way (at least in the mobile sector) to consolidation within Member States. In its earlier merger reviews, the Commission conveyed a guarded approach towards those firms that sought to forge a pan-European service offering. Thus, according to the Commission in its review of Vodafone/Mannesmann,159 the merged entity was seeking to create a completely ‘new’ market through its provision of pan-European mobile business services. Nevertheless, despite this positive potential welfare benefit, the Commission expressed concerns that the merged entity might have incentives to engage in certain practices that would allow it to preserve its ‘first mover’ advantage in such a pan-European market. Accordingly, access remedies were agreed with the Commission for parties wishing to provide pan European services. While the prospect of creating a pan-European operator was arguably seen to reflect the success of internal market policies, the concerns about first-mover advantage meant that the Commission was concerned to restrict the merged entity’s potential growth, thereby limiting its welfare advantages, in order that it not become dominant in an emerging market. This was arguably a high-water mark for the application of the so-called ‘efficiency offence’ by the Commission, especially given that no competitors availed themselves of the access remedies while they were available.160 Concerns about pan-European scope producing anti-competitive outcomes also arose in a different merger context in the Vizzavi JV between Vodafone/Vivendi/Canal+.161 In that case, vertical concerns were said to arise in context of the media sector where, due to high concentration levels in upstream content markets, potential foreclosure effects were foreseen which ran counter to the liberalisation policies supporting the telecommunications sector. Thus, in Vizzavi, the newly formed entity sought to establish a ‘multi-access Internet portal’ throughout the territory of the EU, which was anticipated to provide customers with a choice of ‘web-based services’ that could be accessed via customers’ PCs, mobile phones, or TV set-top boxes. In the eyes of the Commission,

158 For example, see Case No. COMP/M.1439 - Telia/Telenor, Commission Decision of 13 October 1999; Case No. IV/M.1430 - Vodafone/AirTouch, Commission Decision of 21 May 1999; Case No. COMP/M. 1795 Vodafone Airtouch/Mannesmann, Commission Decision 12 April 2000. 159 See Case No. COMP/M. 1795 Vodafone Airtouch/Mannesmann, Commission Decision 12 April 2000. 160 The term refers to the situation where a firm, through its generation of scale and scope advantages compared to its competitors, is considered to be in a position to leverage market power because of those very advantages which might otherwise also be capable of producing consumer welfare: See F. Laprévote, ‘Abandon All Hope, ye Who Enter Here? Efficiencies in European Merger Control: A Few Lessons from Recent Decisional Practice’,Concur - rences Journal N° 2, May 2014. 161 See Case No. COMP/JV.48 - Vodafone/Vivendi/Canal+, Commission Decision of 20 July 2000.

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the joint venture raised competition concerns in the emerging national and pan-European markets for Internet portals that were accessible via TV and mobile phones.162 It was felt that the resulting potential vertical foreclosure would have harmed liberalisation goals insofar as the Commission was striving to ensure that smaller operators would not be reliant or dependent on incumbent operators to provide their services or products. To address the Commission’s concerns, the notifying parties provided undertakings, which were limited to three years, to ensure that customers of the joint venture were free to choose other portals.163 Moving fifteen years forward, the Commission’s avowed policy towards European-scale ventures has changed. At the time of writing, despite continued signals that consolidation at national level would be addressed with the same level of concern as in the past, the clear political messages from the Commission since late 2014 have been that the creation of a Single Digital Market presupposes a more consolidated marketplace characterised by a number of pan-European operators.164 This level of pan-European consolidation is seen to be important in order that the European telecommunications sector is in a position to achieve the scale and scope of its major international competitors, and is also able to invest in new technologies such as LTE and 5G. The Commission policy and enforcement conundrum has thus become one of promoting pan-European level mergers (the creation of European champions), while continuing to be critical of consolidation in national markets (the reinforcement of national champions) under its traditional methods of analysing the competitive effects of mergers on affected ‘markets’.165 This explains why the Commission, while willing to grant conditional clearance to a number of 4-to-3 mobile mergers over the past few years, has at the same time sought to ensure that the remedies in question can sustain a competitive environment.166 For example, 3 Ireland/O2 Ireland received conditional clearance on the basis that: (i) network capacity was made available for MVNOs; (ii) a quantity of spectrum was auctioned; and (iii) O2’s network sharing deal with Eircom

162 Op. cit., see paras 67- 68 and 81- 81. 163 Supra. See, for example, para. 93. See also the commitments on pp. 21-22 of the Commission Decision. 164 See, for example, a speech by Jean-Claude Juncker, ‘New Growth without Debt: My Priorities as Commission President’, of 16 April 2014: ‘Where our single market remains incomplete is when it comes to digital products and services. This is what I want to work for as Commission President: Making sure that Europe creates a truly integrated digital single market in the next 5 years. This could generate additional growth in Europe worth €500 billion - just by intelligent European policy measures, and without spending money we do not have. If we ask companies to offer their networks and services not only nationally any longer but now on a continental scale, we should, in my view, also apply EU competition law with a continental spirit. A truly integrated market will need pan-European operators.’ See Europolitics article, ‘Juncker defends ‘pan-European telecom operators’. See also, EurActiv article, ‘New Beginnings’, of 15 July 2014. 165 See, for example, the latest statements of the current Commissioner for Competition, Margrethe Vestager, confirm the traditional view that investments are usually spurred by competition: ‘So far it seems as if it is still competition that will lead to investment and not the other way round.’ See Financial Times Article, ‘Competition chief sends tough message to EU telecoms’, 8 March 2015, available at: http://www.ft.com/intl/cms/s/0/39b90222-c425-11e4-a949-00144feab7de. html#axzz3ZC4iLgnU.

166 See, for example, Case No. COMP/M.7018, Telefónica Deutschland/E-Plus, 2 July 2014; Case No. COMP/M.6992. Hutchison 3G UK / Telefonica Ireland, 28 May 2014 and; Case No COMP/M.6497 Hutchison 3G Austria/Orange Austria, 12 December 2012.

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(the smallest market player post-merger) was maintained.167 A recent attempted departure by the Commission from this ‘hard line’ towards consolidation has been met with challenges before the General Court168 and emerging economic evidence that price rises have followed on the heels of such mergers.169 The residual concern under the EUMR about national markets is not that surprising, given that such markets are still dominated by national consumer patterns of demand, subject to national regulations, enforced by national regulators, and the key resource of spectrum is still allocated on a national basis. Thus, the attempt to analyse national telecommunications mergers through pan-European eyes will continue to be very difficult unless and until the fundamental basis upon which market entry and regulation occur changes and end user consumption patterns change. Unlike energy markets, whose focal point of interest arguably lies in such issues as access to international pipelines and cross-border interconnectors, telecommunications markets remain stubbornly national in character. This probably explains why recent merger activity has seen a withdrawal of many telecommunications operators from markets outside their ‘home’ territory. The likelihood is that, if the goal of the Single Digital Market is to be achieved, its most likely to be effected by non-EU origin operators buying European operations or OTT operators taking advantage of a truly Single Digital Market.

4. Structural remedies In order to render more effective liberalisation goals or to pursue broader industrial policies which are compatible with a competition policy analytical framework, the Commission has increasingly sought to achieve such goals through a combination of remedies which have structural elements, but which presuppose fundamental modifi- cations in market behaviour by the merged entity. Given that both the telecommunications and energy sectors are characterized by high degrees of vertical integration, the Commission’s structural remedies have tended to go beyond the traditional role which one associates with structural remedies in the form of divestitures designed to remove the competitive overlap between the merging parties, on the one hand, and the selection of a buyer that can maintain a sustainable business from the divested assets and goodwill of the merging parties.170 On the contrary, the divestitures sought by the Commission are driven by the desire that the scale and scope of any divestiture needs

167 See Case No. COMP/M.6992 - Hutchison 3G UK / Telefonica Ireland, Commission Decision of 28 May 2014, see, for example, at paras. 974 – 1028.

168 See, for example the Financial Times, ‘Telefónica’s KPN deal challenged over impact on competition’, of 8 June 2015; See MLex article, ‘Airdata files court appeal over Telefónica, E-Plus clearance’ of 8 June 2015; See also the MLex article, ‘Telefónica’s E-Plus deal draws new questions from Brussels’, of 16 June 2015, which identifies that two German telecoms companies 1&1 and Airdata have filed appeals at the EU’s lower-tier General Court in Luxembourg, challenging the Commission’s Decision to clear the Telefónica/E-Plus merger . 169 See the Frontier Economics Report, ‘Mobile prices in Austria, consumer impact of the mobile merger in Austria’, of May 2015. See also the report by the Austrian regulator, the RTR, which has also published its own analysis at https://www.rtr.at/en/tk/Marktinfos.

170 For a general discussion of structural remedies in regulated network sectors, refer to P. Alexiadis & E. Sependa, ‘Structural Remedies Under European Union Antitrust Rules’, Concurrences N° 2-2013, Tendances, pp. 21-26.

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to be of such a nature as to deliver favourable regulatory outcomes beyond the immediate resolution of the concerns identified in the merger context.

(a) Preventing leverage, or discrimination, or degradation To remove competition concerns within a relevant affected market, a remedy might involve affirmative measures designed to re-establish competition within that market to the extent that it is effective and appropriate to address the concern (i.e., it must be proportionate). Commitments which are ‘structural’, such as a divestiture commitment, are preferable from the EUMR’s viewpoint, as they address competition concerns with relative certainty in that they will ordinarily not require behavioural/ monitoring measures. A general distinction can be drawn between: (i) divestitures; (ii) other structural remedies such as the granting of access to key infrastructures or wholesale inputs on non-discriminatory terms; and (iii) commitments relating to the future behavior of the merged entity. In particular, divestiture commitments are, in the Commissions view, the best means of eliminating competition concerns resulting from horizontal overlaps, while at the same time resolving vertical concerns.

The range of potential access commitments is very broad, as they can be designed to ensure effective access to particular infrastructures, specific types of networks (e.g., across pay TV platforms),171 or to essential inputs. They may be helpful in lowering entry barriers, with the intended effect that the actual entry of new competitors is likely to resolve foreclosure concerns (but only if competitors will actually use take advantage of them). These commitments may be acceptable if they have the same effect as a divestiture. One essential pre-requisite is that they are capable of being monitored, either via market participants through arbitration clauses (self- enforcement of commitments) or via recourse to national regulators with sectoral expertise (e.g., telecommunications or energy). The most problematic issues lie with respect to the access terms, in particular the access fees, which can rarely be defined precisely in advance but require sufficient breadth to be able to satisfy a range of requests from potential access-seekers.

(i) Energy precedents

Widespread use has been made of gas and electricity structural release programs as remedies, with the merging parties agreeing to auction a large volumes of wholesale gas or electricity supplies (and related network capacity) in order to prevent them leveraging their market power into adjacent markets, removing the possibility of discrimination taking place, and allowing third party access without causing network degradation. In the energy sector,

171 See, for example, Case No. COMP/M.2876 Newscorp/Telepiù, Commission Decision of 2 April 2003.

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these have been re-occurring themes in a number of merger clearance decisions such as DONG/Elsam/Energi E2,172 E.on/MOL,173 EDF/British Energy,174 and EDF/Segebel.175

In the GDF/Suez176 merger, for example, a far-reaching package of divestitures was considered to be insufficient to reduce the effect of entry barriers that, while already in existence at the time of the merger, would in the Commission’s eyes have the potential to result in leveraging, discrimination and degradation concerns in the post-merger environment. Consequently, the parties were required to make a series of investments in Belgian and French gas infrastructure capacity. The remedies included the divestiture of the Suez group’s holding in Distrigaz, the leading gas supplier on the Belgian market, and surrendered its control over the Belgian gas transmission network operator, ‘Fluxys’, so as to remove discrimination and leveraging concerns. GDF also divested its shareholding in the Belgian electricity supplier SPE and it also dissociated itself from its subsidiary ‘Cofathec Coriance’ (which was active in the district heating market).177 In addition to the divestments and in order to render the markets more contestable for new entrants, the Commission ensured that there would be a number of investment projects underway on both the Belgian and French gas markets which were aimed at increasing capacity and preventing degradation. In DONG/Elsam/Energi E2, the Danish gas company DONG sought to acquire on the upstream market two Danish electricity producers, Elsam and Energi E2. As a result of the acquisition, Dong would have control on the downstream market over the Danish electricity suppliers Kobenhavns Energi Holding and Frederiksberg Elnet. Initial competition concerns focused on vertical foreclosure on Danish gas and electricity markets, with competitors being possibly faced with discriminatory or degraded access. The two electricity producers, Elsam and Energi E2 would be allegedly removed as competitive constraints against the gas storage markets and gas supply markets of the gas incumbent, DONG, which would also be able to leverage market power from the gas market into the electricity market.178 The Commission also acknowledged that, post-merger, DONG would itself be removed as a potential competitor from electricity markets in Denmark. This concern was more acute, given that Danish electricity markets had at this stage been fully opened to competition. Further, the merger could impede the development of a liquid wholesale market for natural gas. The main concern therefore was the removal of ‘potential’ competition upstream and downstream which created foreclosure risks within the gas and electricity markets and opened up the

172 See Case No. COMP/M.3868 - DONG/Elsam/Energi E2, Commission Decision of 14 March 2006. 173 See Case No. COMP/M.3696 – E.ON/MOL, Commission Decision of 21 December 2005. 174 See Case No. COMP/M.5224 - EDF/British Energy, Commission Decision of 22 December 2008. 175 See Case No. COMP/M.5549 - EDF/ Segebel, Commission Decision of 12 November 2009. 176 See Case No COMP/M.4180 - Gaz de France/Suez, Commission Decision of 14 November 2006. 177 See Case No COMP/M.4180 Gaz de France/Suez, Commission Decision of 14 November 2006, at, for example, paras. 1138, 1144 and 1166.

178 See Case No. COMP/M.3868 - DONG/Elsam/Energi E2, Commission Decision of 14 March 2006, at, for example, paras. 69, 288, 352, 502, 576, 582 , 588, 593, 596 and 597.

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possibility of DONG discriminating against its competitors (i.e., it would be in a position to raise rivals’ costs).179 As a result, DONG agreed to divest the largest of its Danish gas storage facilities to remove the discrimination, foreclosure and leveraging concerns.180 Furthermore, DONG also implemented an ‘auctioning program’ for the release of significant volumes of gas (amounting to 10% of Danish demand in 2005).181 In brief, the proposed initiative was to comprise a total of six annual auctions, leaving 400 million cubic meters of gas capacity to be to be auctioned from 2006 through to 2011. The auctions were to be organized so as to allow the Danish hub and also any of the four northern European hubs (i.e., UK, the Netherlands, Belgium and Germany) to be able to swap auctioned lots. This, in the Commissions’ eyes, was a move designed to open the national market to ‘external’ competitors as any undertaking that was interested in acquiring gas quantities in Denmark in exchange for quantities at the other European hubs could effectively participate in the auctions.182 If, for example, there were remaining capacity volumes, it was agreed that they would be made available in a further auction, with DONG not being entitled to withhold anything that was not auctioned off.183 The approach taken by the Commission in E.ON/MOL also highlights its stance when dealing with its concerns about potential discrimination or degradation. Due to the fact that this merger involved the German electricity incumbent and the vertically integrated Hungarian gas incumbent, the remedies that were required to address the Commission’s concerns were extensive. First, E.ON offered an extensive package of remedies which included: (i) the divestment of its minority interests in MOL WMT and MOL Storage (gas storage),184 designed to prevent leveraging and possibly discrimination in Hungarian electricity and gas markets, in addition to full ownership unbundling of the gas production and transmission activities (to be retained by MOL) from wholesale and storage activities for gas; and (ii) the release of significant volumes of gas capacity on the market on competitive and non-discriminatory terms over an eight year period post-merger, which would also prevent the degradation of the infrastructure.185 Further, E.ON had also agreed to the divestment (to an independent gas trader) of half of its ten-year supply contract with MOL’s gas production business. Accordingly, around 14% of capacity was to be released (via auctions) onto the Hungarian market, allowing the possibility of potential entry and preventing the likelihood of foreclosure or discrimination (as contracts were also to be supplied on equal terms, i.e., at market price).186 In conclusion, the Commission was satisfied that the remedies package would

179 Op. cit., at paras. 361 - 364. 180 Supra, at para. 707 181 Supra, at paras. 712, 734, 736. 182 Supra, at para. 739. 183 Supra, at para. 740. 184 See Case No. COMP/M.3696 – E.ON/MOL, Commission Decision of 21 December 2005, at, for example, paras. 736, 762 and 764. Also see the commitments annexed to the above Decision.

185 Op. cit., at para. 741. 186 Op. cit., at para. 802.

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provide other competitors on the wholesale market and downstream customers with non-discriminatory and non-degraded access to essential gas infrastructure and to the significant gas resources of E.ON on arms’ length commercial terms. Another example of the Commission’s remedy policy in energy cases is reflected in Verbund/ EnergieAllianz187 (two electricity incumbents), where the Commission expressed concerns that the merger between two electricity incumbents would not only result in high market shares in electricity generation and supply markets (transmission) to all customers (50%–75%), but would also lead to discrimination and leveraging concerns in the Austrian energy sector. Despite the adoption of a range of liberalisation measures, the market remained national in scope and was characterized by significant barriers to cross-border trade. At the time, there were substantial price and cost variations in the electricity market, which deterred external market competitors.188 The merged entity would have been able to exercise dominance in the markets for the supply of electricity to large customers, small distributors and small customers in Austria, which would have led in all likelihood to increased costs for the ‘balancing’ of electricity, and ultimately discriminatory prices being imposed on the downstream market. Relying on remedies that would be enforced by the Austrian Regulator, Verbund agreed to sell its shareholding in APC, a company that served large customers and which held 10–15% of the overall Austrian market.189 Verbund also agreed to enter into a power supply agreement with the buyer for at least four years,190 which was designed to create a stronger competitor in the market in the near future while also preventing discrimination and possible network access degradation. In addition, the Commission requested both parties to auction a fixed volume of electricity each year until the period July 2008, which was designed to facilitate new entry and expansion in the Austrian market. Finally, the Commission demanded that a price cap be imposed on the ‘balancing’ of electricity until a new Regulation was adopted which specifically dealt with this problem. In RWE/Essent,191 the Commission identified the merging parties’ possible incentives to withhold (interconnecting) capacity. However, such relationships were in principle controlled effectively through obligations imposed by National Regulatory Authorities and overseen by the German sector-specific regulator, which would have a mandated third party interconnecting access without the need for structural remedies. Nevertheless, the Commission held in its merger analysis that the merged entity would have an incentive to withhold interconnection capacity within the relevant German region in which it operated. Although behavioural remedies would have been arguably effective in dealing with the Commission’s concerns at the retail level; the Commission never-

187 See Case No. COMP/M.2947 - Verbund/EnergieAllianz, Commission Decision of 30 March 2004. 188 Supra, at paras. 90 – 94, 155 and 157. 189 Supra, at paras. 147, 150 and 157. 190 Supra, at paras. 145 and 148. 191 See Case No. COMP/M.5467 – RWE/ Essent, Commission Decision of 23 June 2009.

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theless obtained divestitures with a view to ensuring that market power would not accrue at the downstream market level In each of these cases, the Commission has used structural remedies in such a way as to go far beyond the mere removal of horizontal overlaps between competitors through divestitures, thereby restoring the competitive status quo. In doing so, it has actively sought to restructure the energy sector in the affected Member States through the adoption of a series of measures which: (a) remove shareholding overlaps in competitors; (b) overcome vertical integration concerns in the provision of access, both by seeking to promote investment in new infrastructure through the introduction of positive obligations to increase capacity and/or through the establishment of auction regimes for fixed volumes of gas or electricity; and (c) maintain access relationships according to prescribed terms for significant periods of time. The net result of such measures is that the Commission has gone far beyond the imposition of traditional structural remedies by creating hybridized behavioural commitments which are subject to strict structural safeguards. In doing so, the remedies are clearly geared towards achieving clear broader regulatory policy goals, rather than being limited to addressing the particular market concerns raised by the notified merger.

(ii) ‘Convergence’ and media-driven precedents A series of cases dealing with the growth of audio-visual content over various competitive platforms, especially in the light of the technological convergence of traditional telecommunications and broadcasting platforms, has resulted in the Commission pursuing a range of structural remedies with clear regulatory policy overtones. However, in stark contrast to the energy sector mergers reviewed by the Commission, the state of technological and commercial flux in which converged service offerings can be delivered over many platforms has meant that the remedies have been crafted with a ‘moving target’ in mind, rather than an established network industry whose competitive dynamics are well understood. The case of SFR/Tele 2192 involved the acquisition by SFR (which, at the time, was jointly controlled by Vivendi and Vodafone) of Télé2 France’s fixed telephony and Internet access activities which, post-merger, were considered to have a number of potential effects in the pay TV sector in France. The Commission’s market investigation into the transaction revealed competition issues in the downstream market for the retail distribution of pay TV services and in upstream markets for the acquisition and distribution rights for pay TV in France.193 At the time of the proposed transaction, Vivendi was considered by the Commission to hold a dominant position in the French pay TV sector, acting on behalf of its subsidiary, Canal +. As the merger was investigated under an extended Phase II review, the Commission elaborated upon the underlying possible foreclosure and access concerns on the relevant markets. It was already clear that Vivendi held a very strong market position even without the presence

192 See Case No. COMP/M.4504 — SFR/Télé 2 France, Commission Decision of 18 July 2007. 193 Op. cit., at paras. 22, 80, 82 and 97.

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of Télé2›s pay TV distribution activities. Subsequently, the Commission confirmed its provisional view that DSL operators were likely to be the competitors most likely to exert the strongest competitive pressure on the vertically integrated Vivendi group in the markets concerned.194 However, that competitive constraint was still limited in the Commission’s view, due to the difficulties faced by DSL operators in obtaining sufficiently attractive content (both TV channels and programs), which was largely controlled at the time by Vivendi.195 It was thus concluded that, pro-merger, Vivendi would have the incentive and the ability to grant Télé2 privileged access to content and would be able to discriminate against other DSL operators.196 This would weaken the ability of the other operators to compete with SFR/Télé2 on both upstream and downstream pay TV markets. Therefore, in order to address the substantive concerns raised by the Commission, Vivendi and SFR offered remedies that were crafted to prevent discrimination against other DSL operators in favor of the merged entity.197 First, where Vivendi was to give SFR/Télé2 the right to distribute channels (which were either produced by Vivendi or in relation to which it held existing exclusive rights to distribute over DSL), it pledged to give such rights also to all DSL operators on usual market terms, which were to be no less advantageous than those granted by it to SFR.198 In addition, Vivendi was obliged not to grant SFR/Télé 2 customers more favorable terms for accessing the channel packages than those distributed by it over DSL networks (such as CanalSat and Canal+ Le Bouquet) or through its pay-per-view services.199 Further, SFR/Télé 2 was prohibited from acquiring exclusive rights for distribution on DSL networks of third party TV channels in relation to which Vivendi did not at the time hold exclusive rights. Moreover, both Vivendi and SFR were prohibited from acquiring exclusive video-on-demand rights for American and French films at around the relevant timeframe.200 The SFR/Télé 2 case is instructive, insofar as it highlights the desire of the Commission to seize the opportunity to mandate access to content in a merger setting which is otherwise not possible for it to do in a regulatory setting. In this respect, it should be remembered that access relationships under the EU Regulatory Framework for electronic communications do not extend to ‘content’ issues.201 Consequently, despite the fact

194 Supra, at paras. 57, 64, 66 and 70. 195 Supra, at para. 63. 196 Supra, at para. 106. 197 Supra, see paras. 103 - 148. 198 Supra, at paras. 91, 117 – 139. 199 Supra, at para. 121. 200 Supra, at paras. 142-143. 201 Refer to the Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), OJ L 108, 24.4.2002, pp. 33–50, at Recital 5. ‘It is necessary to separate the regulation of transmission from the regulation of content. This framework does not therefore cover the content of services delivered over electronic communications networks using electronic communications services, such as broadcasting content, financial services and certain information society services, and is therefore without prejudice to measures taken at Community or national

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that access to content is becoming an increasingly important wholesale commercial input for the converged retail service offerings of operators, it falls outside the EU regulatory framework.202 Similarly, in behavioural cases involving market power allegations in relation to content, the Commission has been very reluctant to mandate access to content.203 Therefore, it comes as a surprise that the Commission should seek to mandate access to content in a way that assumes content to be little different from any other wholesale input in a telecommunications sector case, especially when the role of the target was anything but prominent in the marketplace. Clearly, the Commission saw this case as an opportunity to tackle the access to content issue that was otherwise too difficult to address through more conventional means. An illustration of how Commission industrial policy in the audiovisual sector seeks to adapt to commercial dynamics can be seen in the case of Newscorp/Telepiu.204 Here, Telepiu and Stream (jointly owned by Newscorp and Telecom Italia) both delivered pay TV services across Italy to end-consumers. As a result of the merger, Newscorp would acquire Telepiu and would merge it with Stream (with Telecom Italia owning 20% in the merged entity). The merged entity’s monopoly role for TV services was particularly problematic in relation to the acquisition of broadcasting rights for premium content (i.e., raising concerns about discrimination and access). Furthermore, the Commission also considered that there could be ‘knock-on effects’ within the electronic telecommunications sector (e.g., in relation to broadband Internet access), based on the understanding that Telecom Italia would hold a 20% stake in the merged entity. It was concluded by the Commission in its Phase II investigation that the merged entity would establish a virtual monopoly position in the Italian pay TV market. However, it was also the case that, at the time of the transaction, the Italian pay TV market faced extreme financial difficulties, due to the fact that free-to-air TV was very popular at the time in Italy and exerted a significant competitive constraint on the pay TV sector.205

level in respect of such services, in compliance with Community law, in order to promote cultural and linguistic diversity and to ensure the defence of media pluralism. The content of television programmes is covered by Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities (OJ L 298, 17.10.1989, pp. 23. Directive as amended by Directive 97/36/EC of the European Parliament and of the Council (OJ L 202, 30.7.1997, pp. 60).). The separation between the regulation of transmission and the regulation of content does not prejudice the taking into account of the links existing between them, in particular in order to guarantee media pluralism, cultural diversity and consumer protection’.

202 By contrast, refer to the regime in the UK regarding OFCOM’s intervention against BSkyB for access to premium content (sports channels) and the resolution of that regulatory intervention before the British courts: British Sky Broadcasting Limited, Virgin Media, Inc, The Football Association Premier League Limited and British Telecom- munications plc v Office of Communications, [2012] CAT 20, Judgment of 8 August 2012. In this case, the Competition Appeal Tribunal held that OFCOM’s core competition concern (i.e., that BSkyB was deliberately withholding wholesale supply of premium channels in pursuit of strategic incentives unrelated to normal commercial considerations of revenue/profit maximisation) was unfounded (at para. 404). For a discussion on the importance of access to content, see Italmedia Consulting Report, ‘Broadband TV and Access to Content: The Video on Demand Market in Europe’, November 2004.

203 For example, refer to the Commission Decision of 21 December 1988, IV/31.851 Magill TV Guide/ITP, BBC &RTE, OJ L 78, 21.3.1989; Case C-7/97 Oscar Bronner GmbH & Co. KG v. Mediaprint Zeinungs-und Zeitschriftenverlag Gmbh & Co. KG, Judgment of 26 November 1998, ECR 1998 I-779 and Case C-418/01 IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG, Judgment of 29 April 2004, ECR 1974 00223. 204 See Case No. COMP/M.2876 Newscorp/Telepiù, Commission Decision of 2 April 2003. 205 Op. cit., see, for example, at paras. 18, 38 and 174.

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Moreover, the Commission had also received significant criticism for its decision to block a merger-to-monopoly pay TV deal in Germany some years earlier, having failed to realize that the industry at the time could only sustain one market provider.206 Following the introduction of structural remedies, the Commission cleared the merger, on the understanding that suitable conditions were to be provided which would ensure that competitors and potential entrants could gain access to the market. In order to sustain effective access to premium content and lower barriers to entry for competitors, Newscorp agreed to surrender certain exclusive rights in relation to the non-satellite broadcast of blockbuster movies, football matches and other sport rights, and to offer ‘wholesale’ non-bundled prices.207 Moreover, Newscorp further agreed to offer improved terms to satellite operators and also endorsed unilateral termination and shorter contracts (and would not block cheaper access to delayed release rights for films). Licensing terms by the merged entity where it was the monopoly owner, including third party rights to use its own platform on a fair and non-discriminatory basis, were also changed in favour of promoting enhanced competition.208 In conclusion, Newscorp divested Telepiu’s interest in digital and terrestrial broadcasting activities in its entirety, thereby completely removing itself from any active participation in these markets.209 The Commission’s Decision in Newscorp/Telepiu is notable, insofar as it is a unique example of the Commission being willing to countenance a merger-to-monopoly situation in the absence of the ‘failing firm’ defence being applicable, in exchange for sweeping access to content wholesale obligations which mimic the access relationships in the world of telecommunications.210 However, it is also clear that the Commission was prepared to go to such lengths only because it was confident that the vigilance of a National Regulatory Authority acting under sector-specific legislation was able to implement and administer the critical behavioural (i.e., access) remedies necessary to ensure that the remedies would be effective on a forward-looking basis. Unfortunately,

206 Refer to Case No IV/M.993 - Bertelsmann/Kirch/Premiere, Commission Decision of 27 May 1998. See also the criticism of M. Ariño, ‘Competition Law and Pluralism in European Digital Broadcasting: Addressing the Gaps’ Communications & Strategies, no. 54, 2nd quarter 2004, p. 115: ‘the Commission went far beyond any action that would have been allowed under the Advanced TV Standards Directive’.

207 See Case No. COMP/M.2876 Newscorp/Telepiù, Commission Decision of 2 April 2003, at paras. 246 – 253. 208 Ibid., see, for example, points 10 and 11 of the commitments. 209 Ibid., see, for example, at para. 225. 210 The concept of a ‘failing firm’ refers to the situation where is in essence a particular application of the legal standard under Article 2 of the Merger Regulation of causality between any given merger and any deterioration of competitive conditions in the market that can be expected to occur in the near future. In order for a failing firm defence to be accepted, three cumulative criteria are especially relevant as set out by the Horizontal Merger Guidelines: (i) the allegedly failing firm would, in the near future, be forced out of the market because of financial difficulties if not taken over by another undertaking; (ii) there is no less anti-competitive alternative purchase than the notified merger; and (iii) in the absence of a merger, the assets of the failing firm would inevitably exit the market (para. 90 of the EUMR). While especially relevant, these factors are not exclusive and exhaustive in establishing that a merging party is a failing firm. Other factors may be equally relevant depending on the circumstances of the case. The burden of proof to establish these criteria lies with the parties. According to the Commis- sion’s Horizontal Merger Guidelines, ‘the Commission may decide that an otherwise problematic merger is nevertheless compatible with the common market if one of the merging parties is a failing firm. The basic requirement is that the deterioration of the competitive structure that follows the merger cannot be said to be caused by the merger. This will arise where the competitive structure of the market would deteriorate to at least the same extent in the absence of the merger’.

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that luxury is rarely available in other industries, and has to date even been rare in the context of merger reviews in regulated network sectors.211 Further, in Liberty Global/Corelio/W+W/De Vijver Media,212 the Commission highlighted competition concerns within TV sector in Belgium. It took the view that the proposed transaction would create a tied relationship between the largest TV retailer in the Belgian region of Flanders, Liberty, controlled by Telenet, including two of the region’s most popular free-to-air TV channels, Vier and Vijf.213 The Commission concluded that Telenet’s actual or potential competitors for the sale of TV services to consumers in the region of Flanders could be subsequently foreclosed from accessing certain channels.214 Post-merger, there was also the concern that competing TV channels would face problems in obtaining access to Telenet’s platform or under discriminatory access conditions. The market investigation also revealed that TV distributors in the region of Flanders (and Brussels) required the channels of Vier and Vijf so as to effectively compete against Telenet.215 The market tests suggested that it was profitable for Telenet and also De Vijver to withhold access Vier and Vijf from other market competitors such as Belgacom and TV Vlaanderen.216 The latter would supposedly find it very difficult to retain existing customers or to attract new customers without the free TV channels, with potential competition also being eliminated (i.e., Mobistar).217 The Commission concluded that the net result would be reduced competition in the TV distribution market and ultimately higher prices and less innovation for consumers.218 Finally, the Commission observed that Telenet could potentially disadvantage Medialaan and VRT, for example, by placing De Vijver’s programmes at the most advantageous time.219 To remove thes concerns, De Vijver and Telenet concluded agreements with TV distributors to license the free channels Vier and Vijf, while extending existing agreements.220 Telenet also guaranteed that VRT’s and Medialaan’s programmes would not be disadvantaged nor discriminated against in favour of De Vijver. However, the Commission did not consider that these commitments would be effective in removing all of its competition concerns, and required much wider and far-reaching access remedies (in place for 7 years) including: (i) the licensing of the channels Vier and Vijf (on FRAND terms); (ii) the licensing of any new ‘basic pay TV channel’221 that

211 See also the case of Verbund/EnergieAllianz, op. cit. 212 See Case No. COMP/M.7194 - Liberty Global/Corelio/W&W/De Vijver Media, Commission Decision of 24 February 2015.

213 Op. cit., at paras. 92, 197, 242, 253, 261 and 284. 214 Supra, at paras. 222, 280, 303, 359, 367 - 376, 403 – 407 and 434 – 38. 215 Supra, at paras. 265 – 284. 216 Supra, at paras. 324, 336 – 339, 350 – 358 and 359 – 366. 217 Supra, at paras. 265, 271 – 273, 280 and 340 – 349. 218 Supra, at paras. 179, 207, 232, 383, 393, 548 – 553. 219 Supra, at paras. 481 – 488, 509 – 529 and 530 – 538. 220 Supra, at paras. 312 – 319, 600 and 657 - 676. 221 Basic pay TV channels are those that are part of Telenet’s basic channel package and that all or most subscribers receive.

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De Vijver launched in the future; and (iii) De Vijver would also license to distributors linked services such as catch-up TV and PVR (a service that allows users to record programmes and view them at a later stage).222 The cocktail of remedies sought by the Commission clearly seeks to assimilate the role of cable TV as a provider of content into that of the telecommunications world, where wholesale inputs are seen to be a vital input allowing competitors to compete downstream. In doing so, however, the question remains whether the in seeking to increase competition downstream the Commission is effectively taking into account the investments and risks required in the generation and procurement of content upstream. The Commission’s most recent example of crafting remedies to take into account the phenomenon of convergence is found in the Liberty/Ziggo Case,223 where the Commission obliged the merged cable TV operator to make available the necessary interconnection capacity which could ensure that OTT services224 would not be hampered in the future. Thus, Liberty Global committed itself to terminating clauses that were contained within carriage agreements with TV broadcasters which effectively restricted, both directly and indirectly, the ability of broadcasters to offer their channels and their content via OTT services (whether their own or audio-visual OTT services of third parties).225 It was also agreed that Liberty Global would not to conclude carriage agreements containing such clauses for a period of eight years following the Decision.226 Consequently, the Commission ensured that the commitment was to be carried out by preventing the congestion of Internet interconnection points through which Internet traffic generated by audio-visual OTT services would flow to Liberty Global’s Internet network (and ultimately to consumers); to this end, Liberty Global committed to maintaining satisfactory interconnection capacity through a minimal of three uncongested routes into its Internet network in the Netherlands (where at least one of which is to be with a large transit provider).227 This constitutes yet another example of traditional wholesale access conditions in the world of telecommunications being assimilated into the audiovisual world, with the cable TV sector lying at the heart of that overlap.

(b) Minimising control relationships through alternative governance structures The prevalence of vertically integrated operators in the telecommunications and energy sectors means that ex ante regulation has focused on the adoption of access

222 Op cit., see, for example, at paras. 660 and 670. 223 See Case COMP/M.7000 0 - Liberty Global/Ziggo, Commission Decision of 10 October 2014. 224 Over-the-Top (OTT) refers to video, television and other services provided over the Internet rather than via a service provider’s own dedicated, managed IPTV network. OTT is delivered directly from provider to viewer using an open Internet/broadband connection, independently of the viewer’s ISP, without the need for carriage negotiations and without any infrastructure investment on the part of the provider. It is a ‘best efforts’, unmanaged method of content delivery via the Internet that is more suitable for providers who are primarily broadcasters, rather than ISPs.

225 See Case COMP/M.7000 0 - Liberty Global/Ziggo, Commission Decision of 10 October 2014, at para. 579. 226 Op. cit., at para. 555. 227 Supra, at paras. 549 and 587.

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principles designed to ensure that downstream retail competitors are not foreclosed from necessary wholesale inputs. This is usually achieved by ex ante regulation ensuring that appropriate costs standards and service quality levels are adopted so as to ensure that rivals’ costs are not raised, no service degradation takes places, and no discrimination occurs.228

However, where such behavioural access remedies prove to be ineffective in practice over a period of time, both telecommunications and energy sector-specific regulators have had cause to consider the adoption of more structural remedies. Such structural remedies are designed to change the economic incentives for a network operator to discriminate against its downstream rivals by dismantling the vertical integration which is considered to lie at the heart of such discriminatory practices. By doing so, they create a wholesale ‘market’ for access services which is at arms’ length and which is not constrained by the desire of the upstream network operator to systematically favour its downstream retail service operations. This ‘separation’ remedy has its own counterpart in Regulation 1/2003229 as a drastic remedy to behavioural abuses, but takes very distinctive form in the ex ante environment.

Thus, in the telecommunications sector, the introduction of structural and functional separation remedies under the Access Directive has provided National Regulatory Authorities with a powerful legal basis upon which to foster such economic incentives through structural change.230 Nevertheless, despite the adoption of this approach by the UK Competition Authority231 prior to the adoption of the EU regulatory mandate to do so, examples of the separation remedy having been put in place under the EU

228 In the telecommunications sector, refer to Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive), OJ L 108, 24.4.2002, pp. 7–20, at paras. In terms of cost application, see, for example, through the adoption of the Commission Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU, 7 May 2009 (2009/396/EC) OJ L 124/67 and, more recently, through the Commission Recom- mendation on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment, C(2013) 5761. In the energy sector, for example, refer to the third Electricity and Gas Directives op cit., see also Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003, OJ L 211 of 14/8/2009 ;Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005, OJ L 211, 14.8.2009, pp. 36–54; Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003, OJ L 211, 14.8.2009, pp. 15–35.

229 Refer to Article 7(1) of Regulation 1/2003 op cit.: ‘Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 or of Article 82 of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. For this purpose, it may impose on them any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy. If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past.’

230 Refer to the Access Directive, op cit. 231 In the UK, refer to ‘Final statements on the Strategic Review of Telecommunications, and undertakings in lieu of a reference under the Enterprise Act 2002’, 22 September 2005. See Ofom ‘Strategic review of telecommunications, and undertakings accepted from BT’, available at: http://stakeholders.ofcom.org.uk/consultations/statement_tsr/ statement_tsr_pes. The Telecoms Strategic Review led to a fundamental change in regulation in the form of the

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 49 Merger control in regulated sectors: a bridge too far?

Regulatory Framework are few and far between among the EU Member States,232 whereas their adoption has gathered pace in non-EU jurisdictions.233 Accordingly, there have thus far been no cases where a structural or functional separation has been seriously considered as a remedy option in the context of a merger review. Having said that, the pending BT Group/EE Case234 in the UK strikes the author as one where such a radical remedy might be considered, given the scale and scope of the overlaps across both fixed and mobile sectors, coupled with the fact that the EU’s most comprehensive functional separation regime is already in place in that Member State. At best, telecommunications sector mergers have to date required that less onerous measures be adopted which can foster a climate of independence between horizontal and vertical levels of a telecommunications operator.235

The energy sector establishes a different structural regime, it being acknowledged from the outset of the liberalisation process that, rather than simply relying upon regulated access conditions, some form of network ‘unbundling’ was necessary in order to alleviate the anti-competitive risks flowing from vertical integration in that sector.236 Thus, after three separate rounds of liberalisation, a network unbundling regime is now in place whose distinguishing characteristics include:237 • The unbundling of energy suppliers from network operators through the introduction of a range of structural unbundling options (see below). • The strengthening of the independence of national regulators. • The establishment of a European-level Regulator, the Agency for the Cooperation of Energy Regulators (ACER).

Undertakings made by BT Group plc under the Enterprise Act 2002 in September 2005. These Undertakings were made in lieu of a reference to the Competition Commission (although was later found not to be necessary as the undertakings were found to lead to equality of access). They were designed to address long-standing barriers to investment and competition through the functional separation of BT.

232 For, example, refer to the respective positions adopted in EU Member States such as Italy, Sweden and Poland. See also BEREC Guidance on functional separation under Articles 13a and 13b of the revised Access Directive and national experiences, BoR (10) 44 Rev1, February 2011. See also M. Cave, ‘Six Degrees of Separation: Operational Separation as a Remedy in European Telecommunications Regulation’, MPRA Paper No. 3572, 7 December 2006.

233 For example, see the positions in Australia, New Zealand and Mongolia. See also, OECD ‘Report on Experiences with Structural Separation’, 2011. Available at: http://www.oecd.org/daf/competition/50056685.pdf.

234 See Case BT Group/EE of the CMA. On the 9 June 2015: The CMA has referred the anticipated acquisition by BT Group plc of EE Limited for an in-depth phase 2 investigation; https://assets.digital.cabinet-office.gov.uk/ media/558a835ded915d1592000001/BT-EE_full_text_decision.pdf.

235 For example, in Telia/Sonera, op. cit., the new entity was to appoint at least one independent director (see para. 119). See also the commitments annexed to the Decision.

236 See First Energy Package Directives: Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity, OJ L27, 30.1.1997, pp.20-29; Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas, OJ L 204, 21.7.1998, pp. 1–12. See the Second Energy Package Directives: Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC, OJ L 176, 15.7.2003, pp. 37–56; Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC, OJ L 176, 15.7.2003, pp. 57–78. See also the Third Package Energy Directives op.cit. 237 Refer especially to Third Energy Package Directives, op.cit.

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50 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Peter Alexiadis

• Cross-border cooperation between Transmission System Operators and the creation of European Networks for Transmission System Operators. • Increased transparency rules in retail markets in order to benefit consumers. The EU’s energy regulatory framework contemplates that the governance options available in order to give effect to the unbundling obligations available at Member State level include: • Ownership Unbundling, according to which all integrated energy companies are obliged to sell off their gas and electricity networks. In this case, no supply or production company is allowed to hold a majority share or interfere in the work of a transmission system operator. • The establishment of an Independent System Operator, with energy supply companies still being permitted to formally own gas or electricity transmission networks but where they must leave the entire operation, maintenance, and investment functions in relation to the grid to an independent company. • The Independent Transmission System Operator option, according to which energy supply companies may still own and operate gas or electricity networks but must do so through a subsidiary. In turn, all important decisions must be taken independently of the parent company. What remains an open issue is whether these governance mandates are to be respected in their current form or whether the Commission feels empowered to increase their scope in the exercise of its powers of merger review under the EUMR. The lessons learned from the ENI and RWE cases238 are that the Commission will pursue its hope of achieving a full unbundling model (through divestitures) in the context of a merger review, even where the Member States have themselves been offered a range of regulatory options which they can adopt to achieve such unbundling aims.239 Most recently, this question has arisen starkly in the context of the in-depth review of the proposed acquisition of a majority stake by the Azerbaijan State’s oil company SOCAR in Greece’s gas transmission operator, DEFSA.240 SOCAR operates and performs activities which include the production of natural gas and the upstream wholesale sale of gas in Greece. The entity being acquired, (DESFA) owns and directs the only high-pressure gas transmission pipeline in Greece, including its only existing LNG terminal. It is also understood that DEFSA mainly transports gas through its network and not over the network facilities of any competitors. As a

238 See Case COMP/39.315 – ENI, Commission Decision of 29 September 2010 (requiring the incumbent to make a positive investment decision to expand capacity); Case COMP/39.402 – RWE (gas foreclosure), Commission Decision of 12 June 2009.

239 In these circumstances, the model that had been chosen at Member State level was the ITO model. 240 See Commission Press Release ‘Mergers: Commission opens in-depth investigation into proposed acquisition of Greek gas transmission system operator DESFA by SOCAR’, 5 November 2014 1P-14-1442. The Decision is pending at the time of publication, and has been subject to very lengthy ‘stop the clock’ interruptions to the usual timeframe for review.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 51 Merger control in regulated sectors: a bridge too far?

result of SOCAR’s minority shareholdings in various gas pipelines,241 the issue has arisen as to whether, post-merger, it would have the ability or the incentive to hamper competing upstream gas suppliers from seeking access to the Greek gas transmission system (i.e., seeking to reduce competition on the upstream wholesale gas market). If one is to take the ENI precedent as a guide, the Commission has not been reluctant to require that a national energy incumbent relinquish or dilute its shareholdings in international pipeline consortia which traverse its national territory.242 A possible theory of harm suggests that the merged entity could limit its competitor’s access to the Greek gas transmission network (namely, on the understanding that it is tantamount to an essential facility)243 by intentionally reducing investments into expanding pipeline capacity, including maximizing the overall intake volume of the LNG Terminal and constructing an interconnection link between the TAP pipeline and DESFA’s network. Further, it is understood that the Commission’s initial concern has been that the post-merger entity could possibly restrict gas imports into Greece by overseeing the gas transmission network in a discriminatory manner by prioritizing its own capacity, thereby preventing competitors from effectively being able to compete against the merged entity over its own network. In this regard, it has been pointed out by the Commission that the transposed Greek national regulatory framework would be unlikely under the circumstances to prevent the above from occurring, eliminating the ability of competitors or potential competitors to compete effectively.244 With due respect, the Commission’s conclusion that the domestic regulatory framework is ineffective to deliver appropriate competitive outcomes appears to be a selective interpretation of national laws, especially given the fact that Greece is not the subject of any infringement proceedings for its failure to implement EU Directives (and the Commission’s deference to local implementation of energy regulation in many other contexts). Moreover, given the inordinate time delays to which the review of the merger has already been subject, one should not underestimate the potential impact of non-competition concerns derived from SOCAR’s non-EU legal personality.245

241 SOCAR has a minority shareholding in two parallel running pipelines: the Baku-Tbilisi-Ceyhan pipeline (BTC), the South Caucasus Pipeline (SCP) and the Western Route Export Pipeline (WREP) SOCAR also has a 20% shareholding in the Trans Adriatic Pipelines (TAP).

242 In that case, ENI was believed to have had the possible incentive to engage in the strategic foreclosure of rivals to protect its margins in downstream gas supply markets. The Commission found that such practices were potentially harmful to competitors, weakened competition on downstream gas markets and were ultimately harmful to gas customers in Italy. As a result, commitments were offered by ENI to divest its shares in the companies that owned, operated and managed transport capacity on three international pipelines which brought gas into northern Italy respectively from Russia (TAG) and the North of Europe (the system TENP/Transitgas).

243 Uniquely, actions brought under Article 102 TFEU in the energy sector have adopted a very expansive view of the doctrine of ‘essential facilities’ espoused in Case C-7/97 Oscar Bronner GmbH & Co. KG v. Mediaprint Zeinungs- und Zeitschriftenverlag Gmbh & Co. KG, Judgement of 26 November 1998, ECR 1998 I-779, as the basis upon which access should be mandated. See Case COMP/39.316 - Gaz de France, Commission Decision of May 2006; Case COMP/39.315 – ENI, Commission Decision of 29 September 2010 (requiring the incumbent to make a positive investment decision to expand capacity); Case COMP/39.402 - RWE, Commission Decision of 12 June 2009; and Case COMP/39.317 - E.ON Gas, Commission Decision of 4 May 2010, (extending access to network already in full use by the incumbent network operator).

244 Op. cit., Commission Press Release. 245 Refer back to discussion at footnote 123 as regards the acquisition of a ‘competitively significant link’ by a non-EU firm.

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52 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Peter Alexiadis

III. Conclusions The themes emerging from the Commission’s administrative practice in merger reviews in the energy and telecommunications sectors are clear:

First, while the Commission protects its right to vet mergers falling under the thresholds of the EUMR exclusively, and tolerates few exceptions to its ‘one stop shop’ right of review, the clamour by Member States to have the right of review of mergers falling within the scope of regulated network sectors is increasing. The tensions between Member States and the Commission as to which of these institutions should have the right of review are not only growing, but the results of the review process are being strained as a result of the underlying conflict between such rival merger review bodies.

Second, the Commission has consistently sought to bring forward the regulatory timetable for liberalisation by taking advantage of the notifying parties’ vulnerability to accept far-reaching remedies in the context of merger review, thereby actively creating a more competitive environment post-merger than existed in the pre-merger setting. While the Court of Justice has held in ENI/EDP/GDP that the Commission can pursue liberalisation policies within the context of its powers of merger control, the Court has expressed the view that the pursuit of both goals should be to foster competition.246 Having said that, in the absence of concrete evidence that the national regulatory framework is not ‘fit for purpose’, the author takes the view that it is questionable whether the merger review process should be legitimately used to improve the competitive dynamic dramatically by pre-empting the adoption of future legislation, rather than simply maintaining the competitive status quo that existed prior to the notified transaction taking place.247

Third, the powers of EUMR merger review have often been stretched to the limit in order to devise remedies that either overtly or implicitly seek to achieve broader, non-competition driven, regulatory goals, rather than merely addressing in a proportionate manner the competition law concerns or market failures likely to arise from the reviewed merger. Thus, merger remedies have often been devised to shape industry structure in such a manner as is compatible with wider industrial policy goals which have little or nothing to do with the substance of merger review. The mechanisms used to achieve such ideal industry structures range from very broadly drawn access remedies to detailed governance obligations. Given the stated aims of the EUMR to enforce a policy that is not geared to the satisfaction of factors

246 See Case T-87/05 EDP - Energias de Portugal, SA v Commission, at paras. 86 - 97. The approach has arguably been conferred greater legitimacy in the wake of the TeliaSonera Judgment, according to which regulatory obligations to deal will be treated with equal force as an express competition law obligation to deal. See Case C-52/09 Konkurrensverket v TeliaSonera Sverige AB., Judgment of the Court (First Chamber) of 17 February 2011 ECR I-00527.

247 It would be inappropriate, for example, to extract unnecessarily widely crafted remedies under a Phase I review systematically in order to dispel all competition concerns, rather than opting for what should be more narrowly framed remedies designed under an extended Phase II investigation schedule to address the particular market problems identified. Refer to EUMR at Recital 30.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 53 Merger control in regulated sectors: a bridge too far?

that are extraneous to competition, the dissociation of remedy from anticipated market failure is arguably an illegitimate extension of the powers of merger review.

Fourth, administrative practice under the EUMR has mixed results in fostering an environment in which parties can develop pan-European service offerings, whether because of concerns that they are obtaining a first-mover advantage which cannot be challenged or because their wider geographic footprint comes at the expense of restrictions of competition in markets which retain their national character (at least in antitrust terms).

The net result of the Commission’s practice is to create legal uncertainty for those parties engaging in merger activity in regulated network sectors, given the range of remedy options to which they might be subject in any given transaction, especially in the energy sector. It is thus arguably often the case that remedies brokered in regulated network sector mergers are disproportionate in their scope. Given the usual reluctance of the Commission to deploy behavioural undertakings to remedy competition concerns,248 despite the fact that the common currency of sector-specific regulation is the access remedy, the Commission has regularly insisted on sweeping divestitures which are inevitably complemented by sweeping structural reforms of some sort.

This gap between merger practice and regulatory expectation could perhaps be closed, and recourse to traditional behavioural (i.e., access) remedies be increased, if National Regulatory Authorities were vested with more sweeping powers to implement the range of behavioural remedies agreed in a merger review setting. The remedies adopted, for example, in the Newscorp/Telepiu case (and to a lesser extent, the Verbund/EnergieAllianz case) reflect the extent to which market failures in regulated network sectors might be kept in check by the presence of effective, sector-specific regulation administered by National Regulatory Authorities. The example in the UK of a functional separation being incorporated in the UK regulatory model after being prescribed in competition law proceedings also provides a fertile example of how the ex post and the ex ante disciplines can interact with one another.

There are precedents around the world for such a ‘hybridized’ approach between merger regimes and sector-specific (ex ante) regulation,249 especially given the

248 See, for example, this line of thinking within the European Competition Network document: ‘ECN Recommendation on the power to impose structural remedies’, 9 December 2013.

249 For example, refer to the procedures adopted to conduct Sector Inquiries under Regulation 1/2003, whereby market failures, along with their causes and likely solutions, can be identified in a timely, efficient fashion across a sector. At Member State level, the Market Investigation procedure which exists under the UK’s Enterprise Act 2002, as recently amended by the UK Enterprise and Reform Act 2013 (Reform Act), provides an equivalent regime to the EU’s Sector Inquiry powers through ‘market inquiry’ provisions which can be triggered where the circumstances suggest that a market is not performing effectively. Outside the EU, the Access to Infrastructure Regulation provi-

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54 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Peter Alexiadis

commonly held ‘forward looking’ perspective of both legal disciplines. While this would no doubt require the respective amendment of Regulation 1/2003 and possible framework regulations for National Regulatory Authorities,250 the author feels that there is much merit in adopting such an approach.251 With the ever-growing momentum behind the view that the Commission should embrace industrial policy in key network sectors, the proposed extension of sector-specific regulators’ powers to enforce merger remedies might provide the sort of security blanket that European consumers need, while allowing European operators to build scale and scope.252 At the very least, it would create a greater atmosphere of greater legal certainty and render merger remedies more proportionate to the competition mischief identified in any particular merger (i.e., so that the ‘punishment fits the crime’ more coherently). Given that the role of competition analysis is to generate efficiencies and consumer welfare, while sector-specific goals embrace a range of public and social welfare targets, the overlap of these disciplines in the ill-defined ‘grey zone’ of policies designed to foster an internal market at least requires that some symbiotic institutional relationship be established to bring both disciplines together.253 Given

sions available under Part III A of Australia’s Competition and Consumer Act 2010, subject networks deemed to qualify as essential facilities to a specific access regime overseen by the country’s competition regulator, the ACCC. Recent considerations for the amendment of these provisions have concluded that an ACCC declaration designed to ensure network access to third parties should only occur when the grant of access would be in the public interest. The March 2015 conclusions to that report concluded that the National Access Regime in place should be confined to those cases: ‘where the benefits arising from increased competition in dependent markets are likely to outweigh the costs of regulated third party access’. In addition, the prohibition in the United States of ‘unfair methods of competition’, as found under Section 5 of the US Federal Trade Commission Act, provides a basis for intervention by the Federal Trade Commission (FTC) (but not by private litigants) which is much broader in scope than the antitrust rules usually associated with the antitrust rules contained in the Sherman Act. As such, Section 5 has been used in the past to address oligopolistic behavior, invitations to collude, and even unilateral behavior falling short of any market share threshold or not falling within the acknowledged categories of ‘monopolization’ practices. As such, Section 5 actions brought by the FTC play an almost ex ante complementary role to the enforcement of antitrust provisions such as Sections 1 and 2 of the Sherman Act. 250 Refer to the powers of National Competition Authorities under Article 5 of Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, 4.1.2003, pp. 1–25. See also, for example, Recital 7 and Article 3 of the Framework Directive op cit. In the energy sector, under the Third Energy Package Directives referred to op cit., see Article 35 of Directive 2009/72/EC, and Article 39 of Directive 2009/73/EC, concerning the powers of, and the obligation to appoint, Rational Regulatory Authorities.

251 The author has explored the use of such an institutional framework in the particular case of telecommunications: see P. Alexiadis, ‘Policy Options for a Revised EU Access & Interconnection Regime’, IDATE, 2015.

252 In this way, one could seek to strike a balance between recent measures in the telecommunications sector which wind back regulation with the position espoused by the current Competition Commissioner, Margrethe Vestager, confirming the traditional view that investments are usually spurred by competition: ‘So far it seems as if it is still competition that will lead to investment and not the other way round.’ See Financial Times Article, ‘Competition chief sends tough message to EU telecoms’, 8 March 2015, available at: http://www.ft.com/intl/ cms/s/0/39b90222-c425-11e4-a949-00144feab7de.html#axzz3ZC4iLgnU. Examples of such regulatory measures can be found in the agreement in September 2014 for EU Member States to deregulate voice markets on the understanding that incumbent telecommunications operators would boost investment in broadband infrastructure. http://www.euractiv.com/sections/infosociety/eu-member-states-agree-deregulate-voice-markets-308668. See also the adoption of Commission Recommendation on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment, C (2013) 5761.

253 At the analytical level, the nature of that symbiotic relationship was made clear by DG Competition’s Director-General Italianer (at the time) earlier on 20 February 2015, when he declared that: ‘unfettered competition can lead to private monopolies destroying competition. To prevent this happening, there is ex ante regulation and ex post competition enforcement…’ and ‘competition enforcement can be adequate to safeguard competition, but, often, regulation is necessary to open markets to competition in the first place’. See ‘Market Opening: Regulation vs Competition?’, 48th Innsbruck Symposium, 19 February 2015: http://ec.europa.eu/competition/speeches/text/sp2015_01_en.pdf.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 55 Merger control in regulated sectors: a bridge too far?

the path which has been forged by cases such as Deutsche Telekom,254 which enshrine the interaction between ex post and ex ante disciplines, the adoption of a coherent framework for mutual analysis seems to be a logical next step.

254 Case C-280/08 P Deutsche Telekom AG v European Commission, Judgment of the Court (Second Chamber) of 14 October 2010, Deutsche Telekom AG (Case COMP/C-1/37.451, 37,578, 37.579), 21 May 2003; see Case T-271/03 Deutsche Telekom v Commission (2008) ECR II-477. In this case, the Commission determined that there was a legitimate role to be played by competition rules where sector-specific regulation fails to prevent a dominant firm from engaging in abusive conduct. Moreover, in the view of the Commission, competition rules would only be limited in their application where obligations imposed by ex ante rules in effect prevented the dominant firm from any freedom of commercial maneuver. In other words, ex post competition rules would only be prevented from achieving their full effect in circumstances which amounted to a successful State compulsion defence being raised. On the facts of the case, price controls imposed by the German NRA nevertheless provided the dominant fixed line provider a sufficient margin of pricing discretion to allow it to avoid engaging in an illegal margin squeezing strategy to the detriment of its competitors (provided that it remained within an overall price cap). It was therefore found that the dominant firm had engaged in the abusive practice of a margin squeeze, and that its compliance with parallel wholesale regulatory pricing obligations did not provide it with an absolute defence to such an action. The position espoused by the Commission in Deutsche Telekom was also subsequently confirmed in very similar circumstances in the Commission’s precedent in Telefonica (Case T-336/07 Telefonica de Espana v Commission (2007) OJ C269155 and Case T-398/07 Kingdom of Spain v Commission (2008) OJ C8/l 7 currently on appeal before the General Court). The latter case was based in part on the regulatory failure of the Spanish NRA, insofar as it had imposed an ex ante price control based on incorrect forecasts provided by the dominant fixed line operator, Telefonica, and because it had ignored the spread between wholesale and retail prices being charged by that dominant firm. By contrast, Telefonica was said to be aware of its real costs and the effects of its margin squeeze strategy on the Spanish market. A regulatory gap in the regulation of wholesale prices meant that the dominant fixed line operator had a broad degree of freedom in its broadband pricing policy to alternative network operators, thereby allowing it to avoid a margin squeeze situation. Accordingly, EU case law and administrative precedents are clear that ex post competition rules have a residual role to play, even where extensive sector-specific regulatory obligations are in force, and can ‘trump’ ex ante sector-specific regulation in all situations other than those that would be tantamount to the raising of a successful ‘State compulsion’ defence by the dominant firm. See, more generally, Alexiadis ‘Balancing the Application of Ex Post and Ex Ante Disciplines under Community Law in Electronic Communications Markets: Square Pegs in Round Holes?’, chapter in Rights and Remedies in a Liberalised and Competitive Internal Market (edited by Eugène Buttigieg, Jean Monnet Professor, University of Malta – currently Judge in the General Court Luxembourg), March 2012.

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56 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Interim relief in EU competition law: a matter of relevance

Jean-Yves Art*

I. Introduction One of the merits of the Google case is that it is triggering useful discussion about some features of the EU competition enforcement process, such as the limitations of commitments (vs infringement) decisions for setting legal precedents and developing competition law,1 the shortcomings of the commitments negotiation process regarding consultation of interested third-parties,2 and the relationship between competition law

* I want to thank Claudio Tesauro (Bonelli Erede Pappalardo), Christoph Stadler (Hengeler Mueller) and Elisabet Ruiz Cairo (College of Europe, Bruges) for their help in researching the topic of this paper. All the views expressed in this paper are entirely personal.

1 ‘Increase in EU settlements risks sidelining courts, victims, Wahl says’, MLex, 20 October 2014, On this topic, see i.a. Heike Schweitzer, ‘Judicial Review in EU Competition Law’, in Research Handbook on EU Antitrust Law, Edward Elgar Publishing, 2012. Available at SSRN: http://ssrn.com/abstract=2129147; Florian Wagner-von Papp, ‘Best and Even Better Practices in Commitment Procedures after Alrosa: The Dangers of Abandoning the “Struggle for Competition Law”’, Common Market Law Review, Vol. 49, No. 3, 2012. Available at SSRN: http://ssrn.com/ abstract=2262864.

2 Shortly before expiry of the Barroso II Commission’s term, Google successively offered three sets of proposed commitments to address the competition concerns raised by the Commission. The Commission did not seek comments from all interested third parties on Google’s third set of proposed commitments. Rather, the Commission only invited companies and organisations that had submitted a formal complaint in the proceedings to comment on the proposed commitments, and it did so indirectly: it issued so-called ‘pre-rejection letters’ pursuant to Article 7(1) of Commission Regulation No. 773/2004, informing the complainants of the reasons why the Commission considered that the proposed commitments appeared to address its competition concerns and why it intended to reject the complaints, and offering complainants an opportunity to comment on the Commission’s views – see Statement by Joaquín Almunia, Vice President of the European Commission responsible for Competition Policy, Brussels, 5 February 2014, available at http://europa.eu/rapid/press-release_SPEECH-14-93_en.htm. This approach encourages interested third parties to lodge formal complaints with the Commission in order to have an opportunity to submit comments on proposed commitments aimed at remedying competition concerns. See BEUC, 31 March 2014, ‘BEUC joins Google/EU antitrust investigation’ available at http://beuc.eu/publications/beuc-joins-googleeu- antitrust-investigation/html. The Commission’s approach drew strong criticism from i.a. third parties, members of the European Parliament, and individual Commissioners. See, e.g., Reuters, 13 February 2014, ‘Third of EU commissioners oppose Google antitrust deal: officials’;El Mundo, 24 February 2014, ‘Google enfrenta a Joaquín

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 57 Interim relief in EU competition law: a matter of relevance

enforcement and regulatory initiatives in matters affecting directly broad, non-competition policy issues such as access to information.3, 4 Among the many questions raised by the proceedings in the Google case, one relates to interim measures: it is quite puzzling that throughout the multi-year, unsuccessful negotiations of remedies, the ‘commitments’ option was put forward as being commanded by the need for a swift resolution in the fast-moving markets in which Google operates, yet the possibility of ordering interim measures to remedy the presumptively anti-competitive practices pending a final decision was apparently never considered.5 Why? Is the adoption of interim measures subject to excessively strict requirements? If so, should those requirements be softened and how could they be without compromising the goal and nature of interim relief in the overall set of instruments available to implement European competition policy successfully? These are some of the questions which this short paper proposes to explore. Section II provides a brief overview of the tools available to remedy infringements of European competition law as well as the practice of the European Commission and some national competition authorities regarding interim relief. Section III discusses the constraints bearing on the Commission when it comes to imposing interim relief, as they emerge from the judgments of the European courts. Section IV offers some thoughts on the current practice and suggestions to encourage recourse to interim measures in appropriate cases. II. Interim relief in the European competition remedy toolbox – theory and practice The success of competition policy as an instrument aimed at ensuring that markets deliver their full potential in terms of consumer welfare rests on a combination of many institutional, procedural and substantive factors. One of those factors relates to the remedies that are imposed in case of breach of competition law. Consider two jurisdictions which both prohibit abuse of dominant position. In jurisdiction A, courts and competition authorities can only impose a cease-and-desist order to remedy such abuse.

Almunia con la Eurocámara’; ICOMP, ‘Openness is Key’, 31 January 2014, available at http://www.i-comp.org/ blog/2014/openness-key/; FairSearch, 11 February 2014, ‘Responses to Google’s tentative settlement with the European Commission’, available at http://www.fairsearch.org/general/responses-to-googles-tentative-settlement- with-the-european-commission/.

3 See Statement by Commissioner Vestager on Google antitrust investigations at the European Parliament (ECON committee meeting), Brussels, 11 November 2014, available at http://europa.eu/rapid/press-release_STATEMENT- 14-1646_en.htm.

4 At the time of writing, proceedings in Case COMP/39.740 are still on-going. 5 See, e.g., Statement of Vice-President Almunia on the Google antitrust investigation, 21 May 2012, SPEECH/12/372 available at http://europa.eu/rapid/press-release_SPEECH-12-372_en.htm: ‘I believe that these fast-moving markets would particularly benefit from a quick resolution of the competition issues identified. Restoring competition swiftly to the benefit of users at an early stage is always preferable to lengthy proceedings, although these sometimes become indispensable to competition enforcement.’

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58 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Jean-Yves Art

In jurisdiction B, courts and competition authorities can impose not only a cease-and- desist order but also behavioural or structural measures on the dominant undertaking to make good the harm to competition and consumers caused by the abuse. All other things being equal,6 dominant undertakings doing business in jurisdiction B naturally have fewer incentives to engage in abusive conduct than undertakings in jurisdiction A since they know that they will be ordered to return any illegally obtained commercial and market gains. In addition, remedies that restore the ‘but for’ competitive situation - that is, the competitive dynamics that would prevail in the absence of the abuse - are capable of generating more benefits to consumers than mere cease-and-desist orders. This is all the more so in markets where economies of scale or of scope provide a competitive advantage to the undertakings concerned such that past abuses continue to distort competition in favor of dominant, albeit possibly less efficient, undertakings long after a mere cease-and-desist order is enforced. Article 7.1 of Regulation 1 empowers the Commission to impose ‘any behavioral or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end.’7 While the final limb of the provision is open to interpretation, it arguably contemplates – and it certainly does not prohibit – the adoption of remedies aimed at restoring the ‘but for’ competitive situation.8 The Court ruling in UFEX supports that proposition.9 Indeed, UFEX makes it clear that the Commission is entitled under EU competition law to take action – and thus, to impose remedies – in order to neutralize or eliminate the on-going anti-competitive effects of anti-competitive practices that have ceased.10

6 This includes the sanctions (e.g., fines) that can be imposed for infringement of competition law, the ability to detect the abuse, the likelihood that proceedings will be initiated to review the legality of the dominant undertakings’ conduct, the assessment of that conduct by authorities in both jurisdictions, the speed with which enforcement proceedings are completed, and the scope of the legal review of the competition authorities’ decision by national courts. On the difference between ‘remedies’ and ‘sanctions’, see OECD, Remedies and Sanctions in Abuse of Dominance Cases, DAF/COMP(2006)19 (15 May 2007), available at http://www.oecd.org/dataoecd/20/17/38623413. pdf, at p. 20.

7 The full provision reads as follows: ‘Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article [101] or of Article [102] of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. For this purpose, it may impose on them any behavioral or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. Structural remedies can only be imposed either where there is no equally effective behavioral remedy or where any equally effective behavioral remedy would be more burdensome for the undertaking concerned than the structural remedy. If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past.’

8 See Frank P. Maier-Rigaud and Per Hellstrom and Friedrich Wenzel Bulst, ‘Remedies in European Antitrust Law’, Antitrust Law Journal, Vol. 76, pp. 43-63, 2009, at p. 58: ‘In other words, to bring an infringement effectively to an end, a remedy must not only bring a certain conduct to an end, but must also remedy the distortive effect the behavior has had on the market concerned. The aim should be to re-establish the competitive situation, i.e., the competitive process that would have prevailed but for the infringement.’ Available at SSRN: http://ssrn.com/ abstract=1830110.

9 Judgment in Union française de l’express (Ufex), formerly Syndicat français de l’express international (SFEI), DHL International and Service CRIE v Commission, C-119/97 P, EU:C:1999:116. 10 Ufex arose from the European Commission’s rejection of the complaint lodged by SFEI, DHL International, Service CRIE and May Courier seeking a declaration that La Poste, the French Post Office, had breached European competition rules. Following a preliminary investigation, the Commission reached the conclusion that there was insufficient evidence that the alleged infringements were continuing and it rejected the complaint for lack of Community interest. The applicants claimed that the ending of anti-competitive practices did not justify the rejection of the complaint where the structural imbalances caused by those practices have continued. According to the applicants, ‘action by the Commission in such circumstances is indeed part of its task of ensuring that a system of undistorted competition in the common market is established and maintained’ (at para. 83). The Court upheld the

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Yet, in the vast majority of cases – in particular, Article 7 cases – the Commission only imposes cease-and-desist orders which prohibit implementation of the impugned practice from the date on which the decision takes effect.11 Furthermore, it is well known that enforcement proceedings by the Commission take several years – on average, the length of investigations leading to infringement or commitment decisions in Article 101 or Article 102 cases other than cartel cases in the past five years exceeds two and a half years from the formal initiation of proceedings.12 For the victims of anti-competitive practices, the combination of these two factors raises the question whether it is worth devoting time and resources to the filing of complaints and active participation in enforcement proceedings conducted by the European Commission, as compared to other legal avenues such as proceedings before national or non-European competition authorities or proceedings before national courts. The question is very serious and recent developments in the European Commission’s enforcement practice suggest that the Commission is fully aware of and willing to tackle it or, at least, some aspects of it. Thus, the frequent recourse to Article 9, commitments decisions – as opposed to Article 7, infringement decisions – is in part aimed at shortening the duration of enforcement proceedings.13 However, the decision whether to offer commitments lies in the hands of the dominant undertaking whose incentives are not naturally aligned

applicants’ claim and ruled that ‘[i]f anti-competitive effects continue after the practices which caused them have ceased, the Commission thus remains competent under Articles 2, 3(g) and 86 of the Treaty to act with a view to eliminating or neutralizing them (see, to that effect, Case 6/72 Europemballage and Continental Can v Commission [1973] ECR 215, paras. 24 and 25). In deciding to discontinue consideration of a complaint against those practices on the ground of lack of Community interest, the Commission therefore cannot rely solely on the fact that practices alleged to be contrary to the Treaty have ceased, without having ascertained that anti-competitive effects no longer continue and, if appropriate, that the seriousness of the alleged interferences with competition or the persistence of their consequences has not been such as to give the complaint a Community interest’ (at paras. 94 and 95).

11 The recent Art. 7 Decision against Motorola concerning Motorola’s enforcement of its standard essential patents is a notable exception: Art. 2 of the Decision requires Motorola not only to bring the infringement to an end but also ‘[to] eliminate any anti-competitive effects resulting from the infringement’ found by the Commission (that is, the institution of proceedings for, and the enforcement of, an injunction against Apple in Germany based on standard-essential patents subject to a FRAND licensing commitment given by Motorola to ETSI). See Commission Decision of 29 April 2014, Case AT.39985 - Motorola - Enforcement of GPRS standard essential patents, available at http://ec.europa.eu/competition/antitrust/cases/dec_docs/39985/39985_928_16.pdf.

12 It should be noted that the average duration of the investigation actually is longer than 30 months. Firstly, proceedings are formally initiated several months after the complaint is formally filed or the Commission actually starts investigating the impugned practice or agreement. For instance, in Intel, AMD filed its initial complaint in October 2000. AMD submitted a supplementary complaint in November 2003. The Commission formally initiated proceedings in July 2007. Similarly, in Rambus, Hynix and Infineon filed a complaint with the Commission in December 2002 and the Commission formally initiated proceedings in July 2007. Secondly, several proceedings that are on-going at the time of writing and that may lead to the adoption of an infringement or a commitment decision were formally initiated more than 30 months ago.

13 Proceedings leading to the adoption of commitments decisions pursuant to Art. 9 of Regulation n° 1 usually are shorter than Art. 7 proceedings because the Commission does not issue a statement of objections in Art. 9 proceedings (which implies that a number of subsequent procedural stages, including access to file, submission of a response to the statement of objections, and hearing are avoided) and the adoption of negotiated remedies makes the process leading to the adoption of the decision (including the drafting of the decision) significantly less cumbersome.

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with those of the Commission and the complainants.14 Furthermore, the Article 9 avenue is not appropriate in all circumstances.15 Another tool available to the Commission to address the risk that the duration of enforcement proceedings compounds the anti-competitive effects of the impugned practice is the power conferred by Article 8 of Regulation n° 1 to impose ‘interim measures.’ Article 8 stipulates that: 1. In cases of urgency due to the risk of serious and irreparable damage to competition, the Commission, acting on its own initiative may by decision, on the basis of a prima facie finding of infringement, order interim measures. 2. A decision under paragraph 1 shall apply for a specified period of time and may be renewed in so far as this is necessary and appropriate. The first regulation implementing the competition provisions of the Treaty did not expressly contemplate the adoption of interim measures. The European Court of Justice inferred that authority from the power to bring infringements to an end under Article 3 of Regulation n° 17, the then applicable regulation implementing the Treaty competition provisions. As the Court ruled in Camera Care, ‘the Commission must also be able, within the bounds of its supervisory task conferred upon it in competition matters by the Treaty and Regulation No 17, to take protective measures to the extent to which they might appear indispensable in order to avoid the exercise of the power to make decisions given by Article 3 from becoming ineffectual or even illusory because of the action of certain undertakings. The powers which the Commission holds under Article 3(1) of Regulation No 17 therefore include the power to take interim measures which are indispensable for the effective exercise of its functions and, in particular, for ensuring the effectiveness of any decisions requiring undertakings to bring to an end infringements which it has found to exist.’ 16 Article 8 of Regulation n° 1 codifies that power as well as the conditions governing its exercise, namely (i) a prima facie finding of infringement, (ii) urgency due to the risk of serious and irreparable harm to competition.17

14 While Art. 9 decisions enable the dominant undertaking to avoid fines, such decisions are effective only if the commitments actually put the putative infringement to an end. As mentioned above, the Commission has rejected the three sets of commitments successively offered by Google as failing to address the Commission’s competition concerns (see, e.g., http://www.computerworld.com/article/2487093/search/eu-to-reject-google-s-latest-efforts-to- avoid-an-antitrust-fine.html). The issuance of a statement of objections – which does not prevent the subsequent adoption of a commitments decision – in which the Commission provides some indications as to the remedies and the fine it could impose, may provide incentives to offer adequate commitments.

15 Thus, the Preamble of Regulation n° 1 expressly acknowledges that ‘commitment decisions are not appropriate in cases where the Commission intends to impose a fine’ (at para. 13), which should be the case where the dominant undertaking is or should be aware of the illegal nature of the impugned practice and that practice is causing serious harm to competition and consumers. Furthermore, because Art. 9 decisions do not include any finding of infringement, they are not appropriate where the practice at issue raises novel issues of competition policy or competition law that deserve clarification by the regulator.

16 Order of the Court of 17 January 1980, Camera Care Ltd v Commission, Case 792/79 R, EU:C:1980:18, at para. 18.

17 Prior to the adoption of Regulation n° 1, the condition of ‘urgency’ referred to the likelihood of ‘serious and irreparable damage to the party applying for [the] adoption [of interim measures] or intolerable damage to the public interest’ – see Judgment of 24 January 1992, La Cinq v Commission, T-44/90, EU:T:1992:5, at para. 28. Even where the Commission acted upon application from a private party, the Commission balanced the interests of the applicant with those of all other stakeholders, in particular the undertaking to which the interim measures

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Despite the power conferred by Article 8 of Regulation n° 1 and the recognition that the duration of enforcement proceedings may seriously undermine the effectiveness of the Commission’s enforcement activities, the Commission in the thirty-five years since Camera Care has adopted interim measures in less than 10 instances.18 The most recent decision ordering interim measures is IMS Health and it dates back to 2002. This is a very low number compared to the total number of enforcement proceedings (other than cartel cases) that have been completed over the same period. The European Commission’s practice is at variance with that of many national competition authorities. In December 2013, the European Competition Network adopted a recommendation recognizing that decisions imposing interim measures are an important tool to ensure the effectiveness of competition law and that accordingly, all ECN jurisdictions should provide for the adoption of interim measures by law.19 The laws of all ECN jurisdictions indeed give that power to national competition authorities or to national courts.20 As the ECN recommendation notes, ‘many Authorities have made use of this tool to date in a variety of sectors, including energy, telecommunications, distribution of motor vehicles, food, postal services, newspapers, advertising and pharmaceuticals. In terms of the type of infringements for which interim measures have been adopted, it seems that interim measures have most often been imposed in the abuse of dominance cases, especially in refusal to supply cases. Interim measures have also been adopted with respect to other types of infringements, most notably, with respect to vertical restraints. Some Authorities have considered interim measures to be useful in cases of decisions of associations of undertakings recommending that their members change prices or limit supplies.’ 21 Clearly, the practice of the ECN authorities varies. Some of them seem to share the European Commission’s reluctance to impose interim measures.22 However, most national authorities with a strong

would apply, with a view to ensuring that interim relief would promote competition and consumer welfare. See, e.g., Commission Decision of 3 July 2001 (Case COMP D3/38.044 — NDC Health/IMS Health: Interim measures), pp. 18 et seq., paras. 187-201, in particular paras. 199-201; Commission Decision of 18 August 1982 (IV/30.696 - Distribution system of Ford Werke AG - interim measure), OJ 1092 L 256, at paras. 45 and 46.

18 The cases in which the Commission has imposed interim measures are listed in the Annex. Note that the Commission has rejected several applications for interim measures – see, e.g., Commission Decision of 14 August 1990 (Case IV/33.249, La Cinq SA/Union Européenne de Radiodiffusion); on appeal: Judgment in La Cinq v Commission, fn. 18 above, EU:T:1992:5; Commission Decision of 21 December 1993 (Case IV/34.689, Sea Containers v. Stena Sealink - Interim measures), OJ 1994 L 15, at pp. 8-19.

19 ECN Recommendation on the power to adopt interim measures (December 2013) available at http://ec.europa.eu/ competition/ecn/recommendation_interim_measures_09122013_en.pdf.

20 For an overview of national regimes in force in October 2012, see ECN Working Group Cooperation Issues and Due Process, Decision-Making Powers Report (31 October 2012), available at http://ec.europa.eu/competition/ ecn/documents.html. Note that in Estonia (the only ECN jurisdiction which at the end of October 2012 did not have or plan to have the power to order interim measures, according to the above-mentioned report), the Competition Authority has since been empowered to order interim measures. See Competition Act, §636 at https://www. riigiteataja.ee/en/eli/ee/Riigikogu/act/511072014007/consolide.

21 ECN Recommendation on the power to adopt interim measures (December 2013) available at http://ec.europa.eu/ competition/ecn/recommendation_interim_measures_09122013_en.pdf at para. 3.

22 For instance, based on our review, it appears that the German Federal Cartel Office has not ordered interim relief in any single case since 2008. Similarly, the UK competition authorities have granted interim measures only once since 2005 and the Office of Fair Trade later withdrew the interim measures order after the addressee lodged an appeal (London Metal Exchange v Office of Fair Trading (26/4/2006)).

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enforcement record regularly consider and impose – sometimes on their own initiative – interim measures.23 Against that background, the Commission’s poor record regarding interim relief – and the negative signal its practice is sending to companies harmed by anti-competitive practices – has two main consequences. Firstly, it undermines the effectiveness of the Commission’s enforcement activities. Undertakings targeted by an investigation often (though not always) continue implementing the practices under investigation throughout the proceedings, consistent with their defence that those practices are lawful and efficient. The pursuit of the impugned practice over the course of a multi-year investigation may very well prove successful in eliminating competition and in erecting barriers to entry, in particular in markets characterized by scale or network effects. Given the Commission’s reluctance to impose remedies aimed at restoring the ‘but for’ situation, failure to adopt interim measures actually increases the risk that the Commission’s enforcement action may have very little effect and that competition remains distorted to the benefit of the infringer long after the proceedings are completed and a cease-and-desist order is imposed. Secondly, all other things being equal, undertakings harmed by anti-competitive practice are incented to bring their complaint to those competition authorities that are prepared to entertain applications for interim measures. In other words, differences in the authorities’ readiness to consider and to grant interim measures (as well as differences in the substantive and procedural conditions governing the grant of interim measures) encourage forum-shopping. Potential complainants consider many factors in selecting the jurisdiction where they propose to file their complaint, and the location of the anti-competitive effects of the impugned practice definitely ranks at the top of the list. However, the nature of the remedies that can be imposed by the authority, including the likelihood of obtaining interim relief, also is a very important consideration in deciding whether and where the complaint ought to be filed. This is no different than the situation observed at the international level, where authorities with a strong enforcement record are those that tend to attract complaints targeting multi-jurisdictional practices. There is no reason to lament it – as a matter of fact, the ability ‘to effectively bring the infringement to an end’ (which, as the Court confirmed in Camera Care, includes the adoption of interim measures in appropriate circumstances) is one of the three conditions taken into account in order to decide whether a competition authority is well placed to deal with a case pursuant to the Commission Notice on cooperation within the Network of Competition Authorities.24

23 For instance, the French competition authority had imposed interim relief in 12 cases in the period from 2007 through 2013. The Spanish authority has reportedly done so in six cases over the same period; the Italian, in three instances since 2006.

24 Commission Notice on cooperation within the Network of Competition Authorities, OJ 2004 C 101, pp. 43 et seq., at para. 8.

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III. Why is the Commission not considering interim measures more often? The situation described above raises the question of why the Commission does not order interim measures more often. A reason often offered is that the Court ruling in IMS Health – the last instance in which the Commission imposed interim relief – is setting excessively strict requirements on the adoption of interim measures.

IMS Health relates to the licensing of a geographic segmentation structure used to collect and report data about sales of pharmaceutical products enabling pharmaceutical companies to build and manage their sales territories. According to the Commission, the geographic segmentation structure developed by IMS Health in Germany (the so-called ‘1860 brick structure’) and protected by copyright pursuant to German copyright law constituted a de facto standard for the provision of sales data report services.25 The Commission found that IMS Health’s refusal to license its structure to competing providers of sales data report services was a prima facie abuse of IMS Health’s dominance in the German regional sales data services market and would force those competing providers to withdraw from the market, leading to a complete foreclosure of the market for the foreseeable future. The Commission concluded that ‘there is in this case the risk of serious and irreparable harm and intolerable damage to the public interest which establishes the urgent need to grant protective interim measures’26 and it ordered IMS Health on a provisional basis and pending a decision in the main proceedings to grant a licence to all actual competitors in the market for German regional sales data services. One month after the adoption of the decision ordering interim measures, IMS Health brought an action for annulment of that decision and further sought an order suspending its operation.27 The President of the General Court (then, the Court of First Instance) provisionally granted IMS Health’s application for suspension28 on an ex parte basis.29 He subsequently confirmed his order and suspended the operation of the Commission’s interim measures decision until such

25 Commission Decision of 3 July 2001 (Case COMP D3/38.044, NDC Health/IMS Health – Interim measures), OJ 2002 L 59, pp. 18 et seq., at para. 89.

26 Id., at para. 201. 27 On 6 August 2001, IMS Health brought an action for annulment of the Commission decision imposing interim measures and also applied for interim measures (suspension) in respect of the operation of that decision. See Order of 26 October 2001, IMS Health Inc. v Commission, T-184/01 R, EU:T:2001:259, at paras. 30 and 31. 28 ‘Suspension’ is used in this paper to cover generally any interim relief that the European Courts may order upon application by the addressee of the Commission decision imposing interim measures, including variations of such interim measures pending judgment on substance.

29 Order of 10 August 2001, IMS Health Inc. v Commission, T-184/01 R, EU:T:2001:200.

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time the Court would rule on the application for annulment of that decision30 (which never happened because the Commission withdrew the interim measures decision in the meantime).31 In reviewing the application for suspension, the President of the Court of First Instance first emphasized that the review exercised by the judge hearing an application for suspension brought in respect of a decision of the Commission imposing interim measures does not differ from that applicable to proceedings for interim measures relating to final decisions of the Commission.32 In verifying whether the validity of the Commission’s interim assessment – in particular, its provisional assessment of the legality of IMS Health’s refusal to license its geographic segmentation structure – raised serious doubts and therefore justified a prima facie case for suspension, the judge observed that the Commission had adopted an ‘extensive interpretation’ of the Magill judgment33 and that, although that interpretation might be correct,34 it raised at least ‘a serious dispute’ which only the judgment in the proceedings for annulment could resolve.35 Furthermore, the judge hearing the application for suspension found that there was ‘a real and tangible risk’ that execution of the Commission interim measures decision could cause ‘serious and irreparable harm to the applicant of a nature likely to exceed the inevitable, short-lived disadvantages inherent in the adoption of such protective measures’36 (i.e., the interim relief ordered by the Commission). According to the President of the Court, such serious and irreparable harm consisted in the irreversible weakening of IMS Health’s market position arising from the (hypothesized) development of rival sales data report services possibly based on a non-infringing geographic segmentation structure which IMS Health’s clients, having experienced the benefits of competition for the duration of the Commission interim measures

30 Order in IMS Health Inc. v Commission, footnote 29 above, EU:T:2001:259. On appeal, the President of the Court of Justice confirmed the order of the President of the Court of First Instance – see Order of 11 April 2002, NDC Health GmbH & Co. KG and NDC Health Corporation v Commission and IMS Health Inc., C-481/01 P (R), EU:C:2002:223.

31 Commission Decision of 13 August 2003 (Case COMP D3/38.044, NDC Health/IMS Health: Interim measures), OJ 2003 L 268, at p. 69. The Commission withdrew the interim measures decision on the ground that following changes in the situation of the complainants, there was no longer any urgency requiring the imposition of interim measures before the adoption of the decision in the main proceedings. The Court of First Instance then held that there was no need to rule on the application for annulment of the interim measures decision – see Order of 10 March 2005, IMS Health, Inc. v Commission, T-184/01, EU:T:2005:95. 32 Order in IMS Health Inc. v Commission, footnote 29 above, EU:T:2001:259, at paras. 60-74. 33 Id., at para.102. This extensive interpretation resulted from the Commission’s view that the prevention of the emergence of a new product or service for which there is potential consumer demand is not an essential element of the test of ‘exceptional circumstances’ in which, according to Magill, a copyright holder may be required to license it to competitors. Note that IMS Health’s competitors had informed the judge that the details of the sales-data services offered by them would differ considerably from those offered by IMS Health (Order, at para. 128) and the judge’s finding on urgency were based on his view that, as a result of the interim measures ordered by the Commission and competition between IMS Health and its licensees pending judgment in the main case, IMS Health’s clients might ‘undertake the expense necessary to accept sales-data in a non-1 860-brick-compatible format’ (idem). Thus, while the Commission took the view that the ‘new product’ condition was not an indispensable part of the legal test (which the judge regarded as the decisive issue for the assessment of the ‘prima facie’ condition), the submissions before the judge seemed to indicate that this condition was actually fulfilled.

34 Id., at para. 104. 35 Id., at para. 106. 36 Id., at para. 132.

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decision, might finance and switch to, as well as the changes to IMS Health’s business policy that might result from competition by rivals provisionally licensed to use its geographic segmentation structure.37 Finally, having regard i.a. to the public interest in respect of intellectual property rights and the doubts about the validity of the Commission’s interpretation of Magill, the President of the Court found that the balance of interests inclined in favour of ordering the suspension of execution of the Commission interim measures decision.38 On appeal, the President of the Court of Justice ruled that the judge hearing an application for interim relief enjoys a broad discretion in determining whether the conditions of a prima facie case and urgency under Article 104(2) of the Rules of Procedure of the Court are satisfied. Furthermore, the President held that there is no reason why the judge’s discretion should be limited when the application concerns a decision of the Commission imposing interim measures. Specifically, the President rejected the applicant’s view that limits similar to those applying to review by the Court, in the context of annulment proceedings, of complex economic or technical assessments made by the Commission, should also apply to the control exercised by the judge hearing an application for suspension with respect to a Commission decision imposing interim relief. Even though the Commission in such a decision only conducts a preliminary analysis of the impugned practice, the President expressly rejected the view that the applicant seeking suspension of that decision ought to show ‘an especially strong prima facie case’ or demonstrate ‘manifest errors’ in the Commission’s assessment of urgency.39 The principle emphasized by both orders that the judge hearing an application for suspension enjoys a broad discretion in determining whether there is a prima facie case for suspension and whether implementation of the challenged decision pending the ruling in the main proceedings raises a risk of serious and irreparable harm to the applicant (including whether the balance of interests leans in favor of the applicant) is not new. As the President of the Court of First Instance noted, earlier judgments rendered in proceedings for interim measures already established that point.40 The main difference between IMS Health and earlier cases is that the judge’s findings on all conditions for the grant of interim measures in IMS Health seemed guided by his own views of the relationship between competition and the exercise of intellectual property rights, different from those of the Commission,41 and appear to have led to

37 Id., at paras. 128-131. 38 Id., at paras. 143 and 144. 39 See Order in NDC Health GmbH & Co. KG and NDC Health Corporation v Commission and IMS Health Inc., fn. 30 above, EU:C:2002:223, at paras. 55-61.

40 Order in IMS Health Inc. v Commission, fn. 27 above, EU:T:2001:259, at paras. 56-75. 41 As mentioned above, the prima facie case for suspension of the Commission decision in IMS Health is entirely based on the judge’s view that the Commission had adopted an extensive interpretation of Magill. Furthermore, in his findings on urgency, the judge emphasized the fundamental importance of copyright for society and emphatically (and correctly) rejected the view that copyright could be reduced ‘to a purely economic right to receive royalties’ pending the judgment in the annulment proceedings (Order in IMS Health Inc. v Commission, fn. 27 above, EU:T:2001:259, EU:T:2001:259, at para. 125). The same considerations about the importance of copyright underlie the judge’s findings on the balance of interests – id., at para. 144: ‘where there is, on the face of it, a clear

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considerable relaxation of the conditions under which the European Courts may suspend Commission decisions ordering interim relief. Any decision that imposes interim measures in respect of a situation that does not squarely fall within the scope of the European Courts’ consistent case law on Article 101 and Article 102 TFEU can arguably fulfil that ‘prima facie’ condition for suspension by the courts as applied in IMS Health. Indeed, the enforcement of Article 101 or Article 102 TFEU in any novel situation and, more generally, any novel interpretation of those provisions, is capable of giving rise to divergence of views between the Commission and the addressee of the decision, as demonstrated by the addressee’s bringing of annulment proceedings against that decision. In the absence of objective criteria to distinguish ‘serious doubts’ from uncertainties or ambiguities that fall below that threshold, any such dispute can be regarded as ‘serious’ and thus satisfy the ‘prima facie’ requirement for suspension by the European courts. Furthermore, IMS Health shows that the condition of ‘urgency’ justifying suspension of the interim relief granted by the Commission is fulfilled when enforcement of the interim measures may have possible effects on the structure and dynamics of competition that would survive annulment of the interim measures decision. This test – which is much broader than the traditional one based on the likelihood of the applicant being unable to survive or remain active on the relevant market pending judgment in the main proceedings – is met even if those possible effects do not stem directly from the decision, and instead may result from business decisions made by the beneficiaries of the interim measures or by third parties affected by the implementation of those measures. In any event, the test as applied in IMS Health is likely to be satisfied where the interim measures are intended to enable entry of new competitors, which is the case where the conduct justifying adoption of the interim measures is refusal of access to essential facilities.42 Accordingly, the Commission’s hesitancy to consider interim measures since IMS Health may probably be attributed to the likelihood that the addressee of a positive order would immediately seek suspension before the European courts and to the consequent constraints this imposes on the Commission in establishing the prima facie infringement of competition law as well as urgency: on both issues, IMS Health gives broad discretion to the judge hearing the application for interim measures to reach a different conclusion than the Commission and accordingly requires that the Commission invest a lot of resources to build a compelling case and to anticipate and respond to the arguments which the addressee of the decision could raise in an application before the Courts.

public interest underlying the applicant’s effort to enforce and profit from the specific subject-matter of its copyright in the 1 860 brick structure, the inherently exceptional nature of the power to adopt interim measures would normally require that conduct whose termination or amendment is targeted by such measures fall clearly within the scope of the Treaty competition rules (…) In this context, where the abusive nature of the applicant’s conduct is not unambiguous having regard to the relevant case-law and where there is a tangible risk that it will suffer serious and irreparable harm if forced, in the meantime, to license its competitors, the balance of interests favours the unimpaired preservation of its copyright until judgment in the main action.’

42 As mentioned above, this is the situation in which, to date, interim measures have most often been imposed.

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In an article published in 2008, Philip Lowe, then Director General for Competition, and Frank Maier-Rigaud from NERA suggested that one reason why the Commission has rarely ordered interim measures may be that ‘proceedings under Article 8 appear as increasing the burden of investigation, since they add a full-blown procedure (and likely judicial review) to the main investigation. Procedural requirements are quite substantial (statement of objections; right of the parties to be heard; probable judicial challenge). The resources spent on the Article 8 procedure are thus not used for the main investigation, and this may delay the adoption of the final decision.’43 Beyond the procedural steps involved in the interim measures proceedings – which are similar to those applicable in jurisdictions like France which are less loath to impose interim measures – it seems that the evidentiary requirements which those steps are intended to address and the resources which the Commission would need to invest in order to meet them as a result of the constraints arising from IMS Health may actually be the reason why the Commission has since been reluctant to order interim relief. IV. Some suggestions to encourage appropriate recourse to interim measures Interim measures are warranted where there is a risk of serious and irreparable damage to competition, that is, damage to competition which could no longer be remedied by the decision adopted by the Commission upon the conclusion of the proceedings.44 In assessing the application for interim measures, the Commission needs carefully to balance opposite interests which may both cause harm to consumers. On the one hand, an excessively flexible or lenient enforcement of the conditions governing the grant of interim measures would cause serious harm to consumers as it would protect inefficient competitors and undermine incentives to innovate. Failing rivals would be unduly protected for the duration of the proceedings and innovative rivals may not have sufficient resources to overcome the barriers which this undue protection is raising over that period. On the other hand, failure to consider the adoption of interim measures for reasons unrelated to the specific circumstances of the case may have very negative consequences for all the stakeholders, including the undertakings affected by the impugned practice, consumers, and the Commission itself, whose final decision may not eliminate the harm to competition caused by the impugned practice in the course of the investigation. It is the responsibility of the Commission and of the European courts, who may review decisions of the Commission ordering interim measures, to ensure that such measures are adopted whenever appropriate. We offer below some

43 Philip Lowe and Frank Maier-Rigaud, ‘Quo Vadis Antitrust Remedies’, 2007 Fordham Comp. L. Inst. 597-611 (B. Hawk ed. 2008), at 609.

44 See Judgment in La Cinq v Commission, fn. 17 above, EU:T:1992:5, at para. 80.

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thoughts about possible changes that might encourage the Commission to consider interim measures where appropriate. At the outset, it is clear that the judge hearing the application for suspension enjoys broad discretion in assessing whether the conditions for suspending the Commission decision ordering interim relief are fulfilled. This is true even though first, the judge has to review and decide issues which are quite similar to those assessed by the Commission in the decision imposing interim measures and second, in practice, suspension of that decision by the judge usually has the same effect as annulment of the decision.45 Despite those features which are common to annulment and interim measures proceedings, the limitations applicable to the Court’s review of complex economic assessments by the Commission in annulment proceedings do not apply in interim measures cases. Proceedings brought pursuant to Article 278 TFEU require the court to assess for itself whether the specific conditions for the grant of interim measures set by Article 104(2) of the Rules of Procedure of the Court, that is, the prima facie case and urgency, are fulfilled. The assessment of those two conditions can meaningfully be undertaken only if the court is empowered to review thoroughly all the relevant factual and legal circumstances of the case. The judge hearing the application for interim measures must benefit from the discretion necessary to verify whether the legality of the Commission decision prima facie raises serious doubts and whether execution of that decision pending the judgment in the annulment proceedings is likely to cause serious and irreparable harm to the applicant.46

45 This is because the average duration of annulment proceedings in competition matters before the General Court is not shorter than the average duration of Commission investigations in competition cases, so that the Commission can come to a final decision superseding the provisional measures decision – and the Court interim measures order relating to that decision – before the proceedings for annulment of the provisional measures decision are completed. Over the past five years, the average duration of annulment proceedings before the General Court in competition matters has been around 46 months – see at http://curia.europa.eu/jcms/upload/docs/application/pdf/2014-06/ qdag14001frc.pdf. Based on our computation, the average duration of investigations leading to commitments or infringement decisions in Art. 101 and 102 cases other than cartels during the same period slightly exceeded 30 months as from the formal initiation of proceedings (as mentioned above, the actual duration of enforcement proceedings usually is longer than 30 months because formal initiation of the proceedings usually takes place months after the filing of the complaint or the initiation of the investigationbut for the present purposes, the duration of the enforcement proceedings should be computed as from the adoption of the interim measures decision which usually takes place shortly after the formal initiation of proceedings). Thus, in three of the four cases in which proceedings were brought against a Commission interim measures decision, the Commission completed the competition proceedings and adopted a final decision which superseded the interim measures decision (or withdrew the interim measures decision due to market developments) before the Court ruled on the action for annulment of that interim measures decision. The fourth case – in which the Court ruled on the application for annulment of the interim measures decision shortly before the Commission adopted a final decision in the competition proceedings – is the only case in which the Court rejected the application for interim measures relating to the Commission interim measures decision. Accordingly, in all cases in which the Court ordered interim measures, those measures turned out to be definitive.

46 The one exception to this principle concerns the situation where the applicant would claim that there is a prima facie case for the imposition of interim measures by the Court on the ground that the Commission erred in the assessment of complex economic or technical situations in the context of the Commission’s provisional assessment of the impugned agreement or conduct or in the assessment of the risk of serious and irreparable harm to competition. In a situation where the prima facie case for interim measures by the Court is based on alleged errors of assessment of complex economic or technical situations by the Commission, the discretion of the judge in assessing such claim should be limited to reviewing whether the relevant rules on procedure and on the statement of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of assessment or a misuse of powers. The reason is that interim measures proceedings are ancillary to the main, annulment proceedings brought against the interim measures decision of the Commission and the grounds on which the applicant may rely to establish the prima facie case – that is, the reasonable possibility of annulment of the Commission decision – can only be grounds of appeal that the European courts may consider in the annulment proceeding. Arguments which exceed the scope of review by the courts in annulment proceedings cannot support a prima facie case in interim measures proceedings.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 69 Interim relief in EU competition law: a matter of relevance

This being said, IMS Health appears excessively to constrain the power of the Commission to impose interim measures in the appropriate circumstances. This is because IMS Health gives little credit (if any) to the provisional nature of the Commission findings of facts or of law underlying the prima facie case in the decision imposing interim measures. Commission decisions imposing interim measures are adopted in the course of the administrative proceedings and are based on provisional findings. Accordingly, the Commission cannot be expected to establish the existence of the infringement of competition law with the same degree of certainty as applicable in a final decision marking the end of multi-year proceedings including a thorough investigation and the hearing of all interested parties.47 Rather, as the Court emphasized in Peugeot, there is a valid case for the imposition of interim measures by the Commission if the legality of the impugned agreement or the impugned conduct under EU competition law raises ‘serious doubts.’48 The judge hearing the application for suspension in IMS Health acknowledged that the Commission could impose interim measures where it has serious doubts about the legality of the impugned conduct. However, it is questionable whether IMS Health complies with the legal standard set by Peugeot. In IMS Health, the judge hearing the application for suspension found that the Commission’s extensive interpretation of the law supporting the prima facie case for interim measures ‘may be correct,’ yet the judge suspended the execution of the Commission decision on the ground that the correctness of that interpretation raised a ‘serious dispute.’ Arguably, the judge’s assessment and his conclusion would be no different if the Commission’s findings regarding the validity of IMS Health’s refusal to license were definitive. Under the test set byPeugeot , the judge should have explained why there were at least serious doubts as to whether the Commission could entertain serious doubts about the validity of that interpretation.49 This sets the bar for the prima facie case for suspension of the Commission’s interim measures decision quite high. It rightly does so because the Commission has the power to impose interim measures on the basis of a prima facie case.50

47 See Judgment of 12 July 1991, Automobiles Peugeot SA and Peugeot SA v Commission, T-23/90, EU:T:1991:45, at para. 61: ‘It must be pointed out that in proceedings relating to the legality of a Commission decision imposing provisional measures, the requirement of a finding of a prima facie infringement cannot be placed on the same footing as the requirement of certainty that a final decision must satisfy.’ See Judgment inLa Cinq v Commission, footnote 17 above, EU:T:1992:5, at paras. 61 and 62.

48 Judgment in Automobiles Peugeot SA and Peugeot SA v Commission, fn. 47 above, EU:T:1991:45, at para. 58 to 63: ‘The requirement of a finding of a prima facie infringement cannot be placed on the same footing as the requirement of certainty that a final decision must satisfy … The Commission was thus fully entitled to take the view that, at first sight, there were serious doubts as to the legality of the circular in relation to the Treaty competition rules and that it could therefore adopt provisional measures pending a decision on the substance.’

49 Admittedly, the President of the Court of First Instance found that assuming the application for suspension of a decision imposing interim measures must establish a ‘strong prima facie’ case, this condition is met in IMS Health (at para. 106). However, this is unrelated to the provisional nature of the Commission’s findings. Rather, the judge’s finding responds to the argument (discussed above) that the judge hearing the application for interim measures must reconsider the same conditions as those found to be satisfied by the decision and that accordingly, the judge should be subject to the same standard of judicial review as that applicable to annulment proceedings against decisions based on complex economic assessments (see at para. 56).

50 It is worth noting that this conclusion is consistent with the principle set out by the President of the Court of First Instance and upheld on appeal by the President of the Court of Justice according to which the judge hearing the application for interim measures enjoys the same broad discretion in assessing whether the conditions set out in Article 104(2) of the Rules of Procedure are fulfilled, whether the application relates to a Commission decision

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It may be that in IMS Health, the judge hearing the application for suspension was led to apply a softer standard because the decision imposing interim measures did not sufficiently emphasize the provisional nature of the Commission’s findings, in particular those relating to the (il)legality of IMS Health’s conduct, and instead formulated those findings in quite definitive terms.51 Indeed, it is incumbent on the Commission in the decision imposing interim measures to underline the provisional nature of the findings relating to the prima facie case for interim measures, for instance, by highlighting that on the basis of the preliminary investigation and having regard if applicable to the novelty of the issues raised by the case, the validity of the impugned conduct under EU competition law raises serious doubts. The key point is to avoid any suggestion in the decision imposing interim measures that the findings relating to the legality of the impugned conduct are definitive or quasi-definitive. Besides, it is incumbent on the judge hearing the application for suspension to acknowledge that the Commission is empowered to impose interim measures where the validity of the impugned conduct under EU competition law raises serious doubts. Provided the Commission substantiates those doubts in the decision imposing interim measures, that decision should be immune from any prima facie finding for suspension by the Court on that ground. Under the Peugeot test according to which the Commission is entitled to order interim relief if, at first sight, the legality of the impugned conduct under the Treaty competition rules raises serious doubts, ‘urgency’ – that is, the risk of serious and irreparable harm to competition – is likely to prove the decisive issue in most cases. 52 As indicated above, the Court’s finding inIMS Health that implementation of the interim measures ordered by the Commission would cause serious and irreparable harm appears to lack strong supporting evidence (i.e., the alleged harm and/or its irreparable nature seem largely speculative) and to be based on developments that would likely fail a counterfactual test (i.e., the causal link between the harm and the interim measures ordered by the Commission – as opposed to business decisions made by third parties – appears weak). The experience gained in prospective competition analysis through merger control enforcement may be very relevant to the assessment of ‘urgency’: on both issues, that is, causation and evidentiary requirements applicable to prospective competition analysis, significant progress has been made by both the Commission and the European Courts, and the learnings of merger control can largely be transposed to interim measures proceedings while taking into account the different time periods within which interim measures and merger control proceedings respectively need to be completed.

imposing interim measures or a final decision layout definitive findings. In both cases, the degree of review by the judge hearing the application indeed is the same. However, the nature of the Commission’s findings differs depending on the decision subject to the application, resulting in different standards in order to satisfy the conditions of Article 104(2).

51 See in particular paras. 70 and 74 of the Commission decision in IMS Health concerning the legal criteria to establish the existence of abuse and the issue of whether these criteria are fulfilled, respectively.

52 It is noteworthy that ‘urgency’ has usually been the main hurdle to the adoption of interim measures: in Ford, Peugeot/EcoSystem and IMS Health, the judge hearing the application for interim measures took the view that the interim relief granted by the Commission would cause serious harm to the applicant, exceeding the transitory disadvantages arising from provisional, ‘conservatory’ measures.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 71 Interim relief in EU competition law: a matter of relevance

The test laid down by Article 8 of Regulation n° 1 whether absent interim relief, there is a risk of ‘serious and irreparable harm to competition’ pending the decision on substance, has shifted the focus away from the party applying for interim measures. The assessment of urgency must be based on a broader perspective, weighing the effects of the impugned practice and of the interim measures contemplated by the Commission on all stakeholders, including the undertakings concerned and consumers. Under this test, the key question should be whether taking into account all relevant circumstances, the market participants’ ability and incentives to compete (including the incentives to enter the market) are better served if the target of the investigation implements the impugned conduct until the end of the proceedings or if the Commission steps in and imposes some interim relief. The test under Article 8 of Regulation n° 1 is thus broader than that focussing on the survival of the undertaking seeking interim measures, and it conflates the assessment of the harm caused by the impugned conduct with the balance of interests. However, a proper application of that broader test will also reduce the risk of suspension of the Commission decision ordering interim relief, precisely because the interests of the undertaking subject to interim measures should be adequately weighted in the decision.53

The condition of ‘urgency’ should be more easily satisfied in markets featuring scale or network effects where the market advantage illegally obtained through the implementation of anti-competitive practices may quickly become unassailable and conversely, the handicap caused to the target of such practices grows over time.54 As the investigation progresses, the Commission may form a better view, first, of the likely length of its own proceedings and, second, of the impact of the impugned conduct on competition over that period. While interim relief might not be warranted in the early days of the investigation, the dynamics of the industry may change this assessment and require the adoption of interim measures in the course of the proceedings.

53 As the Court ruled in IMS Health, ‘the conditions for the ordering of suspension of operation and interim measures must be the object of an overall examination’ and ‘the strength or weakness of the pleas relied on to show a prima facie case may be taken into consideration by the judge in his assessment of urgency and, if appropriate, of the balance of interests’ (Order in NDC Health GmbH & Co. KG and NDC Health Corporation v Commission and IMS Health Inc., fn. 30 above, EU:C:2002:223, at para. 63). In other word, the conditions of ‘urgency’ and ‘prima facie case’ are interdependent: the stronger the prima facie case the lower the threshold of competitive harm justifying a finding of urgency.

54 See also Philip Lowe and Frank Maier-Rigaud, ‘Quo Vadis Antitrust Remedies’, 2007 Fordham Comp. L. Inst. 597-611 (B. Hawk ed. 2008), at 609.

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V. Conclusion There seems to be a growing mismatch between business life and the enforcement of competition rules designed to police it. Businesses evolve at an ever faster pace while competition law enforcement in Europe appears stalled by cumbersome and slow processes. This issue needs to be addressed for European competition law to remain as relevant as it has been for the past 25 years.

Some of the constraints that delay European competition law enforcement result from important progress in the protection of the right to due process, and those should be accepted. Some others are due to the institutional structure of the Commission. All or part of those that can be removed or attenuated should be, but this will require time. Furthermore, the Commission should also use the available tools to eliminate the negative effects of the extended duration of competition law proceedings. Firstly, the European Commission should exercise the power recognized by the European Court of Justice in Ufex to impose remedies that restore the competitive situation and dynamics that would prevail in the absence of the competition law infringement. Secondly, the Commission should consider imposing interim measures in order to avoid that the presumptively illegal practice causes irreparable harm pending the administrative proceedings.

Interim measures have rarely been imposed by the Commission, even in relation to agreements or practices in fast-moving industries. The Commission and national competition authorities should refrain from granting interim relief too generously, as this would risk undermining incentives to compete and innovate. However, it seems that the European Commission has moved too far in the opposite direction and has put that tool on the back burner for an indefinite period of time. This is likely due to the significant constraints resulting from the ability to seek suspension of the Commission decision ordering interim measures before the European courts and the conditions under which suspension has been ordered by the Courts. With all due respect, we believe that those conditions are excessively low. They fail to recognize the provisional nature of the Commission’s findings in interim measures decisions. Furthermore, it is questionable whether they properly weigh and balance the effects of the impugned practice and of the interim measures contemplated by the Commission on competition.

Given the increasing speed at which markets and businesses evolve, the Commission should not hesitate to adopt interim measures where warranted. Naturally, the Commission will want to have a solid case to go to Court: ‘chat échaudé craint l’eau froide’ as goes the French idiom. However, the ball is in the Commission’s camp: it should take the initiative and give the Court the opportunity to revisit and, if it also sees it appropriate, adjust the requirements arising from past rulings.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 73 Interim relief in EU competition law: a matter of relevance

VI. Annex

Case Commission Interim European Courts Commission Final European Courts Measures Decision – Interim Measures Decision – Annulment Proceedings relating proceedings against to Commission Commission Interim Interim Measures Measures Decision Decision Ford Werke 18 August 19821 29 September 19822 16 November 19833 28 February 19844 ECS / AKZO 29 July 19835 (No appeal) 14 December 19856 (No appeal)

BBI / Boosey 29 July 19877 (No appeal) (No appeal) & Hawkes EcoSystem / Peugeot 26 March 19908 21 May 19909 4 December 199110 12 July 1991 Mars 25 March 199212 16 June 199213 23 December 199214 Case withdrawn from the Register on 1 April 1993

Sealink 11 June 199216 (No appeal) (No appeal) ICG / CCI Morlaix 16 May 199517 (No appeal) (No appeal) NDC Health / IMS 3 July 200118 10 August 2001 Proceedings Case withdrawn Health (ex parte)19 discontinued from the register on 10 March 200523 26 October 2001 (Interim Measures (Court of First Decision withdrawn Instance)20 on 13 August 2003)22 11 April 2002 (Court of Justice)21

1. Commission Decision of 18 August 1982 (IV/30.696 - Distribution system of Ford Werke AG - interim measure), OJ 1092 L 256, pp. 20–28. 2. Ford Werke AG and Ford of Europe Incorporated v Commission, Joined Cases 228 and 229/82R, EU:C:1982:320. 3. Commission Decision of 16 November 1983 (IV/30.696 - Distribution system of Ford Werke AG), OJ 1983 L 327, pp. 31–39. 4. Ford of Europe Incorporated and Ford-Werke Aktiengesellschaft v Commission, Joined cases 228 and 229/82, EU:C:1984:80. 5. Commission Decision of 29 July 1983 (IV/30.698 - ECS/AKZO: interim measures), OJ 1983 L 252, pp. 13–21. 6. Commission Decision of 14 December 1985 (IV/30.698 - ECS/AKZO), OJ 1985 L 374, pp. 1–27. 7. Commission Decision of 29 July 1987 (IV/32.279 - BBI/Boosey & Hawkes: Interim measures), OJ 1987 L 286, pp. 36–43. 8. Commission Decision of 26 March 1990 adopting (IV/33.157 Ecosystem/Peugeot - Provisional measures). 9. Automobiles Peugeot SA and Peugeot SA v Commission, Case T-23/90 R, EU:T:1990:31Commission Decision of 4 December 1991(Case IV/33.157 - Eco System/Peugeot), OJ 1992 L 66, pp. 1–12. 10. Automobiles Peugeot SA and Peugeot SA v Commission, Case T-23/90, EU:T:1991:45. 11. Commission decision of 25 March 1992 (IV/34.072 - Mars/Langnese and Schoeller - interim measures). 12. Langnese Iglo GmbH and Schöller Lebensmittel GmbH & Co KG v Commission, Cases T-24/92 R and T-28/92 R, EU:T:1992:71. 13. Commission Decisions of 23 December 1992 (Case IV/31.533 – Schöller Lebensmittel GmbH ‘ Co. KG and Case IV/34.072 – Langnese-Iglo GmbH), OJ 1993 L 183, 26.7.1993, pp. 1-18 and pp. 19–37. 14. Order of the President of the Court of First Instance of 1 April 1993 in Case T-24/92, Langnese-Iglo GmbH v Commission and Case T-28/92, Schöller Lebensmittel GmbH v Commission, OJ 1993 C 124, p. 13.

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15. Commission Decision of 11 June 1992 (IV/34.174 – Sealink/B&I – Holyhead : Interim measures), available at http://ec.europa.eu/competition/antitrust/cases/dec_docs/34174/34174_2_2.pdf. 16. European Commission, 25th Report on Competition Policy (1995), COM(96)126 final, para. 43. 17. Commission Decision of 3 July 2001 (Case COMP D3/38.044 — NDC Health/IMS Health: Interim measures), OJ 2002 L 59, pp. 18–49. 18. IMS Health Inc. v Commission, Case T-184/01 R, EU:T:2001:200. 19. IMS Health Inc. v Commission, Case T-184/01 R, EU:T:2001:259. 20. NDC Health GmbH & Co. KG and NDC Health Corporation v Commission and IMS Health Inc., Case C-481/01 P (R), EU:C:2002:223. 21. Commission Decision of 13 August 2003 (Case COMP D3/38.044 — NDC Health/IMS Health: Interim measures), OJ 2003 L 268, pp. 69-72. 22. IMS Health, Inc. v Commission, Case T-184/01, EU:T:2005:95.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 75 ‘[M]ust be interpreted in the light of economic considerations’: some reflections on the case law of the EFTA Court

Carl Baudenbacher

I. Introduction In E-8/00 Norwegian Federation of Trade Unions and Others v Norwegian Association of Local and Regional Authorities and Others (‘LO’), the EFTA Court held that [w]hether an agreement restricts competition, and thereby infringes Article 53 EEA, is a legal question that must be examined in the light of economic considerations.1 The case essentially concerned the issue whether, and if so to what extent, collective agreements were exempt from the EEA competition rules. These rules are identical in substance to the ones of the TFEU. The same formula was used in E-7/01 Hegelstad Eiendomsselskap Arvid B. Hegelstad and Others v Hydro Texaco AS, a case on vertical restrictions. And it can be found in E-4/05 HOB-vín v the Icelandic State and the State Alcohol and Tobacco Company of Iceland, and in E-15/10 Posten Norge AS v EFTA Surveillance Authority with regard to the notion of abuse of a dominant position under Article 54 EEA.2

1 Case E-8/00 LO [2002] EFTA Ct. Rep. 114, para. 55. 2 Case E-7/01 Hegelstad Eiendomsselskap Arvid B. Hegelstad and Others v Hydro Texaco AS [2002] EFTA Ct. Rep. 310, para. 27; Case E-4/05 HOB-vín v the Icelandic State and the State Alcohol and Tobacco Company of Iceland [2006] EFTA Ct. Rep. 3, para. 77; Case E-15/10 Posten Norge AS v EFTA Surveillance Authority [2012] EFTA Ct. Rep. 246, para. 126.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 77 ‘[M]ust be interpreted in the light of economic considerations’: some reflections on the case law of the EFTA Court

The present article is a contribution to the liber amicorum of a preeminent practitioner and teacher of European and international economic law. Ian Forrester’s pleading style is exceptional. This Scottish Presbyterian - as he occasionally refers to himself - has taken to heart the maxim of the Jesuit General Claudio Aquaviva, ‘fortiter in re, suaviter in modo’ which may be translated into English as ‘resolute in action, gentle in manner’. The use of the zweihänder which is not atypical for certain government lawyers - and occasionally even for representatives of the European institutions - is not his cup of tea. Ian would not state that the party he represents deserves to win the case at all costs or – worse - that if the court does not rule in his party’s favour it will commit a serious mistake. He would rather say that all things considered the better arguments speak in his view in favour of a ruling which coincides with how his party tends to construe the law. In other words, Ian does his best to make the judge feel that he or she is the sole decision-maker.

II. Competition law 1. Competition law and collective bargaining As indicated, the LO case concerned the question of whether collective agreements concluded between the unions and the employers’ associations are fully sheltered from the EEA prohibition of cartels and of abuse of a dominant position, or whether there are limits to this immunity. In C-67/96 Albany and in related cases, the ECJ had found that collective agreements aim at improving working conditions and therefore are out of the reach of European competition law.3 In contrast to Advocate General Jacobs, the ECJ did not examine the limits of such immunity. Francis Jacobs had concluded that in all the systems examined (including the law of the United States) collective agreements are to some extent sheltered from competition law, but that such immunity is not unlimited.4 The EFTA Court reproduced this statement almost verbatim and cited the respective paragraph in the Advocate General’s opinion.5 The ECJ did not mention the opinion. The EFTA Court also held that the good faith of the parties in concluding and implementing a collective agreement had to be taken into account.6 Advocate General Jacobs pointed to that requirement in his opinion,7 but the ECJ did not. The EFTA Court’s way of proceeding may be called an act of dialectic judicial dialogue. A few years later, another Advocate General, Miguel Poiares Maduro, made reference to EFTA Court’s judgment in LO on that very point in his opinion in C-438/05 Viking Line where he, too, argued for a concept of limited antitrust immunity of collective agreements.8

3 Cf. Judgement in Albany, C-67/96, EU:C:1999:430. 4 Opinion of Advocate General Jacobs in Albany, C-67/96, EU:C:1999:28 para. 109. 5 Case E-8/00 LO, cited above, para. 35. 6 Ibid., para. 56; see, for example, the comments of Vassilios Skouris, ‘The Role of the Court of Justice of the European Union in the Development of the EEA Single Market’, in EFTA Court, Ed., The EEA and the EFTA Court: Decentred Integration, Oxford and Portland Oregon 2014, 1, 12. 7 Opinion of Advocate General Jacobs in Albany, EU:C:1999:28 cited above, paras. 192, 194, 296. 8 Opinion of Advocate General Poiares Maduro in The International Transport Workers’ Federation and The Finnish Seamen’s Union, C-438/05, EU:C:2007:292, para. 27. Advocate General Poiares Maduro also referred to Advocate General Jacobs in Albany.

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78 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Carl Baudenbacher

2. Scope of judicial review The issue of standard of review of the competition authorities’ decisions is one of the most controversial aspects of European law. The EFTA Court specifically dealt with this question in two cases. The second Husbanken case (E-4/97 Norwegian Bankers’ Association v EFTA Surveil- lance Authority) involved a State guarantee for the publicly owned Norwegian State Housing Bank. The EFTA Surveillance Authority (‘ESA’) concluded that the guarantee constituted State aid under Article 61(1) EEA, which was, however, justified under Article 59(2) EEA on grounds of services of general economic interest.9 ESA’s decision was challenged by the Norwegian Bankers’ Association. The EFTA Court found that Article 59(2) EEA did in fact apply. In particular, the financial services in question constituted ‘trade’ within the meaning of this provision.10 The Court noted, however, that ESA ‘did not go into depth on this condition’; it merely stated in its decision that even if it cannot ‘be excluded that the measures under consideration may affect trade between Contracting Parties, in practice such trade effects are likely to be only limited.’ Moreover, ESA had not considered ‘to the extent necessary’ which market was relevant in this case, whether there were alternative means less distortive to competition than those presently applied,;it had not carried out a proper analysis of the costs and benefits of the State aid nor had it made ‘a proportionality test to assess whether the required balance has been struck between the common interests of the Contracting Parties to the EEA Agreement and the legitimate interests of Norway.’11 The EFTA Court therefore annulled ESA’s decision, holding that [t]hese questions call for complex analyses and assessments which the Court cannot carry out but which must be done by the EFTA Surveillance Authority’ [….] which ‘by not carrying out the tests described, [had] wrongly interpreted and applied Article 59(2) EEA.12 In E-15/10 Posten Norge, a case on abuse of a dominant position, the EFTA Court referenced the Menarini judgment of the European Court of Human Rights of 27 September 201113 and held that Article 6(1) ECHR requires that subsequent control of a criminal sanction imposed by an administrative body must be undertaken by a judicial body that has full jurisdiction. Thus, the Court must be able to quash in all respects, on questions of fact and of law, the challenged decision [….]. Therefore, when imposing fines for infringement of the competition rules, ESA cannot be regarded to have any

9 Case E-4/97 Norwegian Bankers’ Association v EFTA Surveillance Authority [1999] EFTA Ct. Rep. 1, paras. 9 and 10; see with regard to this judgment Ian S. Forrester, ‘The Style of the EFTA Court’, in EFTA Court, Ed., The EEA and the EFTA Court: Decentred Integration, Oxford and Portland Oregon, 2014, 21, 39. 10 Case E-4/97 Norwegian Bankers’ Association v EFTA Surveillance Authority, cited above, para. 67. 11 Ibid., para. 69. 12 Ibid., para. 70. 13 ECtHR A. Menarini Diagnostics srl v. Italy [2011] ECHR 43509/08 (2nd Chamber, 27 September 2011).

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 79 ‘[M]ust be interpreted in the light of economic considerations’: some reflections on the case law of the EFTA Court

margin of discretion in the assessment of complex economic matters which goes beyond the leeway that necessarily flows from the limitations inherent in the system of legality review.14 Although the Court may not replace ESA’s assessment by its own and, accordingly, it does not affect the legality of ESA’s assessment if the Court merely disagrees with the weighing of individual factors in a complex assessment of economic evidence, the Court must nonetheless be convinced that the conclusions drawn by ESA are supported by the facts.15 It has been observed in the literature that with this, the EFTA Court has gone further in the protection of the right to a fair trial than its EU sister court.16

3. Review of fines Under Article 35 ESA/Court Agreement, the Court has unlimited jurisdiction in regard to penalties imposed by the EFTA Surveillance Authority. For competition fines, this has been specified in Article 31 of Regulation 1/2003 which has, as far as substance is concerned, essentially been incorporated into the EEA Agreement. According to that provision, the unlimited jurisdiction implies that the Court may cancel, reduce or increase the fine. In Posten Norge, the Court found that the administrative procedure had lasted too long. The initial request for information was sent to Norway Post almost a year after the case was initiated by a complaint. Then it took ESA five years and eight months to conclude its investigation and one year to draft the final decision. The Court considered these periods to be excessive. ESA itself had acknowledged that the duration of the administrative procedure was considerable and had reduced the amount of the fine by EUR 1 million, or 7.2%. On the basis that an infringement of the fundamental right to have one’s case adjudicated in reasonable time requires an effective remedy, the Court decided to cut the basic amount of the fine by 20%. The final amount of the fine was therefore reduced from EUR 12.89 million to EUR 11.112 million.17

14 Case E-15/10 Posten Norge AS v ESA [2012] EFTA Ct. Rep. 246, para. 100, emphasis added. 15 Ibid., para. 101, emphasis added. 16 See Eric Barbier de la Serre, ‘A lesson on judicial review from the other European Court in Luxembourg’, in Kluwer Competition Law Blog of 27 April 2012, http://kluwercompetitionlawblog. com/2012/04/27/a-lesson-on-judicial-review-from-the-other-european-court-in-luxembourg/, visited on 31 March 2015; Ibid., ‘Standard of Review in Competition Law Cases: Posten Norge and Beyond’, in EFTA Court, Ed., The EEA and the EFTA Court: Decentred Integration, Oxford/Portland Oregon, 2014, p. 417 ff.; Marco Bronckers/ Anne Valery, ‘Business as Usual after Menarini’, Mlex Magazine January-March 2012, p. 44 ff.; John Temple Lang, ‘Judicial Review of Competition Decisions under the European Convention of Human Rights and the Importance of the EFTA Court: the Norway Post judgment’, 37 European Law Review (2012) p. 464 ff.; Eric Morgan de Rivery/ Eileen Lagathu/Etienne Chassaing, ‘EU Competition Fines and Fundamental Rights: Correcting the Imbalance’, European Law Reporter 7/8/2012, p. 190 ff.; Sir Christopher Bellamy, ‘ECHR and competition law post Menarini: An overview of EU and national case law’, e-Competitions N°47946 (5 July 2012). 17 Loc. cit., paras. 260 ff. See with regard to the review of fines generally Ian S. Forrester, ‘A Challenge for Europe’s Judges: The Review of Fines in Competition Cases’, European Law Review 2/2011, reprinted under http://www. biicl.org/files/5750_forrester_25-06-11_biicl_2.pdf, visited on 3 April 2015.

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4. Plaintiffs in damage cases acting as private attorneys general In a series of follow-on cases to Posten Norge, the EFTA Court had to deal with nullity actions challenging ESA decisions to refuse access to documents it had seized when searching the premises of Posten Norge. In Case E-14/11 DB Schenker v ESA, the Court held in paragraph 132:

[S]pecific policy considerations arise in requests for access to documents as part of follow-on damages cases brought before national courts concerning Articles 53 and 54 EEA. The private enforcement of these provisions ought to be encouraged, as it can make a significant contribution to the maintenance of effective competition in the EEA [….]. ESA’s and the Commission’s view that follow-on damages claims in competition law cases only serve the purpose of defending the plaintiff’s private interests cannot be maintained. While pursuing his private interest, a plaintiff in such proceedings contributes at the same time to the protection of the public interest. This thereby also benefits consumers.18

The latter statement points to the concept of a private attorney general. In her opinion in C‑557/12 KONE and Others, Advocate General Juliane Kokott cited the EFTA Court’s statement in an affirmative way.19

In the second Schenker judgment (Case E-7/12), the EFTA Court highlighted the importance of private enforcement of competition law and referred, inter alia, to paragraph 132 of the firstSchenker judgment. It held that ESA’s failure to comply with time limits ‘was regrettable since it had the potential to undermine private enforcement’.20 In the fifth Schenker judgment (Case E-5/13), the EFTA Court reiterated its statement concerning the role of a private plaintiff and added that Advocate General Kokott had signaled her agreement with this approach in paragraph 60 of her opinion in Case C-557/12 Kone and Others. 21 It is to be noted that in its newest case law (T-345/12 Akzo Nobel and Others v Commission), the GC has concurred with this approach, holding that ‘the right to obtain compensation for loss caused by a contract or conduct liable to restrict or distort competition can make a significant contribution to the maintenance of effective competition in the European Union [….] and thus contribute to the protection of the public interest.’22

18 Case E-14/11 DB Schenker v EFTA Surveillance Authority [2012] EFTA Ct. Rep. 1178, para. 132, emphasis added. 19 Opinion of 30 January 2014, published electronically, fn. 36. 20 Case E-7/12 DB Schenker v EFTA Surveillance Authority [2013] EFTA Ct. Rep. 356, para. 139. 21 Case E-5/13 DB Schenker v EFTA Surveillance Authority [2014] EFTA Ct. Rep. 304, para. 134; Opinion of Advocate General Kokott in Kone and Others, C-557/12, EU:C:2014:45, para. 60. 22 Judgment of 28 January 2015, Akzo Nobel and Others v European Commission, T-345/12, EU:T:2015:50, para. 84.

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5. Right of audience for in-house attorneys In Case E-8/13 Abelia v ESA, the EFTA Court had to deal with the question of whether in-house attorneys may represent their own company in court. According to Article 17 of the Court’s Statute, other parties than the EFTA States, ESA, the EU and the European Commission shall be represented before the Court by a lawyer. In Joined Cases C-422/11 P and C-423/11 P Prezes Urzędu Komunikacji Elektronicznej and Republic of Poland v Commission, judgment of 6 September 2012, the ECJ held that the parallel provision of its Statute precluded employed lawyers from acting on behalf of their employer. The ECJ held that the concept of independence of lawyers is determined not only positively, that is by reference to professional ethical obligations, but also negatively, that is to say, by absence of an employment relationship.23 One will notice in this context that on 14 September 2010, the ECJ in C-550/07 P Akzo Nobel also denied in-house attorneys the client-attorney privilege with the same reasoning.24 In Abelia, ESA and the European Commission urged the EFTA Court to follow the ECJ’s case law. The EFTA Court found, however, that whether an in-house attorney is sufficiently independent must be assessed in light of the circumstances. It held that the requirement that a party be represented before the Court by an independent third party is not a requirement designed generally to exclude representation by employees of the principal or by those who are financially dependent upon it. The essence of the requirement imposed by EEA law is to prevent private parties from bringing actions in person without recourse to an appropriate intermediary. So far as legal persons are concerned, the requirement of representation by a third party thus seeks to ensure that they are represented by someone who is sufficiently detached from the represented legal person. Whether this is so has to be addressed by the Court on a case by case basis.25 In the matter at hand, the independence of one lawyer was not found to be affected by her position as head of the Business Legislation Department of the Confederation of Norwegian Enterprise (‘NHO’) as the Court had not been provided with information demonstrating that the interests of NHO were largely the same as those of the applicant. The other lawyer was also deemed sufficiently independent from the applicant as an employee of an independent law firm, from whom she continued to receive her salary, regardless of a contract between NHO and the law firm for the temporary provision of her services. The applicant was thus found to be properly represented before the

23 Judgment in Prezes Urzędu Kumunikacji Elektronicznej and Republic of Poland v Commission, C-422/11 P and C-423/11 P, EU:C:2012:553, para. 24.

24 Judgment in Akzo Nobel Chemicals and Akcros Chemicals v Commission, C-550/07 P, EU:C:2010:512, para. 45. 25 Order of the Court of 29 August 2015 in Case E-8/13 Abelia, supported by Akademiet Bergen AS, Akademiet Drammen AS, Akademiet Sandnes AS, Akademiet Oslo AS, Akademiet VGS Molde AS and Akademiet VGS Ålesund AS, interveners v EFTA Surveillance Authority, published electroinically, para. 46, emphasis added.

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Court.26 Denying the right of audience to an in-house attorney could in fact amount to a simple restriction of competition and – as ECJ President Skouris wrote as early as in 1975: a discrimination.27 One must also not overlook that the respective German law was introduced in 1934 in light of the fact that a high proportion of in-house attorneys were Jews. It has therefore been said that excluding them from the right of audience has an NS haut gout.28

6. Competition vs grandfather rights (slot allocation at airports) Under Regulation 95/93/EEC of 18 January 1993 on common rules for the allocation of slots at Community airports, as adapted to the EEA Agreement by Decision No 7/94 of 28 June 1994 of the EEA Joint Committee,29 time slots for take-off and landing are allocated to airlines according to a system of ‘grandfather rights’. Article 10(2) of the Regulation states that if an air carrier can show that he has operated the slots for at least 80% of the time during the scheduling period for which they have been allocated, he is entitled to the same series of slots in the next equivalent scheduling period. This renders market entry for newcomers rather difficult. It has been said that ‘[g]randfather rights allow an incumbent airline to keep a slot in perpetuity.’30 Attempts to amend the Regulation have remained unsuccessful. A dispute before the Reykjavík District Court concerned the interpretation of the Regulation on the allocation of take-off and landing slots at Keflavík International Airport for the year 2014. On 22 September 2014, that court submitted a request for a preliminary ruling in Case E-18/14 Wow air ehf. against Icelandic Competition Authority, Isavia ohf. and Icelandair ehf. It asked the Court to apply the accelerated procedure under Article 97a of the Rules of Procedure. The President granted this on the basis of the economic sensitivity of the case. The potential effects of the judgment on slot allocations in the near future were deemed to be such as to constitute a matter of exceptional urgency. The President stated in that regard: To guarantee fair and effective competition is one of the most important goals of the EEA Agreement. Effective competition benefits both consumers and competitors and contributes to the common good. In the case at hand, Iceland’s special geographic situation must be taken into account with Keflavík essentially being the only international airport in the country.31 Judgment was given on 10 December 2014, i.e.,within less than three months. Firstly, the Court provided support to the independent coordinator who is competent for the initial allocation of the time slots. It held that

26 See with regard to Abelia Carl Baudenbacher/Philipp Speitler, ‚Der Syndikus der Gegenwart – Interessensvertreter oder Anwalt des Rechts?‘, NJW 2015, p. 211 ff.

27 Vassilios Skouris, ‚Die Diskriminierung des Syndikusanwalts (§ 46 BRAO) aus verfassungsrechtlicher Sicht‘, BB 1975, p. 1230 ff.

28 Hans-Jürgen Hellwig, ‘Der Syndikusanwalt – Neue Denkansätze’, AnwBl 2015, p. 2 ff. 29 OJ 1994 L 160, 1; EEA Supplement 1994 No 17, 1. 30 https://www.aviationstrategy.aero/newsletter/articles/801/show, visited on 8 April 2015, emphasis added. 31 Order of the EFTA Court President of 30 September 2014 in Case E-18/14 Wow air ehf. v The Icelandic Competition Authority, Isavia ohf. and Icelandair ehf., published electronically, para. 7.

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[i]n order for the system to be effective, the coordinator has to be independent from any vested interests and has to have the necessary financial resources to accomplish the tasks assigned to him by the Regulation. It must be ensured that neither the authorities of the EEA State concerned nor any other party can unduly influence the coordinator before, during and after the allocation process.32 This presupposes that there is a clear separation of tasks between the coordinator, the coordination committee and the EEA State so as to avoid any conflict of interest at any time in the allocation and monitoring procedure. In other words, the coordinator must have the expertise and the integrity necessary to contribute to the objectivity, transparency and efficiency of time slot allocation.33 This was important because coordinators are often former employees of the big flagship carriers. Secondly, the Court found that the national competition authorities have the right to give direct instructions to the undertakings when it comes to a transfer of time slots after the initial time slot allocation, if required under national or EEA competition law.34 Thereby the system of grandfather rights has to a certain extent been opened to competition. III. Economics in non-competition law cases

1. General Economics are not only relevant in competition law cases. The very concept of a single market is based on liberal economics and thereby on a model of competition. As does all economic law, EEA single market law turns around the relationship between economic freedom and regulation.35 The EFTA Court has expressly addressed the fact that the EEA Agreement has created a market in the transfer of undertakings Case E-18/14 Enes Deveci and Others v Scandinavian Airlines System Denmark-Norway- Sweden. The defendant before the national court claimed that the respective Directive was to be interpreted in accordance with Article 16 of the Charter of Fundamental Rights of the European Union. This provision recognizes the ‘freedom to conduct a business in accordance with Union law and national laws and practices’. The Charter has not been made part of EEA law by the EEA/EFTA governments. The Court held that

32 Case E-18/14 Wow air ehf. v The Icelandic Competition Authority, Isavia ohf. and Icelandair ehf., published electronically, para. 37.

33 Ibid., para. 38. 34 Ibid., para. 72. 35 See generally Walter R. Schluep, ‘Was ist Wirtschaftsrecht’, Festschrift für Walther Hug, Bern 1968, pp. 25, 71 ff.; Carl Baudenbacher, ‘Swiss Economic Law Facing the Challenges of International and European Law’, ZSR 2012 II, pp. 419, 427 ff.

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[t]he EEA Agreement has linked the markets of the EEA/EFTA States to the single market of the European Union. The actors of a market are, inter alia, undertakings. The freedom to conduct a business lies therefore at the heart of the EEA Agreement and must be recognised in accordance with EEA law and national law and practices.36 Based on this, the Court found no reason to address the question of whether Article 16 of the Charter is relevant in EEA law. In light of the history of the EEA Agreement, the market approach which was pursued by the EFTA Court was not obvious. The ECJ’s first EEA Opinion 1/91 had characterized the EEA Agreement as an international treaty which essentially only creates rights and obligations between the Contracting Parties.37 After this, the governments of the dualistic Nordic EFTA States took the view that the agreement was a classical treaty under public international law with some reflex effect for citizens and economic operators.38 The significance of economics outside of competition law will be discussed based on some major cases.

2. Succession of contracts under the transfer of undertakings directive On 18 January 1995, the Arbeitsgericht Bonn (Bonn Labour Court) in Germany referred the question to the ECJ of whether the succession of contracts constituted a transfer of an undertaking within the meaning of the respective directive (Case C-13/95 Süzen). On 29 March 1996, Inderøy herredsrett (Inderøy County Court) in Norway submitted essentially the same question to the EFTA Court. A contract over the provision of ambulance driver services for a hospital had been awarded to a second provider (Case E-2/96 Ulstein and Røiseng). The competition issue was clearly mentioned by Advocate General La Pergola in Süzen. His opinion was delivered on 15 October 1996, the day the EFTA Court held the oral hearing in Ulstein. Advocate General La Pergola stated that he had misgivings to apply the Directive in such a case: To transfer the facilities (of whatever kind) required by an undertaking to another body is a decision made in competitive circumstances, which ensures a choice between several competing rivals. I fail to see how there can be any justification for the transferee of the service being required to keep on such staff of the

36 Case E-10/14 Enes Deveci and Others v Scandinavian Airlines System Denmark-Norway-Sweden, published electronically, para. 64; the EFTA Court had already found in Case E-1/03 ESA v Iceland that ‘the aim of the EEA Agreement [….] is the realisation of the four fundamental freedoms, so that the internal market is extended to the EFTA States.’ ([2003] EFTA Ct. Rep. 143, para. 27.

37 Opinion in Avis 1 v 91, Avis 1/91, EU:C:1991:490 para. 20. 38 See Carl Baudenbacher, ‘Einige Gedanken zur Rechtsnatur des EWR-Abkommens’, forthcoming in the Festschrift for a German university professor.

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undertaking as provided services of that kind in the past, if it has been excluded or, in any event, whose tender, submitted on that occasion, has been unsuccessful.39 At the bottom line, the EFTA Court came to the same conclusion and held in Ulstein that a mere succession of two contracts for the provision of the same or similar services will not, as a rule, be sufficient for there to be a transfer of an undertaking, business or part of a business.40 No reference was made to Advocate General La Pergola’s opinion since it was not usual at the time for the EFTA Court to make such citations. In the meantime, the EFTA Court is engaged in a steady dialogue with Advocates General.41 The ECJ followed the approach taken by Advocate General La Pergola and by the EFTA Court; it did not quote Advocate General La Pergola, but it made reference to the EFTA Court’s Ulstein judgment.42

3. Consumer protection in the Internet age In the Inconsult case,43 the EFTA Court was faced with the novel legal question of whether a website may constitute a durable medium under Directive 2002/92/EC on insurance mediation and whether it was sufficient that an insurance company had insurance contracts only available on its website and did not provide its customers with a hard copy. The EFTA Court affirmed that a website may constitute a durable medium under Article 2(12) of the Directive, provided that several criteria are met. Firstly, the website must enable the customer to store the information in question. Secondly, it must enable the customer to store the information in a way which makes it accessible for a period of time adequate to the purposes of the information, that is, for as long as it is relevant for the customer in order to protect his interests stemming from his relations with the insurance intermediary. This might cover the time during which contractual negotiations were conducted, even if not resulting in the conclusion of an insurance contract, the period during which an insurance contract is in force and, to the extent necessary e.g., for seeking redress, the period after such a contract has lapsed. Thirdly, the website must allow for the unchanged reproduction of information stored. In this respect, the Court held that the information must be stored in a way that makes it impossible for the insurance intermediary to change it unilaterally. It is for the insurance intermediary to ensure that the methods of electronic communication he

39 Opinion of Advocate General La Pergola in Süzen v Zehnacker Gebäudereinigung Krankenhausservice, C-13/95, EU:C:1996:385, para. 7, emphasis added.

40 Case E-2/96 Jørn Ulstein and Per Otto Røiseng v. Asbjørn Møller [1995-1996] EFTA Ct. Rep. 65, para. 27. 41 See Carl Baudenbacher, ‘The EFTA Court, the ECJ, and the Latter’s Advocates General – a Tale of Judicial Dialogue’, in Continuity and Change in EU Law: Essays in Honour of Sir Francis Jacobs, Oxford 2008, p. 90 ff.; ibid., ‘The EFTA Court’s relationship with the Advocates General of the European Court of Justice’, in Mélanges en l’honneur de Paolo Mengozzi, Brussels 2013, p. 341 ff.; Juliane Kokott/Daniel Dittert, ‘European Courts in Dialogue’, in The EEA and the EFTA Court: Decentred Integration, cited above, p. 43 ff.; Paolo Mengozzi, ‘The Advocates General and the EFTA Court’, in The EEA and the EFTA Court: Decentred Integration, cited above, 53 ff. 42 Judgement in Süzen v Zehnacker Gebäudereinigung Krankenhausservice , C-13/95, EU:C:1997:141, para. 10. 43 Case E-4/09 Inconsult Anstalt v Finanzmarktaufsicht [2009-2010] EFTA Ct. Rep. 86.

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employs permit this kind of reproduction. The website must be set up in a manner that the insurance company cannot unilaterally change the content of the contract and that the contract is still available after its determination. With regard to sophisticated websites, the Court distinguished between those acting as a portal for the provision of information on another instrument which can qualify as a durable medium and those that may actually constitute durable media themselves. The first type allows the user to access information, for example in the form of an e-mail with an attachment, which he can copy and store on his own computer. For this method to constitute the communication to the customer of information on a durable medium, the website must contain features which will lead the customer, almost certainly, to either secure the information on paper, or to store it on another durable medium. The second type of sophisticated website contains a secure storage area for individual users which is accessed by a user code and password. Provided that any possibility for the insurance intermediary to change the information is excluded, this kind of storage can be compared to the user’s own hard drive. This type of sophisticated website fulfils the requirement of guaranteeing unchanged reproduction necessary to qualify as a durable medium.44 When the ECJ had to deal with the same legal question some time later in Content Services, Advocate General Mengozzi and the Third Chamber made reference to the EFTA Court’s Inconsult judgment with regard to the concept of a ‘durable medium.45‘ The German Supreme Court referenced Inconsult in Holzhocker in the same context.46 However, there are differences between the EFTA Court on the one side and the ECJ and the German Supreme Court on the other.47 Other than the EFTA Court, the ECJ was also asked to assess the intensity of the provision of information. In line with Advocate General Mengozzi, it concluded that the consumer may behave completely passively during the transmission of the information. Information found on the seller’s website which is made accessible only via a link sent to the consumer is neither ‘given’ to that consumer, nor ‘received’ by him.48 Advocate General Mengozzi had stated that even though clicking on a hyperlink is an entirely commonplace action, within the capability of any internet user, not all users are in a position to understand, when the contract is concluded, that they need to click on the link in order to be able, should the need arise, to protect their own rights better in the future.’49 To find otherwise ‘would risk opening the gates to possible abuses.50

44 Ibid., paras. 64-66. 45 Opinion of Advocate General Mengozzi of 6 March 2012 in Case C-49/11 Content Services, published electronically, paras. 39 to 42; Judgment in Content Services, C-49/11, EU:C:2012:49, para. 45. 46 Judgment of the German Supreme Court of 29 April 2010 in Case I ZR 66/08 Holzhocker, para. 18. 47 See Carl Baudenbacher/Theresa Haas, ‘Webseiten als dauerhafte Datenträger’, manuscript, forthcoming in a German law journal. 48 Judgment in Content Services, EU:C:2012:49, para. 37. 49 Opinion of Advocate General Paolo Mengozzi of 6 March 2012 in Content Services, EU:C:2012:126 , para. 33. 50 Loc. cit.

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The German Supreme Court took the same approach, holding that in light of EU law the consumer must receive the instruction concerning the right of withdrawal with no action.51 In view of the questions referred, the EFTA Court did not expressly address the issue of whether the consumer has the right to remain absolutely passive or whether some activity may be required. It is, however, clear that when giving its definition of what constitutes a ‘durable medium’ the Court was thinking of information channels which require the consumer to cooperate to a reasonable degree.52 In the case of a sophisticated website with its own storage area, this is not really problematic. Peter Reiff53 has convincingly argued that it does not make a difference for the consumer whether the information is recorded by an e-mail in his private mailbox or whether it is located in a secure storage area which can only be accessed by him. The approach taken by the EFTA Court stands in contrast to the rather paternalistic attitude of the ECJ and the German Supreme Court. One may say that the EFTA Court has based itself on a more competition-friendly consumer model.

4. State gambling monopolies In Case 1/06, Gaming Machines,54 Norway had given the State-owned company Norsk Tipping the exclusive right to operate gaming machines. Private undertakings, which so far had been able to operate gaming machines on behalf of charitable organizations, were thereby excluded from the market. The EFTA Court held firstly, and in accordance with the ECJ’s previous case law, that, although the Contracting Parties are free to set the objectives of their policy on gaming and to define the level of protection sought, the restrictive measures they impose must nevertheless serve legitimate aims and satisfy the conditions of proportionality. The Court then stated that a limitation in the authorization of gaming is acceptable only if it reflects a concern to bring about a genuine diminution in gambling opportunities, and if the financing of social activities constitutes only an incidental beneficial consequence and not the real justification for the restrictive policy adopted. With regard to consistency, the EFTA Court held that where an EEA State has chosen to fight gambling addiction through the reduction of gambling opportunities by subjecting the operation of gaming machines to a State-owned monopoly, it may not endorse or tolerate measures, such as extensive marketing, which could lead to an increase of gambling opportunities. A consistent and systematic approach to combatting gambling addiction must also encompass an effective control of the exclusive right holder’s activities once the contested legislation has entered into force.

51 German Federal Supreme Court, Judgment of 29 April 2010, I ZR 66/08, para. 19. 52 See Peter Reiff, ‘Die Erfüllung unionsrechtlicher Informationspflichten durch Inhalte einer Webseite’, in Herbert Kronke/Karsten Thorn, (eds.), Grenzen überwinden - Prinzipien bewahren, Festschrift für Bernd von Hoffmann zum 70. Geburtstag, Bielefeld 2011, 823, 832. 53 Peter Reiff, ‘Die Wahrung der Textform nach § 126b BGB durch den Inhalt einer Webseite’, ZJS 4/2012, 432 ff. (435).

54 Case E-1/06, EFTA Surveillance Authority v The Kingdom of Norway [2007] EFTA Ct. Rep. 8.

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With regard to the aim to prevent gambling related crime such as money-laundering and embezzlement, the Court concluded that Norway had failed to demonstrate that less far-reaching measures will not be equally effective. As regards the aim of combatting gambling addiction, however, the Court found it reasonable to assume that a monopoly operator in the field of gaming machines subject to effective control by the competent public authorities will tend to accommodate that concern better than commercial operators. The effectiveness of public control and enforcement of a genuinely restrictive approach to machine gaming was considered the focal point. As the reform of the gaming machine regulation in Norway had not yet taken effect, the Court would not base itself on the general assumption that public control and policy enforcement will not satisfy these requirements. It has therefore been observed that the Court used the ‘as long as-technique’ in that regard.55 Based on these considerations, the Court dismissed ESA’s application for a declaration that Norway had violated the EEA rules on freedom of establishment and on freedom to provide services.56 In E-3/06 Ladbrokes57 the world’s largest bookmaker and gaming company had been denied the permission to operate and provide different gaming and betting services in Norway and to market these games. The Court accepted the aims of fighting gambling addiction and crime and malpractice as being legitimate aims. In order to be lawfully based on the aim of fighting gambling addiction, legislation must, however, reflect a concern to bring about a genuine diminution in gambling opportunities. The motive of financing benevolent or public interest activities cannot in itself be regarded as an objective justification for restrictions on free movement. The aim of preventing gambling from being a source of private profit can serve as justification only if the legislation reflects a moral concern; if a state- owned monopoly is allowed to offer a range of gambling opportunities, the legislation at issue cannot be said to genuinely pursue this aim. To the extent it would find Norwegian legislation to pursue legitimate aims, the national court was told to consider whether it was proportionate. The policy pursued would be inconsistent if the state took, facilitated or tolerated other measures which run counter to the objectives pursued. The marketing activities and the development of new games by Norsk Tipping were held to be particularly relevant when assessing consistency. The national court was also instructed to examine whether the legislation at issue goes beyond what is necessary to meet the aims pursued. Again, the level of protection chosen by the Norwegian authorities was said to be decisive. Where other less restrictive measures would have the effect of fully achieving the objectives at the level of protection chosen, an exclusive rights system could not be considered necessary simply because it might offer an even higher level of protection. In order to carry out its assessment, the national court had to ascertain whether and to which extent there were genuine risks arising from or connected to the different games of chance.

55 Simon Planzer, ‘Les jeux ne sont pas (encore) faits : Judgment of the EFTA Court in Case E-1/06’, European Law Reporter 4/2007, p. 126 ff. 56 See Eleanor Cashin Ritaine/Eva Lein, ‘La notion de proportionnalité appliquée au droit des jeux de hasard - Les cas Placanica et Autorité de surveillance de l’AELE/Royaume de Norvège’, in Schweizerisches Jahrbuch für Europarecht = Annuaire suisse de droit européen 2006/2007, p. 355 ff. 57 Case E-3/06 Ladbrokes Ltd. v The Government of Norway, Ministry of Culture and Church Affairs and Ministry of Agriculture and Food [2007] EFTA Ct. Rep. 86.

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In its judgment of 8 September 2009 in C-42/07 Liga Portuguesa, a case involving a restriction of the freedom to provide services in the form of offering internet betting on football games, the ECJ first confirmed its established jurisprudence, according to which in the absence of harmonization, Member States are free to set the objectives of their gaming policy and to define in detail the level of protection sought. Certain overriding reasons in the public interest were recognized, such as the objectives of consumer protection and the prevention of both fraud and incitement to squander money on gambling, as well as the general need to preserve public order. With regard to the suitability of the restrictive measure, the ECJ itself accepted the argument of monopoly company, Santa Casa, and of the Portuguese Government that the main objective pursued by the national legislation was the fight against crime, more specifically the protection of consumers of games of chance against fraud on the part of operators. The ECJ was convinced that the Portuguese system functioned in a secure and controlled way because Santa Casa’s long existence, which spanned more than five centuries, was evidence of that body’s reliability and the fact that Santa Casa operates under the strict control of the Portuguese Government. With regard to the specific facts of the case, the ECJ added that because of the lack of direct contact between consumer and operator, games of chance accessible via the internet involve different and more substantial risks of fraud by operators against consumers compared to the traditional markets for such games.58 This means that the ECJ was more lenient vis-à-vis State gambling monopolies in C-42/07 Liga Portuguesa than the EFTA Court previously in E-1/06 Gaming Machines and E-3/06 Ladbrokes. But in C-316/07 Markus Stoss the ECJ basically took the same approach as the EFTA Court.59

5. Principle of liability – avoiding moral hazard The principle of liability is a constituent element of a market economy. It means in particular that moral hazard ought to be avoided.60 In its landmark decision in Case E-16/11 ESA v Iceland (Icesave)61 the EFTA Court addressed this principle. During the worldwide financial crisis in 2008, the Icelandic banking sector collapsed. The depositors of Landsbanki Íslands hf. (‘Landsbanki’) at its branches in the Netherlands and the United Kingdom lost access to their deposits in the autumn of 2008. This included the so-called Icesave on-line savings accounts. Iceland’s Depositors’ and Investors’ Guarantee Fund was unable to pay the minimum guarantee per depositor according to the rules and time limits as set out in the Icelandic law implementing Directive 94/19/EC on deposit-guarantee schemes. However, no such payments were made to those depositors. In order to avoid a bank run, the UK and Netherlands authorities arranged for a payout of retail depositors from their own schemes. Domestic

58 Simon Planzer, ‘Liga Portuguesa – the CJEU and its Mysterious Ways of Reasoning’, European Law Reporter 11/2009, p. 368 ff. 59 Cf. Simon Planzer, European Gambling Law. The Case of the European High Courts through the Prism of Empirical Evidence on Gambling Addiction, Diss. St. Gallen 2013, p. 193 ff. 60 See, e.g., Doris Baudenbacher-Tandler, Schutz vor neuen Anlegerrisiken, St. Gallen, 1988, p. 66 ff. 61 Case E-16/11 Icesave [2013] EFTA Ct. Rep. 4.

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deposits in Landsbanki were transferred to a new bank (‘new Landsbanki’) which was established by the Icelandic Government. ESA sought a declaration that Iceland had failed to comply with its obligations resulting from the Directive, in particular Articles 3, 4, 7 and 10 thereof, (first plea) and/or Article 4 EEA (second and third pleas) since it did not ensure payment of the minimum amount of compensation (EUR 20,000) to Icesave depositors in the Netherlands and the United Kingdom within the given time limits. The application was supported by the European Commission as intervener. Written observations were submitted by Liechtenstein, the Netherlands, Norway and the United Kingdom. On 28 January 2013, the Court dismissed the application. The second and third pleas failed because the transfer of domestic deposits from the old Landsbanki into the new Landsbanki was made before the Icelandic Financial Supervisory Authority rendered its declaration that triggered the application of the Directive. Thus, depositor protection under the Directive never applied to depositors in Icelandic branches of Landsbanki and because a specific obligation on the defendant to ensure that payments are made in accordance with the requirements of the Directive to Icesave depositors in the Netherlands and the United Kingdom would not even establish equal treatment between domestic depositors and those depositors in Lands- banki’s branches. In the present context, however, the dismissal of the first plea is of interest. ESA alleged that the Directive envisaged an obligation of result of the Icelandic Government to ensure payment to depositors in the Landsbanki branches in the Netherlands and the United Kingdom even in a systemic crisis of the magnitude experienced in Iceland. Taking a blackletter approach, the Court held that an action against or an obligation on the EEA State in question was not envisaged in the Directive’s provisions. In order to underpin this finding, the Court based itself on the legislature’s endeavour to avoid moral hazard. In paragraph 167 of the judgment, it referred to Recital 16 in the Preamble to the Directive, which states that deposit insurance ‘might in certain cases have the effect of encouraging the unsound management of credit institutions.’ The Court stated that this points to the concept of moral hazard and quoted Nobel Laureate Joseph E. Stiglitz, who had described the lesson of moral hazard in the following way: ‘[T]he more and better insurance that is provided against some contingency, the less incentive individuals have to avoid the insured event, because the less they bear the full consequences of their actions.’ On this basis, the Court emphasised that moral hazard would also occur in the case of State funding, serving to immunise a deposit-guarantee scheme from the costs which have, in principle, to be borne by its members.62

62 Case E-16/11 Icesave, cited above, para. 168. See Eucken, Grundsätze der Wirtschaftspolitik, 6. Ed., Tübingen 1952/90, p. 254 ff., constitutive principle six. See Joachim Starbatty, ‚Marktwirtschaft gibt es nicht ohne Haftung’, http://www.faz.net/aktuell/wirtschaft/wirtschaftswissen/gastbeitrag-marktwirtschaft-gibt-es-nicht-ohne- haftung-1908028.html, visited on 31 March 2015. See with regard to the nexus between moral hazard and competition Eric Morgan de Rivery/Alexandre Fall, ‘The EFTA Court – A Court of Business Law?’, in The EEA

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The most important representative of German ordoliberalism, Walter Eucken, had taken the same approach much earlier.63 Joachim Starbatty observed in this regard with a resigned tone that American economists usually read no German literature.64

The British press picked up the ball immediately. The Guardian ran the headline: ‘Icesave ruling raises important moral hazard questions.’65

And the Financial Times wrote: This is a victory for law and economic sense. The ruling makes clear that EU law does not require taxpayers to bail out private banks, the mistake that proved so disastrous for Ireland yet still claims pride of place in European banking policy doctrine. It also implicitly shows that if Iceland’s deposit insurance scheme was inadequate under EU standards, so is that of every EU country. In practice, the lesson is that if the crisis is big enough, no industry deposit insurance scheme can fend it off, and the state is on the hook until it can no longer afford to be. The EU should use its reform of deposit insurance and bank resolution law to shrink the zone of state exposure as much as possible. Reykjavik has been proved right in law; Europe should admit that it had a point in policy as well.66

It may be added that Advocate General Mengozzi based himself on the Court’s considerations concerning moral hazard in his recent opinion in C-127/14 Andrejs Surmačs.67 The case deals with the same directive.

and the EFTA Court: Decentred Integration, Oxford and Portland Oregon 2014, pp. 387, 404; further Maria Elvira Méndez-Pinedo, ‘The Icesave Dispute in the Aftermath of the Icelandic Financial Crisis: Revisiting the Principles of State Liability, Prohibition of State Aid and Non-Discrimination in European Law’, Symposium on the Financial Crisis in the EU, 2 Eur. J. Risk Reg. 356, 362 (2011). 63 Eucken, Grundsätze der Wirtschaftspolitik, 6. Ed., Tübingen 1952/90, p. 254 ff., constitutive principle six. See with regard to the nexus between moral hazard and competition in the Icesave case Eric Morgan de Rivery/Alexandre Fall, ‘The EFTA Court – A Court of Business Law?’, in The EEA and the EFTA Court: Decentred Integration, Oxford and Portland Oregon 2014, pp. 387, 404; further Maria Elvira Méndez-Pinedo, ‘The Icesave Dispute in the Aftermath of the Icelandic Financial Crisis: Revisiting the Principles of State Liability, Prohibition of State Aid and Non-Discrimination in European Law’, Symposium on the Financial Crisis in the EU, 2 Eur. J. Risk Reg. 356, 362 (2011). 64 Joachim Starbatty, ‘Marktwirtschaft gibt es nicht ohne Haftung’, http://www.faz.net/aktuell/wirtschaft/wirtschaftswissen/gastbeitrag-marktwirtschaft-gibt-es-nicht-ohne-haftung-1908028.html, visited on 31 March 2015.

65 The Guardian, 28 January 2013, ‘Icesave ruling raises important moral hazard questions’, http://www.theguardian. com/business/blog/2013/jan/28/icesave-ruling-moral-hazard-questions, visited on 31 March 2015.

66 Financial Times, 29 January 2013, ‘Saga ends with Icesave redemptions: ruling vindicates Iceland’s policy over the rest of Europe’s’, http://www.ft.com/intl/cms/s/0/78b96684-6a21-11e2-a80c-00144feab49a.html#axzz3VJdsuXc4, visited on 31 March 2015.

67 Opinion of 17 March 2015, paras. 49 ff., fn. 22 and 23.

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92 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Carl Baudenbacher

IV. Which economics?

1. The conflict of the schools of thought of the 1970s and 1980s

Some competition economists tend to act as if their science is objective. It is, however, a well-known fact that there are different schools of thought. In the 1970s and 1980s these schools were in open conflict. With the advent of the Chicago School and its triumph against what Chicago protagonists called the Harvard School under President Ronald Reagan, the doctrinal dispute in the United States reached its peak. Harvard was a reaction to the model of perfect competition. It was influenced by John Maurice Clark’s theory of workable competition.68 This doctrine was based on the so-called structure–conduct–performance (‘S-C-P’) paradigm. It thought that structure influences conduct – the lower the concentration, the more competitive the behaviour of the firms; the smaller the number of firms, the more likely it is that they will behave in a collusive way – and that conduct leads to good performance such as innovation and low prices. Accordingly, the Harvard School recommended an active competition policy aiming at guaranteeing the presence of a sufficient number of actors on each market. This included the protection of SMEs, in particular of dealers (focus on intra-brand competition).69 The Chicago School was suspicious and critical of government intervention in the economy. The only legitimate goal of antitrust was efficiency; business efficiencies were almost deemed to be equal to economic efficiencies. This would benefit consumer welfare. In the view of the Chicago School, the intensity of competition did not depend on the number of market actors. Even the presence of a monopoly did not hinder competition if it was not of unlimited duration. The profits of the monopoly would attract competitors in the middle and long term. As far as vertical restraints are concerned, the focus was on inter-brand competition.70 The Chicago School had commonalities with the Theory of Contestable Markets. This theory suggests that it is not the internal structure of a market that is decisive. Even if there is only one market actor, he may be forced to act as if there were many more. The threat of potential entry may be enough to keep the industry operating at or close to the competitive price and output. If this is the case, the market is a contestable market. The focus is therefore on barriers to entry.71

68 John Maurice Clark, ‘Toward a Concept of Workable Competition’, The American Economic Review 2/30 (1940), p. 241 ff.; Ibid., Competition as a Dynamic Process, Washington 1961. 69 See Edward S. Mason, Economic Concentration and the Monopoly Problem, Cambridge Mass. 1957; Joe S. Bain, Industrial Organization, New York 1959; Ibid., ‘Structure versus Conduct as Indicators of Market Performance: The Chicago-School Attempts Revisited’, 18 Antitrust L. & Econ. Rev. 17 (1986). 70 See in particular Richard A. Posner, Antitrust Law, Chicago 1976; Ibid., ‘The Chicago School of Antitrust Analysis’, University of Pennsylvania Law Review 4/127 (1979), p. 925 ff.; Robert H. Bork, The Antitrust Paradox: A Policy at War With Itself, New York, 1978. 71 William J. Baumol/John C. Panzar/Robert D. Willig, Contestable Markets and the Theory of Industry Structure, New York, 1982.

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In Europe, the pendulum did not swing that far, but there were also competing schools of thought. The theory of workable competition was adapted to European (in particular German) needs by Erhard Kantzenbach, who adhered to the S-C-P paradigm. Kantzen- bach’s approach was an answer to the failure of ordoliberalism to achieve ‘complete competition’ (‘vollständiger Wettbewerb’).72 The ideal market form which would create optimal competition intensity in his view was a wide oligopoly with limited product homogeneity and limited transparency.73 Friedrich August von Hayek and Erich Hoppmann promoted the idea of a spontaneous economic order and von Hayek famously defined competition as ‘a discovery procedure’. What he meant was that since we cannot know what the results of the competitive process will be, we should use utmost caution in interfering with it.74 Von Hayek’s main concern was not efficiency, but freedom.75 Even if von Hayek cannot be called a representative of laissez-faire or of the Chicago School, he shared the latter’s long term orientation.76 Simplifying the positions, one can say that one side tended to trust in market forces, warned of short-term interventions, saw the state as the worst distorter of competition, and relied on long-term development. The other side emphasized the need to secure competitive market structures because they would lead to good results, and was prepared to intervene more easily. The most famous criticism of long-term orientation stems from John Maynard Keynes, who wrote in his Tract on Monetary Reform, ‘[i]n the long run we are all dead.’77 It must finally not be overlooked that, unlike US antitrust law, European competition law has traditionally been characterized by a two-goal approach: it not only aims at protecting competition, but also at completing the EU and EEA single market.78

2. Convergence in the 1990s and early 2000s After the sharp controversies of the 1970s and 1980s, Post-Chicago and New Harvard, as well as their slightly different European branches, seemed to converge. It was said that in the 1990s, macroeconomics

72 The concept of complete competition as defined by Walter Eucken must be distinguished from the model of perfect competition; see Eucken, Grundsätze der Wirtschaftspolitik, 6. Ed., Tübingen 1952/90, p. 254 ff., constitutive principles 1, 3, 4, 5; Pinar Akman, The Concept of Abuse in EU Competition Law: Law and Economic Approaches, Oxford and Portland Oregon 2012, 58.

73 Erhard Kantzenbach, Die Funktionsfähigkeit des Wettbewerbs, 2nd edition, Göttingen 1967. 74 Friedrich August von Hayek, Die Theorie komplexer Phänomene, Tübingen 1972; Erich Hoppmann, ‘Workable Competition (Funktionsfähiger Wettbewerb)’, Zeitschrift des Bernischen Juristenvereins 1966, p. 249 ff. 75 Josef Drexl, Die wirtschaftliche Selbstbestimmung des Verbrauchers, Tübingen 1998, 99. 76 Mikko I Arevuo, ‘Review: Keynes Hayek, The clash that defined modern economics’, in Adam Smith Institute, http://www.adamsmith.org/research/think-pieces/review-keynes-hayek-the-clash-that-defined-modern-economics/, visited on 1 April 2015.

77 John Maynard Keynes, A Tract on Monetary Reform, London 1923, 80. 78 The goal of market integration was key in deciding that restrictions of parallel trade to consumers were in breach to Article 102 TFEU in Judgment Sot. Lélos kai Sia v. GlaxoSmithKline, C-468/06 to C-478/06, EU:C:2008:504,; see also Guidelines on Vertical Restraints (2010/C 130/01) (OJ C 130/1 19.5.2010), para. 7; Massimo Motta, Competition policy: Theory and practice, Cambridge 2004, 23; Okeoghene Odudu, ‘The Wider Concerns of Competition Law’, 30 Oxford Journal of Legal Studies, p. 599 (2010).

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appeared to become much more unified. It would be going much too far to suggest that there was a general consensus, but to use a tired cliché, most macroeconomists started talking the same language, even if they were not saying the same thing.79 The launch of the so-called ‘more economic approach’ by the European Commission around the turn of the millennium may be seen against this background. But differences remained, in particular in the fields of vertical restraints and abuse of dominance. The Swiss Federal Council’s Dispatch for the 1995 Cartel Act has tried to summarize this development in the following way: modern competition theory agrees that horizontal restrictions with regard to prices, quotas and territories are almost always detrimental. There are furthermore no doubts that open markets are the best guarantors for the functioning of the competitive process. In the interest of legal certainty, competition policy should as far as possible be based on per se rules. However, in the fields of abuse of a dominant position and of merger control, the individual case will have to be assessed. Competition theory also agrees that certain vertical agreements and exclusionary practices only impair competition if dominant firms are involved.80 However, it appears that after the financial and economic crisis of 2007-2008, the discipline is to a certain extent split again.81

3. Where does the EFTA Court stand? As has been shown, the EFTA Court has put special emphasis on private enforcement. It is the only European court which sees private plaintiffs as actors of the bonum commune.82 Its President has in E-18/14 Wow Air granted the accelerated preliminary reference procedure in a competition law case, something which was far from self- evident.83 The EFTA Court has also taken a pro-competitive stand on the right of audience of in-house attorneys. At least from a historical perspective, it seems to be clear that the introduction of the prohibition to represent a firm in court was a restriction of competition.84 As regards non-competition law cases, the Court has taken a pro-competitive stand in matters concerning the succession of contracts, the consumer

79 Simon Wren-Lewis, ‘The return of schools of thought in macroeconomics’, http://www.voxeu.org/article/return- schools-thought-macroeconomics, visited on 31 March 2015; see, for example, Thomas A. Piraino, Jr., ‘Reconciling the Harvard and Chicago Schools: A New Antitrust Approach for the 21st Century’, Indiana Law Journal 2/82 (2007), p. 346 ff.; Carl Baudenbacher, ‘Was ist vom guten alten Europäischen Modell der Wettbewerbspolitik übrig geblieben?’ in Wettbewerb in einem größeren Europa. Referate des XXXIX. FIW-Symposiums, Köln 2007, Heft 215, 13 ff.

80 Botschaft zu einem Bundesgesetz über Kartelle und andere Wettbewerbsbeschränkungen (Kartellgesetz, KG) vom 23. November 1994, BBl. 1995, pp. 486, 507 ff.

81 See Simon Wren-Lewis, ‘The return of schools of thought in macroeconomics’, http://www.voxeu.org/article/ return-schools-thought-macroeconomics, visited on 31 March 2015; Peter Behrens, ‘The “Consumer Choice” Paradigm in German Ordoliberalism and its Impact upon EU Competition Law’, Europa-Kolleg Hamburg, Discussion Paper No. 1/14. 22 July 2014, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2568304, visited on 9 April 2015. 82 Supra, II. 3; see Fergal O’Regan, ‘Fine-tuning Transparency’, in The EEA and the EFTA Court: Decentred Integration, cited above, pp. 337, 357, 357 ff.

83 Supra, II. 5. 84 Hans-Jürgen Hellwig, ‘Der Syndikusanwalt – Neue Denkansätze’, cited above, p. 2.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 95 ‘[M]ust be interpreted in the light of economic considerations’: some reflections on the case law of the EFTA Court model in the internet age, the limits of state gambling monopolies and the principle of liability, just to name a few cases.85 The EFTA Court has been commended for its approach to competition economics. It was said that it has rejected formalist approaches to competition law. John Temple Lang has written in that regard: In general one has the clear impression that the EFTA Court deals more readily with economic issues than either the General Court or the European Court of Justice. Economic arguments are set out more clearly and dealt with more concisely than in the judgments of the other two courts. This is partly a result of a less formal judicial style, but it also seems to reveal a more economic approach, which is certainly preferable, in particular in the sphere of competition law.86 The EFTA Court uses language which seems to stem from post-Chicago theory. In Case E-3/97 Opel Norge, an importer of motor vehicles had in a motor vehicle dealership agreement prescribed a specific ownership structure in the dealer company. One shareholder was required to be the General Manager and to hold 51% of the shares, the other one would hold the remaining 49% and would be Chairman of the Board of Directors. Moreover, the company’s right to have ownership interests in other companies involved in car dealing was restricted. The latter provision amounted to a non-compete clause. The Court held: The opinion that the percentage clause is in itself not restrictive of competition is obviously based on the assumption that the personal bond between the parties is a decisive element in a dealer relationship. According to this view, a possible negative impact on competition would be outweighed by the pro-competitive effects of the clause. This might be true in certain circumstances. However, in the case at hand, the percentage clause must be read in its context, which includes the group clause. It is thus capable of intensifying the restrictive effects of the latter.87 In Case E-8/00 LO, the EFTA Court stated that when assessing the restricting effects of a collective agreement on competition: [A]ccount must be taken of the actual conditions in which the agreement functions [….]. The individual provisions of the agreement should not only be examined separately, but must also be viewed in connection with other provisions of the agreement and the agreement as a whole. Separate provisions functioning together may in aggregate have as their object or effect the restriction of competition

85 Supra. 86 John Temple Lang, ‘Competition Law in the European Economic Area’, forthcoming in: Carl Baudenbacher, Handbook of EEA law, 2015. 87 Case E-3/97, Jan and Kristian Jæger AS, supported by the Norwegian Association of Motor Car Dealers and Service Organisations v Opel Norge AS [1998] EFTA Ct. Rep. 1, para. 69.

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within the meaning of Article 53 EEA. It is immaterial that it can not be established that any individual provision has that effect.88 The Hegelstad v. Hydro Texaco case89 involved the question of whether an agreement between a supplier of motor fuel and lubricants and an independent service station, concluded for ten years and automatically renewed unless terminated by the supplier, would fall under the group exemption for exclusive purchasing agreements. The Court followed the ECJ’s line of reasoning in Case C-234/89 Delimitis90 and found that exclusive purchasing agreements must be assessed in the economic and legal context in which they occur, and where they might combine with other similar agreements to have a cumulative effect on competition. In the literature, it was said that the judgment has in a very detailed way explained how the prohibition of restrictive agreements is to apply to situations in which market access is restricted by the cumulative effect of agreements made by different suppliers.91 With regard to the Posten Norge case, which involved, in particular, the abuse of a dominant position through the conclusion of exclusive agreements and the issue of standard of review, the author limits himself to stating that the birthday boy has argued that under the more economic approach, ‘economic analysis will become increasingly central to competition cases’, but that it cannot be that ‘all economic appraisals are complex’.92 As shown, the EFTA Court does undertake strict judicial review and thereby has tight control of ESA’s discretion in competition law cases. The celebrated jubilee has stated in that regard: My impression is that the ESA may have a harder job than the Commission in defending its cases in court.93 It would, however, not be permissible to associate the EFTA Court with a specific economic school of thought. In that respect, the situation is the same as regarding methods of interpretation: the governing principle must be pluralism. This means that in a given case, the EFTA Court will opt for the solution that it deems to be the most convincing. One must bear in mind in this context that the Court is known for its tradition of revealing the value judgments underlying its decisions. This approach will not only apply to competition law, but also to other areas of European single market law. Examples dealt with in this contribution concern, inter alia, the principle of liability and the question of what can be reasonably expected from consumers as actors of a market economy in the internet age. In the Icesave case, the EFTA Court stuck to

88 Ibid., para. 77. 89 Case E-7/01, [2002] EFTA Ct. Rep. 310. 90 [1991] ECR 935. 91 Temple Lang, loc. cit. 92 ‘A Bush in Need of Pruning: The Luxurious Growth of Light Judicial Review’, 17, http://www.eui.eu/Documents/ RSCAS/Research/Competition/2009/2009-COMPETITION-Forrester.pdf , visited on 1 April 2015.

93 Ian S. Forrester, ‘The Style of the EFTA Court’, in The EEA and the EFTA Court: Decentred Integration, cited above, pp. 21, 39; see also Eric Morgan de Rivery/Alexandre Fall, ‘The EFTA Court – A Court of Business Law?’, in: The EEA and the EFTA Court: Decentred Integration, cited above, pp. 387, 398.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 97 ‘[M]ust be interpreted in the light of economic considerations’: some reflections on the case law of the EFTA Court market economy – and thereby competition – principles against the neo-mercantilist idea that certain banks are too big to fail and if they fail the governments must step in. Last remark: in its competition case law, the EFTA Court emphasised the importance of economic considerations. But it always held that whether there is a restriction of competition or an abuse of dominance is a legal question.94 The same must apply to the non-competition law cases in which economics play a role.

94 Supra, I.

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98 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Use and abuse of the ‘single and continuous infringement’ concept in EU cartel cases: the implications for follow-on private actions for damages

Jean-François Bellis

A concept commonly used in EU cartel cases is that of ‘single and continuous infringement’. The concept was first developed in the Polypropylene decision1 in order to impute liability to undertakings which had not attended every single cartel meeting or had not engaged in every aspect of the infringing conduct. This made it possible for the Commission to establish the existence of a single infringement consisting of conduct which could be classified as either an ‘agreement’ or a ‘concerted practice’ under Article 101 (1) TFEU. This ability to combine into one single infringement various elements of anticompetitive conduct without having to identify precisely how they should be classified has considerably simplified the Commission’s burden of proof. Since the Polypropylene decision, the concept of single and continuous infringement has been increasingly invoked by the Commission and extended to produce broad findings of infringement covering different types of anticompetitive conduct,2 changing

1 Polypropylene, Case 31149, OJ 1986 L230/1; on appeal, Judgment in Commission v Anic Partecipzioni, Case C-49/92P, EU:C:1999:356. 2 Plasterboard, Case 37152, OJ 2005 L166/8 (Summary decision); available in full on the Commission’s website. In this case, the Commission found that the parties had engaged in five different agreements or concerted practices in a number of different Member States.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 99 Use and abuse of the ‘single and continuous infringement’ concept in EU cartel cases: the implications for follow-on private actions for damages

parties and levels of participation,3 different products4 and different markets.5 The Court of Justice has ruled that holding undertakings jointly liable for the overall infringement does not contravene the principle of personal responsibility, nor does it breach the rights of defence of the undertakings involved.6 The General Court has also held that the concept of single and continuous infringement was sufficiently defined to meet the requirements of Article 7 of the European Convention on Human Rights.7 This article will review how the concept of single and continuous infringement has been received by the EU Courts and what conditions the case law has imposed on its use. The article will also consider the need to revisit the concept in light of the recent proliferation of follow-on private actions for damages, a trend strongly encouraged by the Commission. Indeed, as will be shown, the civil consequences of a finding of infringement make it necessary for the Commission to be more rigorous in attributing liability for an undertaking’s participation in a cartel. This should lead to a more cautious use of the concept of single and continuous infringement with a more precise delineation of each cartelist’s individual liability. I. The concept of single and continuous infringement in the case law The case law has identified a number of mandatory requirements which must be met by the Commission in order to establish the existence of a single and continuous infringement in a cartel case, namely the existence of a single overall plan; agreements and/or concerted practices that infringe Article 101 (1) TFEU and awareness (actual or presumed) of the undertakings involved that they are contributing to the single overall plan.

1. A single overall plan The case law has affirmed that it is decisive for the purposes of establishing a single and continuous infringement that various elements of the infringing conduct share a common objective and are part of a single overall plan.8 It is, however, not sufficient

3 Dutch Road Bitumen, Case 38456, OJ 2007 L196/40 (Decision Summary); available in full on the Commission’s website. In this case, the cartel involved both bitumen suppliers and construction companies. 4 Methacrylates, Case 38645, OJ 2006 L322/20 (Summary of the decision); available in full on the Commission’s website. In this case, the Commission concluded that three polymethyl methacrylate products belonged to different product markets. However, it included them in the same infringement decision because these three products were linked by a common anticompetitive plan to avoid the normal movement of prices in the EEA. 5 Organic Peroxide, Case 37857, OJ 2005 L110/44 (Summary Decision); available in full on the Commission’s website. In this decision, the Commission concluded that any undertaking which adopted collusive contacts, including a consultancy firm (i.e., AC Treuhand) that was not active on the market affected by the cartel, could fall within the ambit of Article 101(1) TFEU. 6 Judgment in Commission v Anic Partecipzioni EU:C:1999:356, paras. 84-85. 7 Judgment of 28 April 2010, Amann & Söhne GmbH & Co. KG and Cousin Filterie v Commission, Case T-446/05, EU:T:2010:165, para. 133. 8 Judgment of 24 October 1991, Rhône Poulenc v Commission, Case T-1/89, EU:T:1991:56.

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for the Commission to simply assert that all the cartel activities distort competition in a general sense because the distortion of competition, whether it is the object or the effect of the conduct, constitutes a consubstantial element of any conduct covered by Article 101(1) TFEU.9 Otherwise, any infringing conduct which relates to a particular economic sector could be systematically characterized as constituting an element of a single infringement.10 This does not mean, however, that all the undertakings involved in the cartel must necessarily play the same role.11 For example, the General Court upheld the Commission decision in the Pre-Insulated Pipe12 cartel which found that collusive practices at different geographic levels pursued the common objective of controlling the heating market. In that case, cartel arrangements reached at the national level were seen as being designed to implement, reinforce or organize objectives agreed upon at the EU level.13 The common objective must be present throughout the infringement but may evolve over time. For instance, the Commission rejected in the Rubber Chemicals decision14 the cartelists’ argument that their activities could not have pursued a shared economic objective because of an intervening price war. The Commission found that the participants had pursued the same common and continuous objective of distorting competition by regulating the rubber chemicals market by cartel arrangements. Even though the participants did not always succeed in attaining this common goal, as exemplified by the existence of a price war, such deviation did not put an end to the overall objective to restrict competition. When determining whether different types of anticompetitive conduct form a single and continuous infringement, it is also necessary to establish that they have complementarity links.15 In effect, this means that the various anticompetitive acts should be meant to deal with one or more consequences of the normal play of competition and, by interacting, contributed to the realization of the anticompetitive effects intended by the participants within the framework of a global plan.16 Such a link of complementarity was found, for instance, in the Plasterboard cartel.17 In its decision, the Commission found that various ‘manifestations’ of anticompetitive conduct which occurred on the German and the UK markets through five different agreements or concerted practices were complementary because they all involved the coordination of price increases and

9 Ibid, para. 180. 10 Ibid. 11 Judgment of 12 December 2007, BASF v Commission, Case T-101/05, EU:T:2007:380, para. 161. 12 Pre-Insulated Pipes, Case 35691, OJ 1999 L24/1. 13 Judgment of 20 March 2002, Dansk Rørindustri v Commission, Case T-21/99, EU:T:2002:74. 14 Rubber Chemicals, Case 38443, OJ 2006 L353/50 (Summary of the Decision); decision available in full on the Commission’s website. 15 Judgment in BASF v Commission, fn. 11 above, EU:T:2007:380, fn. 11, para. 181. 16 Ibid, para. 179. 17 Plasterboard, fn. 2.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 101 Use and abuse of the ‘single and continuous infringement’ concept in EU cartel cases: the implications for follow-on private actions for damages respect for each other’s markets. On appeal, the General Court agreed with the Commission’s approach even though one of the ‘manifestations’ concerned the termination of a price war in the UK market on which one of the parties, Saint-Gobain Gyproc, had never been active.18

While the General Court has generally tended to uphold the Commission’s findings of single and continuous infringements on grounds of complementarity links, a rare exception is the appeal lodged by BASF and UCB against the Choline Chloride decision.19 In that case, the General Court annulled the Commission’s finding that an international cartel between EU and US undertakings between October 1992 and April 1994 and an EU-wide cartel between March 1994 and October 1998 constituted in fact a single infringement. The Commission had relied on that finding to impose a fine on the EU parties that covered their participation in the international case that would otherwise have been time-barred. To reach that conclusion, the Court relied on the fact that the two cartels were in effect at different times, pursued different objectives, were implemented by different methods and involved different parties.20 The fact that the EU undertakings participated in both cartels was not found to be, in itself, evidence of an overall plan.

In the Industrial Threads cartel,21 the General Court confirmed the Commission’s finding that the automotive thread cartel and the industrial threads cartel constituted two distinct infringements.22 That determination was based on the ground that most of the participants in the cartel were different – only three of the ten companies were involved in both cartels – and that there was no evidence of overall coordination between the cartels. The General Court was also impressed by the clear differences between the subject-matter of the two cartels. On the one hand, the automotive thread cartel concerned exchanges of information relating to the prices to be charged to certain customers and agreements were reached on the minimum target prices for core products sold to selected customers. On the other hand, the industrial thread cartel involved the exchange of price lists and details of rebates and price increases. Finally, the cartels were organized under different sets of rules: the automobile thread cartel was carried out by irregular meetings combined with bilateral contacts, whereas the industrial thread cartel involved regular and organized meetings.

18 See, e.g., Judgment of 8 July 2008 Saint-Gobain Gyproc Belgium v Commission, Case T-50/03, EU:T:2008:252. 19 Choline Chloride, Case 37533, OJ 2005 L190/22. 20 Judgment in BASF v Commission, fn. 11 above, EU:T:2007:380, paras. 208-210. 21 PO Thread, Case 38337, OJ 2008 C21/10 (Summary decision); available in full on the Commission’s website. 22 Judgment in Amann & Söhne GmbH & Co. KG and Cousin Filterie v Commission, fn. 7 above, ECLI:EU:T:2010:165; and Judgment of 28 April 2010, Gütermann AG and Zwicky v Commission, Joined Cases T-456/05 and T-457/05, EU:T:2010:168.

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2. Participation in an infringement of Article 101 (1) TFEU As already noted, a single and continuous infringement may consist of conduct that may be classified as either an agreement or a concerted practice without there being any need to establish which factual elements are agreements and which are concerted practices.23 The General Court best explained the rationale for combining the two forms of infringement in a single infringement in its judgment on an appeal against the Acrylic Glass decision:24 In the context of a complex infringement which has involved many producers seeking over a number of years to regulate the market between them, the Commission cannot be expected to classify the infringement precisely, for each undertaking and for any given moment, as an agreement or a concerted practice, as in any event both those forms of infringement are covered by Article [101]. ( . . ..) In such a situation, the dual characterisation of ‘agreement and concerted practice’ must be understood as referring to a complex whole comprising a number of factual elements, some of which were characterized as agreements and others as concerted practices for the purposes of Article [101(1)], which lays down no specific category for a complex infringement of this type.25 That being said, a single and continuous infringement is nothing but the sum of all the elements identified by the Commission in its decision as infringements of Article 101(1) TFEU. It is not an additional infringement with a life of its own detached from its constituent elements.26 Therefore, in order to find a single and continuous infringement, the Commission bears the burden of establishing the existence of the constituent elements of the infringement to the required standard of proof and ‘one must be particularly careful not to deduce from that concept something that wasn’t there before’.27

3. Awareness of cartel participants The mere fact that there is an identity of object between infringing conduct by a particular undertaking and a wider cartel does not suffice to render that undertaking

23 Judgment in Rhône Poulenc v Commission, fn. 8 above, EU:T:1991:56, para. 118. 24 Methacrylates, fn. 4. 25 Judgment of 20 November 2011, Quinn Barlo v Commission, Case T-208/06, EU:T:2011:701, paras. 41-42. 26 This view is supported by Julian Joshua, a former DG Comp cartel case handler. He stated that the purpose of the concept of single and continuous infringement was ‘aimed to connect more efficiently and in a practical fashion the legal prohibition of Article [101] with the reality of cartel conduct. It was not intended to provide a short cut to proof or a substitute for focused legal analysis. And it was certainly not intended as a device to render illegal conduct that was not already an infringement of Article [101]’, Julian Joshua, ‘Single and continuous infringement of Article 81 EC: Has the Commission stretched the concept beyond the limit of its logic?’, published by Howrey, p.2. 27 Judgment in Rhône Poulenc v Commission, fn. 8 above, EU:T:1991:56, para. 6.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 103 Use and abuse of the ‘single and continuous infringement’ concept in EU cartel cases: the implications for follow-on private actions for damages responsible for the whole cartel.28 The Commission must also demonstrate that the undertaking ‘was aware of the actual conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and that it was prepared to take the risk’.29 This requirement has turned out to be a problematic one, as shown by a few recent judgments of the General Court. The question raised by the case law is what are the consequences of a finding of awareness of the overall plan by a particular undertaking: is lack of awareness a factor which only affects the scope of that undertaking’s liability or should it lead to the annulment of the finding of participation in the single and continuous infringement? The case law appears to be divided on this point.

For a long time, the EU judiciary has tended to accept rather liberally claims by the Commission that a given cartel participant was aware or should have been aware of the overall infringement. Thus, for instance, in the Polypropylene cartel, the Court of Justice held Anic liable for the infringement as a whole, including the elements of the infringement in which it did not participate directly, because it was aware, or should have been aware, of all these elements by virtue of its participation in the regular anticompetitive meetings for several years.30

A cartel participant could also be held liable for the whole infringement even though it was not aware of certain details in the cartel. In the Austrian Banks case, the General Court considered that RBW’s lack of awareness of the existence of certain meetings in which it did not participate did not negate the Commission’s finding that it participated in the cartel as a whole or that it knew the general scope and the essential characteristics of the cartel as a whole.31

Similarly, the General Court found that Guardian had participated in the Flat Glass cartel which covered the territory of the EEA even though it had participated in collusive pricing practices only in the United Kingdom, Ireland and Germany. The General Court found it irrelevant that Guardian had not been informed of agreements on price increases adopted in meetings in other EEA countries, such as the Benelux countries, France or Poland because it was aware of the essential characteristics of the overall infringement.32

In contrast, there have been a few more recent cases in which claims of lack of awareness have been upheld by the General Court but have led to very different outcomes.

28 Judgment of 20 March 2002, Sigma Tecnologie di rivestimento v Commission, Case T-28/99, EU:T:2002:76, para. 45. 29 Judgment in Commission v Anic Partecipzioni EU:C:1999:356, para. 87. 30 Ibid, paras. 195 and 206. 31 Judgment of 14 December 2006, Raiffeisen Zentralbank Österreich and Others v Commission, Case T-259/02, EU:T:2006:396, para. 193. 32 Judgment of 27 September 2012, Guardian Industries v Commission, Case T-82/08, EU:T:2012:494.

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Thus, in Sigma,33 the General Court ruled that the Commission had not adduced sufficient evidence establishing that the applicant, when participating in cartel activities on the Italian market, had knowledge of the unlawful conduct at EU level of the other cartelists, or could reasonably have foreseen it and was prepared to accept the risk.34 The General Court nevertheless upheld the Commission decision and the fine imposed on Sigma in so far as it participated in the Italian agreement but annulled the decision in so far as it found Sigma had participated in the EU cartel.

In Bananas,35 the Commission had found that three banana importers, Chiquita, Dole and Weichert (controlled by Del Monte at the time of the infringement) had engaged in a single and continuous infringement consisting of bilateral pre-pricing communications. Such bilateral communications took place, one the one hand, between Dole and Chiquita, and, on the other hand, between Dole and Weichert. The Commission found that Chiquita and Dole were liable for the entire single and continuous infringement whereas Weichart, unaware of the contacts between Chiquita and Dole, was responsible for only a part of that infringement. In an appeal lodged by Del Monte,36 the General Court upheld the Commission’s finding that the various anticompetitive elements identified by the Commission formed a single and continuous infringement. In doing so, the General Court considered that the existence of the overall plan was decisive37 and the fact that Del Monte had not taken part in all its aspects and had played only a minor role was not material to the establishment of the existence of an infringement on its part. This General Court held that this factor had to be taken into consideration only when the gravity of the infringement was assessed and the fine was determined.38

The Court of Justice had an opportunity to consider this issue in Coppens.39 In this case, the Commission appealed the General Court’s judgment, which had annulled its decision in so far as it had found that Coppens had participated in a single and continuous infringement in the international removal services sector. In the view of the Commission, the decision should have been only partially annulled because Coppens had participated in one of the three anticompetitive agreements of which the single infringement consisted (i.e., on cover quotes), which constituted in itself an infringement of Article 101(1) TFEU. The Court of Justice agreed with the Commission’s holding that the anticompetitive conduct of an undertaking that is not aware of the conduct of

33 Judgment in Sigma Tecnologie di rivestimento v Commission, fn. 28 above, EU:T:2002:76. 34 Ibid, para. 34. 35 Bananas, Case 39188, OJ C189/12 (Summary of the Decision); decision available in full on the Commission’s website. 36 Judgment of 14 March 2013, Fresh Del Monte Produce v Commission, T-587/08, EU:T:2013:129. 37 Ibid, para. 591. 38 Ibid, para. 648. 39 Judgment in Commission v Verhuizingen Coppens, Case C-441/11, EU:C:2012:778.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 105 Use and abuse of the ‘single and continuous infringement’ concept in EU cartel cases: the implications for follow-on private actions for damages the other cartelists may nevertheless form part of the single infringement even though the undertaking’s liability is limited to its own conduct.40 This case law must be contrasted with other judgments which, contrary to Sigma and Coppens, have considered that lack of awareness, rather than being merely a factor in the determination of the scope of an undertaking’s liability, was inconsistent with the finding of participation in the single and continuous infringement. In its Cement decision,41 the Commission had imposed fines on 42 producers and associations active in the grey and white cement sector for illegal exchanges of information and market sharing agreements in breach of Article 101 TFEU. Specifically, the Commission had found, inter alia, that one of the undertakings, Fratelli Buzzi, was involved, on the one hand, in an agreement discussed within the European Cement Association which was designed to partition the EEA market and, on the other hand, in two separate Franco-Italian concerted practices. In its judgment, the General Court criticized the Commission for not ascertaining whether Fratelli Buzzi knew, or ought to have known, when it participated in those Franco-Italian infringements, that it was taking part in the larger EEA cartel. The General Court found that none of the documents relied upon by the Commission contained any evidence of awareness. In addition, the fact that the object of the Franco-Italian agreements coincided with that of the EEA cartel was not sufficient to establish that Fratelli Buzzi participated in that cartel.42 Likewise, in the Fittings case,43 the Commission had imposed fines on three producers of copper fittings, including Aalberts, for fixing prices, discounts and rebates as well as coordinating price increases and exchanging confidential business information. In the appeal lodged by Aalberts,44 the General Court criticized the Commission for not adducing sufficient evidence demonstrating that Aalbert’s subsidiary had known or ought to have known that it had contributed to the activities of the cartel through its participation in certain meetings. As a consequence the General Court annulled the fine imposed on Aalberts. The Court of Justice subsequently confirmed the General Court’s judgment, essentially finding that lack of awareness of the overall plan was incompatible with the finding of a single infringement.45

40 Ibid, para. 44: ‘On the other hand, if an undertaking has directly taken part in one or more of the forms of anticompetitive conduct comprising a single and continuous infringement, but it has not been shown that undertaking intended, through its own conduct, to contribute to all the common objectives pursued by the other participants in the cartel and that it was aware of all the other offending conduct planned or put into effect by those other participants in pursuit of the same objectives, or that it could reasonably have foreseen all that conduct and was prepared to take the risk, the Commission is entitled to attribute to that undertaking liability only for the conduct in which it had participated directly and for the conduct planned or put into effect by the other participants, in pursuit of the same objectives as those pursued by the undertaking itself, where it has been shown that the undertaking was aware of that conduct or was able reasonably to foresee it and prepared to take the risk’ (emphasis added). 41 Cement, Cases 33126 and 33322, OJ 1994 L343/1. 42 Judgment of 15 March 2000, Cimenteries CBR and Others, Joined Cases T-25/95 etc., EU:T:2000:77, paras. 4108-4113. 43 Fittings, Case 38121, OJ 2007 L283/63 (Summary of the Decision); available in full on the Commission’s website. 44 Judgment of 24 March 2011, Aalberts Industries and Others v Commission, Case T-385/06 EU:T:2011:114. 45 Judgment in Commission v Aalberts Industries, Case C-287/11P, EU:C:2013:445, paras. 62 and 63.

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Similarly, the General Court also annulled the fine imposed on Soliver by the Commission in the Car Glass case46 because the evidence did not establish that Soliver’s anticompetitive contacts with other cartelists made it aware of the general scope and the essential characteristics of the cartel as a whole. In line with Aalberts, the General Court considered awareness as a prerequisite for finding a single and continuous infringement and not only as a factor determining the scope of the undertaking’s liability.47 Specifically, the General Court held that the existence of a single and continuous infringement does not necessarily mean that an undertaking participating in one or more aspects of the infringement can be automatically held liable for the infringement as a whole. While Soliver had acknowledged the existence of bilateral anticompetitive contacts with two other members of the cartel in relation to specific car manufacturers, the General Court took the view that the Commission had failed to sufficiently show that Soliver through its conduct intended to contribute to the common objectives of the single and continuous infringement and was aware, or should have been aware, of the general scope and the essential characteristics of the cartel as a whole. The General Court took particular account of the fact that Soliver never participated in the ‘club meetings’, where the three other parties had discussed the organisation and modus operandi of the cartel, and was regarded by the leniency applicant as a third party to the cartel which did not benefit from the compensation mechanism organized by the cartel. Considering that the decision could not be read as qualifying Soliver’s anticompetitive bilateral contacts as a separate infringement, the General Court annulled the decision insofar as it concerned Soliver. One way of distinguishing Aalberts and Soliver is perhaps that they involve situations in which the conduct of the undertaking claiming lack of awareness could not so clearly be classified as a distinct infringement in its own right once it was detached from the single and continuous infringement seen as a whole, thus leading to the annulment of the decision in so far as it concerned the undertaking in question. II. Consequences of a finding of single and continuous infringement As previously noted, the concept of single and continuous infringement was developed by the Commission in the context of its public enforcement responsibilities as a tool designed to alleviate its burden of proof and allow it to deal in one decision with various forms of anticompetitive conduct that could be seen as being interrelated. As will be shown below, within the context of the infringement proceeding, the negative consequences for the undertakings concerned of a finding of single and continuous infringement are rather limited, though not necessarily trivial, since the adoption of

46 Car Glass, Case 39215, OJ 2009 C173/13 (Decision Summary); available in full on the Commission’s website. 47 Judgment in Soliver v Commission, Case T-68/09, EU:T:2014:867, para. 63: ‘the Commission must show that the undertaking intended to contribute by its own conduct to the common objectives pursued by all the participants and that it was aware of the unlawful conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and that it was prepared to take the risk’ (emphasis added).

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 107 Use and abuse of the ‘single and continuous infringement’ concept in EU cartel cases: the implications for follow-on private actions for damages the 2006 Fining Guidelines.48 In contrast, the consequences are much more serious in the context of private enforcement of EU competition rules.

1. The determination of the fine Since the adoption of the 2006 Fining Guidelines, the method of calculation of fines is no longer based on lump sum amounts as was the case under the 1998 Fining Guidelines.49 The basic amount of the fine is now determined on the basis of the value of each undertaking’s sales of goods or services to which the infringement directly or indirectly relates in the relevant geographic area within the EEA. Under this methodology, the fine is directly proportional to the actual turnover of each participant in the cartel regardless of the overall scope of the infringement at stake. While the size of the sector covered by the finding of infringement may be a factor in assessing the gravity of the infringement when determining the proportion of the value of sales to be considered,50 such assessment will made by reference to the undertaking’s turnover in the cartelized products. One could even consider that treating distinct forms of anticompetitive conduct as a single and continuous infringement sanctioned by a single fine rather than separate infringements sanctioned by multiple lower individual fines may be beneficial to the undertakings concerned in cases where the ten per cent turnover cap provided for by point 32 of the 2006 Fining Guidelines would be applicable to the single fine but not to each of the lower individual fines. In such a situation, the sum of the individual fines could be higher than the global fine on the single and continuous infringement. As noted above, in a number of cases, such as Coppens or Bananas, the fact that an undertaking was unaware of all the constituent elements of the overall infringement, led to a reduction in the fine. Under the 1998 Fining Guidelines, the EU judiciary has exercised its unlimited jurisdiction to grant reductions of the basic amount of the fines to undertakings that were not aware of the overall infringement. This approach was premised on the notion that undertakings should not be fined for anticompetitive conduct for which it was not held liable.51 For example, Zicunaga’s fine was reduced by 15 per cent in the Carbonless Paper case.52 Similarly, the Commission granted a 25 per cent reduction in the fine to Caffaro in theHydrogen Peroxide and Perborate case53 and to Stempher in the Industrial Bags case.54

48 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, OJ 2006 OJ C210/2, point 13. 49 Guidelines on the method of setting fines imposed pursuant to Article 15 (2) of Regulation No 17 and Article 65 (5) of the ECSC Treaty fines, OJ 1998 C9/3. 50 2006 Fining Guidelines, point 22. 51 Judgment in Sigma Tecnologie di rivestimento v Commission, footnote 33 above, EU:T:2002:76, paras. 79-82. 52 Judgment of 26 April 2007, Bolloré and Others v Commission, Case T-109/02, EU:T:2007:115. 53 Hydrogen Peroxide and Perborate, Case 38620, OJ 2006 L353/54 (Summary Decision); available in full on the Commission’s website, para. 461. 54 Industrial bags, Case 38354, OJ 2007 L282/41 (Summary Decision); available in full on the Commission’s website, para. 776.

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In the few cases where fines were calculated pursuant to the 2006 Fining Guidelines, reductions on ground of lack of awareness have been less frequent and less significant. In Bananas, the Commission granted Del Monte a ten per cent reduction because it was not aware of the bilateral contacts between Dole and Chiquita; this reduction was increased to 20 per cent by the General Court. In Power Cables,55 the Commission granted a mere one per cent reduction to a number of undertakings for their lack of awareness of, and liability for, parts of the single and continuous infringement. In a number of cases, such as Water Management Products,56 Bathroom Fittings57 and Mounting for Windows and Window Doors58 no fine reductions were granted at all. This approach may be based on the perception that the undertaking’s reduced liability was already reflected in the fine by their lower value of sales. This does not mean, however, that a finding of single and continuous infringement will never have any negative impact on the determination of the fine. This will be the case where the finding of single and continuous infringement has the effect of extending the total duration of the infringement. Since the 2006 Fining Guidelines allow the Commission to multiply the basic amount of the fine by the number of years of participation in the infringement,59 any extension of the duration of the infringement will significantly increase the fine. In addition, if the finding of single and continuous infringement makes it possible for the Commission to consider consecutive infringements as constituting a single and continuous infringement, then the statute of limitation will only start running at the end of the second infringement. On this basis, the Commission may sanction an infringement which would otherwise have been time-barred because it ended prior to the expiry of the five-year limitation period for the imposition of penalties provided for in Article 25 of Regulation 1/2003.60 Such a situation occurred in the Gas Insulated Switchgear decision,61 where the Commission found that Siemens had participated in a worldwide gas insulated switchgear cartel in breach of Article 101(1) TFEU from 15 April 1988 to 1 September 1999 and from 26 March 2002 to 11 May 2004. The General Court upheld the Commis- sion’s finding that the cartel had continued uninterrupted in Siemens’ absence and that the limitation period with respect to the first period (i.e., 15 April 1988 to 1 September

55 Power Cables, Case 39610, OJ 2014 C319/17 (Summary Decision). 56 Water Management Products, Case 39611, OJ 2012 C335/4 (Summary Decision); available in full on the Commis- sion’s website. In this case, Flamco was not granted any reduction for its limited awareness. 57 Bathroom Fittings and Fixtures, Case 39092, OJ 2011 C348/12 (Decision Summary); no public version of the decision available. 58 Mounting for Windows and Window Doors, Case 39452, OJ 2012, C292/6 (Summary Decision); available in full on the Commission’s website. 59 2006 Fining Guidelines, point 24. Under the 1998 Fining Guidelines, in cases of infringements of long duration, fines could be increased (a mere) 10% per year. 60 Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ 2003 L1/1. 61 Gas Insulated Switchgear, Case 38899, OJ 2008 C5/7 (Summary Decision); Available in full on the Commission’s website.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 109 Use and abuse of the ‘single and continuous infringement’ concept in EU cartel cases: the implications for follow-on private actions for damages

1999) did not apply because of the existence of a single and continuous infringement between 1988 and 2004.62 As a result, Siemens was held liable for both infringement periods, which would have not occurred had the Commission not established the existence of a single and continuous infringement linking the two infringements. As noted above, in BASF,63 the General Court had to consider whether an international cartel and an EU cartel constituted one single and continuous infringement rather than two separate infringements. The General Court concluded that the infringements were separate for a number of reasons. As a consequence, the global cartel was time-barred and the EU producers could only be fined for the EU cartel. One aspect of the case which may have impressed the General Court was the fact that the Commission had not imposed any fine on the US participants in the international cartel because they had not been involved in the EU cartel and hence could not be fined by virtue of Article 25 of Regulation 1/2003. The imposition of a fine only on the EU participants of the international cartel was therefore particularly unfair and the finding of single and continuous infringement could be seen as rather opportunistic.

2. Joint and several liability in actions for damages As a consequence of a finding of a single and continuous infringement, an undertaking may not only be liable for its own conduct, but it will also be liable for the conduct of the other cartelists.64 Indeed, as the Court of Justice held in Anic, An undertaking which has participated in a single infringement, such as in this case, by its own conduct, which met the definition of an agreement or concerted practice having an anti-competitive object within the meaning of Article 85(1) of the Treaty and was intended to help bring about the infringement as a whole, may also be responsible for the conduct of other undertakings followed in the context of the same infringement throughout the period of its participation in the infringement65 (emphasis added). One aspect that may have been overlooked by the Commission in its practice thus far are the consequences of a finding of single and continuous infringement in a private enforcement context. Indeed, pursuant to Article 11 of the Damages Directive,66 where several undertakings infringe competition rules jointly, such as in a single and continuous infringement, these undertakings should be held jointly and severally liable for the entire harm caused by the infringement. There are a number of significant corollaries to such a liability regime. First, each of the infringing undertakings is bound to compensate for the harm caused by the cartel in full. Second, the injured party may

62 Judgment of 3 March 2011, Siemens v Commission, Case T-110/07, EU:T:2011:68. 63 Judgment in BASF v Commission, footnote.11 above, EU:T:2007:380. 64 Judgment in Aalborg and Others v Commission, C-204/00P, EU:C:2004:6, para. 258. 65 Judgment in Commission v Anic Partecipzioni EU:C:1999:356, para. 203. 66 Directive 2014/104 of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, OJ 2014 L349/1.

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require full compensation from any of the infringing undertakings. Lastly, an infringing undertaking that paid more than its share of the harm may recover a contribution from any of the other infringing undertakings. The share of the responsibility of each infringing undertakings should be determined by national law, taking into account the principles of effectiveness and equivalence.67 It follows that any undertaking found guilty of participating in a single and continuous infringement may be find itself jointly and severally liable for the entire amount of the private damages claimed by the alleged victims of that infringement. Thus, an undertaking that was only involved in cartel activity restricted to one specific Member State or to one specific product found to be a component of a much broader single infringement may have to face contribution claims for the harm caused by cartel activity in which it did not take part. Taking the pending Airfreight case68 as an example, non-EU air carriers which are only entitled to operate on specific international routes between the EEA and their home country, excluding any other third country, are the subject of contribution claims relating to a number of international routes on which they did not operate and, in fact, were not authorized to operate, simply because the Commission in its decision found the existence of an infringement covering routes between airports within the EEA and third countries generally.69 The Commission should pay more careful attention to the civil consequences of its sometimes overbroad findings of infringement. The fact that the Commission is not technically required to define precise relevant markets in Article 101 TFEU cases70 should not dispense it from the duty to consider any infringement in its economic and legal context.71 The General Court has recognized the importance of this responsibility in the Adriatica di Navigazione case: It is desirable that, where it adopts a decision in which it finds that an undertaking has participated in a complex, collective and continuous infringement (which cartels often are), the Commission should, in addition to ensuring that the specific conditions for applying Article 85(1) of the Treaty are satisfied, take into consideration the fact that, whilst the decision will entail the personal liability of each of its addressees, that liability is limited to their particular involvement in the collective conduct sanctioned, as properly defined. Since a decision of this kind is capable of creating significant consequences not only for relations between the undertakings concerned and the administrative authorities but also for their

67 Ibid, recital 37. 68 Airfreight, Case 39258, OJ 2014 C371/11 (Summary Decision); available in full on the Commission’s website. 69 ‘Japan Airlines asks EU judges to overturn cargo cartel decision’, Mlex, 12 May 2015. 70 Judgment of 25 October 2005, Groupe Danone v Commission, Case T-38/02, EU:T:2005:367, para. 99. 71 Judgment in T-Mobile and others v Raad van bestuur van de Nederlandse Mededingingsautoriteit, Case C-8/08, EU:C:2009:343, para. 31.

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relations with third parties, the Commission ought to examine the relevant market or markets and identify them in the statement of reasons which it gives for any decision sanctioning an infringement of Article 85(1) of the Treaty, and it should do so with sufficient precision so as to be able to identify the operating conditions in the market in which competition has been distorted and to satisfy the essential requirements of legal certainty.72 Therefore, when holding an undertaking liable for a single and continuous infringement, the Commission should ensure that the finding of liability is confined to the undertaking’s actual involvement in the overall infringement.

III. Conclusion As discussed above, from a public enforcement standpoint, findings of a single and continuous infringement that cover different geographic markets or product markets do not significantly affect the amount of the fine imposed on the infringing undertaking. Pursuant to the 2006 Fining Guidelines, the Commission will calculate the basic amount of the fine by reference to the undertaking’s turnover in the cartelized products. Therefore, if an undertaking has committed an infringement on only one of the various product or geographic markets that have been linked into a single and continuous infringement, it will only be fined on the basis of its turnover in relation to that market. The amount of the fine will not be affected by the conduct of the other cartelists that are present on different markets. The situation is radically different in a civil enforcement context. If the finding of single and continuous infringement is not carefully delineated, an undertaking whose involvement in the cartel is limited may be the target of actions for damages and contribution clams relating to cartel activity in which it was not involved. When finding a single and continuous infringement, the Commission should strictly confine the liability of the undertaking to the geographical and product markets on which it actually operated and not hold it liable for the infringement generally. Alternatively, it might be worthwhile to explore whether the public enforcement concept of ‘single and continuous infringement’ should necessarily be construed as coinciding with that of joint liability in civil law. After all, this concept was developed for the administrative convenience of the Commission without any regard for its possible implications in a private enforcement context.

72 Judgment 11 December 2003, Adriatica di Navigazione v Commission, Case T-61/99, EU:T:2003:335, para. 32.

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112 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Transatlantic competition law convergence: looking for a chimera?

Kent Bernard*

I. Introduction It is a pleasure to be able to contribute to this volume in honour of Ian Forrester. Ian is a lawyer with worldwide vision, who has never been afraid to question established legal dogma and doctrine.1 In that spirit, this article focuses on the idea of convergence of competition law and policy between the EU and the US. Is such convergence the Holy Grail of competition law policy, or is it merely a seductive chimera? To make the discussion manageable, I will focus on abuse of dominance (EU) and its US analogue, monopolization. In so doing, I recognize that I have deliberately picked an area that is on the front lines of the convergence debate. There are some areas, such as horizontal cartels, that are almost universally perceived to be bad (and indeed almost immoral).2 Opinion has not merely converged here; it has melded.

* I would like to thank Alissa Black-Dorward (Fordham Law School) for her research assistance.

1 Examples abound in the literature, but to take just one see Forrester, ‘Article 82: Remedies in Search of Theories’, 28 Fordham International Law Journal 919, 920 (2005). 2 See generally Kovacic, ‘Competition Policy in the European Union and the United States: Convergence or Divergence?’, Bates White Fifth Antitrust Conference (2008), available at http://www.ftc.gov/sites/default/files/ documents/public_statements/competition-policy-european-union-and-united-states-convergence-or- divergence/080602bateswhite.pdf.

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In addition, there are areas where we once had convergence, but now have agreed to disagree. Prior to 2010, horizontal merger review process had converged around the then US Guidelines.3 First you defined a relevant market, and then you measured potential effects. You had certain ‘safe harbors’ where, in light of experience, no serious ill effects were anticipated. Then in 2010, the United States deliberately diverged. The current US Horizontal Merger Guidelines4 dropped the safe harbors, deemphasized market definition, and (in this writer’s view) got drunk on economic theory. What is indisputable is that market definition, the prior core of merger analysis, was taken out of the centre and moved to the periphery. The primary authors of the Guidelines stated as such.5 This put our European friends in something of a bind. In the US, guidelines can be issued by any agency, and need not pass any legal test. In Europe, Guidelines have a much more formal status. Damien Neven and Miguel de la Mano, at the time both with the European Commission, DG Competition, Chief Economist Team, gently pointed out the areas of divergence between the new US Guidelines and the EU guidelines then in effect, and came to a conclusion that is key to our analysis here: ‘Convergence is not a goal in itself since merger guidelines must take account of different institutional environment.’6 To this must be added one quick qualifier: divergence of approach in merger review may be fine, but divergence of outcomes can lead to political messiness.7 I have chosen to focus on abuse of dominance/monopolization because it not only is an area where the divergence of policy and practice is too obvious to smooth over, but it also lets us explore underlying policy reasons for that divergence. Although we are all competition lawyers and believe passionately that competition law is the most beautiful and important part of the legal structure, in fact competition law is the handmaiden of industrial policy, not its master. So we have to face the question not simply whether competition law convergence is a realistic goal, but whether it is even a desirable one.

3 Kovacic, supra note 2, p. 6. 4 Available at http://www.justice.gov/atr/public/guidelines/hmg-2010.html. 5 Farrell and Shapiro, ‘Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition’, The B.E Journal of Theoretical Economics, Volume 10, Issue 1, SSN (Online) 1935-1704, DOI: 10.2202/1935- 1704.1563, March 2010.

6 Market Definition and the SIEC in the EU, in light of the new US and UK Guidelines, CRA Annual Conference (Brussels, December 8, 2010), available at http://ecp.crai.com/ecp/assets/CRA_Conference_2010_Damien_Neven. pdf.

7 As those who remember the G.E./Honeywell matter can attest. See generally Damro, ‘Regulators, firms and information: The domestic sources of convergence in transatlantic merger review’, 18 Review of International Political Economy 409 (October 2011).

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II. What do we mean by convergence? This seems simple: convergence means coming together. It can mean one side moving towards the other, or both moving towards some centre point. The end result in any case is that we end up with an agreed upon standard that applies to us both. It sounds laudable, but is that what we really mean in this context? If one country decriminalized cartels, it would be convergence if other countries lessened their penalties as well. But there is something dissonant about that argument for convergence. It seems that when we talk of convergence in competition law, we really only mean agreeing on stricter rules, higher fines and more enforcement. Much of convergence talk is a one way ratchet. If you need further support for the conclusion that this is essentially a one-way effect, look at what happened in the 1980s when the US Department of Justice issued Vertical Restraints Guidelines8. As a later head of the Antitrust Division noted, ‘The rescinded Vertical Restraints Guidelines, promulgated in 1985, were controversial from the outset. They were criticized by Congress and the National Association of Attorneys General... Consequently, the Guidelines sought to legitimize all but the most harmful intrabrand restraints.’9 Please focus on exactly what was happening here: new Guidelines were published in the United States in 1985. Those Guidelines were perceived as legalizing conduct that had previously been considered out of bounds; as weakening enforcement. Not surprisingly, there were no cries for ‘convergence’ around that new standard. This is not to argue for or against the late 1985 Vertical Restraints Guidelines. But after reasonable enquiry, I have not been able to find any instance of EU/US convergence around a later standard more lenient than the one in effect in either area. Indeed this one-way tendency may explain – in part -- why the EU hasn’t ‘converged’ on the US standard in abuse of dominance/monopolization cases. The US standard allows conduct that the EU standard considers illegitimate. To converge on the US standard would be to converge ‘back’; to go against the ratchet. For the purposes of this article, I will attempt to neuter the definition of convergence, and look at it apart from whether converging would lead the two sides to agree on greater, or lesser, enforcement. There is a second point to which we need to be sensitive. Arguing for convergence can very easily slide into something that looks and sounds a lot like arrogance. It becomes a cover for ‘My way is best; let us converge on the way that I do it.’ The

8 US Department of Justice, Vertical Distribution Restraints Guidelines, 50 Fed. Reg. 6263 (1985). A good description of the Guidelines themselves may be found at Fisher, Johnson and Lande, ‘Do the DOJ Vertical Restraints Guide- lines provide guidance?’, 32 Antitrust Bull. 609 (1987). 9 Anne K. Bingaman, ‘Change and Continuity in Antitrust Enforcement’, Fordham Corporate Law Institute 1993, available at http://www.justice.gov/atr/public/speeches/0107.htm p. 13.

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argument is never expressed that way, of course. It is usually framed in terms of converging on a standard which, after close examination, is much closer to what I have been doing than it is to what you have been doing. If this formulation strikes you as unfair, I ask you to think back in your own experience: when can you recall someone arguing for convergence when that would mean moving away from his own standards and coming close to adopting yours? So let us be careful to avoid this trap, as well. Convergence needs to be more than simply the polite name for national arrogance.10 Accordingly, on our specific topic of abuse of dominance/monopolization, this article will take a violently agnostic stance as to which side of the Atlantic has the ‘better’ approach. For the purposes of analysis, I don’t care who is ‘right’ on the substance. What I will try to show is how each side’s rules reflect its views of consumer benefit, competition, and how to manage industrial policy. At that point, we can see if convergence is a realistic goal, or just aspirational skywriting. III. Abuse of dominance/ monopolization If we were constructing a world from scratch, we might well decide, from that original position,11 that the rules governing the conduct of dominant companies would be uniform across the countries (assuming we had countries). But this approach carries with it a densely packed underlying assumption – that the views as to what is best for its citizens, and the role of competition law in reaching that goal, are the same in all countries. Perhaps that would work for a philosopher king starting at day zero, but it really is a stretch to try to make it work in our real world with its various nations, histories, government structures, and philosophies of government. And we need to be very wary of our old friend intellectual arrogance here. Just because a standard is the one in force in our country, in our time, does not mean that it is the best one or that it should be adopted by other countries. There are enough smart people supporting enough different arguments towards different goals for competition law to cast serious doubt that we can pick ‘the’ correct one. In fact, standards differ. The question is ‘why’, and could/should they converge?

10 With due apologies to Oscar Wilde, who said it so much better in another context: ‘Conscience and cowardice are really the same things, Basil. Conscience is the trade-name of the firm. That is all.’ Oscar Wilde, The Picture of Dorian Gray (1890). 11 See generally John Rawls, A Theory of Justice (1971), who used the idea of lawgivers starting from behind a veil of ignorance, where they did not know whether they were high and powerful or low and weak, arguing that in such a situation the laws would be fair to everyone. Rawls’ concern was distributive justice (the socially just distribution of goods in a society). His view leads to obligations restricting the conduct of powerful people or companies. On the other side of the debate is Robert Nozick, Anarchy, State and Utopia (1974). Nozick’s entitlement theory sees humans as ends in themselves and justifies redistribution of goods only on condition of consent.

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This requires us to take a step back. At least in this context, the differences between the abuse of dominance/monopolization standards is set out in bold italic type. Bill Kovacic summarized it neatly: The interpretations of Article 82 by the Court of First Instance (CFI) and the Court of Justice have tended to create a wider zone of liability for dominant firms than the decisions of the US courts under Section 2 of the Sherman Act. At the margin, US courts have tended to say that courts and enforcement agencies commit greater errors by intervening too much rather than too little. This perspective does not appear in EU jurisprudence or in speeches by EU enforcement officials. In their technical findings and in their attitude, modern US Supreme Court decisions in cases such as Brooke Group, Trinko, and Weyerhaeuser have demonstrated greater skepticism about abuse of dominance claims than judicial decisions in matters such as France Telecom/Wanadoo, Michelin II, British Airways. EU decisions in IMS Health and Microsoft show a greater inclination to condemn refusals to deal than modern US rulings such as Trinko. Unlike Brooke Group and Weyerhaeuser, the France Telecom/Wanadoo decision rejects the need to apply a recoupment test to resolve allegations of exclusionary pricing. A finding of dominance can occur in the EU at or somewhat below a 40 percent market share, while the US offense of attempted monopolization usually treats shares below 50 percent as being inadequate to establish substantial market power. 12 [internal citations omitted] So we recognize that the standards are different. What we need to explore is why they are different. There seem to be two primary explanations. The first explanation is differences in the role of competition law and policies that it implements. The second explanation has tended to be underplayed – the extent to which procedural rules and the roles of the actors drive the development of substantive law.

IV. Policy roots of divergence 1. The United States US competition law is looked at as a tool to benefit consumers. It is not particularly concerned with sellers or providers, focusing almost solely on the effect of their actions at the consumer benefit level. While it is necessary to have sellers of goods, it is not necessary that any particular seller thrive, or even survive. As Judge Easterbrook noted approvingly in Ball Memorial Hospital: Competition is a ruthless process. A firm that reduces cost and expands sales injures rivals — sometimes fatally. The firm that slashes costs the most captures the greatest sales and inflicts the greatest injury. The deeper the injury to rivals,

12 Kovacic, supra note 2, pp. 11-12.

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the greater the potential benefit. These injuries to rivals are byproducts of vigorous competition, and the antitrust laws are not balm for rivals’ wounds. The antitrust laws are for the benefit of competition, not competitors.13 In the US, competition is truly nature red in tooth and claw.14 To get a good understanding of the policies underlying US competition law here, it is helpful to go back to a case that is frequently cited but also repays an occasional rereading; Brooke Group.15 The case stemmed from competition in the US cigarette industry in the mid-1980’s. Brooke Group claimed that it created a line of generic (no brand) cigarettes that were sold at lower prices than brand name cigarettes, and that to counter this innovative development, Brown & Williamson introduced its own line of generics and cut prices on those generic cigarettes below cost, as well as offering discriminatory volume rebates to wholesalers, all in order to force Brooke to raise its own generic cigarette prices and introduce oligopoly pricing in the economy segment. The Court held that Brown & Williamson was entitled to judgment as a matter of law. First, the Court held that a plaintiff seeking to establish competitive injury resulting from a rival’s low prices must prove that the prices complained of are below an appropriate measure of its rival’s costs.16 The Court then referenced Atlantic Richfield Co. v. USA Petroleum Co., stating: Low prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition. . . . We have adhered to this principle regardless of the type of antitrust claim involved. … As a general rule, the exclusionary effect of prices above a relevant measure of cost either reflects the lower cost structure of the alleged predator, and so represents competition on the merits, or is beyond the practical ability of a judicial tribunal to control without courting intolerable risks of chilling legitimate price cutting. See Areeda & Hovenkamp 714.2, 714.3. “To hold that the antitrust laws protect competitors from the loss of profits due to such price competition would, in effect, render illegal any decision by a firm to cut prices in order to increase market share. The antitrust laws require no such perverse result. [citation omitted].17 Even if the ultimate effect of the cut is to induce or reestablish supracompetitive pricing, discouraging a price cut and forcing firms to maintain supracompetitive prices, thus depriving consumers of the benefits of lower prices in the interim, does not constitute sound antitrust policy.18

13 Ball Memorial Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1338 (7th Cir. 1986). 14 The phrase is from Tennyson, In Memoriam, Canto 56. 15 Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 US 209 (1993). 16 Id. at 223. 17 Id. at 223. 18 Id. at 224.

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Note this point well for future reference: on this view cutting price to increase share of market is legitimate. Price competition is competition on the merits under US law. The second prerequisite to holding a competitor liable under the antitrust laws for charging low prices is a demonstration that the competitor had a reasonable prospect, or, under § 2 of the Sherman Act, a dangerous probability, of recouping its investment in below-cost prices. ‘For the investment to be rational, the [predator] must have a reasonable expectation of recovering, in the form of later monopoly profits, more than the losses suffered.’ [Citation omitted]. Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced. Although unsuccessful predatory pricing may encourage some inefficient substitution toward the product being sold at less than its cost, unsuccessful predation is in general a boon to consumers. That below-cost pricing may impose painful losses on its target is of no moment to the antitrust laws if competition is not injured: It is axiomatic that the antitrust laws were passed for ‘the protection of competition, not competitors ‘ [citation omitted].19 So our conclusion under US law is that price competition is valid competition on the merits, and that we will tolerate even predatory prices unless we are convinced that the predator can eventually profit from that action (usually by raising prices above the competitive level after the predation succeeds). If the predator fails, he may drive out some competitors with his low prices, but he benefits consumers by those same low prices and that is the desired end point of the analysis. This focus on effects at the consumer level, and whether or not there is a direct benefit to consumers, has become a key part of the US competition law paradigm, and shows up in all sorts of areas. It is in our competition law DNA. For example, there is an ongoing debate at the US FTC about the scope of Section 5 of the Federal Trade Commission Act which, among other practices, prohibits ‘unfair methods of competition’.20 For our purposes the key point isn’t who is ‘correct’ in terms of the scope of Section 5. It is rather that: Both sides of the otherwise contentious debate are careful to ground their arguments in terms of maximizing consumer welfare. Both sides agree that Section 5, as an antitrust law, should be directed at practices that harm consumers and competition, and not towards broader social or industrial policy goals.21

19 Id. at 224. As a technical matter, the case was brought as a primary line price discrimination suit under the Robinson Patman Act. The Court held that the general rules governing such claims should track those covering Monopolization claims under Section 2 of the Sherman Act, but that there is a higher threshold of proof under Section 2. Hence the distinction in the opinion: ‘the competitor had a reasonable prospect, or, under § 2 of the Sherman Act, a dangerous probability, of recouping its investment in below-cost prices.’

20 Adam D. Vincenzo, Editor’s Note: Robert Bork, ‘Originalism and Bounded Antitrust’, 79 Antitrust Law Journal 821, 824 (2014).

21 Id. p. 831 and the sources cited in note 53 thereof.

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But why shouldn’t we ask competition law to serve broader social goals? After all, the preamble to the United States Constitution speaks of ‘promoting the general welfare’.22 And the Sherman Act never speaks of promoting Pareto Optimality. In fact, notwithstanding the current seeming consensus that US antitrust law seeks to maximize consumer welfare, there is a credible response that the Sherman Act itself was intended to limit the power of the great trusts that existed at the time, and that we did not get deeply into the whole consumer welfare argument for about 100 years.23 The debate about the goals of competition law in the United States is beyond the scope of this paper. My only point is to illuminate the underlying assumption – the agreed- upon, assumed limitations of antitrust law in the United States. Our friends in Europe are not so bashful about invoking broader social goals in competition law matters.

2. The EU In the EU, competition law is seen as a tool to promote broader social goals. For example, in the debate about whether restrictions on parallel trade of goods were permissible, the Commission justified its moving against such restrictions on the grounds that parallel trade in general is based on the higher order principle of free movement of goods and has contributed to the development of the Internal Market.24 In addition to the unabashed reference to larger social goals, EU competition law also looks to protect consumers - but relies more on the structure of the markets than the effects of conduct. As expressed in Wanadoo,25 the approach is as follows: Therefore, since Article 82 EC refers not only to practices which may cause damage to consumers directly, but also to those which are detrimental to them through their impact on an effective competition structure [citation omitted], an undertaking which holds a dominant position has a special responsibility not to allow its behavior to impair genuine undistorted competition [citation omitted]. As the Court has already stated, it follows that Article 82 EC prohibits a dominant undertaking from eliminating a competitor and thereby strengthening its position by using methods other than those which come within the scope of competition on the basis of quality. From that point of view, not all competition by means of price can be regarded as legitimate [citation omitted]. 26 One thing screams off the page: in the US, competition by means of price is not only legitimate, it is viewed as good – as a consumer benefit. In the EU, price competition

22 United States Constitution, Preamble. Available at www.constitutionus.com. 23 See Ginsburg, ‘Bork’s “Legislative Intent” and the Courts’, 79 Antitrust Law Journal 941, 947-948 (2014). See also Hovenkamp, ‘Antitrust’s Protected Classes’, 88 Mich. L. Rev. 1, 24 and 44-45 (1989). 24 Commission Press Release Memo/04/7 (19 January 2004), available at http://europa.eu/rapid/press-release_ MEMO-04-7_en.htm?locale=en.

25 Judgment of 30 January 2007, France Telecom SA v. Commission, Case T-340/03, EU:T:2007:22 (hereinafter “CFI Decision”), affirmed, Judgment in France Télécom v Commission, Case C-202/07 P, EU:C:2009:214 (hereinafter “ECJ Decision”).

26 ECJ Decision paras.105-106.

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is much more suspect. It can be seen as disrupting the structure of the market, and such disruption is viewed as potentially causing harm to consumers. There is more packed into the ECJ decision in Wanadoo than first meets the eye. And to understand this, it might be useful to take a short detour into a particular German Philosophy that has had a very large impact on EC jurisprudence, and that is Ordoli- beralism. Ordoliberalism is an economic and political system that developed and flourished in the period of the 1930s -1950s, exerted significant influence in Germany and at the EU level for several decades thereafter, and still helps to explain the policies underlying EU competition law. In 1933, two lawyers (Franz Bohm and Hans Grossmann-Doerth) and an economist (Walter Eucken) met, and began to formulate an interdisciplinary approach combining law and politics that created a ‘third way’ between the centrally- planned economy of socialism and the unregulated free market approach. They called it a system of complete competition in a market economy. It would ensure a prosperous and humane society. The key questions of Ordoliberalism are the proper role, and proper goals, of the state in managing or limiting entity behavior. And the key point for our purposes is the role of competition. Unlike much current analysis, the ordoliberal approach does not view consumer welfare as a concept that should have a large part in shaping competition policy; rather it regards consumer welfare as at best an indirect goal. Rather, it sees competition as a means of deprivation of power and a way to prevent concentration of power from developing. It looks to an ideal situation where all market participants are ‘price takers’ (that is, no one has market power in the traditional sense). Under Ordoliberalism’s ‘as if’ principle, if a company does have market power, it has a positive obligation to behave as if it did not have that power. Hence the much reviled (by US lawyers, at least) ‘special obligation’ of dominant companies to not unduly hinder their competitors. 27 On this basis, it is the structure of markets and the availability of numerous sellers that protect consumers. Competition law assures that this structure is preserved by curbing private concentrations of economic power. So what we are beginning to see is that the distinction between the EU and the US rules dealing with abuse of dominance are a reflection of a deeper distinction regarding the purposes of goals of competition law in society.

27 A fuller description, with citations, may be found in Bernard, ‘Some Thoughts on Article 82 Jurisprudence—If the Government Always Wins, Should Private Litigants Win As Well?’, Global Competition Policy, August 2009 (release one). See also, Bernard, ‘Private Antitrust Litigation in the European Union—Why Does the EC Want to Embrace What the US Federal Trade Commission is Trying to Avoid?’, 2010 Global Competition Litigation Review, Issue 2, p. 69. A trenchant critique of the ordoliberal hangover in abuse of dominance cases may be found in Venit, ‘Article 82: The Last Frontier – Fighting Fire with Fire?’, 28 Fordham Int’l L.J. 1157 ,(2004-2005). But the debate is not over. See Andriychuk, ‘The Dialectics of Competition Law: Sketching the Ordo-Austrian Approach to Antitrust’, 2014, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2532956##.

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V. The role of procedural rules in creating substantive standards As if convergence wasn’t complicated enough at the substantive level, in addition to the debate about the goals of competition law there is an ongoing debate about the best means to reach those goals. One part of that debate centres around whether and how to import procedural rules from one system to another, and what it would mean to the overall development and enforcement of the law.

1. The EU takes a big step The EU recently culminated a nine-year odyssey by issuing a directive on private antitrust damages suits. The Directive was adopted by the Council in November 2014, and was signed into law on 26 November 2014.28 The Directive sets the stage for an enormous practical experiment: can you adopt a procedural mechanism from another legal system totally apart from the underlying substantive law that it was used to implement? The European approach to competition law has been that the law is created, developed and enforced by the Government, which is assumed to take the public interest into account as the guiding principle in deciding which actions to bring and which theories to assert. As a result, the substantive law is broad in many areas.29 Because the law is enforced only by the Government, the Courts have allowed a certain breadth and flexibility that would be problematic in the US. By contrast, the competition law of the United States has developed primarily through private litigation, rather than government enforcement or control.30 The private right of action under the Antitrust Laws was created at about the same time as the substantive law itself.31 The structure was to look to the government to punish and deter, and to private suits to compensate victims. The incentives to bring such suits are treble damages, and a one-sided ‘loser pays’ on attorneys’ fees – the defendant pays the plaintiff’s fees if the defendant loses, but the plaintiff does not have to pay the defendant’s fees if the plaintiff loses. The result of this private litigation-driven development of the law is that US Courts limit the substantive scope of violations and require hard proof of actual adverse effects on competition, knowing that private parties will be asserting claims that may, or may

28 See http://ec.europa.eu/competition/antitrust/actionsdamages/. The process began in December 2005 with the publication of a Green Paper. See generally, Bernard, ‘Private Antitrust in the European Union’, [2010] 3 Global Competition Law Review, Issue 2, p. 69. 29 See generally Bernard, ‘Making Victims Whole: A Restitution Approach to Cartel Damages’, Concurrences 1 – 2012 (2012).

30 See Bernard, supra note 29, at note 20 and accompanying text. 31 The Sherman Act (which created the antitrust offenses) was passed in 1890; the Clayton Act (which created the private right of recovery) was passed in 1914.

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not, actually be in the public interest.32 This can have broad repercussions in terms of Government enforcement. As Bill Kovacic noted when he was Chairman of the US Federal Trade Commission, if the courts fear that private party incentives are misaligned with the public interest, or they fear that the remedial scheme deters legitimate conduct excessively, the courts will try to correct those imbalances.33 In so doing, the courts may set up tests that make it harder for private parties (but not the government) to pursue the case (e.g., rules of standing to sue), but may also adjust the evidentiary requirements to prove a violation. Kovacic refers to litigation against IBM in the late 1960s and 1970s. The Justice Department brought a monopolization case, but by 1975 there were some 45 private damages suits pending, seeking in excess of $4 billion. The courts could not refuse to treble damages if they found liability, but they could interpret the law so that IBM was not found liable at all.34 Kovacic’s reading of the tea leaves if (now when) the EU endorsed private rights of action suggests that procedural convergence may lead to substantive convergence: This raises the question of what will happen in the EU and its Member States if private rights of action grow more robust. My tentative prediction is that an expansion of private rights could lead judicial tribunals to adjust doctrine in ways that shrink the zone of liability. For example, an expansion in private rights of action could cause EU abuse of dominance doctrine to converge more closely upon US liability standards governing monopolization.35 This will be very interesting to watch. My thesis is that the substantive divergence reflects two radically different views of what is best for society. On this view, I would hope to see the EU courts try to set up a distinction between the standards applied to a government action, and those applicable to private party suits. The standards developed for government actions reflect the bedrock concepts underlying the society. A presumption that an action is brought to vindicate the public interest may be rational when the Government is the moving party. Such a presumption is completely non--rational when the moving party is a private entity seeking damages or a change in another party’s conduct. Whether or not it always works out in practice, there is a strong argument that the Government can be trusted with a broader statutory mandate than can private parties, because the Government considers more and broader factors in deciding whether to bring a case and what remedy to seek than does a private party.

32 See Bernard, ‘Some Thoughts on Article 82 Jurisprudence’, Global Competition Review, August 2009 (Release One), pp. 10-11.

33 Kovacic, supra note 2, p. 22. 34 Kovacic, supra note 2, p. 23. 35 Kovacic, supra note 2, p. 24.

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2. A novel US approach Indeed, just such a distinction between Government and private actions is expressed in the US Court of Appeals decision in the Motorola Mobility damages litigation.36 The case involves a conspiracy among foreign companies to fix the price of a component used in cell phones. The component was purchased (primarily for our purposes here) by foreign subsidiaries of Motorola. Those higher costs were allegedly carried through when Motorola bought the telephones containing those components from its subsidiaries. The US Government brought a successful criminal case against the foreign companies. Motorola then brought a private treble damages action in the United States against the conspirators. The Court of Appeals decision threw out Motorola’s private damages case. The case will be cited for its interpretation of the Foreign Trade Antitrust Improvements Act of 198237, one of the stranger statutes of the modern era.38 The statute provides that US antitrust laws do not apply to non-import foreign commerce unless the foreign conduct at issue has: (1) a ‘direct, substantial and reasonably foreseeable effect’ on US commerce, and (2) that effect ‘gives rise’ to an antitrust claim. At issue is whether Motorola could bring a US antitrust action against foreign manufacturers for foreign price fixing that increased the prices of goods sold to foreign subsidiaries of Motorola, which goods were incorporated into products sold to Motorola and resold in the United States. Briefly, the court holds that while the foreign conspiracy satisfied the first prong of the FTAIA, that the actions had a ‘direct, substantial and reasonable foreseeable effect’ on US commerce, it failed on the second point in that the effect did not give rise to a claim under US antitrust law.39 The immediate victims of the price fixing were Motorola’s foreign subsidiaries.40 Motorola was trying to use US law and courts to collect damages suffered by its foreign subsidiaries as a result of a foreign cartel. The court was not inclined to let Motorola reap the benefits of creating foreign subsidiaries, but then effectively discard that separation when it was convenient to do so. Motorola could not stand in the shoes of its subsidiaries, and once out of those shoes ran into the Illinois Brick wall which forbids antitrust damages suits by indirect purchasers41.

36 Motorola Mobility, LLC v. AU Optronics, No. 14-8003 (7th Cir. November 26, 2014), available at 2014 WL 6678622. 37 15 U.S.C. Section 6a. 38 It was part of the Export Trading Company Act, which consists of four titles. Title I provides a series of definitions that apply to nothing else in the statute. Title II is banking amendments. Title II concerns the Commerce department export certifications. And Title IV is the Foreign Trade Antitrust Improvements Act. See Golden and Kolb, ‘Export Trading Company Act of 1982’, 58 Notre Dame Law Review, 743, 744 (1983). 39 Motorola Mobility, supra note 36, 2014 WL 6678622 at p. 2. 40 There is a weird issue of waiver in the case, which need not concern us greatly in our context but may have been significant to the court: ‘Perhaps because Motorola may actually have profited from the price fixing of the LCD panels, it has waived any claim that the price fixing affected the price that Motorola’s foreign subsidiaries charged, or were told by Motorola to charge, for the cellphones that they sold their parent.’ Motorola Mobility, pp. 7, 13. So in effect Motorola may well have waived the damages claim on which it was suing.

41 Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

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But for our purposes the more intriguing discussion is the impact of the ruling on Government actions. Could the US Government bring a case where a private party could not? The court held that it could. Indeed, we noted earlier that the Department successfully prosecuted AU Optronics for criminal price-fixing of the LCD panels sold to Motorola’s foreign subsidiaries. But the Department does not suggest that the defendants’ conduct gave rise to an antitrust damages remedy for Motorola. Motorola has lost its best friend. That’s something of a surprise but a bigger surprise, given that representatives of the State and Commerce Departments have signed on to the Justice Depart- ment’s brief, is the absence of any but glancing references to the concerns that our foreign allies have expressed with rampant extraterritorial enforcement of our antitrust laws. We asked the government’s lawyer at the oral argument about those concerns, and he replied that the Justice Department has worked out a modus vivendi with foreign countries regarding the Department’s antitrust proceedings against foreign companies. We have no reason to doubt this. Again private damages actions went unmentioned.42 The court quotes from Government Amicus filings, which point out: No nation has objected to the DOJ’s successful prosecution of foreign companies and even citizens of that country in the LCD panel investigation. As the United States notes in its brief, the DOJ seriously considers the views of foreign nations before bringing cases. . . . [T]he comity considerations with private plaintiffs are quite different. “[P]rivate plaintiffs . . . often are unwilling to exercise the degree of self-restraint and consideration of foreign governmental sensibilities generally exercised by the US Government.43 What we have here is a creative parsing of a statute, along with the rules of parent and subsidiary corporations, to reach an outcome that is highly unusual under US law. We have a law of general application that the Government can enforce in situations where private parties cannot.44 And the reasons given for that split echo what we have heard before. The idea is that the Government will take into account the broader interest before bringing an action, while private parties are pursuing only their own private agendas. Indeed, Amicus briefs were filed by foreign authorities stating that allowing suits in the United States under an extraterritorial application of US law for the conduct of foreign companies in foreign countries would clash with the efforts of those foreign

42 Motorola Mobility, supra note 36, 2014 WL 6678622 at p. 9. 43 Id.at 10. 44 The use of the expression ‘general application’ is meant to exclude laws such as the Federal Trade Commission Act, which by their terms can only be enforced by the Government. See, eg, Lande, ‘Revitalizing Section 5 of the FTC Act’, The Antitrust Source (February 2009) at pp. 1-2; Comment, ‘Judicial Refusal to Imply A Private Right of Action Under the FTCA’, 1974 Duke Administrative Law Journal 506; available at http://scholarship.law.duke. edu/cgi/viewcontent.cgi?article=2490&context=dlj.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 125 Transatlantic competition law convergence: looking for a chimera?

countries to regulate their own commercial affairs.45 This is the very argument that we saw used earlier to allow broad substantive law in the EU – that the enforcement was limited to the Government and therefore that the public Interest would be a factor in bringing cases and shaping the law. So now we have a new permutation: procedural convergence is reinforcing the substantive divergence in the underlying law. The EU is allowing private civil class action damages suits, thus letting private parties potentially take advantage of broad rulings on substantive law that were meant only to apply to actions brought by the Government. So while there is procedural convergence between the US and the EU, what also is happening is a strengthening of the substantive divergence – broader enforcement of the divergent underlying law. At the same time, the US seems to be moving towards recognizing that certain parts of the law should only be enforceable by the Government to assure that the public interest is part of the calculus. Is the EU moving away from the special status of government enforcement, just as the US is moving towards it? VI. Can’t we just talk this out? A third party observer may be forgiven some puzzlement here. Yes, the underlying issues are serious- involving as they do the underlying concepts of how to best order a society. But there is still the sense that if only we could all sit down and talk openly and freely, the problems could be resolved and a new standard could be agreed upon that would apply on both sides of the Atlantic Ocean. Perhaps the Europeans could be convinced to move a little bit away from protecting competitors so much, and the US could move a little bit towards recognizing the underlying populist impulse the created the Sherman Act. If we did that, could we all just get along? We could make some movements, of course, but our desire for convergence should not blind us to the lessons of behavioural psychology. While this is not a scientific paper, to get a proper handle on the problems facing convergence here it is helpful to understand a little bit about the psychology of beliefs. Scientists have found that once a person (and I would argue that this principle applies to a collective group, such as a country or a European Union) has adopted a point of view or belief, facts and arguments to the contrary not only fail to change that view but actually serve to make the adherents more convinced that they are correct.46 This idea (known as confirmation bias in the literature) is normally applied at the micro level (support of a political party, for example). I want to suggest that this same concept may well apply at the macro level as well. The countries of continental Europe each have their own histories, and their

45 The Briefs and letters are described and cited in the Shearman & Sterling bulletin, ‘Foreign Antitrust Defendants Feel Some Relief from the Reach of the Shearman Act in Civil Matters’ (December 1, 2014), available at http:// www.shearmanantitrust.com/siteFiles/BlogPosts/2014_12_1foreign_antitrust_defendants.pdf.

46 See Charles Lord, Lee Ross and Mark Lepper, ‘Biased Assimilation and Attitude Polarization: The Effects of Prior Theories on Subsequently Considered Evidence’, 37 Journal of Personality and Social Psychology 2098 (1979), available at http://www.unc.edu/~fbaum/teaching/articles/jpsp-1979-Lord-Ross-Lepper.pdf.

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own belief structures as to what is best for their citizens. Joining the EU forced some of those concepts to converge. The United States also has its history and its beliefs as to what is best for its citizens. To the extent that competition law is seen as a tool for each side to reach its desired ends, we can expect differences in how competition law is construed and applied. So we try each to persuade the other either to adopt our view as to the ultimate good here, or at least to converge towards it. John Temple Lange spoke on the question of a unified European competition law policy.47 He identified the law on abuse of dominance as being the least satisfactory part of EU competition law.48 He identified a fundamental need to distinguish between lawful competition that might drive inefficient competitors out of the market, and anticompetitive conduct that might have similar results.49 He noted that the Commission does not do enough to assess the economic effectiveness of its policies.50 Those are all perfectly rational arguments and will have US antitrust lawyers nodding in agreement. But as this paper has tried to spotlight, the key question may not be whether our EU colleagues have properly embraced economic efficiency and direct consumer benefit as their criteria, but why they have not done so. It is not that one side is stupid, or irrational. Something else is going on here. There are different views of what constitutes the ‘proper’ goals and ends of a society. We are getting to bedrock beliefs here. And psychology teaches that when two sides hold different views, each believes that its views are more unbiased than the other.51 So the more we push for competition law convergence without dealing with the different underlying views of what is best for a society, the more likely it is that we will fail.52 And convergence retreats into the ‘do it my way’ arguments. Changing those underlying views is either a Herculean task (if you are optimistic) or a Sisyphean labor. Our honoree, Ian Forrester, seemed to recognize that a frontal assault on an EU standard might well not be the best way to get change. In his commentary on a judgment involving parallel trade in prescription pharmaceuticals in 2008,53 he recognized that market integration was a broader goal towards which technical competition law, and especially the rules about restrictions on parallel trade, was subservient.54 So instead

47 John Tempe Lange, ‘After Fifty Years – What is Needed for a Unified European Competition Policy’, 21st St. Gallen International Competition Law Forum ICF, 2014, available at http://papers.ssrn.com/sol3/papers. cfm?abstract_id=2519713.

48 Id., text accompanying notes 49-50. 49 Id., text accompanying note 54. 50 Id., text accompanying note 119. 51 See, e.g., Emily Pronin, Thomas Gilovich and Lee Ross, ‘Objectivity in the Eye of the Beholder: Divergent Perceptions of Bias in Self versus Others’, 111 Psychological Review 781 (2004), available at https://psych.princeton. edu/psychology/research/pronin/pubs/Pronin%20Gilovich%20Ross.pdf.

52 This is a fascinating area, and we have obviously just scratched the surface here. For an excellent and non-technical overview, see Carol Tarvis and Elliot Aronson, Mistakes Were Made (but not by me) (2007). 53 Forrester, White & Case Talking Points (Nov. 2008), available at http://www.whitecase.com/talking_11182008/#. VJnBDf8DXA.

54 See note 53, supra and accompanying text.

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of arguing that parallel trade was bad, or that market integration should not be a major goal of the law, Ian slid sideways. He left the core beliefs unchallenged, but argued that in the case of prescription drugs, parallel trade did not serve the market integration goal, given the level of national government control over prices of and access to drugs by its citizens. He didn’t argue that competition law had some special status and did not challenge the underlying societal judgments. He used the tools of persuasion in a way that does not trigger our normal defenses. I would call that subtle advocacy. VII. Whither convergence? So, should we be cheering for convergence across the Atlantic Ocean with regard to the rules governing abuse of dominance/monopolization cases? In my view, no. We can paper over the underlying distinction in the view of the purposes and means of competition law between the EU and the US. We can dive into the subtleties of Ordoliberalism, and whether Type 1 errors are worse than Type 2 errors55. And that debate may be fruitful. But the underlying issue is the view of what constitutes a good society and how competition law can be used as a means to that end. And this debate over the proper goals and paths for a society is not simply a debate across the Atlantic Ocean. A simple look at a week’s worth of daily newspapers reveals major, substantive differences among various European countries as to what constitutes a ‘good society’ for their citizens. Perhaps a good analogy is the problem of ‘saving the euro’. A large part of that problem can be traced to the fact that a single currency is a means to the end of a better society, not an end in and of itself. Nor is competition law and end unto itself. Looking for competition law convergence without dealing with the underlying societal issues is truly to be looking for a chimera. That said, we may be seeing some interesting case studies as to how far competition law convergence actually can run in the context of abuse of dominance/monopolization. In the EU, the case to watch will be an abuse of dominance case where a private plaintiff asserts injury from actions that actually benefitconsumers (but are condemned under the standards set by the Commission’s cases).56 On our approach, we can expect to see rules brought into play to limit the actions of private plaintiffs on the recognition that private suits are brought to vindicate private interests, regardless of their effect on the public interest.

55 A Type 1 error is the risk of condemning conduct that should be allowed (a false positive). A Type 2 error is allowing conduct that should be condemned (a false negative). See generally, eg, Schinkel and Tuinstra, ‘Imperfect Competition Law Enforcement’, 24 Journal of Industrial Organization 1267 (2004), available at http://www1.fee. uva.nl/fm/PAPERS/maartenpieter.pdf.

56 The EC always wins abuse of dominance cases. As of 2009, it could be said that the Commission had either won 98% of its cases, or had never lost such a case in the modern era. See Ahlborn and Evans, ‘The Microsoft Judgment and its Implications for Competition Policy toward Dominant Firms in Europe’, 75 Antitrust L.J., 887, 925 (2009), citing Damien J. Neven, ‘Competition Economics and Antitrust in Europe’, 21 Econ. Pol’y 741, 761-762 (2006). According to the authors, there has been no fully successful challenge to the Commission on substantive points in a modern Art. 82 case.

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In the United States, the recognition that the Government is to take into account the broader public interest (including comity among nations) could lead to interpretations of statutes to free the Government to bring cases that are barred to private parties. Whether this is done expressly, or by ‘interpreting’ statutes such as the FTAIA, the result is the same. But this experimentation on both sides of the Atlantic is not a bad thing. We don’t have to be seeking the ‘best’ approach57. If we can find a ‘better’ approach, it may not exactly mirror either side.58 It may be convergence (in the neutral sense – not the ‘do it my way; I’m right’ sense). Or it may be a third path that diverges from both current approaches. One thing is clear, though. This is no longer a debate about comparative competition law. It is a debate over things that go much deeper, and are much more basic to a society. Convergence of competition law policy is a small part of convergence on what makes for a just, fair, and happy society. Competition law may be important, but it is a means, not an end to policy. So long as those underlying goals and assumptions remain unconverged, so will competition law. Ian knows that, and it is what makes him such an effective advocate and counselor.

57 That would require one side to change its views as to the definition of a good society and the best means to reach that end – something that is not likely to happen.

58 See generally Kovacic, ‘Achieving Better Practices in the Design of Competition Policy Institutions’, 50 Antitrust Bull., 511, 512 (2005).

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 129 Industrial policy, China and the world: are there norms?

Eleanor M. Fox

I. Introduction It is my pleasure to write this essay in honour of Ian Forrester, person of wit and wisdom; a great lawyer, an unequalled advocate, and a human being with a social and moral conscience who wants to make the world a better place. I thought it fitting to select an issue of global importance in the field of competition and trade law and policy: sovereignty and internationalism. While I write on an issue of general importance – industrial policy and the world – for focus I concentrate on China and its anti-monopoly law. Here is the question I pose: in using industrial policy which could advantage a nation at the expense of its trading partners, is there an obligation to apply a norm of internationalism? I start with an observation. China’s competition law has been in force since 2008. China is, today, one of the most important players in the market for vetting mergers. All parties that set their sights on an international merger must ask at the outset, ‘What will China do?’ Likewise, China is a notable player in the sphere of abuse of dominance, particularly concerning the licensing of intellectual property, and especially regarding important technology used by Chinese manufacturers and sold around the world. IP licensers ask: ‘What will China do to me?’ There is some sentiment in America and Europe that China discriminates against foreigners; that it disproportionately enjoins or conditions foreign mergers, and that it appropriates intellectual property in the name of competition law enforcement. Does it? And if it does, is its main sin the lack of notice of the rules to be applied? Or is there also a substantive worry? Should there be a world norm against use of industrial policy in antitrust enforcement when it imposes costs on international commerce?

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This essay will, first, review relevant portions of the Chinese AML and their application. It will assess whether the evidence supports the claim of discrimination in the sense of treating foreigners differently from and less well than domestic firms. It will then consider whether, if this case is not made but yet China’s enforcement systematically condemns or conditions conduct that is not traditionally regarded as anticompetitive, there should be a world norm. II. China’s AML and industrial policy The Chinese Anti-Monopoly Law (AML) expressly requires consideration of the public interest of China. Article 1 states the general purposes of the law, which include ‘safeguarding fair market competition’, ‘protecting the consumer and public interests, and promoting the healthy development of the socialist market economy.’ Article 27 states the factors that ‘shall be considered’ in merger review. These include the ‘effect of the concentration on national economic development.’ Article 31 specifies that acquisitions of domestic companies by foreign investors that ‘implicate national security. . . shall also go through national security reviews.’ National security proceedings are conducted in parallel with the competition proceedings. National security reviews are mandated in the case of mergers in strategic and sensitive industries broadly defined, including products as diverse as oil and soya.1 China’s merger law is enforced by MOFCOM, the Ministry of Foreign Commerce. Between 2008 and December 2013, MOFCOM reviewed 740 proposed mergers, rejected one, and approved 22 with conditions.2 MOFCOM has apparently not expressly sought to justify any merger prohibition or conditionality on grounds of a public or national interest other than competition, although in particular cases it has mentioned public interest as consistent with its competition concerns. MOFCOM has not prohibited or conditioned any merger in which both parties were Chinese3 and has imposed conditions on only one merger involving a Chinese state- owned enterprise, and this where the other party was a multinational.4 Moreover, enforcement appears to favour Chinese state-owned enterprises—a category that

1 The security review procedure was apparently modeled on the U.S. CFIUS review. See H. S. Harris, P. J. Wang, Y. Zhang, M. A. Cohen and S. J. Evrard, Anti-Monopoly Law and Practice in China 134 (2011). 2 See ‘MOFCOM Holds a Special Press Conference on Anti-monopoly’ (Mar. 4, 2014), available at http://english. mofcom.gov.cn/article/newsrelease/press/201403/20140300507466.shtml. In June 2014, MOFCOM rejected one more transaction: an international vessel-sharing joint venture among three of the world’s largest shipping companies—Maersk Line, CMA CGM, and Mediterranean Shipping Company. See Ministry of Commerce, Public Announcement [2014], No. 46 of 20 June 2014 (the Maersk decision), available at: http://english.mofcom.gov.cn/ article/policyrelease/buwei/201407/20140700663862.shtml.

3 In 2011, MOFCOM opened its first investigation for monopolistic conduct involving two large state-owned enterprises—China Telecom and China Unicom. After the companies announced changes in their practices, the agency decided to suspend the investigation and not impose any fines. See Yuni Yan Sobel, ‘Domestic-to-Domestic Transactions—A Gap in China’s Merger Control Regime?’, Antitrust Source, Feb. 2014, p.10. 4 See Ministry of Commerce, Public Announcement No. 74 of 11 November 2011 (the GE/Shenhua decision), http:// fldj.mofcom.gov.cn/aarticle/zcfb/201111/20111107824342.html.

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132 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Eleanor M. Fox

includes China’s largest, most powerful, and privileged firms, which are also some of the largest firms in the world. Here are some examples of MOFCOM’s conditionality required for merger clearance that does not correspond with an attempt to solve competition concerns as commonly understood. Marubeni, a Japanese company that exports grains to China, sought to acquire Gavilon, a US company that stores and distributes grains and oilseeds. Marubeni accounted for 14% to 18% of Chinese soybean imports (which is the ‘market’ identified) and Gavilon accounted for less than 1%. (The percentage of soybean sales in China is unknown.) The US and EU competition authorities approved the merger without conditions. MOFCOM cleared the merger but imposed hold-separate conditions on the merged firms, thus preventing them from realizing efficiencies of integration and apparently protecting China’s SOE competitor COFCO.5 Wal-Mart sought to acquire Yihaodian, China’s largest online supermarket. This was essentially a conglomerate market-extension merger; Wal-Mart had almost no presence in China. The United States and the EU approved the merger without conditions. MOFCOM cleared the merger conditionally. It apparently feared that Wal-Mart might leverage its efficiency advantages in procurement and warehousing. Conditions imposed on the merger forbade Wal-Mart from offering trading platform services to online sellers and consumers through Yihaodian,6 thus preventing efficiencies of integration. In Google/Motorola Mobility,7 Google acquired a large patent portfolio. Both the US and the EU found no competition problem, but they did undertake to monitor Google’s use of the Motorola Mobility patents. MOFCOM, too, cleared the merger. However, reportedly to facilitate its next generation information technology, MOFCOM required Google to treat handset OEMs nondiscriminatorily (Chinese hand-set makers compete with Motorola Mobility) and to continue licensing the Android technology free, as open source.8 Glencore/Xstrata9 combined one of the world’s largest producers/traders of commodities with one of the world’s largest mining companies. Glencore accounted for 9% of the supply of copper concentrate to China, and Xstrada supplied 3.1%. The United States

5 See Ministry of Commerce, Notice No. 22 of 23 April 2013 (the Gavilon/Marubeni decision), http://fldj.mofcom. gov.cn/article/ztxx/201304/20130400100376.shtml. See also Report of the US Chamber of Commerce, Competing Interests in China’s Competition law Enforcement: China’s Anti-Monopoly Law Application and the Role of Industrial Policy (2014) (hereafter US Chamber Report), pp. 35-37. 6 The requirement was apparently generated by the telecommunications ministry, which oversees online business. See Michael Han, ‘MOFCOM Conditionally Clears Wal-Mart’s Acquisition of Yihaodian’, Freshfields Bruckhaus Deringer briefing, 30 August 2012, http://www.freshfields.com/en/knowledge/MOFCOM_Conditionally_Clears_ Wal-Mart_Acquisition_of_Yihaodian/?LangId=2057. The case was complicated by a need for approval as a value-added telecommunications service, and the fact that this sector is subject to foreign investment restrictions.

7 See MOFCOM, Public Announcement No. 25 of 31 May 2012 (the Google/Motorola Mobility decision). 8 See Yee Wah Chin, ‘MOFCOM again uniquely imposes AML conditions on a transaction in the smartphone sector (Google/Motorola Mobility)’, E-Competitions, No. 50367, January 2013-II, available at http://ssrn.com/abstract =2202026. See also US Chamber Report, pp. 38-40.

9 MOFCOM, Public Announcement No. 20 of 16 April 2013 (the Glencore/Xstrata decision).

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cleared the merger; the EU and South Africa did so also but had some serious concerns and imposed conditions.10 MOFCOM, too, allowed the merger, but it required the divestiture of Xstrata’s prized copper assets in Peru and required the merged firm to continue offering long-term supply contracts for copper concentrate to Chinese business customers, for whom copper concentrate was an essential input. Further, MOFCOM required that it, MOFCOM, must approve the buyer of the mine in Peru. It approved as the buyer a consortium of major Chinese competitors dominated by Chinese SOEs.11 China’s first merger prohibition enjoined Coca-Cola’s acquisition of Huiyuan, a leading Chinese juice company. Prohibition of this largely conglomerate transaction has also and often been characterized as nationalistically motivated; namely, as designed to keep a strong trademark in Chinese hands.12 We might wish to discount this case because it came so early in China’s merger enforcement, and MOFCOM was seriously understaffed and had had no time to move up the learning curve. MOFCOM gave few reasons for its early decisions. As for Coke/Huiyuan, it reportedly relied on a quite similar recent Australian authority.13 These are all examples of China’s applying what the Western world identifies as noncompetition metrics to international mergers. China is not always wrong and the Western world right. In at least one decision— prohibition of an alliance among the number one shipping company in the world and its two leading competitors, together accounting for 47 percent of the Asia-to-Europe container shipping market—China might have made a better call than the United States (the Federal Maritime Commission) or the EU (the transaction was a joint venture and thus not a candidate for prior clearance) in assessing the transaction as inherently anticompetitive.14

10 The EU worried that the merger would create market power in zinc to its detriment, and it required Glencore to divest its minority stake in the world’s largest zinc smelter and to terminate its exclusive take-off agreement with this smelter. See Press Release, ‘Mergers: Commission Approves Glencore’s Acquisition of Xstrata Subject to Conditions’, 22 Nov. 2012, http://europa.eu/rapid/press-release_IP-12-1252_en.htm. South Africa was concerned about the merged firm’s dismissal of almost 200 employees in South Africa, and required the firm to limit the dismissals of certain specialist and managerial employees and to provide retooling skills-training to certain other employees. See Merger between Glencore Int’l PLC and Xstrata PLC, South Africa, Competition Tribunal Reasons, at 26–27, http://www.comptrib.co.za/assets/Uploads/Glenstrata/Reasons-non-confidential.pdf.

11 Conditionality on other mergers seems similarly disconnected from competition concerns and connected with protecting a flow of supply to China. The conditional approval of the merger of Uralkali and Silvinit is an example. See ‘China Approves Merger between Russian Potash Producers but Requires They Continue to Supply the Chinese Market’, Jones Day, June 2011. See also US Chamber Report, 33-35. 12 See Valerie Bauerlein & Gordon Fairclough, ‘Beijing Thwarts Coke’s Takeover Bid’, Wall St. J., 19 Mar 2009, http://online.wsj.com/news/articles/SB123735859467667801?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj. com%2Farticle%2FSB123735859467667801.html.

13 See Wang Xiaoye, The Evolution of China’s Anti-Monopoly Law (Elgar 2014), Chapter 22, Comments on the MOFCOM’s decision on Coca-Cola/Huiyuan, pp. 371-75.

14 See supra note 2. See also Abheek Bhattacharya, ‘China Sends Shipping Consolidation Adrift’, Wall St. J., 18 June 2014. China has interests both as sellers and buyers. It has two big shipping lines and, as a prominent exporter, is one of the world’s major customers of shipping lines. The alliance may have avoided price wars and raised prices, but it may also have saved costs (fuel, duplicate travel) and allowed strategic low prices to take market share from the Chinese competitors (a dichotomy—efficient but both predatory and exploitative—usually discounted by US law). Moreover, in certain recent merger decisions, China has accelerated the review process and has increased its use of economic analysis. This was the case in Therma Fisher Scientific/Life Technologies Corp., discussed in P. Wang, S. Evrard and Y. Zhang, ‘China’s Latest Merger Decision Reflects New Approach’, Law 360, 7 March 2014.

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134 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Eleanor M. Fox

Thus far we have spoken only of mergers. China’s treatment of multinationals that own technology that Chinese manufacturers use has recently shared the spotlight. Qualcomm is the largest manufacturer of chips used in mobile phones. It licenses technology that is highly demanded for mobile phones, and China is home to the biggest group of manufacturers making the phones. China, through the National Development and Resources Commission, the most powerful ministry in China and the one in charge of price-related antitrust cases, brought charges against Qualcomm for abusing a dominant position by imposing unfairly high patent licence royalties, tying essential with nonessential patents, and threatening to refuse to sell baseband chips to Chinese firms unless they signed patent licence agreements with pro-licensee terms. Qualcomm at first resisted virtually all grounds and conclusions on which the case was based but ultimately, China being an essential and growing market, it settled the charges by agreeing to pay a fine of nearly one billion dollars – the largest in China’s corporate history -- and agreeing to extensive behavioural remedies; for example, basing royalties on 65% of the net sales price of mobile devices incorporating Qualcomm’s technology, agreeing not to tie non-essential with essential patents, and agreeing not to require free grant-backs of the licensees’ improving inventions.15 An earlier similar case against InterDigital Inc. resulted in suspension of the investigation when IDC agreed not to discriminate or charge excessive royalties and not to bundle.16 So aggressive did the US government regard China’s approach to American high tech companies that President Obama called President Xi Jinping and asked to put intellectual property rights on the agenda of their forthcoming summit meeting, and Treasure Secretary Lew complained in China that China was using its antitrust laws to expropriate American intellectual property.17 III. Assessment By one view popular in the West, one can infer from these details that China systematically applies national-interest criteria and does so sub silentio. Western competition experts point to the number of international mergers regarding which Chinese authorities took a much tougher stance than did their US and European counterparts. They charge that Chinese merger enforcement targets foreign firms in order to protect or privilege Chinese firms and in some cases to appropriate a flow of natural resources

15 See ‘Qualcomm to Pay $975 Million Antitrust Fine to China’, Wall Street Journal on line, updated 10 Feb. 2015, http://www.wsj.com/articles/qualcomm-settles-china-probe-1423518143.

16 See ‘China’s NDRC Accepts lnterDigital’s Commitments and Suspends Its Investigation’, http://ir.interdigital. com/releasedetail.cfm?releaseid=849959, (22 May 2014).

17 See ‘Obama Calls Xi; Treasury Secretary Lew Heads to China Next Week’, US-China Business Council, November 2014, https://www.uschina.org/washington-update/obama-calls-xi-treasury-secretary-lew-heads-china-next- week%C2%AD%20acting-ustr-named.

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into China,18 and that Chinese enforcers target high tech firms to appropriate their intellectual property.19

The statistics, at first blush, may look powerful. Is the inference of discrimination inescapable? Are there other explanations?

The apparently lopsided merger statistics might be explained in part by the fact that Chinese firms have been slow to file notifications of their proposed mergers—a problem that MOFCOM is addressing—while foreign firms conscientiously file to get their mergers cleared around the world. Moreover, a huge percentage of the merger filings have been by multinational firms. Less than 3% of all filed mergers have been banned or conditioned. Of the universe of mergers filed and challenged, the difference between domestic and foreign mergers is not likely to be statistically meaningful. Finally, in some cases, the tough conditions imposed by China on global mergers and on technology licences may reflect a more aggressive and regulatory tilt to China’s antitrust. Insti- tutionally, China is attracted to, not wary of, behavioural and price-limiting remedies, which fit with the value it places on control.20

But in a number of cases, the tougher conditions imposed by China on mergers do not seem related to a possible anticompetitive aspect of the merger, and the technology licensing cases redefine and expand the law on abuse of dominance where Chinese firms can be advantaged. The cases appear to reflect an interlinked combination of antitrust and industrial policy.

In sum, China applies some noncompetition metrics in its merger decisions and perhaps in its abuse decisions. How much it does so is not transparent. China’s institutional processes are so arranged, and the competition authorities are so intertwined with industrial policy of the state, that a clean separation cannot be made. Some opacity is likely to continue. Even so, progress has been made. The Chinese competition authorities are increasing transparency with more detailed decisions.

The charge of intentional discrimination against foreign firms as compared with domestic firms may be overstated. But the Chinese state-owned enterprises are surely treated more favourably than other firms—Chinese and foreign. Industrial policy is an inextricable part of competition assessment of the small set of mergers that matter to China, and is instrumental in framing the law on abuse of dominance, especially in relation to foreign intellectual property.

18 See D. Daniel Sokol & Christine Varney, ‘Why Does the Anti-Monopoly Law Bring Worries?’, Forbes China, 14 Aug. 2013 (in Chinese), http://www.forbeschina.com/review/201308/0027701.shtml; see also Matthew Miller & Michael Martina, ‘U.S. Businesses Urge Tough Line over China Antitrust Policy’, Reuters, 23 May 2014, http:// www.reuters.com/article/2014/05/23/us-antitrust-china-usa-idUSBREA4M0AX20140523; D. Daniel Sokol, ‘Merger Control Under China’s Anti-Monopoly Law’, 10 NYU J. Law and Business 1 (Jan. 27, 2013), available at http:// ssrn.com/abstract=2207690. 19 See note 17 supra. 20 See P. Wang et al., supra.

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136 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Eleanor M. Fox

IV. World norms Is there or should there be a world norm for cosmopolitanism, such that nations cannot appropriately use national industrial strategies in the enforcement of their antitrust laws? Is the development of such a norm realistic?

First, we must recognize that all jurisdictions use national industrial strategies. The United States does so side-by-side antitrust but not incorporated into antitrust, as in US enforcement of CFIUS,21 allowing a Presidential veto of transactions for their possible endangerment of national security. Other jurisdictions such as South Africa, by including a public interest element in antitrust and specifically in merger enforcement, admit national considerations. The US excludes public interest/industrial policy from its antitrust not because it wants to be a good citizen of the world but because American policy makers generally believe that antitrust blindness to industrial policy is good for America.

Second, antitrust-blindness to industrial policy is generally a good policy and is conducive to world trade and competition, growth, and higher standards of living. World Trade Organization principles against discrimination point in this direction and go a small part of the way. But freedom to take industrial policy strategies – good or bad – matters to nations, and it will be a long time before nations are ready to lay down their industrial policy arms. Nurturing the cosmopolitan norm is a good project, and can and should proceed by advocacy and nudging; but the rising of China on the antitrust scene not only flags the problem but demonstrates the futility of insisting that industrial policy be dissected from an integral body of anti-monopoly law with Chinese characteristics.

Third, the quest for transparency is on another plane (even while complete transparency is similarly not to be expected). A demand for transparency that takes the form, ‘show us what part of your decision is industrial policy’ is again not realistic because of the integral quality. Insistence on publication of the material facts and the economic and legal analysis is realistic and wise, and the principal path we should pursue.

21 Committee on Foreign Investment in the United States, 50 USC app. § 2170(b)(1)(A).

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Rosa Greaves

I. Introduction For a long time, undertakings providing maritime transport services (shipping companies) were successful in sustaining the argument that they operated in a ‘special’ economic sector and that the EU competition rules should apply to the industry in a manner different1 from their application to other economic sectors.2 However, the modernization of the EU competition rules, culminating in the decentralization of the enforcement of the rules as from 2004,3 provided the opportunity to re-examine the appropriateness of maintaining a separate sector-specific competition regime. The result of the exercise was that the sector-specific competition regime, established in 1986 for the provision of international maritime transport services, was repealed as from 20084 leaving the conduct of shipping companies subject to the EU’s general competition regime. Furthermore, from 2013 onwards, the EU Horizontal Cooperation Agreements Guidelines5 (Horizontal Guidelines) apply to the sector, replacing the sector-specific Maritime Transport Services Guidelines6 (Maritime Guidelines) which had been adopted in 2008 to facilitate the adaptation of the sector to the general EU competition regime post-2008.

1 Council Regulation 4056/86 OJ [1986] L378/4 was adopted to lay down detailed rules for the application of Arts. 85 and 86 [now 101 and 102] TFEU to maritime transport (Liner shipping conferences).

2 The exception was the EU merger control regime which has always applied to shipping as to any other industry sector.

3 Regulation 1/2003 OJ 2004 L1/1. 4 Council Regulation 1419/2006 OJ 2006 L269/1. 5 OJ 2011 C11/1. 6 Guidelines on the application of Art. 81 [now 101] of the Treaty to maritime transport services, OJ 2008 C245/2.

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The objective of this paper is to consider generally the post-2008 era, and, in particular, to examine how information exchange practices in the sector are likely to be assessed. The paper will be divided as follows: first, a brief summary of the specific pre-2008 competition law regime for liner shipping agreements will be provided by way of context; secondly, information exchange practices by shipping companies will be examined within the prohibition of Article 101(1) and the exception of Article 101(3) TFEU; and thirdly, by way conclusion, a brief and selective note on investigations undertaken by EU competition authorities post 2008 will be noted. II. The pre-2008 competition law regime for liner shipping agreements The maritime transport industry is highly specialized, offering mainly two types of international maritime transport services: tramp7 and liner.8 Until the 1980s the industry was basically ignored by the Commission in its role as the European Competition Authority. However in 1986, as part of the 1992 package of measures to achieve an internal market by the end of 1992, the first maritime package of legislative measures was adopted. The package consisted of four regulations one of which was Regulation 4056/86 laying down detailed rules for the application of Articles 85 and 86 [now 101 and 102] of the Treaty9 to international maritime transport services (Liner shipping conferences).10 Tramp services were excluded from the scope of the Regulation. The Regulation was unique in several ways. First, the measure introduced a sector- specific competition regime for international maritime transport services, enabling the European Commission to use its powers of investigation to determine whether infringements had taken place in this market. Secondly, the Regulation provided an exemption for a particular category of maritime agreement, the ‘liner conference agreement’ which had been in operation since the nineteenth century.11 Thirdly, liner conference agreements were, therefore, exempted from the prohibition of Article 101(1) by regulation, a legislative measure, adopted by the EU Council of Ministers. Normally, such exemptions are adopted by the Commission.

7 Tramp vessel services are non-regular and non-advertised shipping services. 8 Liner services are regular shipping services. 9 Art. 101 prohibits agreements and concerted practices between one or more undertakings or a decision of a trade association whose object or effect is to restrict or distort competition and affects trade between Member States. Art. 102 prohibits abusive conduct by a single undertaking in a dominant position within the internal market where that conduct affects trade between Member States.

10 Regulation 4056/86, note 1 above. 11 A liner conference is a maritime term for a shipping cartel where the members agree, inter alia, to operate on a specific shipping route at agreed freight prices, i.e.,a price fixing agreement.

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The justification for this sector-specific competition regime for liner conference agreements was primarily based on lowering fixed costs, market stability and diver- sifying investment risks. Given that the Regulation permitted price fixing, it is not surprising that this is the only block exemption regulation adopted by the EU Council, rather than the Commission. Later, a further block exemption for another type of maritime agreement, the ‘consortia’,12 was adopted13 as containerization developments require larger container-carrying ships and so a new form of agreement, not involving price fixing but other alliances, emerged as a popular means of cooperation in the maritime transport sector. However, with the modernization of the EU competition rules and with the decentralization of its enforcement in 2004,14 it was decided in 2006 to discontinue with the sector-specific competition regime for liner conferences. Regulation 1419/200615 repealed Regulation 4056/86 as from 18 October 2008 and extended the scope of Regulation 1/2003, the enforcement regulation, to cabotage and tramp services.16 In 2008, the Commission also adopted the Maritime Transport Services Guidelines17 to assist shipping companies in both liner and tramp sectors to comply with Article 101 TFEU but these sector-specific guidelines were superseded in 2013 by general non-sector-specific horizontal guidelines.18 Thus, after 2008 when the Liner Conference Block Exemption Regulation seized to protect price fixing agreements, the conduct of all shipping undertakings came within the scope of the general EU competition law regime except for consortia agreements which remain protected by the Consortia Block Exemption Regulation, at least, until 2020.19

12 These are operational cooperation agreements such as ship sharing and coordination of routes and schedules for the purpose of providing joint international liner services but they do not fix prices. They are considered to have well recognized benefits such as facilitating the improvement of the quality and productivity of available liner shipping services by rationalizing ship owners’ activities, or they achieve economies of scale and they use their ships in such a way as to bring better port coverage. They also promote technical and economic development by improving and promoting better utilization of containers and a more efficient usage of ship capacity, improvements in productivity and services, cost reduction resulting from better utilization of the ship’s capacity, better service quality due to improved ships and equipment, and pooling resources and cooperatively building the accurate number of ships most suitable for the trade in question.

13 Commission Regulation (EC) No 906/2009, OJ 2009 L256/31 on the application of former Art. 81(3) [now 101(3)] of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia). Such agreements are exempt on condition that the combined market share of the participants does not exceed 30 per cent. This Regulation replaced Regulation 823/2000, OJ 2000 L100/24, as amended. 14 Regulation 1/2003, note 3 above. 15 Note 4 above. 16 Cabotage (shipping services provided within a Member State) and international tramp shipping services (non-regular and non-advertised shipping services) were excluded from the scope of the enforcement powers of the European Commission in competition matters. Art. 1(2) Regulation 4056/86, note 1 above.

17 Note 6 above. The Guidelines were adopted to facilitate the industry to adapt from a specific to a general regime for maritime transport. 18 Guidelines on Horizontal Cooperation Agreements, note 5 above. 19 Art. 1, Regulation 697/2014, OJ 2014 L184/3 extended the period of validity of the Consortia Block Exemption Regulation to 25 April 2020.

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This change of policy was also a natural response to a change in the maritime transport market. Liner conferences were losing their appeal and being replaced by consortia and other alliances as a means of sharing costs as well as long term agreements between carriers and shippers. The kind of fixed tariff agreements imposed by conferences were less attractive and were replaced by more flexible bilateral or multilateral agreements. Even with the protection of a generous competition regime, liner shipping has had difficulties in complying with the EU competition rules. The exemption provided for liner conference agreements was interpreted narrowly by the Commission and by the European Courts. For example,20 the Commission imposed a total of 7 million euros on fifteen liner shipping companies for agreeing not to offer discounts from their published tariffs.21 These companies were either members of a conference, the Far Eastern Freight Conference (FEFC), or competitors. The agreement was known as the Far East Trade Tariff Charges and Surcharges Agreement (FETTCSA)22 and the undertakings together had a market share of over 80% between northern Europe and the Far East. The fine itself was modest, to take into account that an agreement not to discount is less harmful than one on price-fixing. The agreement had been operated from 1991 to 1994 and was abandoned following action from the Commission.23 III. The post-2008 competition law regime for liner shipping agreements Thus, post 2008, the maritime transport sector market conduct became subject to the general EU competition regime except for consortia agreements, which remain able to benefit from the Consortia Block Exemption Regulation as long as no hardcore restrictions (price fixing, limitation of capacity or sales, and allocation of markets or consumers) are included in the agreement24 and two conditions are met. The first condition is a market share threshold where the combined market share of all shipping lines entering into this cooperation to provide joint cargo transport services must be below 30%. For consortia and other alliances exceeding the 30% safe harbour, and for any other form of cooperation between shipping undertakings providing liner or tramp

20 For other examples: Commission Decision 94/980/EC, OJ 1994 L376/1, appealed in the Judgment of 28 February 202, Atlantic Container Line and Others v Commission, T-395/94, EU:T:2002:49; Commission Decision 93/82/ EEC, OJ 1993 L34/20, appealed in Compagnie Maritime BelgeTransports SA and Others v Commission , C-395- 396/96P, EU:C:2000:132; Commission Decision 99/243/EC, 1999 L95/1, appealed in the Judgment of 30 September 2003, Atlantic Container Line AB and Others v Commission, T-191/98 and T212-214/98, EU:T:2003:245. 21 OJ 2000 L268/1 and the Judgment of 28 February 2002, Compagnie generale maritime and Others v Commission (FEFC), T-86/95, EU:T:2002:50. 22 The Agreement related to charges additional to the basic ocean freight. 23 The parties to the FETTCSA were the same as those that had been members of Europe Asia Trades Agreement (EATA), which was prohibited by a Commission Decision adopted in 1999, OJ 1999 L193/23.

24 Art. 4 of the Regulation, note 13 above.

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services, they must comply with Article 101 TFEU.25 The second condition is a right of withdrawal without penalty, but subject to a period of notice, has also to be provided.26 As already mentioned above, the maritime transport sector is now subject to general Guidelines that have been issued by the Commission. Similarly, other general Guide- lines which have been adopted by the Commission apply to the maritime transport sector. These include Guidelines on the ‘effect on trade’ condition of Article 101(1) and Article 102 TFEU;27 on the application of the Article 101(3) exception;28 on agreements of minor importance;29 and on the definition of the relevant market.30 Having failed to secure the continuation of a sector-specific competition regime, the European Liner Affairs Association (ELAA), a liner shipping association representing around 90% of world containership capacity, put forward a plan to replace the block exemption with an information exchange system specifically designed for the liner shipping market. Information exchange is considered by the industry as an important element (and normal practice) of their business. Indeed the Commission has acknowledge that exchanges of information is a common practice in several industries and may lead to greater market transparency and generate efficiencies such as reduce costs and improve delivery. These benefits may be passed on to the benefit of consumers.31 However, the Commission maintained the position that any system for information exchange proposed for liner undertakings has to respect the EU competition rules. After a lengthy discussion with ELAA the Commission was unable to accept the revised ELAA proposal as it would remove all the pro-competitive effects arising from the repeal of the liner conference block exemption regulation.32 However, given the recognition that liner and tramp services’ market benefit from exchanges of information and the refusal to allow the proposed ELAA information exchange system to be set up, what kind of information exchange practices will be considered compatible with Article 101 TFEU?

1. Information exchange practices and Article 101 TFEU

A basic principle of EU competition law is that each undertaking should act independently on the market and not coordinate its behaviour with that of its rivals. Although transparency in a market is generally welcomed, horizontal cooperation between competitors is normally regarded suspiciously by competition authorities

25 Art. 5 of the Regulation, note 13 above. 26 Art. 6 of the Regulation, note 13 above. 27 Guidelines on the effect on trade concept contained in former Arts. 81 and 82 [now 101 and 102] of the Treaty, OJ 2004 C101/8.

28 Guidelines on the application of Art. 81(3) [now 101(3)] of the Treaty, OJ 2004 C101/97. 29 Notice on Agreements of Minor Importance (de minimis), OJ 2001 C368/13. 30 Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law, OJ 1997 C372/5. 31 Para. 57 of the general Horizontal Guidelines. 32 Press Release IP/06/1283, 29.09.2006.

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because of their potential to harm competition. Exchange of information practices may facilitate anti-competitive conduct, for example, by monitoring compliance with a cartel, aligning prices or restricting capacity. Such practices may also on their own right infringe Article 101(1) TFEU33 by reducing or removing uncertainty as to the operation on the market in question and thus distorting competition between undertakings.34 Thus information exchanges between competitors of individualized data regarding prices or quantities have been found to be a restriction35 within Article 101(1) TFEU by object.36 They are deemed to be motivated by the intention to help competitors to co-ordinate on a specific collusive price. On the other hand, some exchanges of information may be competition neutral or even produce benefits within Article 101(3) exception.37 Therefore, the structure of Article 101 requires a case-by-case, fact-based analysis of a number of factors such as market structure, the nature of the information, the frequency and the manner of the exchange before an information exchange agreement can be found to be anticompetitive by object or effect.

Information exchange practices, particularly within the context of trade associations, have caused difficulties for the European Commission right from the beginning of the creation of the EU competition regime.38 The anticompetitive effect is most likely where there is a concentrated market structure or when the information exchanged is commercially sensitive. The means by which the information is exchanged is also relevant.

33 For Article 101(1) TFEU to be infringed see note 9 above. Some agreements which are technically incompatible with Article 101(1) may, nevertheless, benefit from an exception as long as the agreements comply with the conditions set out in Article 101(3).

34 The distortion or restriction of competition must be appreciable. 35 Judgment in T-Mobile Netherlands v Commission, C-8/08, EU:C:2009:343, where five Dutch mobile operators with a combined market share of 99.9% met once to discuss the reduction of standard dealer communications for post-pad subscriptions. The Court of Justice of the European Union (CJEU) held that ‘An exchange of information between competitors is tainted with an anti-competitive object if the exchange is capable of removing uncertainties concerning the intended conduct of the participating undertakings.’ 36 The CJEU has confirmed in the Judgment in Dole Food Company, Inc. and Dole Fresh Fruit Europe OHG v European Commission, C-286/13P, EU: C: 2015: 184 that information exchanges between competitors of individualized data regarding intended future prices or quantities should be considered a restriction of competition ‘by object’ meaning that it breaches Article 101(1) TFEU without any need to prove an actual effect on the relevant market. The Court also made it clear that a more general information exchange is capable of affecting future price strategies and need to be considered under Article 101 without the need to establish a direct connection between the exchange and consumer prices. 37 For details of how to apply the conditions of Art. 101(3) see Commission Guidelines on the application of former Art. 81(3) of the Treaty, OJ 2004 C101/97.

38 E.g., Commission Decisions in VVVF OJ 1969 L168; IFTRA-Flat Glass Containers OJ 1974 L160; IFTRA-Aluminum OJ 1975 L228. However, it was only in the 1990s, in a significant judgment, that the European courts provided detailed analysis of the issues – Judgment in Deere v Commission, C-7/95P, EU:C:1998:256 and New Holland v Commission, C-8/95P, EU:C:1998:257.

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2. Post-2008 information practices between shipping companies39 Within the maritime transport services sector, the Commission has generally recognized that information exchanges may lead to market transparency and may enhance the provision of maritime services, by creating efficiencies40 that can benefit transport users particularly where the information is also available to customers. 41 The view is based on the presumption that a transparent market yields increases output, greater efficiency and better prices for transport users and ultimately end-consumers. Nevertheless, it is also recognized that the effect of such information exchanges may be detrimental to competition by reducing or removing uncertainty as to the future market conduct of maritime services operators. Thus the logic of the argument is that if competitors exchange individual or sensitive information in respect of pricing policies (actual or future), investment plans, levels of capacity utilization or research and development projects, it becomes easier for them to act in concert but, not all information exchange practices lead to a restriction or distortion of competition by object or effect. Thus it is crucial to distinguish information exchanges which have a neutral or beneficial effect from those which seriously threaten the competition process by facilitating collusive behaviour. In the maritime sector, information exchanges between competitors in liner shipping and pool agreements in tramp shipping are historically common practices, either directly between themselves or via common agencies that are set up to compile and process information centrally before circulating it to members. Whether such exchanges of information are compatible with Article 101 as a whole will depend primarily on the market structure and the nature of the information,42 including the manner in which it is exchanged. Liner shipping undertakings are considered to operate in a concentrated market,43 so the lawfulness of the exchange which will be typically on capacity and volume will depend on a number of factors. The 2008 Maritime Guidelines had provided detailed guidance on information exchange allowed amongst liner shipping undertakings or within maritime trade associations. It was made clear that the information exchanged would be assessed on a case-by-case basis and in the light of all factors present in the relevant market including the age of the information, the level of aggregation and the frequency of the sharing of such information, would be assessed as a whole rather than separately.44 As far as individualized market data and commercially sensitive information are

39 The author would like to acknowledge reliance on the work of Alla Pozdnakova (Scandinavian Institute of Maritime Law, University of Oslo), entitled ‘Information Exchange Agreements Between Liner Shipping Companies under EC Competition Law’ published in Competition and Regulation in Shipping and Shipping Related Industries, (eds. Antapases, Athanassiou and Rosaeg, 2009, Martinus Nijhoff Publishers) at pp. 26- 42.

40 Para. 58 of the Maritime Guidelines. 41 The 2004 White Paper on Regulation 4056/86 paras. 91-94. 42 Para. 58 of the General Horizontal Cooperation Guidelines. 43 In general it is accepted that the degree of concentration in the liner shipping market is very high. 44 Paras. 38 to 59 of the Maritime Guidelines.

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concerned, the 2008 Guidelines merely stated that such information could restrict completion in certain circumstances.45

(a) The market structure An important consideration when analyzing maritime information exchange practices and their compatibility with Article 101(1) TFEU is the importance of the market structure. Normally in a highly concentrated market exchanges of information between competitors are examined with suspicion and with an almost presumption the receivers of the information will act in a concerted manner in breach of Article 101(1). However, it is also possible that in a highly concentrated market, transparency regarding prices and other commercial information will not lead to concerted practices but to an intensification of competition, as competitors undercut each other’s prices and increase their efficiency for the benefit of their customers. However, regular and frequent exchanges of information of individual data where the market is highly concentrated, as in the case of the maritime transport sector, are likely to affect competition, particularly when the information is not available to other competitors and customers. Such practices will presumably reveal strategies and market positions of the individual market operators and reduce the independence of the operators in their decision making autonomy. They can also deter market operators from pursuing new competitive strategies as rewards may be reduced given that competitors will be in a position to react fast and retaliate. Where the concentration is not so high, then such information exchanges need to be carefully scrutinized to determine whether they can be considered to have infringed Article 101(1) TFEU. Thus the nature and the manner in which the information is exchanged are crucial in determining whether Article 101(1) has been infringed.

(b) The nature and manner in which information is exchanged Both the nature and the manner in which information is exchange between shipping firms are important to determine whether the practice infringes Article 101 TFEU. Although there are several categories of information that are exchanged between market operators, the most typical in the maritime transport services market are exchanges of historical data, capacity and volume, and prices. The least problematic is historical data, though there is ambiguity in respect of when data becomes historical. The legitimacy of data exchanges on capacity and volume, as well as prices, very much depend on the manner in which the information has been provided. Private exchanges between market operators are viewed with suspicion whilst genuinely public disclosure of information is prima facie regarded as lawful, enhancing market transparency for all parties.

45 Para. 39 of the Maritime Guidelines. This position appears no longer sustainable after the CJEU’s judgment in Dole, note 36 above. Exchange of individualized information between competitors will now be an infringement of Art. 101(1) by object.

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Although it is understood that exchanges of historical data on capacity and volume are unlikely to restrict competition even if the data is individual rather than aggregated, there is less certainty as to when information becomes ‘historical’. In the past it had been clear that information more than one year old was historic and could safely be exchanged, but there is no longer such a guarantee.46

As far as non-historical data on capacity and volume is concerned, the lawfulness of the exchange of this type of information will likely depend on whether the data has been aggregated, thus preventing the identification (directly or indirectly) of the source, i.e.,the individual shipper or carrier who supplied the information in the first place.

The general Horizontal Guidelines recognize that exchanges of market information can take several forms. Data can be directly shared or indirectly, either through a common agency such as a trade association, or by a third party such as a market research organization, or the undertaking’s own suppliers or retailers.47

Reciprocal exchange of information may be more easily established to have infringed Article 101(1), but unilateral supply of information may also constitute an infringement, particularly where one undertaking gives strategic information to competitors who accept without protest. A presumption exists that silent receipt48 of strategic information from a competitor in whatever form (at a meeting; by mail or electronically) is acceptance and will be used by the competitor when deciding future market strategy.

The uncertainty as to the legality of information exchanges of aggregate or individual capacity forecasts for liner shipping is particularly strong when the information is not available publically. This is particularly so where such forecasts indicate the trades capacity that will be deployed which may lead to the adoption of a coordinated future market conduct by several or all carriers and result in the provision of above-competitive rates.49 Given the concentration of the market, there is also a risk that the aggregated data may be combined with individual announcements by liner carriers and then disaggregated, thus enabling shipping companies to identify the market positions and strategies of their competitors.

Normally indirect market information, for example provided by a third party such as a trade association or an independent agency, is not perceived as anticompetitive.50 This is particularly so in the case of aggregated information. Similarly, the exchange of information which is already in the public domain will not infringe Article 101(1)

46 Commission Decisions 92/15, OJ 1992 L68/19 (UK Agricultural Tractor Registration Exchange) and 98/4, OJ 1998 L1/10 (Wirtschaftsvereinigun Stahl). The General Horizontal Guidelines expressly do not specify a time period, para. 90.

47 Para. 55 of the general Horizontal Guidelines. 48 That is without responding clearly that it does not wish to receive such information. 49 Para. 53 of the Maritime Guidelines. 50 Wirtschaftsvereinigung Stahl [1998] OJ L1/10 at para. 58.

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unless it is combined with other information, and together, becomes commercially sensitive information.51

There is however a difference between information that is genuinely public and information that is in the public domain.52 Exchanges of the latter type of information are unlikely to infringe Article 101(1) TFEU.53 The general Horizontal Guidelines do not automatically consider that the exchange of data which is not genuinely public is a restriction by object. Instead an analysis of the type of data that is exchanged must be undertaken as well as an assessment as to whether that information removes uncertainties as to the potential future market behaviour of the competitors.

The position is similar with price indices which have been aggregated normally by third parties and show the average price movements for the transport of a container by sea. This type of information exchange is not likely to be caught by Article 101(1)54 unless the competitor’s price data can be identified directly or indirectly. If the individual data can be identified, then it is likely to infringe Article 101(1) as it removes or reduces the uncertainties of the market operators.

However, direct exchanges of pricing information are likely to be incompatible with Article 101 TFEU. Since the Dole judgment it is clear that such exchanges between competitors infringe Article 101 by object. There are however indirect ways to share pricing information.

Some concern exists in respect of information supplied unilaterally via public announcements. The Commission’s general Horizontal Guidelines state that ‘where a company makes a unilateral announcement that is also genuinely public, for example through a newspaper, this generally does not constitute a concerted practice within the meaning of Article 101(1).’55 However, situations where such announcements involve invitations to collude will be considered differently. The Horizontal Guidelines provide an example where it would be possible to establish a concerted practice within the meaning of Article 101(1). If there were a series of public announcements whereby a single public announcement by one undertaking was followed by announcements by competitors could be the means to reach a common understanding as to the terms of future market coordination.56

51 For example, when an undertaking receives strategic data from a competitor via a meeting or electronically concerning pricing or levels of capacity.

52 It is not sufficient that the information is publically available. The information has to be equally accessible to all competitors and customers. The General Horizontal Guidelines state that ‘Genuinely public information is information that is generally equally accessible (in terms of cost of access) to all competitors and customers. For information to be genuinely public, obtaining it should not be more costly for customers and companies unaffiliated to the exchange system than for the companies exchanging the information.’ (Para. 92).

53 Judgement in Atlantic Container Line (TACA) v Commission, fn. 20 above, EU:T:2003:245, para. 1154. 54 Para. 57 of the Maritime Guidelines. 55 Horizontal Guidelines, para. 63. 56 Ibid.

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There are other situations, however, where there may not be such a direct response from competitors but nevertheless the unilaterally disclosed information is used to reduce the uncertainties of the market. It is not clear to what extent the manner in which the unilaterally disclosed information is made public is relevant to determine its compatibility with the EU competition rules. Two situations illustrate the problem. What happens if the information is received from a shipping undertaking’s customers who have been notified of a future price increase and then inform competitors as part of their negotiations seeking a better price from the competitor? Can an individual announcement by a shipping undertaking of future prices (price signalling) amount to an anti-competitive practice? It is submitted that it will be difficult to find an anticompetitive practice in the former but much more easily in the second situation, particularly if there is flexibility in the final price. The legitimacy of price signalling is a topical issue of concern not only with the European Commission but also with the national competition authorities57 and legal advisers to shipping undertakings. IV. Concluding notes: post-2008 investigations of shipping practices by competition authorities Since the market conduct of shipping undertakings has been subject to the general EU competition regime, there has not been many investigations launched by the European Commission and none so far has ended with a Commission decision. However, the decentralization of the enforcement of the EU competition rules have enabled national competition authorities to investigate the legality of at shipping practices. As far as the Commission is concerned some investigations have been closed once the Commission established that the practices being investigated pre-dated the abolition of the specific-sector competition regime. For example, the Commission closed in 2008 an investigation into the transport of bulk liquids by sea by certain shipping companies.58 A Statement of Objections was sent in April 2007 to a number of shipping companies alleging involvement from 1998 to 2002 in customer allocation, bid-rigging, price-fixing and the exchange of confidential market information concerning the maritime transport of bulk liquids on deep sea routes, thereby restricting competition

57 For example, in January 2014 the UK Competition Commission concluded that three suppliers of cement had restricted competition by engaging in price signalling conduct. Report on Aggregate, cement and ready-mix concrete market investigation https://assets.digital.cabinet-office.gov.uk/media/5329df9ae5274a226800035f/140114_aggre- gates_final_report.pdf. The suppliers issued generic price announcements letters to their customers. The proposed increases were merely ‘aspirational’ and not definitive price increases. Only customer specific price announcement letters would avoid incompatibility with the competition rules. The Competition Commission also required that the publication of certain data on cement sales and production statistics by a trade association be delayed by three months in order to make the assessment of each supplier’s market share more difficult.

58 MEMO/08/297.

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in the EU market. These services were alleged to have been provided by tramp vessels, but since neither the general nor the sector-specific competition regime applied at the time to tramp vessels services there was no enforcement mechanism to enable the Commission to conclude that the practices infringed the EU competition rules.

Another antitrust investigation into certain provisions accompanying claim-sharing and joint reinsurance agreements in the marine insurance sector was closed by in August 2012.59 The investigation concerned the activities of Protection and Indemnity (P&I) Clubs. These are non-profit organizations that provide protection and indemnity insurance, a type of marine insurance, for ship owners who are members of the clubs. An International Group Agreement and a Pooling Agreement between the P&I Clubs was the focus of the investigation. These agreements had been exempted twice for periods of 10 years each but the Commission decided to launch an investigation in 2010, given the changes in the competition regime applicable to the maritime sector. The agreements contained rules on the sharing of insurance claims and joint reinsurance as well as rules on contractual relationships between the P&I Clubs and their members which caused concern as to their compatibility with the EU competition rules. The investigation, however, failed to discover sufficient evidence to confirm conclusively the Commission’s initial concerns. Earlier agreements concluded within the International Group of P&I Clubs had been previously exempted by Commission Decision60 but had expired in February 2009.

More recently, in November 2013, the Commission opened a formal investigation against several container liner shipping61 undertakings to investigate alleged market practices in breach of the EU competition rules.62 Earlier, in May 2011, the Commission carried out unannounced inspections at the premises of container liner shipping undertakings located in several Member States.63 Whether and when the Commission will eventually take a decision on this investigation is unknown.

The investigation concerns several shipping undertakings that have made regular public announcements of future price increases by issuing press releases on their websites and in the specialized trade press. Since 2009, the press release announcements have been made several times a year and in the same format. All the undertakings under investigation engaged in the practice of announcing the amount of the price increase and also the date of the implementation of the increase. The price increase announcements were usually made by the undertakings successively a few weeks before the announcement of the implementation date.

59 IP/12/873. 60 IP/99/230 and at OJ 1999 L125/12. 61 Container liner shipping is the transport of containers by ship at a fixed time schedule on a specific route between a range of ports at one end and another range of ports at the other end.

62 IP/13/1144. 63 MEMO11/307.

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150 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Rosa Greaves

This is precisely the kind of unilateral practice that causes difficulties for all competition authorities. The practice may indeed allow market operators to signal future price intentions to each other and harm competition and customers by raising prices on the market for container liner shipping transport services, but how do such practices infringe Article 101(1) TFEU? Where is the agreement or concerted practice? It is not a direct price communication between competitors where case law precedent would support a finding of a restriction of competition by object.64 Nevertheless, it is possible to conclude that where the market is highly concentrated, such as the container liner shipping market, any public announcement of future price increases is always going to be problematic and should, therefore, be deemed to be restrictive of competition by object. If the relationship with their customers is such that it requires advance notice of such a price increase, then, the communication of that future price increase by undertakings in a highly concentrated market should be restricted to existing customers and not announced publicly.

Investigations of market behaviour of maritime undertakings are no longer carried out mainly by the Commission. A noticeable consequence of the decentralization of the enforcement of the EU competition rules has been the increased activity of national competition authorities in investigating alleged breaches of the EU competition rules across all economic sectors, including maritime transport services.65

It is clear that the maritime sector is no longer privileged and shipping undertakings have to change some of the historical practices which may well have been necessary in the past to maintain an efficient and stable maritime transport service, but are no longer justifiable. However, the nature of the market being heavily concentrated makes it more difficult for shipping undertakings to adapt their practices to a different competition regime. This is particularly evident in price, capacity and volume information exchanges. As far as pricing is concerned in liner shipping, a switch from price fixing agreements to unilateral price signalling is simply not going to work. Other kinds of information exchange, such as exchange of historical and other types of data, may remain less problematic as long as one of the canons of EU competition law regime is remembered, that is, that shipping undertakings should act independently on the market and not collude or coordinate their market strategies with their competitors and thus remove the uncertainties of the market.

64 Note 36 above. 65 For example, in Spain, in February 2012, the national competition authority fined five shipping undertakings for participation in a price-fixing and market sharing cartel in respect of passenger and freight transport between mainland Spain and the Balearic Islands as well as between the islands themselves.

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Gönenç Gürkaynak*, Ayşe Güner, Ayşe Gizem Yaşar

I. Introduction A number of issues arise with regard to competition law and data protection, in particular in the online services context. For one, the relationship between competition law and privacy is yet to be fully understood1 and we discuss below the aspects of this conundrum: first, we look into the issue of whether privacy risks arising in digital markets should be addressed within the competition law analysis; second, we try to identify cases where collecting personal data or depriving access to personal data could be anti-competitive and constitute a breach of competition law. The question of how competition authorities should intervene in cases of a competition law infringement in markets involving data aggregation is also an interesting debate. Our article attempts to provide an insight into these questions, by laying out the legislation, cases and antitrust discussions where in which these questions have been addressed so far.2

* The author thanks Evita Aravantinou for her work in the progress of this article.

1 See Kuner, C., Cate, F.H., Millard, C., Svantesson, D.J.B. & Lynskey, O., ‘When two worlds collide: the interface between competition law and data protection’, Oxford Journals, International Data Privacy Law, Volume 4, Issue 4, pp. 247-248, p. 247 (2014). 2 For the sake of clarity, we note that the discussions in this article focus on the crossroads between data protection and substantive competition law rules. Any issues that could arise in terms of data protection concerns in the procedural competition law are not discussed in this article.

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II. The role of privacy in competition law Competition and privacy are two areas of law that closely interact with each other. Competition and privacy laws share common goals which, among others, include ‘the promotion of growth, innovation and the welfare of individual consumers’.3 Although the compliance or infringement of one set of rules would not necessarily mean the same for the other, the infringement of either set of rules eventually results in harming the subject of the data.

1. Legal background related to competition law & data privacy Before delving into the antitrust considerations regarding data protection, we discuss the legal background for competition law and data privacy. Under European Union (‘EU’) competition law, the main legislation is the Treaty on the Functioning of the European Union (‘TFEU’), and specifically Articles 101-107. In that regard, Article 101 provides the basis for prohibiting agreements that would prevent, restrict or distort competition within the internal market, such as cartel agreements among competitors. Article 102 aims to prevent abuse of a dominant position. In either of these cases, the European Commission (‘Commission’) has the authority to bring a case against undertakings and impose administrative monetary fines up to 10 per cent of the annual turnover. Similarly, under the US antitrust regime, three main pieces of legislation exist: the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. Unlike the EU competition law regime, under the US regime, criminal penalties are also provided.4 Likewise, many countries today have their own competition law regime that imposes either administrative and/or criminal penalties when there is an infringement. Whether under the EU competition law rules or the US antitrust rules, the aim of the competition law regime is the same – maintenance of consumer welfare. As the former Vice President of the European Commission responsible for Competition Policy, Joaquín Almunia delivered in his speech entitled ‘Competition in the online world’, ‘[t]here is a general agreement between the EU and the US on the fundamental objectives of antitrust laws and policies; that is, to ensure consumer welfare in terms of price, quality, innovation and choice. In addition, we both believe that a sound analysis based on economic effects is crucial.’5 Similarly, the Federal Trade Commission of the

3 Preliminary Opinion of the European Data Protection Supervisor, ‘Privacy and competitiveness in the age of big data: the interplay between data protection, competition law and consumer protection in the Digital Economy’ (2014), available at https://secure.edps.europa.eu/EDPSWEB/webdav/shared/Documents/Consultation/ Opinions/2014/14-03-26_competitition_law_big_data_EN.pdf.

4 For instance, under the Sherman Act, a corporation could receive up a fine of up to $100 million and an individual could receive $1 million as well as up to 10 years of prison (see Federal Trade Commission ‘The Antitrust Laws’, available at https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws). 5 Joaquín Almunia, ‘Competition in the online world’ (11 November 2013) available at http://europa.eu/rapid/ press-release_SPEECH-13-905_en.htm.

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US (‘FTC’) provides that ‘…for over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.’6 In terms of data protection rules in the EU, Article 2(a) of the Data Protection Directive 95/46/EC (‘Directive’) defines personal data as ‘any information related to an identified or identifiable natural person.’7 The right of protection of personal data as a separate right has been provided under the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data.8 The Charter of Fundamental Rights of the European Union (‘Charter’) recognizes ‘the protection of personal data’ as a fundamental right. For the time being, the main set of rules with regard to data protection in Europe is the Directive.9 Article 6(1)(b) of the Directive sets out the circumstances under which data can be collected, namely for specific, explicit, legitimate purposes. Essentially, it is the concept of consent which constitutes the basis for legitimizing the processing of personal data, in particular in the online context. Article 8(2) of the Charter stipulates that ‘(…) data must be processed fairly for specified purposes and on the basis of the consent of the person concerned or some other legitimate basis laid down by law.’ The Article 29 Data Protection Working Party’s10 Opinion 15/2011 (‘Opinion’) explains in detail the concept of consent within the meaning of the Directive and the E-Privacy Directive, as well as the conditions for the validity of consent. As explained in the opinion, to process personal data, the mere existence of consent may not be in and of itself sufficient as the consent should also conform to the conditions set out in the Directive and the E-Privacy Directive. According to Article 2(h) of the Directive,11 consent should be free, informed and specific. Articles 7(a) and 26(1) of the Directive add to the list of conditions, requiring consent to be given, either explicitly or implicitly, in a way that leaves no doubt. Furthermore, consent can be withdrawn at any time, as

6 Federal Trade Commission ‘The Antitrust Laws’, available at https://www.ftc.gov/tips-advice/competition-guidance/ guide-antitrust-laws/antitrust-laws.

7 Dir. 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data.

8 European Data Protection Supervisor, ‘Data Protection Legislation’, available at https://secure.edps.europa.eu/ EDPSWEB/edps/EDPS/Dataprotection/QA/QA2.

9 The Directive will be amended with the General Data Protection Regulation in the near future. The General Data Protection Regulation mainly aims to harmonize data protection regulations in the EU. To that end, it provides for a single Data Protection Authority, within the concept of a one-stop shop. While the article was being written, the General Data Protection Regulation had not yet been adopted.

10 Art. 29 Working Party Disclaimer provides that ‘The Article 29 Data Protection Working Party was set up under the Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data. It has advisory status and acts independently.’ available at http://ec.europa.eu/justice/data-protection/article-29/index_en.htm. Art.30 of the Directive and Art. 15 of Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic communications or the ‘E-Privacy Directive’) sets out the duties of the Art.29 Data Protection Working Party.

11 Art. 2(h) reads as follows: ‘(T)he data subject’s consent shall mean any freely given specific and informed indication of his wishes by which the data subject signifies his agreement to personal data relating to him being processed’.

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per Articles 6(3), 9(3) and 9(4) of the E-Privacy Directive. The above could be summarized as the need for consent to be unambiguous, thus allowing no room for multiple interpretations.12 Finally, for the data subject, personal data should be portable from one data controller to another without burden.13 The importance of this right to data portability (‘RDP’) was also emphasized by Almunia.14 Finally, the E-Privacy Directive, regulating the use of cookies, should also be mentioned, since cookies are relevant in the collection of personal preference data by online search engines. The Commission defines cookies as ‘a small piece of data that a website asks your browser to store on your computer or mobile device. The cookie allows the website to “remember” your actions or preferences over time.’15 Cookies are used for online behavioural target advertising by companies providing ad servicing; as the Article 29 Working Party explains, ‘( . . .) the [online behavioural advertising] industry relies heavily on cookies and similar technologies that store and gain access to information in the user’s terminal device.’16 Article 5 of the E-Privacy Directive has introduced the obligation to acquire the user’s consent before storing cookies. Against the foregoing, consent is the key word in personal data protection – to the extent the data collector receives consent (complying with the applicable data protection rules), it will have the authority to process personal data. In the end, it is up to the users’ discretion whether the data collector can process the personal data. That said, with technological improvements, ‘[a]lmost every day brings new, sophisticated methods to collect and process information from unsuspecting users.’17 These developments raise the question of whether consent is really freely given by well-informed internet users.18

12 The need for unambiguity is well illustrated by the Facebook Beacon service, which was shut down following a class action suit (Lane et al v. Facebook, Inc. et al, C 08-3845 RS (N.D. Cal. 2010)). Facebook Beacon was embedded into certain websites, from which it recorded Facebook users’ activities. Afterwards, it would broadcast the activities in the form of notices to designated groups of the user’s friends. The specific feature that raised the most complaints was its opt-out notice, which was designed to offer the user the option to show or hide his activities. This notice, however, appeared in a small window that one could easily overlook and which disappeared fast, before the user had enough time to react. At the same time, the user’s lack of response was considered consent and his/ her activity was broadcast.

13 Art.18 of the proposal for a regulation of the European Parliament and of the Council on the protection of individuals with regard to the processing of personal data and on the free movement of such data (‘General Data Protection Regulation’).

14 Joaquín Almunia, ‘Competition and personal data protection’ (26 November 2012) available at http://europa.eu/ rapid/press-release_SPEECH-12-860_en.htm.

15 Commission’s Information Providers Guide – The EU Internet Handbook – Cookies, available at http://ec.europa. eu/ipg/basics/legal/cookies/index_en.htm.

16 Art. 29 Data Protection Working Party’s Opinion 16/2011 on EASA/IAB Best Practice Recommendation on Online Behavioural Advertising (8 December 2011) available at http://ec.europa.eu/justice/data-protection/article-29/ documentation/opinion-recommendation/files/2011/wp188_en.pdf, p.3.

17 Almunia, supra note 14. 18 See Art.29 Data Protection Working Party’s Opinion 15/2011 on the definition of consent (13 July 2011) available at http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2011/wp187_en.pdf.

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2. Case law and recent discussions regarding the role of privacy in competition law Privacy concerns playing a role in competition law is a discussion recently introduced in the legal field and has only been dealt with on limited occasions so far. The two sides of this issue have remained polarized. While one side supports that privacy risks arising in digital markets should be evaluated by antitrust analysis, the other side argues the contrary. The discussion below attempts to provide a summary of these viewpoints.

(a) Two sides of the coin – debated issues

One of the earlier mentions of the relationship between competition law and data protection in Europe can be found in Almunia’s speech19 dating back to the year 2012. Almunia underlined the importance of personal data, admitting, at the same time, the absence of Commission cases where either ‘the accumulation or the manipulation’ of personal data was used to violate EU competition law.20 However, he left the door open to a future development in jurisprudence, where the aggregation or the use of or exclusive access to personal data may give rise to competition law problems. The new Commissioner, Margrethe Vestager, has picked up where Almunia left off on the issue, with great interest in understanding the significance of data protection rules, and more importantly the functioning of markets, such as the digital market, where data protection rules are highly relevant and developments happen at a rapid rate.21

In March 2014, the European Data Protection Supervisor issued a Preliminary Opinion22 on the issue of interplay between data protection, consumer protection and competition law. This opinion provided that the ‘application of competition law ( . . .) can be used as a tool to foster dynamic efficiency in digital markets and to encourage innovation.’23 It also underlined the need for cooperation between these areas of law, admitting, however, that such an initiative would constitute a challenge. More recently in 2015, subsequent to the Preliminary Opinion, the European Data Protection Supervisor Giovanni Buttarelli stated that in digital markets, as new issues arise such as the aggregation of big data, new solutions are called for to deal with the problems of the

19 Almunia, supra note 14. 20 Almunia, supra note 14. 21 See e.g., Statement by Commissioner Vestager on Google antitrust investigations at the European Parliament (ECON committee meeting) (11 November 2014), available at http://europa.eu/rapid/press-release_STATEMENT-14- 1646_en.htm; Commitments made at the Hearing of Margrethe Vestager, Commissioner for Competition (October 2014), available at http://www.europarl.europa.eu/RegData/etudes/BRIE/2014/536309/IPOL_BRI(2014)536309_ EN.pdf.

22 Preliminary Opinion of the European Data Protection Supervisor Peter Hustinx, ‘Privacy and competitiveness in the age of big data: The interplay between data protection, competition law and consumer protection in the Digital Economy’(March 2014), available at https://secure.edps.europa.eu/EDPSWEB/webdav/shared/Documents/ Consultation/Opinions/2014/14-03-26_competitition_law_big_data_EN.pdf.

23 Hustinx, supra note 22, at p. 33.

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future.24 He stated that ‘[t]he tools of competition enforcement are quite flexible and able to respond to dynamic markets.’25 Rather than having antitrust authorities take privacy analysis into account, Buttarelli stated that he calls for a ‘careful study’ to ‘address imbalances which could damage competitiveness as well as individual rights.’26 In Buttarelli’s opinion, one such solution is a closer dialogue between competition authorities and data protection/consumer agencies.

On that note, some academics and other writers on the topic strongly take the position that privacy risk analysis should not be factored into the antitrust analysis. For instance, Richard Craig, in referring to the recent Facebook/WhatsApp deal (discussed below), takes the position that ‘there is nothing illegal per se about a company acquiring a significant database of personal data.’27 Craig further argues that the type of remedies available under competition law (such as structural remedies) but unavailable under the data protection regime may appear suitable to fight off privacy concerns. That said, he explains that privacy risks could be addressed by an antitrust regime only if those risks are such that they would result in an impediment to effective competition.28 Craig further provides that unless privacy concerns are a risk to effective competition, such risks should be dealt with by way of amendment of relevant data protection legislation.29 On a similar vein, James Cooper argues that if companies are banned from collecting ‘big data’, this may implicate a violation of fundamental rights, such as protected speech under the First Amendment of the US Constitution.30 Cooper further underlines subjectivity concerns in case antitrust analysis were to also include privacy considerations: ‘allowing antitrust enforcers to consider privacy would inject an undesirable level of subjectivity into antitrust enforcement decisions, which is likely to attract socially wasteful rent-seeking expenditures and to deter beneficial data collection efforts.’31

24 European Data Protection Supervisor Giovanni Buttarelli, ‘Privacy and Competition in the Digital Economy’ (Speaking points at the European Parliament´s Privacy Platform ) (21 January 2015), available at https://secure. edps.europa.eu/EDPSWEB/webdav/site/mySite/shared/Documents/EDPS/Publications/Speeches/2015/15- 01-21_speech_GB_EN.pdf.

25 Buttarelli, supra note 24, at p. 4. 26 Buttarelli, supra note 24, at p. 4. 27 Richard Craig, ‘Is Facebook’s WhatsApp deal a privacy disappointment?’, Data Protection Law&Policy, October 2014, pp.8-9, p. 9.

28 Craig, supra note 27, at p. 9. 29 Craig, supra note 27, at p. 9. 30 James Cooper states, ‘Even if we were to accept privacy as an antitrust consideration, an antitrust order limiting the ability of a firm to collect and analyze consumer data is likely to raise some First Amendment issues.’ (James C. Cooper, ‘Privacy and Antitrust: Underpants Gnomes, the First Amendment, and Subjectivity’, George Mason University Law and Economics Research Paper Series (2013), available at http://ssrn.com/abstract=2283390, p.11). 31 Cooper, supra note 30, at p. 2.

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(b) Case law In Google/DoubleClick and in Facebook/WhatsApp, the two cases that have so far drawn the most attention regarding this particular issue of data compilation, the antitrust authorities examined and eventually cleared these mergers involving heavy data aggregation. Whether privacy should be a factor in the competition law analysis was also addressed in these cases.

(i) Google/DoubleClick The earlier case that set the groundwork on this discussion is Google’s acquisition of DoubleClick Inc., which was eventually cleared by the Commission after the completion of a second phase investigation.32 While the FTC also reviewed and cleared the merger, in both the Concurring Statement of Commissioner Jon Leibowitz and Dissenting Statement of the former FTC Commissioner Pamela Jones Harbour, concerns over privacy were raised.33 While Leibowitz took a broader approach in terms of privacy and online behavioural advertising beyond the merging entities,34 Harbour stated that it is unclear at this stage how the mass amount of information aggregated by these two entities would be utilized post-transaction. Harbour specifically noted that: The merger creates a firm with vast knowledge of consumer preferences, subject to very little accountability (…) I have paid particularly close attention to the privacy debate surrounding this transaction. In addition, I have considered (and continue to consider) various theories that might make privacy ‘cognizable’ under the antitrust laws, and thus would have enabled the Commission to reach the privacy issues as part of its antitrust analysis of the transaction. 35 In seeking ways to bend traditional antitrust analysis to also include privacy concerns, former Commissioner Harbour extensively discussed the potential concerns related to network effects both in terms of antitrust and privacy, and in Cooper’s words, ‘worried that the network effects from combining the parties’ data would risk depriving consumers of meaningful privacy choices.’36 Harbour also suggested that the FTC did not thoroughly scrutinize the parties’ intentions into the use of data and could have required that the parties implement some form of mechanism to avoid the aggregation and/or exchange of data, such as a firewall. Harbour said that the future approach to data

32 Case COMP/ M.4731 – Google/DoubleClick (11 March 2008). 33 Concurring Statement of Commissioner Jon Leibowitz in the matter of Google/DoubleClick, F.T.C. File No. 071-0170 (20 December 2007) (hereinafter ‘Concurring Statement of Commissioner Jon Leibowitz’), available at https://www.ftc.gov/sites/default/files/documents/public_statements/concurring-statement-commissioner-jon- leibowitz-google/doubleclick-matter/071220leib_0.pdf. 34 Leibowitz stated: ‘[…]notwithstanding the Commission’s decision to approve the merger, we still need to address the fundamental issues of consumer privacy and data security raised by online behavioral advertising, which go well beyond the two companies involved in this acquisition.’ (Concurring Statement of Commissioner Jon Leibowitz, p.2). 35 See Dissenting Statement of Commissioner Pamela Jones Harbour in the matter of Google/DoubleClick, F.T.C. File No. 071-0170 (2007) (hereinafter ‘Dissenting Statement of Commissioner Pamela Jones Harbour’) available at http://www.ftc.gov/sites/default/files/documents/public_statements/statement-matter-google/ doubleclick/071220harbour_0.pdf, p. 10.

36 Cooper, supra note 30, at p. 4.

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mergers would need to change; taking into account not only the parties’ representations but also market research as well as a definition of a putative market for personal data.37

(ii) Facebook/WhatsApp In Facebook/WhatsApp, while considering the potential effects of data aggregation in the online advertising market (the market in which Facebook is active in and collects data), the Commission took a clear position regarding the relationship between data protection and competition law.38 The Commission stated that ‘any privacy related concerns flowing from the increased concentration of data within the control of Facebook, as a result of the Transaction, do not fall within the scope of the EU competition law rules, but within the scope of the EU data protection rules.’39 This is the clearest statement adopted by the Commission on the topic so far. In addition, the Commission did not find that the data aggregated due to the transaction would hamper competition in the online advertising market, where only Facebook is active (rather than WhatsApp) and the kind of data collected by the two entities would not benefit either of them post-transaction. In that regard, the Commission provides that the type of personal data that would have been valuable for Facebook – age, gender, verified name, social group, activities – is not within the scope of WhatsApp’s current data collection.40 The Commission also evaluated two theories of harm, one being the introduction of advertising on WhatsApp, and the other being WhatsApp’s ability to become a potential source of valuable data for advertising. As a result of its analysis and both abovementioned theories of harm, the Commission did not find a threat to effective competition arising from the data aggregation.41

3. Analysis As discussed above, competition law intervention in cases that may implicate privacy sensitivities -- particularly due to heavy data aggregation -- which may at that point in time not necessarily be anti-competitive, but may be capable of raising competition law problems in the future, is hotly debated. While the issue is more prone to appear in mergers, where large sets of personal data are already being compiled by the merging parties pre-transaction and would be combined if the transaction is cleared, non-merger cases may also be implicated. As a result, the question of whether antitrust authorities should consider potential consumer harm caused by a merger due to privacy issues (in

37 See also Pamela Jones Harbour, ‘The Emperor of All Identities’, New York Times (18 December 2012), available at http://www.nytimes.com/2012/12/19/opinion/why-google-has-too-much-power-over-your-private-life.html?_r=0.

38 Case COMP/M.7217 – Facebook/WhatsApp (3 October 2014). 39 Case COMP/M.7217 – Facebook/WhatsApp, para.164. 40 Case COMP/M.7217 – Facebook/WhatsApp, para 166. As discussed in the decision (para. 181), WhatsApp does have access to its users’ phone book and phone numbers. That said, the Commission did not consider this as a source for valuable information for advertising and provided that it is at best ‘marginal’ to Facebook. According to the decision, Facebook already has access (as well as other suppliers of smartphone applications) to the users’ names and mobile phone numbers (para. 181 of the decision).

41 The Commission relied on the parties’ representations that WhatsApp would not have targeted ads and that the type of information available to WhatsApp would not be a beneficial source of personal information to Facebook (Case COMP/M.7217 – Facebook/WhatsApp, paras. 168-190).

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addition to competition law issues) is often asked.42 Privacy regulators are then turning to antitrust authorities for the protection of consumers from the privacy risks that may emanate from digital market mergers.43 As discussed above, the former Commissioner suggested that there were several scenarios where privacy issues could be or should have been interjected in the competition law analysis of the Google/DoubleClick merger. Harbour provided that there are unanswered network effects questions. One is that, as a result of the network effects that may emanate from the transaction, search engine competitors could exit the market, leaving the consumers with fewer choices, which, in turn would ‘reduce the incentives of search firms to compete based on privacy protections or related non-price dimensions.’44 Harbour then encouraged the merged entity to reveal clearly the kind of information that it intended to gather, as well as how this information would be used, in an effort to provide consumers full control over the extent of information they disclose.45 The former Commissioner even called for a global approach to consider and perhaps adopt the privacy principles used in international jurisdictions so as to ‘facilitate global commerce’.46 Buttarelli’s speech goes even further, to propose, for instance, a new form of abuse of dominance where the dominant firm would use ‘non-negotiable “privacy policies”’.47 At first glance, the former Commissioner’s suggestion may be appealing in addressing consumer welfare issues related to data protection. At this point, it may even be possible to argue that competition law may have the ability to address data privacy issues in a more effective way than data protection law. To elaborate, competition law provides both behavioural and structural remedies to address a behaviour which can create an infringement, while data protection law only provides behavioural remedies.48 However, as discussed below, this may entail the problem of over-expanding the boundaries of competition law. In that regard, it has been argued that, to the extent the investigated conduct does not breach competition rules, antitrust authorities should not interfere based on public policy concerns, including consumer privacy.49 Cooper has taken this debate to the next level and actually analysed whether privacy concerns could be addressed within the scope of antitrust analysis by offering privacy the role of a ‘metric of competition’, asking the following question: ‘If the conduct leads to lower levels of privacy, isn’t

42 Craig, supra note 27, at p.8. 43 Lisa Kimmel and Janis Kestenbaum, ‘What’s Up with WhatsApp? A Transatlantic View on Privacy and Merger Enforcement in Digital Markets’, Antitrust, Vol. 29, No. 1, Fall 2014, pp.48-55, available at http://awards.concurrences.com/IMG/pdf/fall14-kimmel_c_.pdf, p. 50.

44 Dissenting Statement of Commissioner Pamela Jones Harbour, footnote 25. 45 Dissenting Statement of Commissioner Pamela Jones Harbour, p. 12. 46 Dissenting Statement of Commissioner Pamela Jones Harbour, p.1 1. 47 Buttarelli, supra note 24, at p. 5. 48 Craig, supra note 27, at p. 9. 49 See e.g., Cooper, supra note 30; Craig, supra note 27; Kimmel and Kestenbaum, supra note 43.

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that the same as lower levels of quality, and therefore evidence of uncompetitive markets?’50 However, he reached the conclusion that this scenario does not hold up for a number of reasons, in particular due to the subjectivity of the notion of ‘quality’ for both consumers and antitrust authorities.51 On the consumer side, the subjectivity is apparent when considering that the quality of targeting in targeted advertising actually increases when ad publishers collect personal data since this allows them to better match consumers with ads. Cooper also discusses the heterogeneity of consumers’ approach to privacy concerns, e.g., while some consumers may be more sensitive about their personal data being collected and stored, some others may care less about being tracked online as long as they receive well-targeted services from search engines.52 On the authority side, Cooper questions whether it is possible to set a ‘competitive benchmark’ in incorporating privacy sensitivities to the antitrust analysis. Overall, he concludes that as appealing as using competition law to resolve privacy issues may be, antitrust is the ‘wrong vehicle’,53 Therefore, the opponents argue that privacy concerns are better left to the legislature rather than antitrust authorities. On a separate note, competition law does not prohibit competing by ‘merits’54 and to the extent data is aggregated through means that are not anti-competitive, requirements imposed upon market players on the basis of competition law may hamper the healthy functioning of competition. After all, for example, competition law is not able to interfere on the basis that the market is too concentrated.55 Furthermore, as the president of the French Competition Authority Bruno Lasserre has explained, the usage of personal data is a strong factor in animating competition; and personal data also constitutes a base for innovation, creating added value for tools as ordinary as TVs and cars by allowing the development of ‘intelligent objects’.56 Therefore, in a case where personal data enhances competition as opposed to restricting it, the question of whether a competition authority should interfere based on privacy considerations comes to mind. The Facebook/WhatsApp merger was notable in clearly demonstrating the Commission’s position in the privacy-antitrust debate. The Commission’s stance in Facebook/ WhatsApp seems to support the second view addressed in the previous section, i.e.,that competition authorities should not deal with consumer protection issues emanating from privacy concerns.57 In Craig’s words, the Commission ‘was not interested in any

50 Cooper, supra note 30, at pp.7-8. 51 Cooper, supra note 30, at p.16. 52 Cooper, supra note 30, at p. 10. 53 Cooper, supra note 30, at p. 19. 54 See Bo Vesterdorf ‘Theories of self-preferencing and the duty to deal - two sides of the same coin?’ (2015) Competition Law&Policy Debate, Volume 1, Issue 1, pp.4-9, available at http://ssrn.com/abstract=2561355, p.5. 55 See Kuner, Cate, Millard, Svantesson & Lynskey, supra note 1, at p. 248. 56 See Bruno Lasserre, ‘Données personnelles, le droit de la concurrence doit-il prendre en compte la protection de la vie privée’, New Frontiers of Antitrust, Concurrences N.2-2013, pp.26-28, p. 28. 57 See e.g., Cooper, supra note 30, at p. 7.

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possible harm to privacy.’58 The Commission’s stance that data protection concerns should primarily be dealt with under the data protection legislation umbrella has already found supporters in academia.59

III. Discussion of whether collecting personal data or depriving access to personal data can be anti-competitive and constitute a breach of competition law Recent discussions and case law circle around two major enforcement areas when it comes to antitrust problems emanating from the collection and retention of personal data, namely merger control and abuse of dominance.

In terms of data mergers, as discussed below, the main concern appears to be the potential increase in network effects resulting from data compilation and whether this increase in network effects restricts competition, especially by raising the entry barriers in the market. A most notable discussion on this issue was presented in the dissenting statement of former Commissioner Harbour in Google/DoubleClick, who approached the network effects with cynicism. That said, so far, certain authors have suggested that network effects arising from the compilation of data should not be considered worrisome in and of themselves. This was also agreed by the Commission in Facebook/ WhatsApp.

In terms of dominance-related issues, an important question is whether refusing to supply user data to competitors when the data controller is dominant could constitute a form of anticompetitive behaviour. This question brings forth the issue of whether data can be considered an ‘essential facility’. If the answer is ‘yes’, this would allow the competition authorities to impose upon a dominant player the duty to share data under the essential facility umbrella.

58 Craig, supra note 27, at p. 8. 59 Craig, supra note 27, at p. 9; Kimmel and Kestenbaum, supra note 43, p. 53.

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1. Data mergers When undertakings combine large datasets through mergers, the competition law implications are questioned primarily in relation to network effects. Former Commis- sioner Harbour was among the earliest to raise concerns regarding the potential antitrust issues in data mergers emanating from the network effects.60 According to the former Commissioner, in Google/DoubleClick, the network effects could eliminate any ‘meaningful competition’ in online advertising as a result of the aggregation of data.61 This, she stated, would be in the form of combining the search information obtained by Google and browsing information obtained by DoubleClick.62 The former Commis- sioner suspected that post-transaction, other market players would not be able to ‘overcome the network effects and offer an equally focused level of behavioral targeting.’63

(a) Google/DoubleClick As a merger that raised much interest on both sides of the Atlantic, Google/DoubleClick was among the first major data mergers in the digital market (which was, at the time, ‘a relatively new industry’64) that the Commission assessed and eventually cleared, although not before a Phase II review of the transaction and the FTC’s clearance in the case came through. The transaction was a vertical merger, drawing attention to ‘how antitrust concerns in vertical mergers can arise from access to information and the market power that information can confer.’65 In addition to the non-horizontal effects, the Commission also assessed the potential horizontal effects, taking account of the fact that the parties could become competitors in the future as they were both beginning to develop tools and platforms that could compete with each other’s services. A major issue expressed by Google’s competitors in the transaction as well as former Commissioner Harbour was whether the combination of Google’s and DoubleClick’s data sets would result in Google becoming a ‘super-intermediator’66 with a market position and data sources that could not be attained by its rivals. As the FTC explained, ‘it was argued that the incremental volume Google could gain from this strategy would

60 As the former Commissioner explained: ‘A network effect arises when a good or service increases in value as more people use it. Feedback fosters acceptance and enhances popularity, which generates even more feedback, in a continually self-reinforcing loop.’ (Dissenting Statement of Commissioner Pamela Jones Harbour, p. 5.)

61 Dissenting Statement of Commissioner Pamela Jones Harbour, p. 8. 62 Dissenting Statement of Commissioner Pamela Jones Harbour, p. 7. 63 Dissenting Statement of Commissioner Pamela Jones Harbour, p. 8. 64 Brockhoff, J., Jehanno, B., Pozzato, V., Buhr, C.C., Eberl, P. and Papandropoulos, P., ‘Google/DoubleClick: The first test for the Commission’s nonhorizontal merger guidelines’, European Commission Competition Policy Newsletter, Number 2 — 2008, pp. 53-60, available at http://ec.europa.eu/competition/publications/cpn/2008_2_53. pdf, p. 53.

65 David Went and Stephen Kinsella, ‘Google/DoubleClick and the Power of Information to Raise Antitrust Concerns in Vertical Mergers’, Global Competition Policy, MAR-08 (1) (2008), available at http://www.sidley.com/~/media/ Files/Publications/2008/03/GoogleDoubleClick%20and%20the%20Power%20of%20Information%20t__/Files/ View%20PDF/FileAttachment/WentKinsella%20GCP%20Mar08(1), p. 3.

66 Dissenting Statement of Commissioner Pamela Jones Harbour, p. 8.

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be enough to “tip” the ad intermediation market to Google’ due to network effects.67 In their analysis of the transaction, both the Commission and the FTC have acknowledged the presence of network effects in ad intermediation, however both authorities found it unlikely that the competitors would be forced to exit the market, eventually clearing the transaction.

(b) Facebook/WhatsApp In Facebook’s acquisition of WhatsApp, taking into account the competitors’ replies and in light of the market investigation, the Commission analysed the network effects in the consumer communications services market, which was the market with the highest relevance for the purposes of the transaction. The Commission acknowledged the existence and potential anticompetitive implications of network effects. However, it further found that there was an overwhelming number of factors mitigating the potential competition law risks, in particular market foreclosure, such as low barriers to entry and the ease of multi-homing by consumers of multiple consumer communications apps. The Commission concluded that ‘while network effects exist in the market for consumer communications apps, in the present case, on balance, they are unlikely to shield the merged entity from competition from new and existing consumer communications apps.’68 As explained above, overall, the Commission did not see any competitive concerns arising from the combination of Facebook’s data set with that of WhatsApp. There have been both positive and negative responses to the Commission’s findings in the case, and several authors have found the Commission’s approach inadequate due to reasons similar to those expressed by former Commissioner Harbour in terms of network effects.69 On the other hand, post-Facebook/WhatsApp some authors have expressed the Commission’s eagerness towards examining ‘data as a factor that confers market power on the merged entity’ as well as ‘the potential network effects of concentrations in the big data age.’70

67 Statement of Federal Trade Commission Concerning Google/DoubleClick, FTC File No. 071-0170 (20 December 2007), available at https://www.ftc.gov/es/system/files/documents/public_statements/418081/071220googledc- commstmt.pdf, p. 10.

68 Case COMP/M.7217 – Facebook/WhatsApp , para. 135. The Commission did not stop there and also looked into whether the transaction ‘is likely to lead to any merger-specific substantial strengthening of network effects’, finally also finding this possibility to be ‘unlikely’ (Case COMP/M.7217 –Facebook/WhatsApp, paras.136-140). 69 Susannah Sheppard, ‘The EU’s Traditional Analysis of the Facebook, WhatsApp Deal – Do We Like it?’ (17 October 2014), available at http://www.scl.org/site.aspx?i=ed38934. 70 See ‘Big data a growing factor in competition assessments, says expert as Facebook receives sign off for WhatsApp takeover’ (3 October 2014), available at http://www.out-law.com/en/articles/2014/october/big-data-a-growing- factor-in-competition-assessments-says-expert-as-facebook-receives-sign-off-for-whatsapp-takeover-/.

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(c) Discussion Although network effects have been associated with market foreclosure risks and approached with scrutiny,71 there are certain aspects of multi-sided industries characterized by network effects (such as search engines) that could actually justify the incentive of market players in digital markets to engage in transactions that bear the potential of increasing the network effects. First off, companies active in multi-sided markets characterized by network effects need to attract at least two distinct groups of users (such as search engine users and advertisers) to use their products/services. In other words, they need to get all sides ‘on board.’72 If they do not succeed in doing so, the network effects will then result in the company losing market power.73 If we take the example of online search engines, a search engine has to attract first the searchers, i.e.,users who search content on the internet, and the advertisers, and needs to ensure that searchers will go and purchase products that are advertised by the advertisers.74 If the search engine fails to ‘match’ a sufficient number of search users with advertisers, it will not be able to survive on the market. To get both sides on board, personal data is an unparalleled tool in the case of search engines. Personal data enables the search engine to provide better service to both sides of the market: on the one hand, search engine users will be more satisfied with a search engine providing results fitting their preferences and when ads suiting their needs pop up.75 On the other hand, advertisers will be more content if advertised products and services are actually purchased by interested search users. In this case, search engines, having used personal data, manage to provide a satisfactory result to both the search engine users and advertisers. The quality-enhancing aspect of personal data which benefits consumers is apparent.76 Thus, to the extent a merger is capable of increasing service quality, can competition authorities disallow it merely to protect the smaller

71 See e.g., Organisation for Economic Co-operation and Development – Roundtable on Two-Sided Markets – Note by the Delegation of the European Commission (28 May 2009), available at http://ec.europa.eu/competition/ international/multilateral/2009_jun_twosided.pdf, para.59 et seq.; Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009/C 45/02) (hereinafter referred to as ‘Guidance on Abusive Exclusionary Conduct’), para. 17.

72 Jean-Charles Rochet and Jean Tirole, ‘Two-Sided Markets: A Progress Report’, The RAND Journal of Economics, Vol.37, No.3, Autumn, 2006, pp. 645–667.

73 As former commissioner Almunia has provided, ‘Winners emerge quickly in the digital industry, but they can disappear just as quickly.’ (see Joaquín Almunia, ‘Competition in the online world’ (11 November 2013) available at http://europa.eu/rapid/press-release_SPEECH-13-905_en.htm).

74 As Ratliff and Rubinfeld explain: ‘The sale of advertising to businesses and the display of advertisements to consumers take place in a two-sided market at the hub of which sits the content publisher (and any other intermediaries facilitating the sale or display of the advertising). The publisher’s function is to match consumer eyeballs with the marketing messages of businesses; the publisher profits when it is able to attract the consumer eyeballs at a cost less than the amount the businesses are willing to pay the publisher to display their ads to these consumers.’ (James D. Ratliff & Daniel L.Rubinfeld, ‘Is There a Market for Organic Search Engine Results and Can Their Manipulation Give Rise to Antitrust Liability?’, available at http://ssrn.com/abstract=2473210, p.5).

75 See Frank Pasquale, ‘Dominant Search Engines: An Essential Cultural & Political Facility’, The Next Digital Decade - Essays on the Future of the Internet, Chapter 7, pp. 401-417, Berin Szoka, Adam Marcus, eds., TechFreedom, Washington, D.C. (2010), available at http://ssrn.com/abstract=1762241, p.406.

76 See Andres V. Lerner, ‘The Role of “Big Data” in Online Platform Competition’ (26 August 2014), available at http://ssrn.com/abstract=2482780, pp.10-19.

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and/or potential competitors in the market when there is no actual harm to competition? Competition authorities could also ask this question in data mergers, keeping in mind that data is an essential tool in digital markets. The second aspect of network effects which calls for attention is the following: as the Commission affirmed in Facebook/WhatsApp, the mere existence of network effects is not a competition law problem in and of itself, and network effects have to be analysed on a case-by-case basis.77 As a result, former Commissioner Harbour’s concerns in terms of network effects may not actually be applicable in all data mergers. Turning once again to Facebook/WhatsApp, as the Commission explained, in the market for online advertising services (a platform market entailing network effects) in which Facebook was active but WhatsApp was not, since data collected by WhatsApp was not ‘valuable for advertising purposes’, the consumer data that would move from WhatsApp to Facebook post-merger would likely not be of use to Facebook in online advertising services.78 Such a data merger would thus not be likely to increase the network effects where the combined data sets are valuable in different markets. To conclude, approaching network effects de facto as a factor of market foreclosure in data mergers may therefore not be an adequate competition law policy.

2. Dominance When a dominant player holds large amounts of personal data, there could be potential competition law risks pursuant to Article 102 of the TFEU. One primary Article 102 debate in this regard is whether, under a theory of refusal to supply (or under essential facilities doctrine), the competitors could successfully establish an abuse of dominance claim. This depends on several criteria to be established. As the Commission provides in its Guidance on Abusive Exclusionary Conduct, the Commission will consider these practices as an ‘enforcement priority’ if all the following are established: ‘(i) the refusal relates to a product or service that is objectively necessary to be able to compete effectively on a downstream market, (ii) the refusal is likely to lead to the elimination of effective competition on the downstream market, and (iii) the refusal is likely to lead to consumer harm.’79

(a) Can data be an ‘essential facility’? In discussing whether personal data can be considered an essential facility, the problem is actually two-fold: first, in the context of digital markets, as Kucharczyk puts it, ‘Could the highly competitive and diversified online environment ever produce a digital essential facility?’80 Second, even if one were to consider user data to be an essential

77 Case COMP/M.7217 – Facebook/WhatsApp, para.130. 78 Case COMP/M.7217 – Facebook/WhatsApp, para.166. 79 Guidance on Abusive Exclusionary Conduct, para. 78 et seq.; also see Vesterdorf, supra note 54, at p. 6. 80 Jakob Kucharczyk, ‘Essential vs Useful: Can Online Services Be “Essential” or Are They Simply Very Useful?’ (4 March 2015), available at http://www.project-disco.org/competition/030415-essential-vs-useful-can-online- services-essential-simply-useful/ . Kucharczyk actually discusses whether the online service itself can be considered an ‘essential facility’, not personal data per se. He reaches the conclusion that ‘defining an essential digital platform’

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facility, could an undertaking be forced to disclose it under the applicable data protection legislation? In terms of whether personal data can be treated as an essential facility, the discussions appear to focus on the unlikelihood of personal data fulfilling the conditions of this doctrine, especially in digital markets. In that regard, the first issue would be whether the data gathered and retained by the dominant undertaking could be deemed an objectively necessary input and the refusal of its supply by the dominant undertaking would be such that effective competition in the downstream market would be prevented. Put differently, whether a competition authority would consider the supply of the refused data as objectively necessary for competitors to be able to compete effectively on the downstream market. The Commission explains that for an input to be indispensable, there would have to remain ‘no actual or potential substitute on which competitors in the downstream market could rely so as to counter — at least in the long-term — the negative consequences of the refusal. In this regard, the Commission will normally make an assessment of whether competitors could effectively duplicate the input produced by the dominant undertaking in the foreseeable future.’81 In the most basic sense, if an undertaking is trying to apply the refusal to supply or an essential facility doctrine to force the dominant undertaking to supply the input it holds, its argument would be that the defendant, i.e.,the dominant firm, holds ‘bottleneck control over an input or resource (facility) essential for competition’82 which would be commercially non-viable or impossible to duplicate, and therefore the dominant firm should be forced to share this facility.83 Geradin and Kuschewsky were among the first to discuss the difficulties in considering personal data an essential facility.84 As Areeda and Hovenkamp explain, ‘the essential facility doctrine concerns vertical integration’85 and therefore requires the existence of an upstream market for the facility. This raises the question of whether there is a market for ‘personal data’. While former Commissioner Harbour has suggested that there is a need for defining data as a separate relevant market,86 opponents of this view point out that aside from cases where undertakings achieve turnover over the sale of personal data, there cannot be a relevant market for personal data. This is because ‘a personal data market is not truly analogous

is very problematic.

81 Guidance on Abusive Exclusionary Conduct, para. 83. 82 See Marina Lao, ‘Search, Essential Facilities, and the Antitrust Duty to Deal’, Northwestern Journal of Technology and Intellectual Property, Volume 11, Issue 5, Article 2, pp. 274-319, p. 287. 83 See Frank Pasquale, ‘Dominant Search Engines: An Essential Cultural & Political Facility’, The Next Digital Decade - Essays on the Future of the Internet, Chapter 7, pp. 401-417, Berin Szoka, Adam Marcus, eds., TechFreedom, Washington, D.C. (2010), available at http://ssrn.com/abstract=1747289, p. 422.

84 Damien Geradin and Monika Kuschewsky, ‘Competition law and personal data: Preliminary thoughts on a complex issue’ (2013) available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2216088, p. 13.

85 Phillip E. Areeda and Herbert Hovenkamp, Antitrust Law, Vol. III A (Boston, Little, Brown and Company, 1996), para. 771a.

86 The former commissioner suggested this approach in her dissenting statement in Google/DoubleClick as follows ‘(...) it might have been possible to define a putative relevant product market comprising data that may be useful to advertisers and publishers who wish to engage in behavioral targeting.’ She further emphasized this view in The Emperor of All Identities (supra note 37).

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to an economic market defined using competition law tools and used to allocate market shares or power.’87 Independent of whether personal data could be defined as a separate relevant market, as the Court of Justice of the EU clarified in Bronner,88 ‘the indispensability of the requested product for competitors is a critical element of any duty to deal.’89 This indispensability is interpreted strictly in case law.90 Adding to this, the effects of the refusal to deal on the dominant undertaking’s part on competition must be so strong that competition on the downstream market must be eliminated or substantially reduced. Craig argues that ‘[i]t seems very unlikely that there would be many cases in which access to a database of personal data would be essential for the operation of a particular service, or where it would be commercially impossible for a competing undertaking to operate without it. … The Commission is likely to take the view that it will always be possible for a rival to develop its own database of personal information over time, which will enable them to compete effectively.’91 The Commission in Google/Double- Click conceded in this view as it found that competitors of Google such as Yahoo! and Microsoft also independently collect ‘data about users’ web surfing behaviour’, and that ‘[d]ata is also available from internet service providers, which can track all of the online behaviour of their users, following them to every website they visit.’92 A Forbes article points out that there are viable competitors to Google such as Amazon, Facebook and Twitter, calling these competitors ‘unanticipated.’93 Manne gives the example where Amazon has also joined in targeted advertising via collecting data through not only searches but also via the purchases conducted on its website.94 Finally, Lerner gives the example of Bing, which uses other sources to collect data in addition to its own search engine.95 As the above discussion shows, establishing the first criterion of theory of refusal to supply data, which is objectively necessary to be able to compete effectively on a downstream market, is difficult. Supporting this theory becomes even more difficult considering that the claimant must still show that: (ii) the refusal is likely to lead to

87 Richard Craig, ‘Big Data and competition – data-rich does not mean dominant’ (July 2014), available at http:// www.taylorwessing.com/globaldatahub/article_big_data_dominant.html.

88 Judgement in Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG, C-7/97, EU:C:1998:569.

89 Robert O’Donoghue and A. Jorge Padilla, The Law and Economics of Article 82 (Hart Publishing, Oxford and Portland, Oregon, 2006), p. 426.

90 See e.g., Vesterdorf, supra note 37, at p. 7. 91 See Craig, supra note 87. 92 Case COMP/ M.4731 – Google/DoubleClick, para. 365. The FTC had also taken a similar position in Google/ DoubleClick (see Statement of Federal Trade Commission Concerning Google/DoubleClick, FTC File No. 071-0170, pp. 12-13).

93 Geoffrey Manne, ‘FTC Ends Google Antitrust Investigation. Critics And Competitors: Move On.’, Forbes (3 January 2013), available at http://www.forbes.com/sites/beltway/2013/01/03/ftcs-google-antitrust-investigation- was-silly-critics-and-competitors-move-on/.

94 Manne, supra note 93. 95 Lerner, supra note 76, at p. 24.

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the elimination of effective competition on the downstream market, and (iii) the refusal is likely to lead to consumer harm. O’Donoghue and Padilla emphasize that even if the input at issue is essential, in a case where the downstream market provides for sufficient competition either actually or potentially (e.g., competitors providing their own products), the imposition of a duty to supply under Article 102 would not be warranted.96 In terms of consumer harm, the Commission underlines that it would weigh the likely negative consequences of the refusal to supply in the relevant market with that of the negative consequences of imposing an obligation to supply.97 In other words, only in cases where the consumer harm is so significant, negative effects emanating from the duty to supply in the relevant market could be outweighed. Therefore, it is very unlikely that an applicant would be able to establish a case against a dominant undertaking based on the refusal to supply data.

(b) Duty to supply versus data protection – case of Suomen/Numeropalvelu Oy v. Eniro Despite the challenge in establishing the criteria of the duty to supply, even if a competition authority were to deem personal data to be an essential facility in a given case, forcing the dominant player to disclose this data may not always be an applicable remedy. In this regard, it is possible to point to one case where the competition authority found an abuse of dominance because of the dominant player’s refusal to supply data to undertakings operating in the downstream market. In Suomen/Numeropalvelu Oy (‘SNOY’) v. Eniro98 in Finland, SNOY, controller of the sole national database of telephone subscriber information, refused to deliver information to Eniro, for the latter to use this in its free online telephone directory. This refusal was considered by the Finnish Compe- tition Authority (‘FCA’) to be an abuse of dominance. SNOY justified its behaviour on the grounds of data and privacy protection and, in particular, claimed that Eniro was violating this legislation by offering free search services to individuals without requiring preregistration. The Market Court and, later, the Supreme Administrative Court ruled that since SNOY held a dominant position, Eniro was de facto dependent on its service. However, an important turnaround regarding the FCA’s finding was that, according to both the Market Court and the Supreme Administrative Court, SNOY’s refusal was abusive only pre-September 2005, as in September 2005, new data protection legislation, which required consent in advance from the registered individuals, came into force and, therefore, SNOY was no longer allowed to share the subscriber data.99

96 O’Donoghue and Padilla, supra note 89, at p. 443. 97 Guidance on Abusive Exclusionary Conduct, para. 86. 98 Suomen Numeropalvelu Oy, (Dnr 1097/61/2003), proposal to Market Court 17.5.2005. See also Press Release by the Finnish Competition Authority (2005), available at http://www.kilpailuvirasto.fi/cgi-bin/english.cgi?luku=news- archive&sivu=news/n-2005-05-18.

99 Finnish Competition Authority (now within the Finnish Competition and Consumer Authority), ‘Refusal to Deal’ (2009), available at http://www.internationalcompetitionnetwork.org/uploads/questionnaires/uc%20refusals/finland. pdf.

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Even though the FCA nonetheless came up with the remedy of the dominant player sharing user data with companies operating in the downstream market, this remedy eventually became non-applicable due to the subsequently established requirement of consent from the subscribers whose personal data would be shared. As set out above, consent is a key factor in sharing and processing of personal data. Therefore, even if a competition authority imposes upon a dominant player the requirement to share users’ personal data, personal data may implicate the applicability of other regulations, such as data protection rules, which may not allow the sharing of personal data by the data holder. Therefore, the dominant undertaking may not always be forced to share this facility even if it is essential. IV. Conclusion The issue of whether to include privacy risk analysis in antitrust investigations has been a recent but increasingly polarized debate. Two cases in point, Google/DoubleClick and Facebook/WhatsApp have so far established that competition law authorities, even in cases where there is clear personal data aggregation due to the merger of the parties that collect and retain data, remain reluctant to decipher and deal with privacy risks with the tools granted by competition laws. While one side argues that the privacy risks entailed in the data accumulation should and can be dealt with within the scope of antitrust, others argue that this would result in the overarching of antitrust rules, and may even implicate violation of freedom of speech. Perhaps the better solution is as simple as that proposed by the European Data Protection Supervisor – close coordination of competition law agencies with data protection agencies in cases of big data aggregation. Currently, the issue of whether privacy considerations should play a role in competition law analysis remains unresolved since, despite the eyebrows raised post-Google/ DoubleClick, the Facebook/Whatsapp merger was also cleared without establishing a role for data protection concerns in the competition law analysis. However, during the Juncker Commission and under Commissioner Vestager’s leadership, the Commission’s competition policy may well be expected to adopt a different approach. As Commis- sioner Vestager explained in her commitments, ‘( . . .) to enforce [competition rules] we need to be as sharp as the businesses in the new markets which are developing at a speed which is completely different from what it would have been five or ten years ago.’100 Indeed, the digital markets are evolving at high speed and while Commissioner Harbour’s concerns expressed in 2008 were, in our view, very forward-thinking, they are now part of antitrust literature and topped with additional issues, therefore attracting much higher competition law attention. Although it is still early to see the general reaction towards Facebook/Whatsapp, the case has nonetheless been criticized and may be expected to generate a (much) higher level of criticism when compared to Google/DoubleClick considering the increased antitrust awareness since 2008 towards

100 Commitments made at the Hearing of Margrethe Vestager, Commissioner for Competition, supra note at p. 3.

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data aggregation, combined with the fact that there is now more pressure on the competition law enforcement bodies to take account of data protection concerns. More problematic is the second issue of whether the accumulation of personal data could have antitrust implications, such as the potential repercussions of network effects in mergers where the parties combine large data sets, as well as an abuse of dominant position due to a failure to supply the data. On that issue, the aggregation of data by an undertaking has not so far been found to violate competition laws. Some argue as far as to state that ‘Decades of economic analysis and case law of the European Courts have determined that certain conduct of companies, which are dominant from an economic perspective, is particularly capable of producing harmful effects. As such, the imposition of certain restrictions on their behaviour is justified in order to prevent such harm. However, there is no such presumption established in relation to holding large amounts of personal data. If anything, data protection cases tell us that those in possession of relatively small amounts of personal data can be equally, or even more likely, to cause harm to data subjects than those possessing large amounts, since the latter will often have more sophisticated compliance and security policies in place.’101 In terms of data mergers, the Commission has indeed looked into the potential implications of network effects in both Google/DoubleClick and Facebook/WhatsApp; however, it cleared both transactions without establishing any substantial competition law concerns emanating from network effects. Furthermore, the digital market players’ incentive to collect personal data may well be justified when certain particularities of multi-sided markets are taken into consideration. In the end, approaching network effects as a cause of market foreclosure subsequent to data mergers may not be an adequate competition law policy. In terms of dominance-related antitrust problems, the ability of a competition authority to impose upon a dominant undertaking to share its users’ personal data with its competitors has also been questioned. However, the conditions of imposing the duty to deal are already hard to fulfil, and a duty to deal claim becomes even more challenging when data is argued to be the essential facility at issue. This is particularly due to the availability of personal data to many undertakings providing online services, coupled with the fact that undertakings providing online services have to come up with many different methods of collecting personal data and are able to do so without access to personal data collected by their competitors, including competitors with strong market positions. In the end, it is yet to be seen how the collection of personal data through a merger or an online service provider’s refusal to grant access to personal data may constitute a breach of competition law.

101 Craig, supra note 87.

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172 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Competition law and consumer protection in pre-industrial societies

Barry E. Hawk

I. Modern competition laws The modern era of competition or antitrust laws can be said to have begun with passage of the US Sherman Act in 1890. Canadian competition legislation actually preceded the Sherman Act by a year but its enforcement was highly limited until late in the 20th century. Today competition laws are very à la mode and are found in over 120 jurisdictions around the world. Almost all competition law systems have three core elements or prohibitions: restrictive agreements, monopolization or abuse of dominant position and anticompetitive mergers and acquisitions. It is fair to say that the US leniency model for cartels has become the global norm, the EU abuse of dominance rules are the most closely followed model around the world, and merger control is largely a common substantive analysis heavily reliant on economics. The development of EU competition law in the half century of its enforcement since the introduction of Regulation 17 in 1962 has been nothing short of extraordinary. The also extraordinary Ian Forrester has been a star performer in that development. His wisdom, learning and wit have contributed significantly to the success of European competition law and we all owe a great debt to him. In the 125 years since passage of the Sherman Act, there has been an evolution in the policy considerations underlying enforcement of competition law. The evolution can be seen most clearly in the US, where a number of economic and non-economic policy considerations like fairness and deconcentration of economic power for political reasons have given way to an almost exclusive emphasis on consumer welfare economics and efficiencies.

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Did pre-industrial societies concern themselves with competition? Did they develop legal and informal rules and institutions to advance policy objectives that have informed the application of modern competition laws in some periods and places? A review of the following eight pre-industrial societies suggests affirmative answers to both questions: Mesopotamia, ancient Egypt, classical Athens, the later Roman Republic and early Principate, the early Islamic world, medieval Europe, medieval southern India and early Qing China.1 Moreover, in addition to and more important or evident than ‘competition laws’ in pre-industrial societies are two other sets of rules and institutions concerning commerce and trade: consumer protection rules and ‘unfair pricing’ rules. Competition laws, consumer protection laws, and unfair pricing laws are discussed in the next three sections. II. Competition laws in pre-industrial societies There are many references in the secondary literature on hunter/gatherers and our literate pre-industrial societies to two of the three core elements of modern competition laws. The restrictive practices most frequently prohibited in pre-industrial societies were forestalling and hoarding of grain, bread and other essential foodstuffs, followed by cartels. There are fewer references to monopolization or abuse of dominance. There are no references to rules dealing with anticompetitive mergers and acquisitions. It should be noted, moreover, that references to competition laws in pre-industrial societies are dwarfed by references to rules and institutions to ensure fair dealing and protect consumers, as discussed further in section III below. Pre-industrial competition laws did not rest on the economics-oriented objectives of 21st century laws which emphasize consumer welfare/efficiency as the principal (and in the US, exclusive) policy objective or consideration. Pre-industrial prohibitions of cartels and monopolistic practices rested more on notions of fair dealing, justice and social harmony.

1. Cartels Prohibitions of cartels can be found in several of our pre-industrial societies. Mesopo- tamian cities and polities of the third and second millennia banned price fixing by intermediaries. In classical Athens, the sitophylakes or market inspectors enforced laws against price fixing. Interestingly, an Athenian law banning horizontal price fixing led to the first documented antitrust lawsuit in history, recorded in the 4th century speech of Lysias for the prosecution entitled ‘Against the sitopolai.’2 Lysias describes a complaint

1 See B. Hawk, Commerce and Law: From Assur to Zigong (forthcoming, Brill). 2 See Kotsiris, ‘An Antitrust Case in Ancient Greek Law’, 22 Int’l L. 451 (1988).

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accusing Athenian dealers or sitopolai of purchasing grain in violation of either a law against hoarding or a law against cartels. The sitopolai were also accused of fraudulent price manipulation in violation of Athenian price controls. Viewed as a buyers’ cartel, Lysias alleged the following facts. In the winter of 388-387, grain imports into Athens had fallen off due to Spartan and other interferences with shipping. Grain and bread prices were climbing. An official grain commissioner (Antyus) advised the dealers not to compete and to purchase at a reasonable price, reminding them of the law requiring importers to sell at least two-thirds of their cargo at the Athenian port of Piraeus. The grain dealers followed his advice, formed a ‘ring’ and agreed to cease competing. Subsequently, all the submitted bids were identical and purchase prices declined. Instead of reselling the grain at lower prices, however, the dealers bought up large quantities to store until resale prices went up. The dealers then fabricated rumors of war and reduction in future shipments which had the intended effect of increasing resale prices. The dealers admitted the facts but denied liability on what today would be termed a ‘state action’ defense under US antitrust law. The dealers argued that the public official Antyus had ordered them to form a buyers’ cartel and that they had acted in the public interest. The speech prepared by Lysias, speaking for the complainant, urged rejection of the defense on the facts. Lysias argued that Antyus had merely given advice and not an order. More specifically, Lysias argued that Antyus had advised the dealers not to compete and bid up the price but he did not order them to store the grain. Lysias argued in the alternative that any order from Antyus would not have justified the dealers’ unlawful conspiracy. Finally, Lysias asserted that the dealers had not acted in good faith to keep grain prices down to sell at a lower price to the people; rather the dealers had charged six times the legal profit. Lysias closed by declaring that a verdict against the grain dealers was demanded by justice and the interest of the people. Unfortunately we have only Lysias’ speech and no record exists of the outcome of the case. Given that the verdict of the dikesterion was a simple yes or no without an explanation or rationale, in either event we would not have had the Athenian version of Parker v Brown.3 Turning to the Roman world, we find evidence of both cartel behaviour and laws prohibiting it. The Roman Justinian Code prohibited price fixing by commercial bodies. The extent of private cartel behaviour like price fixing during the Republic and Principate is not known. There was collective supervision of quality and prices in the ceramic industry and there are hints of price fixing in Roman Egypt in the textile industry. It certainly would not surprise a modern antitrust lawyer if collegia or associations facilitated collective price fixing or other cartel behaviour. Bans on cartels and restrictive agreements were not limited to European societies. For example, India and China provide examples of historical antecedents to section 1 of the Sherman Act and Article 101 of the EU Treaty. Price fixing was prohibited in the Ashoka period of ancient India. In imperial China, cartels were condemned as early

3 317 U.S. 341 (1943).

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as the Tang Dynasty in the 7th century, that is, more than a millennium before Article 101 and the Sherman Act.

The Qing Code of the last imperial dynasty continued the prohibition of anticompetitive conspiracies. At the risk of oversimplification, imperial Chinese bans on cartels were part of a larger economic policy. Despite frequent assertions by western scholars to the contrary, Qing China was not a complete state economy with little to no private commerce and trade. Early Qing emperors recognized that commerce and trade generated wealth and could both contribute to domestic social order as well as aggravate inequalities. Commerce was viewed as essential to the agrarian economy of China by providing markets for the highly specialized and dispersed production centers in the countryside. Prohibitions of restrictive practices extended to state officials. For example, Manchu officials who extorted to assist the commercial activities of their relatives were subject to beheading: If the relative of any member of the Imperial Household Department, imperial prince, prince of the blood, or government official engages in business and, forcibly occupying an important site, mountain pass, or ford, exploits his power and influence in order to extort payments, thereby preventing merchants from carrying on normal trade, then if discovered, the offender shall be beheaded after the assizes. If any ordinary person borrows money from such a personage, and engages in commerce in his name, occupying an important site, mountain pass, or ford, using force to oppress and hinder the local people, then he, too, shall be prosecuted under this sub-statute. (No. 154-4)

Not even the huge fines in the EU or imprisonment in the US match Qing capital punishment. This was deterrence taken to the ultimate level.

Of course, Qing China was not a Chicago School laissez-faire paradise. There was no state ideology favoring free markets in all circumstances. Cartel bans and anti-monopoly laws did not rest on economics-based consumer welfare objectives. Competition and commerce were desired as a means to preserve social order. Important national markets like the grain trade were subject to expansive state intervention and regulation. Informal or non-legal rules or values were used to target li (‘profit-seeking’) or excesses of wealth. Profit was viewed as a necessary evil, to be tolerated and monitored. Merchants larger than peddlers and itinerant traders were targeted, notably salt merchants. Qing officials would periodically announce a policy of ‘careful scrutiny’ of commercial practices. Perhaps a rough analogy might be an announcement by the EU Commission that it was giving ‘careful scrutiny’ to high tech or internet-related businesses or an announcement by the US Department of Justice that it intended to give ‘careful scrutiny’ under the federal antitrust laws to firms making supra-competitive profits.4

4 Suggestions to do exactly this were debated in the 1970s.

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2. Monopolization/unilateral conduct Rules and institutions dealing with monopolistic conduct, abusive dominance or exploitation are less clearly evident than anti-cartel laws in pre-industrial societies, although the secondary literature contains some references to abusive or monopolistic conduct. One example is a pre-Islamic ban on monopolistic practices in 6th century Mecca: ihtikar. In imperial China, monopolistic practices were condemned as early as the 7th century Tang Dynasty. The later Qing Code of the 17th to 20th centuries prohibited merchants and officials from monopolizing markets to increase sale prices, or to purchase goods at lower than market prices. As discussed more fully below in section IV, there are numerous references in pre-industrial societies to rules and regulations concerning unfair prices. Unlike modern prohibitions of excessive pricing as unlawful abuse of dominant position, however, pre-industrial rules and regulations did not require a dominant position or monopoly power.

3. Forestalling Legal and informal rules were developed in pre-industrial societies to ban forestalling, particularly with respect to essential foodstuffs like grain. Forestalling is the practice of buying goods before they are put on a local market. A common example is middlemen buying foodstuffs directly from farmers who ordinarily would sell the foodstuffs at a regular local fair or market. Bans on forestalling increased efficiency of markets by facilitating transactions in the larger market of pooled buyers and sellers where prices and quantities were more likely to reflect competitive demand and supply conditions. Some early pre-industrial societies like hunter/gatherers developed social rules to discourage forestalling. For example, one hunter/gatherer society fostered a belief that misfortune befell anyone who sold his goods on the way to the market. Legal rules banning forestalling can be found in later societies like medieval England, which made forestalling a common law offense. One analogue under modern antitrust laws is the US Supreme Court decision in Chicago Bd. of Trade.5

4. Hoarding Anti-hoarding measures are commonly found in pre-industrial societies. Under modern competition laws, hoarding might be considered an agreement to restrict trade if two or more competitors conspired to hoard goods or commodities. Or unilateral hoarding might be considered unlawful monopolization or abuse of dominant position if the hoarder had a dominant or monopoly position on a relevant market. For example, Mesopotamian cities and polities had anti-hoarding prohibitions which rested on the ruler’s duty to promote social justice and redress economic inequalities. A later example is found in classical Athens where the sitophylakes or market inspectors enforced laws against hoarding. In the late Roman Republic, there were rules against hoarding. Bans on forestalling by brokers and merchants were tighter in Qing China than in Europe.

5 Chicago Board of Trade v. United States, 246 U.S. 231 (1918).

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Anti-hoarding rules were fraught with conceptual and practical difficulties that permitted political considerations to play a not insignificant role in enforcement of the rules. The early Islamic world and Qing China provide the most detailed examples of the complexities and policy tensions raised by anti-hoarding laws and regulations. Early Islamic law generally condemned hoarding of essential foodstuffs. However, the legal schools offered different definitions of hoarding which reflect the theoretical difficulties raised by anti-hoarding rules. Moreover, there were exceptions to the ban on hoarding, notably food for personal use and imported goods and commodities. The principal Islamic legal remedy was a command that the hoarder sell at a specified price. When goods were forcibly sold, the hoarder was typically allowed to keep an amount of the goods for himself. Qing China developed rules on hoarding as part of its wider regulation of the grain trade. Qing China embraced a variety of measures beyond simple bans on ‘hoarding.’ This variety reflected policy debates in the early Qing period about the comparative advantages of coercion and exhortation in dealing with hoarding and, more fundamentally, debates about the economic benefits and harms of hoarding. Moral exhortations were made to speculating landowners, particularly to prevent export of grain needed in local markets. Qing China put in place legal rules, although the Qing Code of 1646 had no express provision on hoarding. A 19th century supplementary article prohibited speculative hoarding of grain by shopkeepers. Sanctions for breach of these formal rules were severe, including physical punishment and forced sales at no profit. Qing mandarins, like Islamic jurists, struggled with the definition of hoarding and with practical enforcement of anti-hoarding rules. Generally the Qing distinguished between 1) holding grain stocks off the market until prices rose, which was viewed as tolerable opportunism, and 2) deliberately trying to induce a price rise by withholding stocks, which was viewed as antisocial market manipulation. The distinction rested primarily on the intentions of the persons storing the grain. In effect, local Qing officials had wide discretion in deciding whether to prosecute, which in turn permitted pragmatic variations in enforcement based on political concerns. III. Consumer protection or fair dealing Throughout history there have been local markets and small shops where a broad variety of foodstuffs, household goods, crafts goods and even luxury goods were sold to consumers or end-users. Men and women began exchanging goods in local markets before cities and large collective authorities formed. States were not necessary institutions. Retail markets have always been with us and have continued under any and all forms of broader political and social institutions. For example, Mesopotamian cities had extensive markets in the cities (mahiru in Assyrian and suqu in Babylonian) or at harbors or ports (karum). Egyptian Old Kingdom tombs from Saqqara and Abusir in

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the mid-third millenium show riverside markets retailing bread, fruit, vegetables, fish, clothing, furniture and fans. The Athenian agora was filled with shops selling local foodstuffs, household items like ceramics, and imported commodities. In Roman cities there was a local market or the specialized macellum. Cities in the early Islamic world contained a central marketplace (the suq) with shops for foodstuffs, textiles, jewelry, spices and other goods. In India there were streets of permanent shops (angadi), where exchanges were continuously transacted, bazaar streets (kadai) where paddy, rice and other commodities were sold, and periodic fairs (tavalam) where a variety of goods were exchanged, such as cattle, firewood, grain, ornaments, and clothing. Most goods in local markets were sold to consumers without intermediaries or middlemen. Foreign goods and commodities were the exception, although their importance in local markets was probably not significant (at least in terms of volume and number of transactions). Given the ubiquity of local retail markets throughout history, it is unsurprising that all pre-industrial societies developed legal and informal rules and institutions intended to protect consumers and ensure fair dealing. They were based on notions of fairness and justice, including a ruler’s perceived obligations to the ruled. Although today we might label these laws ‘consumer protection,’ in pre-industrial societies they were usually cast as ‘fair dealing’ laws. For example, an Elamite king around 1830 BC placed a statue of justice in the Susa market to guarantee fair trading practices and correct prices. There were both political and ethical/religious considerations underlying pre-industrial consumer protection and unfair trading laws. It is difficult, however, to separate the politics from the ethics, particularly in earlier ancient societies like the Mesopotamian cities and Pharaonic Egypt. Perhaps the clearest example of the political/religious basis of retail regulation and consumer protection rules and institutions comes from the early Islamic world. On the one hand, the Qu’ran itself demands honest trading. On the other hand, political considerations informed application of retail market rules. Secular authorities were strongly incentivized to ensure a peaceful operation of local markets. Complaints and grievances in the local marketplaces, particularly concerning access to foodstuffs, risked creating the social and ultimately political risk of popular unrest. The following is a brief summary offering a glimpse of the broad variety of consumer protection and fair trading rules in pre-industrial societies. As can readily be seen, many specific rules have modern counterparts. Product warranties or quality guarantees are commonly found. Mesopotamian cities had rules relating to the quality of specific kinds of goods. Product warranties or quality guarantees are found in ancient Egypt, where Old Kingdom tomb inscriptions relate that the seller of linen guaranteed the quality of the fabric with the words: ‘I say this: It is a ntrw-fabric well-crafted quality.’ In the late Roman Republic and Principate, sellers of a slave had a duty to reveal to the buyer possible defects unless caps were placed on the heads to indicate the lack of warranty. The Justinian Code extended this liability to all goods and commodities. Prohibition of misrepresentations and consumer fraud also are commonly evidenced in pre-industrial societies. For example, an Athenian law prohibited false statements

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and misrepresentations. Agoranomoi (market magistrates) supervised the quality and condition of goods ‘to ensure that they are pure and unadulterated.’6 An Athenian buyer could return a slave if the seller failed to disclose a latent defect. The Hindu dharma- sastra commentator Yajnavalkya states that a person adulterating drugs, oils, salt, perfumes, rice or sugar could be fined. Cheating and passing off were condemned. The Qing Code prohibited sale of inferior and defective goods. The early Islamic world provides the most comprehensive consumer protection laws and enforcement institutions in the pre-industrial world. Manuals were drafted for the express purpose of providing clear rules along with practical details. Practical manuals with highly detailed instructions concerning specific products and commodities guided the muhtasib, the Islamic market inspector. Manuals focused heavily on the quality of products commonly sold in the markets, ranging from food and medicine to shoes and fabrics. Each chapter advised the muhtasib on how to detect fraud and adulteration of a specific or particular product like addition of chickpeas or rice flour to bread dough. Manuals even provided standards for product ingredients and processes. Sanctions included public whippings and amputation. Ponderous law review articles expounding on deterrence and due process have not been found. IV. Unfair prices and price controls

Although there are few references to pre-industrial laws prohibiting monopolistic or abusive practices by dominant firms, legal prohibitions of ‘unfair prices’ and unfair dealing are not uncommon. For example, as mentioned above, an Elamite king in the early second millennium erected a statue of justice in the market of Susa to publicly demonstrate his guarantee of fair trading practices and correct prices in the market. The Athenian sitophylakes enforced laws to prevent speculation and to stabilize prices when there were price fluctuations.

Qing China equated ‘unfair’ prices with theft.

Unlike modern competition laws such as Article 102 of the EU Treaty, no dominant position or significant market share was necessary. Perhaps the closest modern counterpart would be statutes like section 5 of the Federal Trade Commission Act prohibiting unfair methods of competition. And also similar to section 5, pre-industrial laws banning unfair prices and unfair dealing were enforced by officials, and not by private competitors using law as a business strategy.

Rules requiring ‘fair prices’ for grain and bread are commonly found in many pre-industrial societies. The political implications of inadequate production and distribution of grain and bread were recognized well before the Parisian bread riots influenced the

6 See Aristotle, Athenian Politics 51.

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course of the French Revolution and the trial of Louis XVI in the late 18th century.7 Throughout history, production and distribution of grain and bread prices have been subject to public or official affirmative measures like monitoring and storage, as well as negative measures like prohibitions of forestalling, hoarding, and cartels, as discussed above. Laws were motivated by both political concerns about unrest and moral concerns about ensuring adequate food supply to the populace.

In classical Athens, imported grain was purchased at wholesale at the port of Piraeus at a ‘just price’ which was intended to balance a profit to the grain merchant/shipper and an acceptable retail price to the consumer. Roman emperors took measures to reduce wheat prices by setting maximum prices or granting buyer subsidies. For example, in 19 AD, Tiberius placed a price ceiling on grain and offered to compensate merchants two HS per modius, equal to about 6.5 kilograms, suggesting that the price before his intervention was at least two HS above the price he thought people could bear. In 64 AD, Nero set another price ceiling for wheat.

We also find evidence in pre-industrial societies suggesting ‘official’ retail prices. These often take the form of general declarations by a ruler that he will ensure fair and just prices. Such general declarations offer weak support for a robust price control system, let alone ‘administered prices’ on essential or important goods and commodities. Even product-specific ‘official’ prices may have represented ideal or hortatory prices rather than actual transaction prices. Official price lists could serve as political propa- ganda to demonstrate the ruler’s performance of his sovereign and paternalistic duty to promote social justice and redress economic inequalities.

Indeed, ‘fair prices’ and price controls in pre-industrial societies have generated considerable debate. Market-friendly scholars minimize price controls and emphasize the theoretical and practical difficulties of implementation. Even modern bureaucratic states find it difficult to enforce retail price controls on the ground. Today, Article 102 of the EU Treaty prohibits unfair prices by dominant firms. The conceptual and practical difficulties of applying a legal rule banning ‘unfair’ or ‘excessive prices’ are enormous. The necessary administrative machinery to enforce price controls over a broad range of goods was almost certainly absent in ancient societies.

The early Islamic world provides many examples of the practical and theoretical difficulties in applying pricing rules, as well the attendant political and social tensions. Despite the general disapproval of official price interventions, Islamic officials were known to force merchants and traders to sell grain at reduced prices, sometimes after popular pressure. Popular pressure could modify if not trump legal rules. In this respect, one is reminded of congressional demands that the Federal Trade Commission initiate investigations whenever the price of gasoline rises. Plus ça change, plus c’est la même chose.

7 See Hawk, Public Opinion in Paris during the Trial of Louis XVI, unpublished Honour’s Thesis, Fordham University (1962).

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V. Conclusions Let me finish this very brief excursion into the past with two suggested conclusions. First, Adam Smith was right that there is a natural propensity both to trade and to fix prices. Cartels are an ancient phenomenon and so are legal attempts to prohibit them. Second, pre-industrial laws concerning unfair prices and unfair dealing have the comparative attraction of being more transparently applied than modern competition laws concerning abusive unilateral conduct. As mentioned at the outset, the policy considerations underlying the present enforcement of competition law are increasingly said to be limited to economic considerations, notably consumer welfare and efficiencies. Non-economic considerations like fairness and deconcentration of economic power for political reasons are generally rejected, at least in public statements by enforcement officials. However, outside the US, and notably in the EU and its Member States, the narrowing of competition law objectives to consumer welfare (as defined by most economists) is not as pronounced. Although official statements of the EU Commission repeat the mantra of consumer welfare and economic efficiencies, older non-economic considerations like fairness continue to play a prominent role in actual enforcement of the EU competition laws, most notably with respect to abuse of dominant position. Echoes of pre-industrial notions of fair dealing and fair prices can be heard in the enforcement of Article 102 and its counterparts around the world. Today, fairness considerations must be disguised in the presently more politically correct notions of economics and consumer welfare. Timing, i.e.,long-term versus short-term, is frequently the mechanism used to mask fairness. The time dimension permits what are essentially fairness arguments to be translated into economic consumer welfare arguments. For example, a challenged practice is determined to be abusive or unlawful even though there is no proof of present harm to consumers in the short run (e.g., higher prices, lower output, or lesser quality). The rationale is that the challenged practice is abusive or unlawful nonetheless because it is said to harm competitors in the short term, which will weaken competition and harm consumers in the long run.8 Hidden behind the short-term versus long-term dimension lies fairness. Many decisions under Article 102 and many earlier cases under section 2 of the Sherman Act condemning unilateral conduct as unlawful can be understood as resting on inarticulated notions of fairness or codes of legitimate business conduct wrapped up in the language of economics, efficiencies and consumer welfare, all with general declarations (or protestations) that the finding of unlawfulness is not intended to protect competitors but competition.9 Some of the best examples under Article 102 concern cases where competitors demand some kind of access to a dominant firm’s assets or resources.

8 Claims of abusive excessive prices do rest on short-term harm to consumers. But the time dimension becomes important again, in the sense that US courts have rejected excessive pricing as monopolizing conduct precisely because consumers may benefit in the long run from increased prices which attract entry. 9 As to earlier cases under section 2 of the Sherman Act, see Hawk, ‘Attempts to Monopolize --- Specific Intent as Antitrust’s Ghost in the Machine’, 58 Cornell L. Rev.1121 (1973).

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Indeed, unilateral monopolization or abuse litigation has become a strategic business tool to challenge successful competitors. A mischievous observer might ask whether modern statutes like Article 102 that are said to rest on consumer protection are better understood as resting often on competitor protection. In sum, pre-industrial laws that expressly rested on fairness arguably were more transparent and coherent than many interpretations of modern monopolization and abuse of dominance laws, which engender costly intellectual gymnastics to attempt to show economic consumer welfare effects of challenged conduct rather than focusing on the identification and application of the appropriate criteria to assess whether that conduct should be judged ‘fair’ or ‘unfair.’

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 183 Patent settlements as by object restrictions: a European approach, but is it the right one?

James Killick*

I. Introduction It is a great pleasure to participate in this book to celebrate Ian’s long and varied legal career. Much of the work that I have done together with Ian over the past seventeen years has been in that interesting area of law where intellectual property (‘IP’) and antitrust overlap. We worked together on cases such as IMS, Microsoft and Rambus, as well as a number of pharmaceutical cases. So this is a fitting topic to cover in a book aimed at being a tribute to Ian’s contribution to the legal world. The interaction between competition rules and IP rights continues to be the source of lively debates in Brussels and other capitals across the globe. IP lawyers lament that competition lawyers do not understand IP rules and that competition intervention undermines the core objectives of IP laws. IP lawyers (and some competition lawyers, including, on occasion, Ian) argue that if there are any issues with IP rights or the way they are exercised, the IP system can be tweaked to address them. Indeed, IP rights are designed to strike a balance between the need to encourage innovation (by granting exclusivity) and the need to spread ideas (for example, a patent is granted in exchange

* The views expressed are personal and do not necessarily reflect those of the firm or any of its clients.

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for the disclosure of an invention that may otherwise be kept secret). Competition enforcers stress that they do not seek to undermine or meddle with the IP system and that competition intervention in IP matters is typically only in exceptional circumstances and is warranted because more competition means more innovation. The bottom line is that from time to time the two sets of rules clash and, more often than not, competition law prevails. The debate as to when such an intervention is warranted and how deep it should be continues, although the specific topics in issue have been changing. Nowadays, patent settlements and standard essential patents are the key issues, whereas compulsory licensing was the issue at the heart of the debate a decade or more ago. This is why it is interesting to write on patent settlements under EU competition law, which is among the most important recent developments in the intersection of IP and competition law in Europe. Ian and I worked together on the perindopril case for a number of years. But since that case is currently before the General Court, I will not cover it in detail here, but will look at the published Lundbeck decision and at the issues around parent settlements in Europe more broadly. II. The sector inquiry and its progeny

Before looking at the individual cases and underlying theories pursued by the Commission, we must first go back in time to 15 January 2008, when DG COMP opened1 a sector inquiry into the pharmaceutical industry by way of unannounced inspections – the first (and last) time that dawn raids have been used in a sector inquiry. (Something both Ian and I were critical of at the time: are dawn raids appropriate for a general cross-sector inquiry?) DG COMP announced it started the inquiry to examine (a) delays to generic entry and (b) the reasons behind fewer new pharmaceutical products being brought to market, as the then Competition Commissioner’s words made clear: ‘Individuals and governments want a strong pharmaceuticals sector that delivers better products and value for money. But if innovative products are not being produced, and cheaper generic alternatives to existing products are being delayed, then we need to find out why and, if necessary, take action.’2 DG COMP was therefore interested in investigating causation when the sector inquiry was opened. The inquiry that followed is still remembered, though not with any degree of fondness, by those who were impacted by it. It involved a huge amount of work and about 30 detailed questionnaires, with weekly deadlines throughout the summer and autumn.

1 Commission Decision of 15 January 2008 initiating an inquiry into the pharmaceutical sector pursuant to Article 17 of Council Regulation No 1/2003 OJ [2008] C 59/06. 2 Commission Press Release IP/08/49 of 16 January 2008, ‘Antitrust: Commission launches sector inquiry into pharmaceuticals with unannounced inspections’, available at http://europa.eu/rapid/pressReleasesAction.do?refer ence=IP/08/49&format=HTML&aged=0&language=EN&guiLanguage=en.

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A Preliminary Report was published by DG COMP on 28 November 2008, which claimed that originator companies had recourse to a ‘toolbox’ of practices3 in order to delay the entry of generic medicines onto the market and that these practices, where successful, ‘may increase the likelihood of delays to generic entry’ and ‘may significantly increase legal uncertainty to the detriment of generic entry and can cost public health budgets […] significant amounts of money.’ The Preliminary Report also claimed that the lower number of new drugs could be caused by practices of originator companies (e.g., defensive patenting strategies). However, on the issue of the effect of regulation, the Preliminary Report was almost entirely silent. Similarly, the Preliminary Report did not address the issue of causation. The analysis was thus speculative and there was no finding that any of the practices by originator companies caused generic delay or a drop in innovation. Ian and I were both critical of the fact that the Preliminary Report had missed a key part of the picture by failing to examine the crucial role played by the regulatory framework in the pharmaceutical industry.4 National regulatory measures better explain the significant disparities as to the average time for generic entry amongst the different EU Member States than the ‘toolbox’ – since there was no evidence that the elements of the ‘toolbox’ were applied differently in different countries. The way in which Member States incentivize generic entry and the regulatory delays that generic producers incur during the process of bringing a product to market also suggested that regulation was the major element at work. On 8 July 2009, DG COMP published its Final Report on the pharmaceutical sector inquiry. Like the Preliminary Report, the Final Report concludes that the entry of generic medicines onto the market is being delayed (compared to the perfect competition scenario of generic entry immediately upon patent expiry) and that there was a decline in the number of new chemical entities (‘NCEs’) reaching the market. Happily, the Final Report went a good way towards remedying the omissions in the Preliminary Report. While the Final Report suggests that the conduct of R&D-based pharmaceutical companies may be one of the causes of delayed generic entry and of the decline in NCEs reaching the market, it accepts that shortcomings in the regulatory framework may also explain and be a significant cause of these phenomena. Turning specifically to generic entry, the Final Report seemed to recognize that the primary cause of the delays to generic entry identified by the sector inquiry is regulatory in nature and not practices of originator companies. For example, to what extent was the delay due to Member States not encouraging doctors to prescribe an active substance

3 According to para. 369 of the Preliminary Report, the ’toolbox’ was made up of the following elements: secondary patenting; disputes and contacts; patent litigation; patent settlements; interventions before regulatory bodies; other interventions; and life cycle strategies. 4 See, for example, a talk I gave at a conference in January 2009 - http://www.ipdigit.eu/wp-content/uploads/2010/10/ Killick-Pharma-Sector-Inquiry-Conference-.pdf.pdf and James Killick and Anthony Dawes, ‘The Undetected Elephant in the Room: An Analysis of DG Competition’s Preliminary Report on the Pharmaceutical Sector Inquiry’, Competition Policy International, 24 Feb 2009, available at https://www.competitionpolicyinternational.com/ the-undetected-elephant-in-the-rooman-analysis-of-dg-competitions-preliminary-report-on-the-pharmaceutical-sector-inquiry/.

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rather than a specific product and not obliging pharmacists to dispense the cheapest generic available? Was the delay largely due to the Member States being slow in granting marketing authorizations? And did the national pricing and reimbursement systems discourage speedy generic entry? The Final Report therefore sets the record straight and concludes that ‘the Preliminary Report did not suggest that the observed delays were exclusively due to company behaviour, but emphasised that practices employed by originator companies may contribute to the delays’.5 It concludes that regulation goes to the heart of the question of why generic entry is delayed, significantly in certain Member States. III. What types of patent settlements did the Sector Inquiry Report identify as potentially problematic? The Report split patent settlements into three categories. Category A is a settlement where there is no limitation on generic entry. Category B (where there is a limitation on generic entry) is split into two sub-categories, B.I and B.II. The difference between the two is that in a B.I settlement there is no value transfer from the originator to the generic, whereas there is a value transfer in a B.II settlement. The sector inquiry report and follow-up statements by the Commission identified the B.II settlements (those limiting generic entry and involving a value transfer form originator to generic) as the problematic type of settlements together with two other type of settlements, namely settlements entailing restrictions beyond the exclusionary zone of the patent and settlements concerning ‘sham’ patents (assuming these exist in Europe, which may not be a safe assumption given the EPO’s strong reputation when deciding whether to grant patents). Of these three categories of problematic settlements, the main target for the Commission’s attention has been type B.II settlements. IV. Ongoing surveillance of type B.II settlements post sector inquiry In its Final Report, DG COMP stated that it was considering further ‘focused monitoring’ of the pharmaceuticals sector, in particular of settlement agreements that limit generic entry and include a value transfer from an originator company to a generic company. The Commission also opened formal antitrust investigations regarding alleged delayed generic entry (including the Lundbeck case, described in more detail below). The Commission said these cases were the way it would provide guidance as to the compa-

5 Para. 1512 of the Final Report.

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tibility of certain practices with the EU competition rules, something which the sector inquiry deliberately did not do: ‘it is important to underline that – whilst the report primarily analyses company behaviour – it does not identify individual cases of wrongdoing or provide any guidance on the compatibility of the practices examined with the EC competition rules.’6 The monitoring exercise has been going on since the end of the pharmaceutical sector inquiry in 2009. The latest DG COMP patent settlement monitoring report (the 5th) emerged in December 2014 and covers patent settlements entered into in 2013 between originator and generic companies. As in previous reports, DG COMP claims that the report shows a ‘steady increase’ of patent settlements, which supposedly7 proves that its enforcement activities do not prevent pharmaceutical companies from settling patent disputes. The report also claims a steady decrease of potentially problematic B.II settlements. Two main criticisms can be made about the report. First, the definition of potentially problematic settlements is so broad that it catches settlements which are unproblematic from a competition law viewpoint. Second, despite five years of monitoring, DG COMP is unable to come up with any real guidance for the industry and the yearly report perpetuates a regrettable state of legal uncertainty.

1. Suspicion falls on all real settlements The monitoring report perpetuates DG COMP’s stigmatization of B.II settlements. Indeed, DG COMP’s overly broad test renders any real settlement suspect. According to the report, A and B.I-type settlements are the only form of settlements that are unproblematic. But these are agreements in which one side or the other surrenders – there is no real compromise.

(a) A-type settlements A-type settlements are those imposing no restrictions on generic entry. According to the report, 44% of these settlements were concluded on a ‘walk-away’ basis, each party simply agreeing to discontinue their litigation. The other 56% are divided between settlements with a value transfer from the originator to the generic (36%) or the reverse (20%). The report notes that 53% of A-type settlements were concluded after patent expiry, i.e.,when the generic is already free to market its product. In other words, there is nothing left to litigate. The only thing to resolve is litigation costs/damages. Such settlements tell us nothing about settling a patent dispute when the patent is still in force.

6 Para. 22 of the Final Report. 7 The report claims that the number of settlements has increased, but this is meaningless if there is no comparison with the total number of court cases. If there are more court cases, then we would expect more settlements.

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While the report says that 47% of A-type settlements were concluded when the patent was still valid, no information is provided on the context of these settlements: did the product still enjoy exclusivity or had generic entry already occurred? How far away was patent expiry? Was there parallel litigation won/lost by the patent holder? In sum, the fact that 66 A-type settlements were concluded is not evidence that DG COMP’s approach has not hindered settlements of litigation in which there is still much at stake.

(b) B.I-type settlements B.I-type settlements appear to represent the reverse situation: the generic withdraws from the battlefield. In such cases, the generic will typically have accepted the validity of the patent (notably after defeat at first instance) and will postpone its entry until patent expiry, with or without compensation paid to the patent holder.8 Other than this, no further information is provided on these agreements. It is difficult to view them as representative settlements of patent litigation in which much is at stake and both sides think they have a chance of winning.

(c) B.II settlements If A and B.I settlements are not real settlements, or at least they are not settlement of litigation in which there is genuine doubt on either side about final victory, then the conclusion naturally flows that all real settlements lie in the stigmatized B.II category, and will receive the ‘highest degree of antitrust scrutiny’.9 This conclusion is not surprising given how broadly the criteria of value transfer and limitation on the generic’s entry (the two elements of a B.II settlement) are defined. Even the classic way of settling a patent dispute – a royalty-bearing licence enabling the generic to enter the market immediately or at a point in time before expiry – will fall in the category of B.II settlements. The notion of value transfer also includes distribution agreements or side deals in which the generic company receives ‘a commercial benefit’.10 The report even states that a non-assert clause ‘may technically be perceived as constituting a value transfer’. Likewise the payment of a royalty is seen as a limitation of the generic’s freedom to market its product.

2. Lack of guidance as to which settlements are — and are not — illegal It is striking that the 5th report offers no further guidance on the legality of B.II settlements, despite five years of monitoring and two cases brought to a decision, namely the Lundbeck and Perindopril cases. At the end of the sector inquiry, the Commission

8 5th Patent settlement monitoring report, para.42. 9 5th Patent settlement monitoring report, para.17. 10 5th Patent settlement monitoring report, para.12.

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promised that guidance would come through cases and further monitoring. Since 2009, DG COMP has been notified of a total of 611 settlements, including 48 B.II settlements. These 48 settlements presumably received the ‘highest degree of antitrust scrutiny’.11 No case was opened following such scrutiny. Yet, DG COMP seems unable to narrow down the category of allegedly problematic settlements or to explain why these 48 settlements did not raise competition issues. Why continue to define so broadly the notion of value transfer such that there are many potentially problematic B.II settlements (including pure early entry agreements) if most of them are not worthy of enforcement action? DG COMP seems reluctant to give any guidance: the report only says that a pure early entry agreement ‘is not likely to attract the highest degree of antitrust scrutiny’.12 Why not say: early entry agreements are ‘typically unproblematic’ under competition law, as the report says of A. and B.I settlements13? There is something paradoxical in suggesting that an early entry agreement allowing entry before patent expiry is more suspect than a B.I settlement where the generic agrees not to enter until patent expiry. Instead, DG COMP continues to promise that ‘obviously, an assessment of each individual case [will] be necessary’. While this statement seems aimed at offering reassurance, it raises serious issues of legal certainty. The message is essentially that B.II settlements will be closely scrutinized and that the outcome of the assessment may vary in each case, without any further guidance. It is thus unsurprising that only eleven B.II settlements were concluded in the whole of Europe in 2013, representing a total of 8% of settlements (as opposed to 22% before the sector enquiry).

3. ‘Highest scrutiny’ plus lack of guidance may lead to less competitive settlements The lack of guidance would not be so important if B.II settlements were indeed something undesirable for the economy, a form of agreement that is always by its very nature anticompetitive. But they are not: patent disputes are complex, costly and highly uncertain. Ending them with a mutually satisfactory compromise is not a bad thing – indeed many national laws encourage settling disputes. In the recent Cartes Bancaires judgment, the highest EU court said that restrictions of competition by object should be limited to agreements that are by nature harmful to competition, i.e.,agreements so likely to generate anticompetitive effects that it is not necessary for the enforcer to prove their actual effects. B.II settlement agreements are clearly not all by nature anticompetitive - something confirmed by the fact that DG COMP has not opened a single case after 48 notified B.II settlements. While some B.II settlements could have anticompetitive effects, others may be neutral or pro-competitive. For example, a generic company may, through a

11 5th Patent settlement monitoring report, para.17. 12 5th Patent settlement monitoring report, fn. 15. 13 5th Patent settlement monitoring report, paras.15-16.

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settlement, obtain the right to distribute the originator’s product (which could be superior to its own product) and resolve difficulties in getting a market authorization. It may also be able to enter before patent expiry, which it would not be able to do if it lost the litigation. The settlement may change nothing in the patent situation if parallel litigation is on-going in which a judge is anyway examining the validity of the patent. Yet, the threat of vigorous scrutiny plus the absence of guidance will deter companies from entering into any of these B.II settlements. Companies adapt their behaviour not only to avoid conduct which has been sanctioned by authorities but also conduct which is likely to come under scrutiny by authorities (particularly the ‘highest degree of scrutiny’). Instead of concluding a B.II settlement, companies may elect not to settle, i.e.,a ‘fight to the death scenario’. Thus, it is possible that some B.II settlements that could have led to entry before patent expiry are replaced, to avoid antitrust risk, by a B.I settlement (in which the generic company agrees to enter only after patent expiry), i.e.,a less competitive ‘settlement’. The combination of a lack of guidance and the threat of enforcement may thus lead to a suboptimal outcome. There are therefore strong reasons why DG COMP should end the stigma attached to all B.II-type settlements by providing long-overdue guidance to the industry. The other major conclusion of the monitoring exercise is that it is difficult to consider that type B.II settlements are restriction by object. First, the absence of any enforcement of the type B.II settlements notified to DG COMP after the sector inquiry suggests that these settlements cannot all be bad. Second, if after five years of monitoring and over 600 settlements reviewed (including 48 B.II settlements), DG COMP is unable to define which settlements are by nature anticompetitive, this suggests that a by object test is the wrong approach. DG COMP should abandon form-based stigmatization of settlements and instead focus its enforcement on patent settlements that have the effect of delaying generic entry. V. The Lundbeck case Having looked at the sector inquiry report and follow-on monitoring reports, the final port of call is to look at the legal test applied in the one published decision in this field, the Lundbeck decision.14 It was in June 2013 that the Commission fined Danish pharmaceutical company Lundbeck €93.8 million as well as several generic producers a total of €52.2 million for alleged anticompetitive practices in the market for antidepressant medicines.15 According to the Commission, the object of the contested agreements was to delay the entry on the market of cheaper generic versions of Lundbeck’s blockbuster drug

14 The Fentanyl decision (involving J&J and Novartis) does not involve any patent litigation, so it is not a relevant precedent to judge the Commission’s approach to patent settlements. 15 Commission decision of 19 June 2013, COMP/ AT. 39226 – Lundbeck. The Decision was published in early 2015.

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citalopram, which could theoretically have been launched upon expiry of Lundbeck’s patent for the active ingredient. As a result, the Commission considered that these agreements constituted restrictions of competition by object, in breach of Article 101 TFEU.

1. Background to the Lundbeck case The origins of the Lundbeck case go back to January 2002, when Lundbeck’s molecule patent on citalopram expired, paving the way for competition from cheaper generic versions of the drug. After the expiry of the molecule patent, Lundbeck still had a number of process patents that covered some, but not all, possible ways to produce citalopram. This meant that generic producers had several options to enter the market. In anticipation of the patent’s expiry, several generic producers had already started gearing up for market entry. Around the same period, a number of patent disputes arose between Lundbeck and generic producers. Among others, these concerned potential infringements of Lundbeck’s process patents by the generics, which typically claimed non-infringement or invalidity of the patents in return. While some patent infringement proceedings with some generics went all the way to a final judgment, Lundbeck concluded six agreements with four groups of generic producers (Merck KGaA, Arrow Group ApS, Alpharma, Ranbaxy), according to which the latter agreed to postpone their market entry for short periods (which Lundbeck argued were in line with the time needed to obtain a judgment in the other cases) against financial compensation. The Commission reportedly became aware of the above patent settlement agreements in October 2003 through information received from the Danish Competition Authority. It was agreed that the Danish Competition Authority would not pursue the matter further, but interestingly it said in a press statement in 2004 that the ‘Commission considers that this is a grey area and it is unclear how close we are in this case to the black area’.16 The case then proceeded at what might be called a leisurely pace: while there was an inspection in October 2005, the Commission only opened proceedings in January 2010; that is, eight years after the agreements and seven years after the Commission knew about them. The decision came three years later, in June 2013. The sceptical observer might note that the tardy opening of proceedings came just after the conclusion of the sector inquiry in the pharmaceutical sector. The hesitations in moving forward with this case directly contrast with the stigma that the Commission has sought to attach to the agreements, both in its decision and its official press statement on the case.17

16 Id., para. 652. 17 See Statement by Vice-President Almunia of 19 June 2013: ‘The practices we are sanctioning are simply unacceptable. By today’s decision we are confirming that these so-called “pay-for-delay” deals constitute severe infringements of EU competition law. They may cause severe harm to patients and taxpayers and must be sanctioned accordingly.’

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2. Findings of the Commission

(a) Three-prong test Presumably in an attempt to clarify the law in the area of patent settlements, the Commission decision contains two lengthy sections on the nature of the infringements and the notion of restriction of competition.18 They include general considerations about competition in the pharmaceutical sector and set forth, in conclusion, a three- prong test, supposedly informative of whether an agreement has ‘the potential to restrict competition by its very nature,’ i.e.,could be qualified as a restriction by object:19 1. The originator and the generic producer were at least potential competitors; 2. The generic producer committed itself in the agreement to limit, for the duration of the agreement, its independent efforts to enter one or more EEA markets; and 3. The agreement was related to a transfer of value from the originator to the generic producer, which substantially reduced the incentives of the generic producer to independently pursue its efforts to enter the market with a generic product.

(b) The Commission found that six agreements met this test The decision finds that the six agreements concluded by Lundbeck with four generic companies met the test. First, the Commission found that, at the time of the agreements, the generic companies were potential competitors, in particular as Lundbeck’s patents were not an obstacle that was impossible to overcome. The Commission relied on internal company assessments, albeit the documents were sometimes nuanced or showed doubt as to the outcome. Even where some internal documents showed that certain generics believed they infringed Lundbeck patents, the Commission found that this did not exclude competition since there remained a possibility that a judge would find otherwise, that the generic would succeed in invalidating the patent, or that it would innovate around it.20 The Commission also rejected arguments that one generic did not have a marketing authorization and thus was not a potential competitor.21 Second, the Commission found that the agreements included a limitation of the generics’ ability to enter the market against a value transfer. The findings contained in the decision, as published, and which are contested on appeal in certain respects, are as follows:

18 Id., sections 9 and 10. 19 Id., para. 661. 20 See e.g., Id., paras. 1031, 1033. 21 Id., para. 1037.

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• Merck Agreements: 1) a UK settlement and supply agreement, whereby Merck agreed for a period of 22 months not to launch any generic version of citalopram in exchange for various ‘value transfers’ totalling €19.4 million and the right to sell Lundbeck’s citalopram; 2) an EEA settlement agreement (excluding the UK), whereby Merck agreed for a period of 12 months not to launch any generic version of citalopram in exchange for a total payment of €12 million in the form of monthly instalments. • Arrow: 1) a UK agreement, whereby Arrow agreed for a period of 22 months not to sell any generic version of citalopram in exchange for several payments totalling €10.4 million; 2) an agreement for Denmark, whereby Arrow agreed for a period of 10 months not to sell any generic version of citalopram in exchange for a total payment of €684,000 in the form of monthly instalments. • Alpharma: an EEA agreement, whereby Alpharma agreed for a period of 17 months not to sell any generic version of citalopram in exchange for a total payment of €11.7 million. • Ranbaxy: an EEA agreement, whereby Ranbaxy agreed for a period of 12 months not to sell any generic version of citalopram in exchange for a total payment of €12.7 million.

(c) Other important factors The decision also refers to other ‘important factors’ which the Commission took into account in reaching the conclusion that the agreements had an anticompetitive object. First, the Commission found that each agreement prevented the generic company from selling any citalopram, i.e.,the agreement supposedly afforded Lundbeck protection outside the scope of the disputed patent(s). It should be said, however, that that finding was and is disputed by the parties, which argued that the undertaking not to sell citalopram was limited to potentially infringing citalopram. This sort of fact pattern clearly can give rise to difficult issues: if a generic only had one product and only agreed not to sell it for a short period, even if it was contractually permitted to switch to another supplier, would it have had a realistic ability to find an alternative source or develop and sell a different (and non-infringing) product in a short period of time? Second, the Commission found that the amounts paid by Lundbeck roughly corresponded to the profit the generics would have made had they entered the market. It can be observed that this is exactly the basis upon which a court would have compensated the generics if they had been injuncted by Lundbeck and ultimately won the litigation. This is for example what happened in the Neolab settlement (following a voluntary injunction), which the Commission found ‘unproblematic’ (see below). Finally, the Commission found that Lundbeck did not undertake not to sue the generics after the expiry of the agreements. The Commission thus seems to have viewed the agreements as not really settlement of litigation. Looking beyond the Lundbeck case, such an approach may be wrong as a general principle if a settlement is akin to a stay

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and both parties agree the form of compensation while awaiting the outcome of other currently pending litigation on similar or identical issues.

3. Comments on the Commission’s approach

(a) A cocktail of factors As described above, the conclusion that the six agreements had the object of restricting competition thus seems to have resulted from the three-prong test and a number of additional factors.22 It is unclear from the decision what weight was given to each of them and whether the absence of some of them would have led to a different conclusion. In other words, we now know that the cocktail of facts present in the Lundbeck case violates Article 101 TFEU in the Commission’s eyes, but we do not know whether a settlement differing in respect of one or more elements would be legal or not. While this is in line with DG Competition’s indication in the patent monitoring reports that the legality of patent settlements will be ‘assessed on the basis of the circumstances of each individual case,’23 this does not much enhance legal certainty in the area and it is difficult to reconcile with the by object qualification.

(b) The three-prong test Even if other factors were taken into account in the Lundbeck case, the three-prong test remains at the heart of the Commission’s theory to review patent settlement agreements, as could already be understood from previous public speeches by DG Competition’s officials.24 As I have written elsewhere,25 it is questionable whether this test constitutes a sound basis to qualify a patent settlement agreement as a restriction by object.

(i) Potential competition First, the definition of ‘potential competition’ is very loose. It appears that any chance to invalidate a patent or escape a finding of infringement would be sufficient to qualify a generic as a potential competitor. The test thus does not differentiate between patent disputes where the possible outcome is 50/50 and one where it is 10/90 or 90/10 or even 1/99 or 99/1. Even assuming that the generics were blocked by the patent, the Commission still finds that they would be potential competitors if it was not impossible to innovate around

22 The factors leading to such conclusions are spelled out, for each agreement, at para. 824; para.874; para.962; para.1013; para.1087; para.1174 of the decision. 23 5th Report on the Monitoring of Patent Settlements, 5 December 2014, para.17 (see also paras. 4; 7; 13). 24 Alexander Italianer, Competitor agreements under EU competition law, Fordham, 26 September 2013, available here: http://ec.europa.eu/competition/speeches/text/sp2013_07_en.pdf. 25 J. Killick and P. Berghe, ‘Applying a by object test to patent settlements is very different from the rule of reason’, Concurrences N° 2-2014 – pp. 21-24.

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the patent(s).26 In fact, the decision states that potential competition starts when a generic company ‘begin[s] to develop a commercially viable production process leading to a product that meets regulatory requirements’.27 This is hard to reconcile with the Visa case, which held that for a company to be viewed as a potential competitor there must be a real, concrete possibility for it to enter the market within a short period of time.28 The test proposed by the Commission seems instead to require a party to show the impossibility of the generic making it to the market within the foreseeable future. The problem with such a broad definition of a potential competitor is that it will not allow for any distinction between a generic company ready to enter the market and one that has serious hurdles to overcome. The generic may have its own strong incentive to settle or cease the litigation in the latter case. The impact on competition may differ greatly from one situation to another.

(ii) Limitation on generic freedom Second, the existence of a limitation of the generic’s freedom to independently market its product is an inevitable consequence of most settlements, which will often include a non-challenge and a non-infringement clause. In case of a genuine patent dispute, it is normal that the generic would agree not to enter for a certain period of time. In addition, the Commission’s test does not seem to leave any room to account for important elements of context: where several litigations dealing with the same issues are running in parallel, the settlement of one of them is unlikely to have any effect on the timing of generic entry if the other litigations continue. But the settlement will avoid further legal costs and proceedings (e.g., injunction request, damages claims, etc.), which is desirable from a welfare standpoint.

(iii) Value transfer Third, the presence of a value transfer to the benefit of the generic company cannot be enough to infer the existence of a restriction by object. The decision evokes the scenario of the originator paying a considerable amount of money to the generic for it to exit or not enter the market.29 This may be a scenario raising competition concerns, but this can hardly be considered as a representative description of all settlement agreements, even ones including a value transfer. Any settlement requires mutual concessions, so it must be expected for a settlement to include some form of transfer from the originator to the generic company. And there is a fundamental difference between one competitor paying another not to compete and the typical scenario of patent litigation: the difference is the patent, which grants one competitor a monopoly. The patent is the elephant in the room, which despite its size and importance seems often to be downplayed or forgotten.

26 Id., see section 9.4.5. 27 Id., para. 616. 28 Judgment of 14 April 2011, Visa Europe Ltd and Visa International Service v Commission, T-461/07, EU:T:2011:181, paras. 68 and 166. 29 Id., para. 640.

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(iv) Further thoughts on the application of this three-prong test in Lundbeck Interestingly, the decision states that not all payments in a settlement agreement will be suspicious, as a payment may be instrumental to the finding of a solution in the patent dispute.30 For example, the decision notes that when a generic has entered the market (at risk), only to find later that the likelihood of infringement or patent validity is high, a payment from the generic to the patent holder may be expected. Conversely, where the generic had stayed away from the market (wilfully or by means of an injunction), but it turns out in the litigation that the generic will likely win, the Commission considers normal that a settlement allowing immediate entry of the generic would also foresee a compensation of the generic company. But such statements, which in truth concern (anticipation of) defeats rather than real settlements, do not give any useful information about how to settle genuine disputes where both sides think they have a reasonable chance of winning. The examples given in the decision cleverly avoid responding to the most interesting question – in view of the three-prong test – of whether a settlement that includes a value transfer and a limitation of the generic in the same agreement could be found legal. It is likely a sign that, while the Commission does not want to condemn all such settlements, it does not know yet where to draw the line between the good ones and the bad ones. Further evidence of this is the fact that, through the annual patent settlement monitoring exercises, the Commission has been notified about 48 settlements agreements with a limitation of the generics’ access to market and a value transfer and has not publicly raised objections against any of them.31 The decision offers another example of this apparent lack of consistency. The Commission raises no objection against the settlement between Neolab and Lundbeck.32 In that agreement, Neolab accepted a voluntary injunction (i.e.,not to enter the market) until judgment was rendered in the Lagap litigation, in exchange for Lundbeck’s undertaking to compensate Neolab if it lost the Lagap litigation. When Lundbeck settled the Lagap litigation, it agreed to compensate Neolab for the lost profits due to the voluntary injunction. In short, the settlement included a postponement of Neolab’s entry in the market as well as a value transfer. The Commission found that the settlement was ‘unproblematic’,33 without however explaining why this would differ from the other agreements. In sum, the three-prong test of the Commission appears too abstract and simplistic to answer the question of whether a settlement would be by its nature harmful to competition. Indeed the Lundbeck decision even offers an example confirming this point (Neolab). It thus does not form a sound basis to infer an anticompetitive object. It is obvious that

30 Id., para. 639. 31 See above and http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/index.html for all five patent settlements monitoring reports. 32 Id., para.164. 33 Id., para.639.

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determining whether the generic company is a potential competitor and whether its access to market has been restricted is necessary for the analysis, since absent any such findings Article 101 TFEU would not apply. Likewise, the existence of a value transfer is relevant for the analysis. But these criteria, alone or in combination, are not enough to conclude a restriction of competition, let alone a restriction of competition by object. Settlements of litigation are usually positive for society – so there ought to be something very obviously wrong about patent settlements to make them fall in the object box.

(c) Settling purely on the merits of the patent case Interestingly, the Commission indicates in the decision that settlements ‘based purely on each party’s assessment of the strength of the patent and which impose limitations on the behaviour of the generic undertaking that fall within the exclusivity rights of the patent holder granted by patent law do not, in principle, constitute an infringement of Article 101 of the Treaty’.34 The decision also states that when the limitations are not achieved based on the strength of the patent, but through inducements that align previously competing interests, then a restriction of competition by object may exist.35 While this may sound like a safe harbour, it is difficult to see how it would apply in practice. The suggestion that a settlement should solely be based on the merits of the patent dispute seems difficult to square with the reality of patent litigation. A settlement is rarely if ever concluded on the sole basis of the merits of litigation (e.g., on patent strength). For a start, the two parties rarely share the same views as to patent strength because their knowledge of the issues is typically different. Rather, litigation might depend not only on the perception of strength of patent validity (or risks of infringement), but also on considerations linked to commercial opportunities. Other potential factors influencing parties’ decision to settle could also include associated commercial risks, prospective profits, litigation costs, difficulties in obtaining interim relief, remaining barriers to market entry (e.g., regulatory approvals; getting their generic product ready to produce efficiently in bulk), as well as the existence of other litigation proceedings. In addition, it is not clear from the decision whether an inducement (which according to the decision takes an agreement outside the safe harbour) would be limited to a payment. In its patent monitoring reports, the Commission has previously stated that an inducement (value transfer) can include a licence (even royalty free), a distribution agreement or a side-deal.36 It thus appears that only a settlement involving nothing else than an agreement on an entry date between the time of litigation and patent expiry, reflecting the parties’ assessment of the patent dispute (and it is unclear how the parties would agree on that), would fall in the safe harbour, although this is not entirely sure given that DG Competition was only willing to say that such a settlement ‘is not likely to attract the highest degree of antitrust scrutiny.’37

34 Id., paras.659, 638. 35 Id., para.659. 36 5th Report on the Monitoring of Patent Settlements, 5 December 2014, para.12. 37 5th Report on the Monitoring of Patent Settlements, 5 December 2014, fn. 15.

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(d) Compatible with Cartes Bancaires? The broad and abstract approach of the Commission may also be questioned in light of the recent Cartes Bancaires judgment of the Court of Justice. In that case, the Court of Justice recalled that the notion of restriction by object should be limited to conduct by its nature harmful to competition and must be interpreted restrictively.38 According to the Court, and the Advocate General in that case, experience and economic theory tell us when a conduct should be viewed as such.39 Such principles are difficult to reconcile with an approach which would infer the existence of a restriction by object from an abstract formula.40 The Commission definitely lacks the experience to say that the presence of the three criteria implies the existence of a serious restriction of competition and economic theory is divided on the issue – something the Lundbeck case shows clearly: how can a ‘grey’ case become an obvious by object case a decade later? In the United States, the Supreme Court rejected the Federal Trade Commission’s view (similar to the Commission’s views) in the Actavis case.41 It found that there was no reason to apply a per se or a ‘quick look’ rule finding patent settlements with a payment to the generic company presumptively illegal. It instead concluded that the rule of reason should be applied to determine whether an agreement had anticompetitive effects. The Supreme Court thus held that the parties can justify the payment and demonstrate pro-competitive effects as well as present arguments that the agreement did not bring about anticompetitive effects. In this author’s view, the Commission should follow the same logic and apply an effects-based test to patent settlements in Europe. VI. Overall conclusions

The Commission has adopted two Decisions on patent settlements (in Lundbeck and the Servier (perindopril) case). All generics and originators involved in both decisions have appealed. It will be at least a couple of years before we see the Court’s rulings on those appeals. It thus remains to be seen whether the EU courts will agree with the Commission’s stance or whether, as has been seen in the US, the courts will accept the arguments of the pharmaceutical companies that agreements of this nature should not be restrictions by object, but should be judged based on their effects since they do not necessarily harm competition, and may even be pro-competitive (following the reasoning in the Cartes Bancaires42 judgment).

38 Judgment in Groupement des cartes bancaires (CB) v European Commission, C-67/13 P, nyr, EU:C:2014:2204 paras. 50, 58. 39 Ibid., §51; Opinion of Advocate General Wahl in, Groupement des cartes bancaires v Commission, C-67/13 P EU:C:2014:1958, para.56. 40 See also the Opinion of Advocate General Mazak in, Pierre Fabre, C-439/09 EU:C:2011:113, para.26. 41 FTC v Actavis, No. 12-416, US Supreme Court, 17 June 2013. 42 Judgment in Groupement des cartes bancaires (CB) v European Commission, EU:C:2014:2204.

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200 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Arbitration and damages claims based on competition law infringements

Assimakis P. Komninos*

I. Introduction The recent Directive 2014/104/EU on damages actions for violation of competition law1 has brought an end to a long period of gestation in Europe and has now provided for a solid legal basis across the EU Member States for victims of competition law infringements to bring actions for damages against the undertakings that infringed the law. The choice of a Directive rather than of a Regulation means that a degree of divergence among the Member States will continue to exist but, nevertheless, the Directive has now fully harmonised the basic conditions of liability. The Directive harmonises only the area of liability for damages and does not deal with other remedies available under EU and national law, such as injunctions, restitution, declaratory relief, preliminary measures etc. The Directive and, more broadly, private antitrust enforcement raises many questions pertaining to jurisdiction, applicable law and forum-shopping. These are all issues that are bound to arise in a multijurisdictional setting. Indeed, most civil actions based on violations of EU competition law are international and concern disputes with trans- border elements. Arbitration is the natural setting for the discussion of these issues.

* The present views are strictly personal. 1 Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, OJ [2014] L 349/1.

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While the broader question of the interface between arbitration and EU competition law is well-treated,2 the specific question of civil actions for damages and arbitration, at least in Europe, is rather unexplored.3 Yet arbitration can offer an alternative forum for such disputes, and in recent cases parties have relied on arbitration clauses to bring or resist competition law-related claims for damages. In this article, our aim is to introduce the topic and address the main legal questions that have already started to be debated before the EU and national courts. II. Arbitrability of competition law claims The first question that arises with arbitration is ‘arbitrability’ of disputes, i.e.,whether the parties can submit to arbitration certain disputes and whether the arbitrators themselves have the power to decide them. It is the contractual nature of private arbitration that gives rise to this question. Unlike State courts, for which there is never any issue of ‘justiciability’, arbitration is the creation of private autonomy. For this reason it has long been debated whether certain disputes that pertain to public law and refer also to the public interest can be settled and submitted to arbitration. The question of the arbitrability of competition law disputes relates to the public interest character of such disputes. The paramount objective of antitrust laws, and certainly of EU competition law, is the safeguarding of effective competition in the market. Private interests, as such, are important only to the extent that their protection can be accommodated in the simultaneous protection of the broader public interest. In addition, private autonomy has a secondary role in competition law disputes. Indeed, competition law places limits upon it. Thus, courts must raise the competition law question ex proprio motu and may not allow the performance of an anti-competitive agreement, even if the parties have not raised the issue of its legality.4 Likewise, the possibility for public competition authorities in the EU and in some national competition systems to intervene in civil proceedings and submit amicus curiae observations is partly due to the public policy-interest nature of competition law-related litigation.5

2 See most recently G. Blanke & P. Landolt (eds.), EU and US Antitrust Arbitration, A Handbook for Practitioners, Vols. I & II (Alphen aan den Rijn, 2011); Komninos, ‘Arbitration and EU Competition Law’, in: Basedow, Francq & Idot (eds.), International Antitrust Litigation, Conflict of Laws and Coordination (Oxford/Portland, 2012), p. 191 et seq. 3 See Komninos and Burianski, ‘Arbitration and Damages Actions Post-White Paper: Four Common Misconceptions’, 2 GCLR 16 (2009). 4 See Canivet, ‘The Responsibility of the Judiciary in the Implementation of Competition Policy’, in: Judicial Enforcement of Competition Law, Committee on Competition Law and Policy, OECD (Paris, 1997), p. 24. 5 See Rincazaux, ‘Les autorités de la concurrence doivent-elles être autorisées à intervenir dans les procédures relatives à des problèmes de concurrence, plus particulièrement lorsqu’elles sont menées devant les juridictions ordinaires ? Dans l’affirmative, quel devrait être le fondement de leur pouvoir d’intervention ? Rapport international’, LIDC Questions 2001/2002, p. 1.

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Then, private parties cannot dispose of the antitrust rules or exclude their applicability. First, domestically, the Treaty competition rules constitute mandatory public law provisions,6 primarily aiming at safeguarding the public interest. The General Court has stressed that ‘the public policy nature of competition law is specifically designed to render its provisions mandatory and to prohibit traders from circu- mventing them in their agreements’.7 As a result, private parties cannot conclude a contract and explicitly or implicitly decide that their contract will not be subject to EU competition law. The application of the prohibitory provisions of Articles 101 and 102 TFEU is obligatory, automatic, and independent of the parties’ will (ius cogens).8 Second, they cannot be set aside by the parties’ choice of a foreign law9 since they are mandatory in the private international law sense (lois d’application immédiate).10 In the past, antitrust-related disputes were not considered as arbitrable, because of their public policy (ordre public) nature.11 This attitude, however, was reversed in the 1980s and early 1990s. Starting from the United States, ever since the 1985 ruling of the Supreme Court in Mitsubishi,12 US antitrust law claims are considered arbitrable. In Mitsubishi the US Supreme Court adopted an extremely favourable attitude to international commercial arbitration and held that an agreement to submit antitrust disputes to international arbitration was enforceable out of ‘concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes’.13 The dispute in that case involved territorial restrictions in an automobile distribution

6 See e.g., Schröter, in: Schröter, Jakob & Mederer (eds.), Kommentar zum Europäischen Wettbewerbsrecht (Baden- Baden, 2003), p. 98, referring to ‘zwingendes öffentliches Recht’. 7 Case T-128/98, Aéroports de Paris v. Commission, ECLI:EU:T:2000:290, para. 241. It is noteworthy that this general statement seems to attribute a public policy nature to any competition norms, national or EU. See also Case T-34/92, Fiatagri and New Holland Ford v. Commission, ECLI:EU:T:1994:258, para. 39, where it is stressed that ‘Article [101(1)] of the Treaty lays down a fundamental prohibition of agreements which are anti-competitive in character. That provision, adopted as a matter of public policy, is therefore binding on the applicant undertakings...’ (emphasis added). Compare also the express references in Case C-126/97, Eco Swiss China Time Ltd v. Benetton International NV, ECLI:EU:C:1999:269, para. 39; Joined Cases C-295/04 to C-298/04, Vincenzo Manfredi and Others v. Lloyd Adriatico Assicurazioni SpA and Others, ECLI:EU:C:2006:461, para. 31. 8 Compare also Commission Decision 2002/759/EC of 5 December 2001 (Luxembourg Brewers), OJ [2002] L 253/21, para. 62. 9 In this case, foreign law means the law of a country that is not an EU Member State, since EU competition law is an integral part of all EU Member States’ laws, therefore the choice of any national law within the EU would not lead to an application of ‘foreign’ law with respect to the Treaty competition rules. 10 See e.g., Schröter, supra note 6, p. 99; C. von Bar and P. Mankowski, Internationales Privatrecht, Vol. I, Allgemeine Lehren (Munich, 2003), p. 256. 11 The arbitrability has nothing to do, however, with the fact that in some countries competition disputes are of an administrative nature and are submitted to the competence of administrative authorities and courts. Indeed, disputes of an administrative nature have been invariably considered arbitrable. 12 Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 US 614 (1985). See also Baxter International v. Abbott Laboratories, 315 F.3d 829 (7th Cir. 2003). 13 Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 US 614 (1985), at 629.

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agreement. The distributor attempted to sell outside its assigned territory and refused to arbitrate as specified in the distribution agreement. Mitsubishi then sued to force arbitration. The distributor counter-claimed that his antitrust-based arguments were not arbitrable. The Court, however, adopted an extremely favourable position vis-à-vis international arbitration and reversed earlier rulings that had gone to the opposite direction.14 Thereafter the US Courts have been particularly arbitration-friendly and have actually extended this favourable attitude also to domestic arbitration.15 They have also considered that tort claims for damages based on the US antitrust law provisions could also be heard by arbitrators, if they are under the scope of the arbitration clause. The fact that antitrust law violations, especially horizontal cartels, may give rise to a multiplicity of complex damages claims should not be held against the arbitrability of such claims.16 The same favourable approach to arbitrability can also be identified in European countries, where we can again note the same gradual shift from non-arbitrability to arbitrability. Continental systems, on their part, follow a variety of criteria to establish whether a dispute can be submitted to arbitration. Most legal systems follow a criterion based on the ‘free disposition of rights’, while in some other systems, notably in France, freedom of disposition remains a criterion but the law refers also to the public policy nature of non-arbitrable claims.17 Under these criteria a dispute will be arbitrable if the rights at stake can be freely disposed of or settled by the parties and/or if the matter does not pertain to ordre public. In Europe, it has gradually been accepted that competition law disputes can indeed be arbitrated, notwithstanding their public policy nature. However, some systems still make a distinction between the application of the Treaty competition rules as a main issue (à titre principal), which cannot be submitted to arbitration, and deciding on the civil consequences of the prohibitions of Articles 101 and 102 TFEU (nullity, damages and restitutionary claims), where arbitrators can deal with these provisions as a subsidiary issue (à titre incident). Other legal systems follow a more sensible approach18 and make no distinction at all.

14 Compare e.g., American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2nd Cir. 1968). 15 See e.g., Kotam Elecs., Inc. v. JBL Consumer Prods., Inc., 93 F.3d 724 ((11th Cir. 1996); Seacoast Motors of Salisbury, Inc. v. Daimler-Chrysler Motors Corp., 271 F.3d 6 (1st Cir. 2001). 16 See e.g., In re Currency Conversion Fee Antitrust Litigation, 265 F.Supp.2d 385 (S.D.N.Y. 2003); JLM Industries, Inc. et al. v. Stolt-Nielsen SA et al., 2004 US App. LEXIS 22253 (2d Cir. 2004); XXX YCA 963 (2005). 17 Compare Arts. 2059 and 2060(1) of the Civil Code. 18 Limiting arbitrability only to the application of competition law à titre incident seems to exclude the submission to arbitration of a declaratory claim concerning the application or Arts. 101 and 102 TFEU to a given contract. However, such claims can be made before the civil courts, indeed, the direct effect of Arts. 101 and 102 TFEU is not based on any such distinction (see also see A.P. Komninos, EC Private Antitrust Enforcement, Decentralised Application of EC Competition Law by National Courts (Oxford/Portland, 2008), pp. 3-5), and there is no justification for such a discrimination against arbitration. It seems to us that the limitation of arbitrability to à titre incident claims was probably intended to exclude from the ambit of arbitration only those matters that are utterly connected with the exercise of public power, in particular the imposition of fines, which only competition (administrative) authorities can impose. There is, therefore, no reason to read this rule too broadly and even in countries that follow this criterion, parties should be able to submit to arbitration civil declaratory claims where Arts. 101 and 102 TFEU will be applied à titre principal.

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To give some examples, in France, matters pertaining to questions of ordre public – and competition law was considered of such a public policy character – were not arbitrable. The breakthrough took place in the Labinal and Applix cases of the Paris Court of Appeal,19 which clearly admitted for the first time the arbitrability of EU competition law disputes, albeit with some limitations. These were that arbitrators could not deal with issues, which were reserved to the Commission’s or to public authorities’ exclusive competence. Arbitrators could deal with the civil consequences of the prohibitions of Articles 101 and 102 TFEU, i.e.,declare the nullity of agreements or other legal acts contravening these prohibitions, award damages and grant injunctions, preliminary or permanent. In other words, an arbitral tribunal was equated to a national court. Belgian law permits the submission to arbitration of disputes that parties can freely dispose of.20 Questions pertaining to ordre public cannot be arbitrable. However, Belgian courts have made it clear that arbitrability is the rule and non-arbitrability the exception. Most problems in Belgium have concerned the arbitrability of the internal mandatory norms for the protection of commercial agents. Initially, Belgian courts refused to accept the arbitrability of disputes pertaining to such norms but recent judgments of the Belgian Cour de cassation are more favourable to arbitration and in principle accept the arbitrability of such claims.21 Belgian law seems to follow the distinction between application of competition law à titre incident and à titre principal. Since Articles 101 and 102 TFEU are considered provisions of public policy, arbitrators can deal with them only as subsidiary issue (à titre incident), while deciding on the civil consequences of the prohibition enshrined therein (nullity and damages claims).22 On the other hand, arbitrators would not be competent to apply the Treaty competition rules as a main issue (à titre principal). In Greek law, which follows a similar ‘free disposition’ criterion,23 the prevailing view is that the public policy character of those rules would not be an obstacle to the submission to arbitration of the civil law aspects of a dispute pertaining to competition law (nullity, contractual and non-contractual liability claims). On the other hand, the arbitrators cannot determine issues, with which the public authorities have been exclusively entrusted.24 More recently, the Greek Supreme Court (Areios Pagos) has dealt with the question of arbitration of competition law disputes and with the degree

19 CA Paris, 19.5.1993, Labinal SA v. Mors and Westland Aerospace Ltd., (1993) Rev.Arb. 645, with a comment by Idot, (1993-7) Europe 10, 11; CA Paris, 14.10.1993, Sté Aplix v. Sté Velcro, (1994) Rev.Arb. 164, with a comment by Idot, (1994-4) Europe 12. See also recently CA Paris, 20.3.2008, Jacquetin v. Intercaves – RG nº 06/06860. 20 Art. 1676 of Code of Civil Procedure. 21 See further Caprasse, ‘Ordre public sociétaire et arbitrage’, in: Poullet, Wéry & Wynants (eds.), Liber Amicorum Michel Coipel (Brussels, 2004), p. 505. 22 See Noirfalisse, ‘La Belgique’, in: Behrens (Ed.), EEC Competition Rules in National Courts, Vol. II, Benelux and Ireland (Baden-Baden, 1994), p. 80. 23 Art. 867 of the Code of Civil Procedure. 24 See Koussoulis, ‘Procedural Issues Before the Competition Committee’, in: Schinas (Ed.), Protection of Free Competition, The Practice of EPA/EA (Athens/Komotini, 1992) [in Greek], p. 298, fn. 30; Liakopoulos, ‘The Question of Private International Law in the Control of Concentrations’, in: The Control of Concentrations of Undertakings in Competition Law (Athens, 1998) [in Greek], p. 42.

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of judicial review of arbitral awards in such cases without raising any objection about arbitrability.25 Italian law has also progressed in a parallel way. Italy follows a free disposition criterion26 for the determination of the arbitrability of disputes. There too, it has recently been accepted that the public policy nature of the competition rules does not negate the disposition of rights based thereupon.27 In Spain, another country that adopts the free disposition criterion,28 again arbitrability is seen quite favourably, which means that competition law disputes would be arbitrable.29 The same is accepted in Swedish law and in fact the Swedish Arbitration Act does not stop at the general provision of section 1(1) which refers to ‘disputes concerning matters in respect of which the parties may reach a settlement’ but proceeds in paragraph (3) to a specific rule, according to which ‘arbitrators may rule on the civil law effects of competition law as between the parties’. Indeed, recently the Swedish courts confirmed this approach, when reviewing an arbitral tribunal’s decision that awarded damages for harm caused by an abuse of a dominant position.30 Germany and Austria, on the other hand, follow an arbitrability criterion based on the economic nature of the dispute.31 This criterion is more amenable to the arbitrability of the competition rules. Indeed, in German law, competition law-related disputes have generally been considered arbitrable.32 In England & Wales, where arbitrability is not defined by statute,33 the case law suggests that ‘there is no realistic doubt that … ‘competition’ or ‘anti-trust’ claims are arbitrable; the issue is whether they come within the scope of the arbitration clause, as a matter

25 Areios Pagos 1665/2009, ΝοΒ 2011 83. See generally Komninos, ‘EU and Greek Competition Law and Commercial Arbitration’, 18(1) DEE 11 (2012) [in Greek], p. 16. 26 Arts. 806 and 1966 of the Code of Civil Procedure. 27 See Corte di Cassazione, 21.8.1996, n° 7733, Telecolor SpA v. Technocolor SpA, 47 Giust.Civ. I-1373 (1997), with a comment by Falvella, 47 Giust.Civ. I-1375 (1997). For earlier case law see Tribunale Bologna, 18.7.1987, COVEME SpA v. CFI - Compagnie Française des Isolants SA, 23 Riv.Dir.Int.Priv.Proc. 740 (1987), which had considered invalid an arbitration clause in a restrictive agreement containing a non-competition clause because of the incompatibility with the mandatory rules of competition law (Art. 101 TFEU). See, however, the reversal of that finding on appeal in Corte d’Appello Bologna, 11.10.1990,COVEME SpA v. CFI - Compagnie Française des Isolants SA, 3 Riv.Arbitrato 77 (1993), with comments by Rosi, 3 Riv.Arbitrato 79 (1993); Caporale, 7 Dir.Comm. Int. 725 (1993). 28 See Mantilla-Serrano, ‘The New Spanish Arbitration Act’, 21 JInt’lArb. 367 (2004), pp. 370, 371. 29 Madrid Court of Appeal, 18.10.2013, Camilaga v. DAF Vehiculos, 66/2013. 30 Svea Court of Appeal, 23.10.2013, Systembolaget Aktiebolag v. The Absolut Company Aktiebolag, Case T 4487-12. The court specifically stressed that the arbitral award related only to damages and not to any ‘public law sanction’. Thus, only the civil law effects of the infringement at stake had been settled in the arbitration proceedings. 31 See Arts. 1030(1) and 582(1) of the German and Austrian Codes of Civil Procedure, respectively. 32 See K.H. Schwab and G. Walter, Schiedsgerichtsbarkeit, Systematischer Kommentar zu den Vorschriften der Zivilprozeßordnung, des Arbeitsgerichtsgesetzes, der Staatsverträge und der Kostengesetze über das privatrecht- liche Schiedsgerichtsverfahren (Munich, 2005), p. 32. It is noteworthy that the old s. 91 GWB that imposed severe limitations on the arbitrability of the German antitrust provisions was abandoned in 1998, although that provision had never meant the complete non-arbitrability of disputes that touched upon questions of German competition law. 33 See P. Nygh, Autonomy in International Contracts (Oxford, 1999), p. 40.

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of its true construction’.34 This is an interesting case because the claim there was one for damages flowing from an alleged competition law violation. Following an analysis of the wording of the arbitration clause in that case, the court concluded that it covered any potential disputes concerning the performance or non-performance or interpretation of the contracts and, as such, included antitrust claims, even if the latter were said to be of a tortious nature. A stay of the proceedings was granted and the court confirmed that these claims should also be heard by the arbitral tribunal. From this analysis, it is evident that the arbitrability of EU competition law is no longer questioned and should be taken as granted.35 It is noteworthy that the 1999 Eco Swiss ruling of the Court of Justice36 by implication is also supportive of the proposition that EU competition law issues are arbitrable. The Court, by deciding on the duties of national courts to safeguard the effectiveness of EU competition law and to refuse to recognise or to set aside arbitral awards that offend against the public policy (ordre public), as this is expressed by these rules, implicitly ruled on the arbitrability of those rules. The plea that a certain dispute is not arbitrable because it pertains to public rules on the protection of free competition has been heard quite often by arbitrators and has been invariably rejected, especially in the last two decades. In all of these cases, the usual approach taken by arbitrators is that competition law is arbitrable and therefore the arbitration clause itself is fully operative and gives the power to the arbitral tribunal to hear arguments and decide a dispute that also involves competition law.37 Therefore, it can be said with certainty that arbitrability of competition law disputes has now been generally accepted in all jurisdictions with developed antitrust regimes. Indeed, it is not an overstatement to say that, while arbitrability remains in principle a question governed by state (municipal) law, the increased internationalisation of arbitration law and practice and the emergence of transnational principles have led to a general transnational principle in favour of arbitrability (favor arbitrandi).38 Arbitra- bility of competition law-related disputes can now be considered such a transnational principle.

34 ET Plus SA and Others v. Welter and Others (Comm.), [2005] EWHC 2115, para. 51. 35 On arbitrability of EU competition law, see generally Mourre, ‘Arbitrability of Antitrust Law from the European and US Perspectives’, in: G. Blanke & P. Landolt (eds.), EU and US Antitrust Arbitration, A Handbook for Practitioners, Vol. I (Alphen aan den Rijn, 2011), p. 3 et seq. 36 Case C-126/97, Eco Swiss China Time Ltd v. Benetton International NV, ECLI:EU:C:1999:269. 37 A rare and famous exception is a Swiss arbitration case, where the arbitral tribunal declared itself incompetent to decide a question of EU competition law. At the setting aside stage, the Swiss Supreme Court disagreed with the tribunal’s finding of lack of jurisdiction, considered that finding asinfra petita, and ordered that the tribunal decide the competition law issue. See Tribunal Fédéral, 28-4-92, G SA v. V SpA, 118 II ATF 193 (1992), commented by Idot, (1993) Rev.Arb. 128. See further Dimolitsa, ‘Issues Concerning the Existence, Validity and Effectiveness of the Arbitration Agreement (Nullity of Main Contract, Arbitrability, Capacity, Concurrent Court Proceedings, Pre-arbitral Conditions Stipulated in Contract, Group of Companies)’, 7(2) ICC Bull. 14 (1996), p. 21. 38 Compare M. Lehmann, Die Schiedsfähigkeit wirtschaftsrechtlicher Streitigkeiten als transnationales Rechtsprinzip (Baden-Baden, 2003); idem, ‘A Plea for a Transnational Approach to Arbitrability in Arbitral Practice’, 42 Columbia JTransnat’lL 753 (2004).

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III. Arbitrability of tort claims and the scope of arbitration clauses The fact that competition law disputes are arbitrable does not mean that damages claims based on competition law infringements can be submitted to arbitration without further analysis. Such claims for damages are likely to be considered tortious claims in most jurisdictions39 and there is, therefore, a question as to the arbitrability of tort claims. While it is true that the typical dispute submitted to arbitration relates to a specific contract, in law and, indeed, in fact, tortious claims can also be submitted to arbitration. First of all, two parties can agree ex post to submit a specific existing tort-related dispute to arbitration. This specific arbitration agreement postdates the dispute and French law uses the term compromis to describe it, as opposed to the more frequent clause compromissoire, which is an a priori agreement to submit to arbitration future disputes relating to a specific legal relationship. Of course, such anex post agreement to arbitrate will be very rare because at that point, when the dispute has already arisen, it will be difficult for the parties to discuss and agree on an arbitration. Second, a tort claim may relate to or flow from or be somehow connected with a contract which already contains an arbitration clause. This is, in fact, the most frequent case of arbitration of tort claims. Typically, the tort claim will be raised by means of defence against a contractual claim,40 though more infrequently the tort claim will be the main claim itself. Arbitrability of tortious claims is a generally accepted principle, and this is echoed in recent arbitration statutes as well as in Article 7(1) of the UNCITRAL Model Law,41 which do not define arbitrable disputes by reference to specific contractual claims, but rather by reference to legal relationships, granting arbitrability also for claims that are not contractual, but can be formally characterised as tortious, restitutionary or otherwise.42 Thus, Section 6(1) of the UK Arbitration Act defines as an ‘arbitration agreement’ ‘an agreement to submit to arbitration present or future disputes (whether they are contractual or not)’.43 The same is the case for other laws, particularly those that are based on the Model Law. In addition, the 1958 New York Convention on

39 Civil antitrust claims may not only be tortious but also contractual in nature. This is primarily the case of claims between co-contractors. 40 See generally Gonzalez, ‘The Treatment of Tort in ICC Arbitral Awards’, 13(2) ICC Bull. 39 (2002). The author refers to a number of arbitral awards that dealt with torts concerning inter alia unfair competition, trademark infringement, fraud, tortious interference with contractual relations, infringement of trade secrets, libel, defamation, deceit, trespass to land or goods and conversion of property. 41 ‘“Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not’ (emphasis added). 42 See Kreindler, ‘Arbitral Forum Shopping’, in: Cremades & Lew (eds.), Parallel State and Arbitral Procedures in International Arbitration (Paris, 2005). 43 Emphasis added.

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recognition and enforcement of foreign arbitral awards44 provides in Article II(1) that ‘each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship,whether contractual or not, concerning a subject matter capable of settlement by arbitration’.45 In other words, it is generally and increasingly accepted that there is no compelling reason to exclude arbitrability of tort claims, if the arbitration clause is wide enough to cover such claims.46 This is supported by the existing case law of municipal courts47 and by the arbitration practice itself.48 The real issue, however, is not arbitrability, but rather whether an arbitration clause in a contract can cover also a tortious claim based on the violation of competition law by one (or sometimes both) of the parties. For example, can a typical arbitration clause inserted in a contract for the sale of goods or services cover a claim for damages by the purchaser against the seller, when the latter was a member of a price cartel? There is an argument that the parties agreed to submit future disputes that only related to their contract; they – and certainly the buyer – could not have expected the clause to cover a claim for damages for harm suffered as a result of cartel. This argument also finds support in case law which relates to the interpretation of jurisdiction or choice-of-forum clauses. Thus, in Provimi,49 which was only an interim judgment decided on the basis of which of the parties had ‘much the better of the argument’, the English High Court held that Swiss, German and French jurisdiction clauses in the contracts between the claimants and the defendants were, as a matter of Swiss, German and French law, respectively, insufficiently wide to include tortious claims for damages based on Article 101 TFEU. Similar was the ruling of the English Court of Appeal in Ryanair,50 where the airline brought a damages follow-on claim in relation to the jet-fuel cartel decision of the Italian Competition Authority of 2006. The plaintiff had advanced a claim for breach of contract (breach of an indemnity providing that the prices in the agreement would conform to applicable laws) and a

44 United Nations New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards; entry into force on 7 June 1959. 45 Emphasis added. 46 See e.g., E. Gaillard and J. Savage, Fouchard, Gaillard, Goldman on International Commercial Arbitration (The Hague/Boston/London, 1999), pp. 306-307; J.-F. Poudret and S. Besson, Droit comparé de l’arbitrage international (Zurich/Basle/Geneva, 2002), p. 282. 47 In England & Wales, see ET Plus SA et al. v. Welter et al. (Comm.), [2006] Lloyd’s Rep. 251; [2005] EWHC 2115. In Greece, see Areios Pagos, 8/1996, NoB 1998 591. 48 See e.g., the partial award in ICC Case 12363/ACS, 24 Bull.ASA 462 (2006): ‘there is a presumption that in case of doubt, an arbitral tribunal has “all-encompassing jurisdiction” […] a tortious conduct may fall within the jurisdiction of an arbitral tribunal if committed on the occasion of the performance of the contract or if it coincides with or overlaps with an alleged breach of the same’ (emphasis added); ICC Case 7924/1995, 13(2) ICC Bull. 69 (2002): ‘French substantive law does not provide that tort claims are necessarily beyond the scope of arbitration. Whether a claim in tort is arbitrable, is merely a question of the wording and the interpretation of the arbitration clause at issue in the case at hand’. See also ad hoc tribunal sitting in Hamburg, award dated 20.11.2000, 1 NJOZ 1073 (2001), which considered the arbitrability of tort claims as self-evident and not deserving discussion. 49 Provimi Ltd. v. Aventis Animal Nutrition SA et al. QB (Com.Ct.), [2003] EWHC 961. 50 Ryanair Limited v. Esso Italiana Srl, [2013] EWCA Civ 1450.

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breach of statutory duty in relation to Article 101 TFEU. The parties had concluded a contract for the purchase of jet fuel that provided a jurisdiction clause by which the parties engaged to submit their disputes to the non-exclusive jurisdiction of English courts. The Court of Appeal held that the contractual claim could not succeed and that there was no basis for arguing that the statutory duty tortious claim fell within the jurisdiction clause. However, this case law is not relevant for the interpretation of arbitration clauses, because, quite simply, State courts generally interpret much more favourably and expansively arbitration than jurisdiction clauses. The wording of the arbitration clause will of course be important: if the parties have opted for a traditional text such as ‘arising out of or in connection with’, there should be no doubt that the tortious claim should be covered. In Fiona Trust,51 the House of Lords, as it then was, confirmed that that ICC-recommended or similar clauses essentially have the same effect and should be interpreted broadly and generously for arbitration. Rather than a detailed consideration of the wording of particular clauses, the starting point is a strong presumption that commercial parties intend all disputes to be determined at a single forum. According to Fiona Trust, disputes will fall outside the scope of an arbitration clause only if excluded expressly or by clear implication. This is also the approach of US courts52 which have always shown strong support for the federal policy favouring arbitration.53 Such strong support is even more forthcoming for international arbitration. This is mainly because of the existence of the New York Convention, whose Article II(3) imposes a duty on State courts to ‘refer the parties to arbitration’ whenever there is a valid arbitration agreement, and also because of the century-old existence of many international agreements providing support for international arbitration, as a valuable mechanism of international dispute resolution which furthers international commerce and legal certainty. In addition, the UNCITRAL Model Law on international arbitration has effectively resulted in substantial unification of the laws on international arbitration of the major trading nations, thus creating a very favourable setting for arbitration. Municipal (State) courts’ case law fully accepts the specificity of international arbitration and the need for its preferential treatment.54

51 Premium Nafta Products Ltd. et al. v. Fili Shipping Company Ltd. et al., [2007] UKHL 40, [2008] 1 Lloyd’s Rep. 254. See also Blanke and Nazzini, ‘Arbitration and ADR of Global Competition Disputes: Taking Stock (Part I)’, 1 GCLR 46 (2008), p. 50. 52 For example, a clause providing for arbitration of claims ‘related to or connected with’ a contract was held to mean ‘every dispute between the parties having a significant relationship to the contract regardless of the label attached to the dispute’ (J.J. Ryan & Sons v. Rhone Poulenc Textile, S.A., 863 F. 2d 315, 321 (4th Cir. 1988), emphasis added). The claims at issue were for unfair trade practices, libel, and defamation. 53 Thus, the Supreme Court has explained that the Federal Arbitration Act ‘establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration’ (Moses H. Cone Memorial Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1983)); see also Miller v. Flume, 139 F.3d 1130, 1136 (7th Cir. 1998): ‘once it is clear that the parties have a contract that provides for arbitration of some issues between them, any doubts concerning the scope of the arbitration clause are resolved in favor of arbitration’. 54 Compare Brekoulakis, ‘The Notion of the Superiority of Arbitration Agreements over Jurisdiction Agreements: Time to Abandon It?’, 24 JInt’lArb 341 (2007), pp. 343-355.

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Therefore, for the submission of a tortious claim for damages for harm caused by a violation of competition law to the arbitration clause of a contract between the defendant (e.g., a cartel member) and the claimant (e.g., the direct purchaser of the former), a sufficiently close connection between the tortious claim and the contract must be identified so that the former can be brought within the scope of the arbitration clause. Such connection, indeed, should not be difficult to identify55 and the flourishing US case law stands witness to this. We can easily distinguish a recent Dutch case, where the District Court of Central Netherlands declared itself competent to rule on follow-on antitrust damages claims against five Dutch elevator manufacturers and their parent companies and rejected the objection of the defendants that this claim was covered by existing arbitration clauses.56 The facts of this case are rather unique and the Dutch court seems to have placed emphasis more on the fact that the defendants could not meet the burden of proof concerning the existence of specific and valid arbitration clauses. Indeed, the defendants could not trace all the relevant contracts and could thus only submit examples of contracts containing arbitration clauses. IV. The CDC case and the ECJ’s silence on arbitration The issue very recently came before the European Court of Justice.57 Following a Commission cartel decision of 2006,58 by which the Commission found that several companies supplying hydrogen peroxide and sodium perborate had breached EU competition law, Cartel Damage Claims Hydrogen Peroxide SA (CDC), a Belgian company to which a number of companies operating in the industrial pulp and paper processing industry transferred their rights to damages suffered in connection with that cartel, brought an action for damages before the Landgericht Dortmund (Regional Court, Dortmund, Germany). The claim was brought against six of the companies fined by the Commission. As those companies were established in various Member States, CDC stated in its application that the German courts had jurisdiction to rule in respect of all the defendants because one of them, Evonik Degussa GmbH, had its registered office in Germany. In September 2009, CDC withdrew its action against Evonik Degussa, following an out-of-court settlement. The other companies which were defendants in the action

55 Compare Basedow, ‘Jurisdiction and Choice of Law in the Private Enforcement of EC Competition Law’, in: Basedow (Ed.), Private Enforcement of EC Competition Law (Alphen aan den Rijn, 2007), p. 233: ‘Arbitration clauses ... tend to be drafted in a rather wide way that encompasses claims which do not arise from the contract itself but which are somehow related to the transaction of the parties. Thus, such arbitration clauses would also cover claims brought by one party against the other for violation of Arts. 81 and 82 EC’. 56 District Court of Central Netherlands, 27.11.2013, East West Debt BV v. United Technologies Corp. and Others. 57 Case C-352/13, Cartel Damage Claims (CDC) Hydrogen Peroxide SA v. Akzo Nobel NV and Others, ECLI:EU:C:2015:335. 58 Commission Decision of 3 May 2006 (COMP/F/38.620 – Hydrogen Peroxide and Perborate), OJ [2006] L 353/54.

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brought by CDC challenged the international jurisdiction of the German court. They argued that the supply contracts concluded with the companies which were harmed contained jurisdiction clauses designating the courts having jurisdiction in the event of disputes arising from those contracts. Having doubts as to whether it had international jurisdiction, the Landgericht Dortmund referred to the Court of Justice several questions concerning the interpretation of the Brussels I Regulation.59 One of these questions was about the bearing of jurisdiction and arbitration clauses in the supply contracts on the German court’s jurisdiction. In particular, the referring national court was asking: In the case of actions for damages for infringement of the prohibition of agreements, decisions and concerted practices contained in Article 81 EC/Article 101 TFEU and Article 53 of the EEA Agreement, does the requirement of effective enforcement of the prohibition of agreements, decisions and concerted practices laid down in [EU] law allow account to be taken of arbitration and jurisdiction clauses contained in contracts for the supply of goods, where this has the effect of excluding the jurisdiction of a court with international jurisdiction under Article 5(3) and/or Article 6(1) of Regulation No 44/2001 in relation to all the defendants and/or all or some of the claims brought? Advocate General Jääskinen in his Opinion made a distinction between a) jurisdiction clauses that designate courts of other EU Member States and are regulated by the Brussels I Regulation and b) jurisdiction clauses designating courts of third countries and generally arbitration clauses, both of which are not regulated by the Brussels I Regulation. For the Advocate General, the principle of effectiveness of EU law did not interfere with the interpretation of the former clauses and with Article 23 of Brussels I Regulation that regulates them. Thus, given a clause designating a court of another Member State, which has been recognised to be compatible with Article 23 of the Brussels I Regulation and is duly applicable to the dispute of which that court is seised, a court of a Member State ought to decline its own jurisdiction, even where that clause entails disre- garding the special rules of jurisdiction laid down in Articles 5 and/or 6 of that regulation, and this notwithstanding the principle of the effectiveness of the prohibition of agreements, decisions and concerted practices in Article 101 TFEU.60 However, in his view, the solution had to be different for jurisdiction clauses designating third country courts and for arbitration clauses. These clauses are interpreted pursuant to national rules and, therefore, the principle of effectiveness of EU law was here very

59 Council Regulation (EC) 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ [2001] L 12/1. 60 Opinion of Advocate General Jääskinen of 11 December 2014, Case C‑352/13, CDC Cartel Damage Claims Hydrogen Peroxide SA v. Evonik Degussa GmbH and Others, ECLI:EU:C:2014:2443, para. 117.

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relevant.61 Relying on the public policy nature of the competition rules, as established in Eco Swiss, and on Courage v. Crehan, the Advocate General stressed that ‘national courts are required by EU law not to apply an arbitration clause, or a jurisdiction clause not governed by Article 23 of the Brussels I Regulation, in cases where the implementation of such a clause would hamper the effectiveness of Article 101 TFEU’.62 The Opinion concluded: In the case of a horizontal restriction of competition, such as that on which the main proceedings are based, I find it difficult to accept an exclusion of the normal forms of judicial protection, unless the parties allegedly adversely affected have expressly entered into an agreement to that effect and the national or arbitration courts to which jurisdiction has been assigned in this way are required to apply the provisions of EU competition law as rules of public policy.63 The requirement that the organ designated be ‘required to apply’ EU competition law as a matter of public policy seems to be particularly detrimental to arbitration, since arbitral tribunals cannot be said to be strictly legally bound to apply EU competition law.64 However, the Advocate General later somewhat retracted from that rather extreme position by stating that the implementation of arbitration clauses does not ‘in itself’ compromise the principle of the full effectiveness of EU law (Article 101 TFEU). Instead, the problem was the specific consent of the victim. The principle of effectiveness stood in the way of relying on an arbitration clause that covered ‘all disputes arising out of’ a contractual relationship, if ‘the party against whom that clause is relied on was unaware of the cartel agreement in question and of its unlawful nature, and could not, therefore, have foreseen that the clause could apply to the damages sought on that basis’.65 It is clear that if the Court of Justice had followed the Advocate General’s Opinion, there would be left little scope for arbitration of civil claims for damages for competition law infringements, since the parties could effectively only have to submit such disputes to arbitration ex post. The adoption of the Advocate General’s Opinion would also amount to retrogression in Europe vis-à-vis the recognition of arbitration as a preferred dispute resolution method for international commercial disputes.66 It is noteworthy that this rather conservative, if not negative, approach to arbitration sits in stark contrast

61 Op.cit., paras 118-119, 122. 62 Op.cit., para. 124. 63 Op.cit., para. 126. 64 The ECJ in Eco Swiss did not assign in a direct way a duty to arbitrators to apply EU competition law, but rather opted to point to them towards this direction in an indirect way, i.e., via the national courts’ duty to review arbitral awards that offend against public policy. See further comment by Komninos, 37 CMLRev. 459 (2000). 65 Opinion, para. 132. 66 For the avoidance of doubt, we only refer here to B2B and not B2C disputes. Civil claims for damages by consumers cannot be submitted to arbitration pursuant to national and EU law, in particular EU consumer protection law, which considers arbitration clauses in consumer contracts as unfair terms. See, in that respect, Case C-168/05, Elisa María Mostaza Claro v. Centro Móvil Milenium SL, ECLI:EU:C:2006:675; Case C-40/08, Asturcom Telecomuni- caciones SL v. Cristina Rodríguez Nogueira, ECLI:EU:C:2009:615; Case C-470/12, Pohotovosť s. r. o. v. Miroslav Vašuta, ECLI:EU:C:2014:101.

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with the new EU Directive itself, which, in Article 18 and in Recital 48, aims at encouraging alternative and dispute resolution, including via arbitration, as a mode of resolution of disputes involving damages claims.67 Another point of criticism that can be made against the Advocate General’s Opinion is that his distinction between jurisdiction clauses for EU Member States’ courts and jurisdiction clauses for non-EU Member States’ courts and arbitration clauses is formalistic and unworkable in practice. This discrimination also amounts to a unila- teralist approach, which, if it had been adopted, would have had severe consequences for the system of international commercial relationships and for international dispute resolution. Besides, it also betrays a certainty, which is not based on any evidence, that non-EU courts or arbitral tribunals would not ensure that victims of anti-competitive practices will receive compensation or that such fora will not safeguard the effectiveness of Article 101 TFEU or that the victims’ course of action would be more difficult than if pursued before EU-based courts. However, this is misplaced, since, on the one hand, arbitral tribunals can perfectly fulfil their role in a neutral way and can render awards that compensate the victims of anti-competitive practices,68 while, on the other hand, there is no guarantee that an EU Member State’s court or national judicial system will safeguard the effectiveness of a victim’s right to damages. It is well-known that there are judicial systems where it takes more than a decade to have a final judgment from the State courts. Isn’t the victim’s course of action rendered ‘more difficult’ or indeed ineffective in such cases? Irrespective of the Advocate General’s Opinion, the Court of Justice in its ruling refused to answer the questions put to it by the referring court, with regard to arbitration clauses and also non-EU court jurisdiction clauses, and chose to limit its ruling only to jurisdiction clauses regulated by Article 23 of the Brussels I Regulation.69 Somewhat cryptically, the Court said: [I]t must be made clear that, with regard to certain terms derogating from otherwise applicable rules allegedly contained in the contracts at issue but which do not fall within the scope of application of Regulation No 44/2001, the Court does not have sufficient information at its disposal in order to provide a useful answer to the referring court.70 It is also interesting that the Court, in dealing with jurisdiction clauses that are subject to Article 23 of Brussels I Regulation, was much bolder than its Advocate General in

67 See, in particular, Recital 48: ‘[I]nfringers and injured parties should be encouraged to agree on compensating for the harm caused by a competition law infringement through consensual dispute resolution mechanisms, such as out-of-court settlements (including those where a judge can declare a settlement binding), arbitration, mediation or conciliation. Such consensual dispute resolution should cover as many injured parties and infringers as legally possible. The provisions in this Directive on consensual dispute resolution are therefore meant to facilitate the use of such mechanisms and increase their effectiveness.’ 68 See e.g., the Swedish Systembolaget case, supra note 30, where an arbitral tribunal awarded damages for harm caused by an abuse of a dominant position. 69 Case C-352/13, Cartel Damage Claims (CDC) Hydrogen Peroxide SA v. Akzo Nobel NV and Others, ECLI:EU:C:2015:335, para. 59. 70 Op.cit., para. 58.

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recognising the validity and effectiveness of such jurisdiction clauses. In particular, the Court held that jurisdiction clauses ‘cannot be called into question by the requirement of effective enforcement of the prohibition of cartel agreements’.71 It first referred to its case law that the rules applicable to the substance of a case must not affect the validity of a jurisdiction clause. In addition, it referred to the risk of undermining the aim of the Brussels I Regulation, if the courts were to refuse to take into account a jurisdiction clause which has satisfied the requirements of Article 23 of the Regulation, solely because they considered that the court with jurisdiction under that clause would not give full effect to the requirement of effective enforcement of the prohibition of cartels by not allowing a victim of the cartel to obtain full compensation for the loss it suffered.72 In the end, the Court, relying on its existing case law on the Brussels I Regulation, preferred to see the whole issue simply through the angle of the scope of a jurisdiction clause, which was to be analysed ad hoc. The Court essentially invites national courts to make sure that jurisdiction clauses ‘actually bind’ the parties. Thus, a jurisdiction clause incorporated in a contract may, in principle, produce effects only in the relations between the parties who have given their agreement to the conclusion of that contract. In order for a third party to rely on such a clause it is, in principle, necessary that the third party has given his consent to that effect.73 In other words, the Court made clear that disputes concerning the payment of damages arising from an unlawful cartel can be encompassed by jurisdiction clauses only if the victim has consented thereto. The Court of Justice deserves credit for not following the Advocate General on the point of arbitration clauses and for limiting its ruling to jurisdiction clauses that are regulated by the Brussels I Regulation.74 In fact, the Court’s position does not change the status quo that was explained above. Indeed, national courts have been interpreting restrictively jurisdiction clauses and the case law so far indicates that the scope of such clauses would not normally cover damages claims of tortious nature brought by buyers of cartel-priced products.75 At the same time, arbitration clauses have always received a more liberal interpretation by municipal courts and the CDC judgment does not

71 Op.cit., para. 62. 72 Op.cit., para. 58. 73 Op.cit., para. 64. 74 The Court of Justice did not follow the Advocate General not only on the question of arbitration clauses but also on the interpretation of Article 5(3) of Brussels I Regulation. For the Advocate General, the special jurisdiction rule in matters of tort, delict or quasi-delict, laid down in Article 5(3) of the Brussels I Regulation, is inoperative when the place where the harmful event occurred cannot be determined in cases of cartels spanning around a number of Member States. The Court differed and made clear that that defendants have the alternative of bringing an action for damages against several companies having participated in the infringement either before the courts of the place where the cartel itself was concluded, or one specific agreement which implied the existence of the cartel, or before the courts of the place where the loss arose. That place is identifiable only for each alleged victim taken individually and is located, in general, at that victim’s registered office. The Court emphasised also that the courts thus identified have jurisdiction to hear an action brought either against any one of the participants in the cartel or against several of the participating companies. 75 See above the Provimi and Ryanair judgments of the English courts.

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change this state of affairs. Of course, the arbitration clause must be wide enough to encompass a damages claim of this nature. However, in our view, this does not mean that specific consent by the victim is needed, in order to submit his claim to arbitration. The effect of what the Advocate General was proposing would be to discontinue the liberal interpretation of arbitration clauses, by introducing an exception for cartel victims who should have been aware of the cartel, prior to agreeing to an arbitration clause. If the Court had followed this approach, it would have amounted to a retrogression vis-à-vis the arbitrability of competition law disputes76 and this would have had negative consequences for international arbitration. There would also be a negative impact on legal certainty because a subjective element would have been introduced into the examination of the validity and scope of arbitration clauses, in the form of a negative condition of general application.

V. Conclusion From the above it transpires that damages claims for harm caused by competition law infringements can and, indeed, do get submitted to arbitration. There is nothing shocking about that. Such claims are considered arbitrable and, as long as they fall within the scope of a broad arbitration clause, should be fully covered thereby. The recent CDC judgment of the Court of Justice does not bring this into question. Besides, arbitration may be a swifter and preferable forum for the establishment of liability and the calculation of damages. Its confidentiality, informality, relative speed and the fact that the parties can designate experts as arbitrators are undoubtable qualities. Of course, this does not mean that there will be a flood of damages claims that will be submitted to arbitration. Indeed, de lege lata, there are a number of complications that make the submission of such claims to arbitration not very frequent. The most important limitation concerns multi-party disputes. Competition litigation, especially in cartel cases, involves many parties. Typically a claim for damages in a follow-on case where there has been a cartel by a number of companies will involve a number of claimants and defendants. On the defendants’ side we will almost certainly find the members of the cartel but possibly also their parents or subsidiaries, which the claimants will try to implicate in the cartel and thus in the resulting civil liability. All of these defendants a priori are jointly and severally liable. In such cases, most of these parties will not be signatories to the arbitration clause and the arbitration clause therefore will only produce effects for the specifically-bound parties. The result will be two separate proceedings, one (or more) before the State courts and another (or more) before the arbitrators. Exceptionally, an arbitration clause may produce effects for third parties pursuant to ‘single economic entity’, ‘piercing the

76 Strictly speaking, the arbitrability issue is different from the issue of the scope of an arbitration clause. However, if the Court of Justice had followed the Advocate General, it would have produced, in effect, a general negative condition for the validity of arbitration clauses, thus resembling inarbitrability.

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corporate veil’ or ‘equitable estoppel’ doctrines and arbitration agreements have occasionally been enforced by or against non-signatories,77 but this remains untested in the present context. Another limitation has to do with access to evidence held by third parties. It is true that this limitation exists also with civil courts. The new Directive, in Article 5, attempts to remedy this problem by obliging the Member States to ensure that ‘national courts are able to order the defendant or a third party to disclose relevant evidence which lies in their control’. However, this principle will not apply to arbitration, because, in a somewhat self-defeating manner, the Directive excludes arbitration tribunals from the definition of ‘national courts’.78 Even if those provisions were seen by the arbitrators as part of the lex causae or the lex arbitri, still the position of arbitrators would be much weaker than that of civil courts, bearing in mind the strict principle of privity that dominates the arbitral process and normally excludes legal consequences or rights for third parties. So it is interesting to see how the courts and the arbitrators themselves will deal with these complex issues in the future.

77 See further Brekoulakis, supra note 54, p. 350. 78 See Art. 2(9), which excludes third country courts and arbitration tribunals. This was a strategic mistake. The Directive should not have personalised these provisions by referring to ‘national courts’ but should have simply aimed at those rules being introduced as integral part of the national laws.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 217 The relationship between public and private enforcement of EU competition law: some thoughts on recent developments

Nicholas Khan*

I. Introduction When Ian Forrester arrived in Brussels as a young lawyer, the enforcement of EU competition law was regarded as almost wholly a matter for public enforcement. The Commission’s Third Report on Competition Policy reminds us that the Commission first issued a proposal for a merger control Regulation as long ago as 1973, but this prescience as to future developments did not extend to private enforcement of the competition rules, of which no mention was made. The potential for private enforcement was much discussed in the 1980s, but was generally thought to be handicapped by the Commission’s exclusive competence over what is now Article 101(3) TFEU, although this would not have been an impediment to a follow on action for damages, or surely, a self-standing action for damages or other relief against what was clearly a hard core infringement, such as a cartel. Whatever the reasons for the faltering start in private enforcement, since Crehan,1 the pace of development has picked up, such that in its 2005 Green Paper on damages actions, the Commission commented that public and private enforcement were ‘part of a common enforcement system’ for the antitrust rules.

* All views expressed are personal and do not necessarily reflect those of the European Commission.

1 Judgment in Courage v. Creha, Case C-453/99, EU:C:2001:465.

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This paper considers some of the recent developments in the relationship between public and private enforcement, which have highlighted certain tensions inherent to what may be a ‘common enforcement system’ but which must nevertheless accommodate very different interests2 and operate in separate spheres.3 Recent developments include, most notably, the adoption of the Damages Directive,4 and therefore much of the recent attention give to this subject has focused on private enforcement in the form of damages actions. It should not be overlooked however that private enforcement can also provide an alternative to public enforcement in some respects: 5 an injunction granted by a court can have the same effect as a cease and desist order in a decision issued by a competition authority.

II. Private enforcement as an alternative to public enforcement A private antitrust action which is solely directed at obtaining damages resulting from an infringement that has already occurred is potentially an expensive exercise. Even if the claimant is able to use a Commission or National Competition Authority (NCA) decision as a springboard establishing liability for the infringement, issues of causation and quantum are liable to become complex. It has been regretted that the Commission has not also turned its attention to facilitating private law actions to prevent damage from occurring, such as injunctive relief.6

2 Increasing interest in private enforcement is reflected in the volume of commentary on this issue. See, for example, Wils, ‘The Relationship between Public Antitrust Enforcement and Private Actions for Damages’, 32 World Competition 3–26 (2009); Milutinović, The Right to Damages’ under EU Competition Law: from Courage v. Crehan to the White Paper and Beyond, (2010); the various essays in Lowe & Marquis (Eds), European Competition Law Annual 2011: Integrating Public and Private Enforcement of Competition Law - Implications for Courts and Agencies, notably; Marquis, ‘Perchance to Dream: Well Integrated Public and Private Antitrust Enforcement in the European Union’; Komninos, ‘The Relationship between Public and Private Enforcement: quod Dei Deo, quod Caesaris Caesari’; Louis, ‘Promoting Private Antitrust Enforcement: Remember Article 102’; and Forrester and Powell, ‘Market Forces and Private Enforcement: A Start But Some Way Still To Go’.

3 Earlier instances of public enforcement acknowledging private enforcement by mitigating fines in recognition of damages paid or payable have proved to be isolated cases. In Pre-insulated Pipes [1999] O.J. L24/1, ABB was given a ECU 5m reduction in its fine on account of the damages it had paid to a rival, Powerpipe, to compensate it for loss caused by the cartel’s activities, although since the terms of the settlement with Powerpipe were confidential, it is not clear whether the fine was mitigated to the full extent of the compensation paid. Similarly, in Nintendo [2003] O.J. L255/33, offers of ‘substantial financial compensation’ to those who had suffered from the infringement earned Nintendo a €300,000 reduction in its fine. Attempts to rely on the same argument were however summarily dismissed in Citric acid [2002] O.J. L239/18, (upheld in the Judgment of 27 September 2006, Archer Daniels Midland v. Commission, Case T-59/02, EU:T:2006:272, §§349-355). 4 Directive 2014/104/EU on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, [2014] OJ L 349/1. 5 As noted by Louis, op. cit., the expression ‘private enforcement’ is arguably a misnomer when applied to follow on damages actions: such claims are consequential on public enforcement as they do not uncover or enjoin any breach of the competition rules.

6 Louis, op. cit. It is notable however that the first reported example of private enforcement before the English courts related to an abuse of a dominant position, where no question of an exemption could arise: Garden Cottage Foods Ltd v. Milk Marketing Board [1984] 1 AC 130.

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220 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Nicholas Khan

However, it is difficult to see what more the Commission could do to assist parties to obtain injunctive relief; the Notice on Complaints7 stresses that national courts are particularly well placed to offer injunctive relief8 and that this consideration is an important element that the Commission may take into account in its examination of the Community interest for investigating a complaint. Although this ground for rejecting a complaint was dismissed by the Court in Watch repairs,9 the Commission has continued to reject complaints on this ground, especially where the complainant has already availed itself of proceedings before a national court,10 an approach which is consistent with Article 6 of Regulation 1/2003. As the Commission has found in its own interim measures practice,11 sustaining a case for interim measures in the complex context of (typically) an Article 102 case is inherently problematic,12 compounded in private law claims by requirements such as the obligation to provide a cross-undertaking in damages.13 The Commission’s Green Paper, which started the process leading ultimately to the Damages Directive, recognized that damages are only one form of private enforcement and that private enforcement can also take the form of actions seeking declarations of parties’ rights, such as the nullity of a term in a contract, or for injunctive relief.14 For reasons left unclear however, private enforcement in the form of actions for injunctive relief falls outside the stated terms of the Damages Directive, Article 1(1) of which limits its scope as being ‘to ensure that anyone who has suffered harm caused by an infringement of competition law by an undertaking or by an association of undertakings can effectively exercise the right to claim full compensation for that harm’. This is unlikely to be a serious problem in practice however; claims for injunctive relief are usually combined with a claim for damages and it appears unlikely that the Directive will be interpreted in a manner that prevents the rights it confers from being

7 Commission Notice on the handling of complaints by the Commission under Articles 81 and 82 of the EC Treaty, [2004] OJ C 101/65 (Notice on Complaints).

8 Notice on Complaints, point 17. 9 In annulling the decision in Case COMP/E-l/39097 Watch repairs, the Court was not persuaded that the availability of private law relief justified the rejection of a complaint on grounds of lack of Community interest, the Court noting that in a practice covering at least five member States, action at European Union level could be more effective than various actions at national level. – See the Judgment of 15 December 2010, CEAHR v Commission, Case T-427/08,, EU:T:2010:517. 10 See, recently, Case AT. 39921, Datacell, 23 July 2014 and Case AT.40105 UEFA Financial Fair Play Rules, 24 October 2014. Both decisions reject complaints on the grounds, inter alia, that the complainants can seek relief in national courts.

11 See the order in IMS Health v. Commission, Case T-184/01 R, EU:T:2001:259, suspending the Commission’s Decision in Case COMP D3/38.044 - NDC Health/IMS Health: Interim measures, [2002] OJ L 59/18, upheld on appeal in Case C-481/01 P(R), NDC Health Corp v. IMS Health, EU:C:2002:223. 12 ‘In general, abuse of a dominant position is a complex question of mixed fact and law, which should be determined at trial on the basis of tested oral and documentary evidence and rival submissions, rather than in the summary setting of an application for an interim injunction.’, per Mummery LJ in Jobserve Limited v. Network Multimedia Television Limited [2001] EWCA Civ. 2021. 13 Injunctions have however been granted in some instances; see Dahabshiil Transfer Services Ltd. v. Barclays Bank Plc [2013] EWHC 3379 (Ch) and Purple Parking v. Heathrow Airport [2011] EWHC 987 (Ch). The former is a case where an interim injunction was granted pending trial, the latter was a trial leading to the grant of final injunctive relief.

14 See the Commission Staff Working Paper (SEC(2005) 1732) annexed to the Green Paper, §16.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 221 The relationship between public and private enforcement of EUcompetition law: some thoughts on recent developments invoked in seeking other relief ancillary to a claim for damages. Furthermore, the principle of effectiveness underlying the Damages Directive suggests that it could in any event be relied on indirectly in a claim for injunctive relief, to justify, for example, a request for disclosure of relevant documents.15 III. The influence of public enforcement on private enforcement – and vice-versa

1. Decision making practice and subsequent claims for damages The increasing attention given to the potential for addressees of an enforcement decision to face subsequent claims for damages has manifested itself most visibly in how public enforcement deals with leniency applications, especially applications for immunity. The Commission’s original 1996 Leniency Notice offered little comfort to immunity or leniency applicants, stating that ‘The fact that leniency in respect of fines is granted cannot, however, protect an enterprise from the civil law consequences of its participation in an illegal agreement. In this respect, if the information provided by the enterprise leads the Commission to take a decision pursuant to Article 85 (1) of the EC Treaty, the enterprise benefiting from the leniency in respect of the fine will also be named in that decision as having infringed the Treaty and will have the part it played described in full therein.’16 The 2002 Leniency Notice contained a similar warning, but added that ‘Any written statement made vis-à-vis the Commission in relation to this notice, forms part of the Commission’s file. It may not be disclosed or used for any other purpose than the enforcement of Article 81 EC.’17 The Commission made considerable efforts to prevent the disclosure in litigation in the United States of leniency statements (and other preparatory documents, such as Statements of Objections),18 a position which could readily be justified as such proceedings were not for the enforcement of EU competition law, but once damages actions started to be a feature of practice in the EU, the issue of how to deal with leniency material became more acute. The 2004 Notice on Cooperation with National Courts warned that the Commission would refuse to transmit information to national courts for overriding reasons relating to the need to safeguard the interests of the Community or to avoid any interference

15 The eleventh recital to the Damages Directive states, ‘All national rules governing the exercise of the right to compensation for harm resulting from an infringement of Article 101 or 102 TFEU, including those concerning aspects not dealt with in this Directive such as the notion of causal relationship between the infringement and the harm, must observe the principles of effectiveness and equivalence.’ This statement would be equally valid if it referred simply to ‘national rules governing the exercise of the right to obtain relief from harm resulting from an infringement...’

16 [1996] OJ C 207/4, Section E.2. 17 [2002] OJ C 45/3, point 33. 18 For a survey of practice, see Miller, Nordlander, & Owens, U.S. Discovery of European Union and U.S. Leniency Applications and Other Confidential Investigatory Materials, CPI Antitrust Journal, March 2010.

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with its functioning and independence, and for that reason, would not transmit information voluntarily submitted by a leniency applicant (unless the applicant consented).19 The Commission later clarified that such protection would only extend to corporate statements created for the purposes of the leniency application, and did not extend to pre-existing documents.20 The 2006 Leniency Notice elaborated on the disclosure of leniency material in much greater detail, stating that no ‘mechanical or electronic’ copy of the statement could be made by other addressees of a Statement of Objections during access to file,21 but this did not deal with the fact that; (i) addressees of a Statement of Objections can still transcribe the corporate statement manually and thus be in possession of what is a hearsay but nevertheless accurate account of the corporate statement and (ii) final decisions are likely to contain information, even quotations, from statements provided by immunity or leniency applicants. Uncertainties as to the extent to which leniency material might directly be disclosed in a damages action, resulting from the rather limited guidance given in Pfleiderer22 and Donau Chemie23 have however been resolved for the future by the Damages Directive, which is to be implemented by December 2016. With respect to disclosure of evidence, the Damages Directive can be perceived either as facilitating private enforcement or as controlling private enforcement in order to protect public enforcement, depending on the pre-existing rules in each Member State. In Common Law jurisdictions, where any potentially relevant document is liable to be disclosed, Pfleiderer required that restraint be used in ordering the disclosure of leniency statements, but Article 6(6) will preclude this possibility altogether. This is justified according to the 26th recital to the Damages Directive by the ‘risk of exposing cooperating undertakings or their managing staff to civil or criminal liability under conditions worse than those of co-infringers not cooperating with the competition authorities’. The public interest in the leniency regime lies in the potential it affords for increasing public enforcement of competition law, in return for which undertakings providing information under the leniency regime may expect a reduced penalty. There is an obvious tension between those interests and the interests of individuals who might (under some national laws) be exposed to personal criminal or civil liability for their acts. As regards the exposure of cooperating undertakings however, it is far from clear that the disclosure of their leniency statements would put them in a worse position than their co-infringers. There are two reasons for this; (i) a leniency statement in a cartel case will inevitably be both self-incriminating for the undertaking making the statement and inculpatory towards co-infringers and (ii) all participants in the infrin-

19 [2004] C 101/54, point 26. 20 See the Commission’s letter to the High Court of England and Wales, quoted in National Grid v ABB [2011] EWHC 1717 (Ch), §16.

21 [2006] OJ C 298/17, point 33. 22 Judgment in Pfleiderer v. Bundeskartellamt, C-360/09, EU:C:2011:389. 23 Judgment in Bundeswettbewerbsbehörde v. Donau Chemie, C-536/11,:EU:C:2013:366.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 223 The relationship between public and private enforcement of EUcompetition law: some thoughts on recent developments gement will be jointly and severally liable for any damages that are awarded,24 this principle even being substantially mitigated by the Damages Directive, to the advantage of the immunity recipient. Article 11(4) of the Damages Directive introduces a significant substantive link between public and private enforcement, giving primacy to the objective of public enforcement in maintaining the effectiveness of the leniency regime by limiting an immunity recipient’s joint and several liability to liability only for damages payable to its direct or indirect purchasers or providers. Only if the liability towards other claimants cannot be met by the other infringers (e.g., due to their insolvency) is the immunity recipient’s usual joint and several liability revived. Article 11(5) provides that the immunity recipient’s privileged status is to be followed through to any further stage of contribution claims between infringers: the immunity recipient’s contribution ‘shall not exceed the amount of the harm it caused to its own direct or indirect purchasers or providers’. Thus, even if an immunity recipient were more exposed to claims for damages, the Damages Directive circumscribes substantive liability, yet it also maintains procedural protection against disclosure of immunity statements. The implications of the leniency regime for private enforcement, both in terms of procedural rights and substantive liability, have prompted the Commission to propose that its leniency regime be given a statutory basis for the first time. The package of measures accompanying the Damages Directive seeks to do this by an amendment to Regulation 773/2004, which by the insertion of a new Article 4a would set out the essential elements of the leniency regime,25 with corresponding proposals to change the Notices on Leniency, Cooperation with National Courts, Settlements and Access to File to reflect the absolute protection given to leniency statements. Pursuant to its policy of protecting leniency statements, the Commission has for some time now redacted references to such evidence from the public version of its decisions. Although the press release and the summary publication of a decision in the Official Journal will state the bare details of the parties, the product and geographic scope of the infringement and its duration, claimants for damages are understandably interested in seeing the full decision.26

24 In National Grid v. ABB and others [2012] EWHC 869 (Ch), Roth J. ordered some limited disclosure inter partes of leniency documents, applying Pfleiderer. Roth J. expressed some scepticism about the rationale for refusing disclosure of leniency statements, noting that the grant of immunity or leniency cannot protect an undertaking from the civil law consequences of its infringement, liability being joint and several with co-infringers and that ‘a decision not to go to the Commission would not have given ABB [the immunity recipient] any guarantee of protection from civil liability since if any of the other participants had informed the Commission the cartel would have been exposed. Then ABB would similarly have been liable to civil claims but in addition would have faced a very substantial fine’ (at §§34-37). The issue was also raised in the Judgment of 28 January 2015, Akzo Nobel v. Commission, T-345/12, EU:T:2015:50, §77, but the Court found it unnecessary to address the point.

25 See, the public consultation documents at: http://ec.europa.eu/competition/consultations/2014_regulation_773_2004/ index_en.html#replies.

26 See, W H Newson Holding v. IMI [2013] EWCA Civ 1377, where Arden LJ observed at §28 that, ‘the ability to bring a claim under section 47A [of the Competition Act 1998] once the Commission has published its decision are undeniably a great advantage to a claimant even if the only claim he can bring is for breach of statutory duty.’ The further comment that, ‘His work in proving a case will have been done for him’ only goes as far as proving the infringement; causation and loss are not the concern of Commission decisions.

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As to the utility of decisions to claimants for damages, Article 16 of Regulation 1/2003 stipulates that, ‘When national courts rule on agreements, decisions or practices under Article 81 or Article 82 of the Treaty which are already the subject of a Commission decision, they cannot take decisions running counter to the decision adopted by the Commission’.27 Article 9 of the Damages Directive seeks to give the same status to NCA decisions, but only before courts of the same Member State, by providing that ‘an infringement of competition law found by a final decision of a national competition authority or by a review court is deemed to be irrefutably established for the purposes of an action for damages brought before their national courts’. This leaves unresolved just how far a Commission or NCA decision is binding. Clearly, the finding of an infringement cannot be called into question, but there remains room for debate about how far the reasoning and findings of fact underlying the decision’s finding of an infringement are binding on a national court hearing a damages claim. It has been argued that national courts should not be ‘turned to mere assessors of damages’28 and the Damages Directive does not assume that causation is to be assumed, but as regards the facts which might be relied on to prove causation and loss, it is submitted that any finding of fact that is essential to support the infringement set out in the operative part of the decision is binding on the national court.29 A Commission decision is likely to be of limited direct use in establishing causation or loss, but it will provide a narrative of the infringement by which the claimants can frame their case. Addressees of decisions have predictably sought to delay the publication of decisions, although the disclosure rules of the Damages Directive will mean that this is a tactic whose utility is ultimately limited to making the claimants’ life more difficult rather than providing a means to prevent a claim from being pursued at all. In Hydrogen peroxide,30 the Commission adopted a decision finding an infringement in May 2006, publishing an initial, heavily redacted public version in 2007. In 2011 the Commission decided to publish a fuller version, but encountered opposition from certain addressees, including Akzo Nobel (Akzo), which maintained that the further information the Commission sought to disclose was confidential, essentially on the grounds that the information had been submitted to the Commission in support of a leniency application. The Hearing Officer rejected Akzo’s argument, notably on the grounds that it had no legitimate interest in protection against the risk of damages claims through the publication of more details about its infringing conduct. Akzo challenged that decision, against which the President of the General Court granted

27 Reflecting the ruling to that effect inMasterfoods Ltd v. HB Ice Cream Ltd, C-344/98, EU:C:2000:689. 28 Komninos, op. cit, fn.2, at p.148. 29 There is no difficulty of course in a claimant seeking to establish a case that is more extensive than that found by a decision as the Commission will not make positive findings of non-liability. See Bord Na Mona Horticulture v. British Polythene Industries [2012] EWHC 3346 (Comm), where Flaux J commented at §42, ‘Provided that in its court proceedings the injured party does not, in breach of Article 16 of the Modernisation Regulation, put forward a case which is contrary to the decision of the Commission, the injured party may advance a case which goes beyond the findings of fact of the Commission and seek to prove a more extensive infringement. … it seems to me that, unless it can be said that the further case which the claimant seeks to prove is contrary to the Decision of the Commission, it should be open to a claimant to supplement the findings of the Commission with further evidence.’

30 Case COMP/38.620 — Hydrogen Peroxide and perborate.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 225 The relationship between public and private enforcement of EUcompetition law: some thoughts on recent developments interim relief in an order which appeared to accept that protection against damages claims might be a valid basis for resisting publication of the information in question,31 and that the case raised ‘complex questions of law which cannot, prima facie, be considered as of no relevance’.32 In its final judgment however, Akzo’s claims were dismissed.33 The Court held that, with respect to the general claim to confidentiality, whether over leniency statements or supporting documents submitted to the Commission, the publication of the decision was not tantamount to the communication to third parties of those documents.34 The Court accepted that publication would be liable to cause Akzo serious harm, but held that Akzo’s interest in the protection of the information was not worthy of protection, given ‘the public interest in knowing as fully as possible the reasons for any Commission action, the interest of economic operators in knowing the sort of behaviour for which they are liable to be penalised and the interest of persons harmed by the infringement in being informed of the details thereof so that they may, where appropriate, assert their rights against the undertakings punished’. To the extent that Akzo had legitimate interests in this respect, they were protected by its ability to seek judicial review of a decision finding an infringement.35 The judgment notes the distinction between leniency statements and pre-existing documents and that the Commission proposed to redact information enabling Akzo to be identified as the source of leniency material, but it nevertheless emphasised that the Commission was not prevented ‘from making public, in any circumstances, information contained in leniency applications or statements’.36 The position appears to be therefore that despite the strengthening of the protection given against the direct disclosure of leniency statements by the Damages Directive, the Commission should not be inhibited from including material drawn from leniency statements in the public versions of its decisions.

2. Judicial review of enforcement decisions For follow on claims, the Commission or NCA decision finding an infringement will frame the subsequent private damages claim; it will determine the parties to the infringement, the products concerned and the duration. Quite apart from the usual incentive to contest the Commission’s findings in the hope of obtaining a reduction in

31 See the Order in Akzo Nobel v. Commission, T345/12 R, EU:T:2012:605, §53, where the President held that ‘even though [the information] is old, [it] might be important for the persons harmed by the cartel in that such information may, in actions for damages brought against the applicants, make it easier for those persons to submit the facts required in order to quantify the harm and establish the causal link.’

32 Akzo Nobel v. Commission, T345/12 R §56. See also the order relating to the publication of a fuller version of the decision in Case COMP/39.125 – Car glass in Pilkington Group v. Commission, T-462/12 R, EU:T:2013:11 and, on appeal, Commission v. Pilkington Group, C278/13 P(R), EU:C:2013:558, where similar arguments were raised. 33 Judgment in Akzo Nobel v. Commission, footnote 24 above, EU:T:2015:50. 34 Judgment in Akzo Nobel v. Commission, footnote 24 above, EU:T:2015:50, §64 and §87, where the Court observed that the publication would only comprise ‘certain information contained in documents or declarations’. 35 Judgment in Akzo Nobel v. Commission, footnote 24 above, EU:T:2015:50, §80. 36 Judgment in Akzo Nobel v. Commission, footnote 24 above, EU:T:2015:50, §106. See also §111, holding that the Commission has not guaranteed the confidentiality of all information voluntarily submitted pursuant to the leniency programme, particularly in the context of publication of a decision.

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the fine, the addressees have an interest in reducing the parameters of the infringement in order to reduce their exposure to damages claims. The increasing prospect of damages claims means that even immunity recipients now also have an interest in contesting any findings that go beyond those they have admitted to. The interest for an immunity recipient to challenge a public enforcement decision has been given additional impetus by the judgment of the United Kingdom Supreme Court in Morgan Advanced Materials.37 Although the case was ostensibly only about limitation periods, it has considerable implications for determining the extent to which addressees of enforcement decisions are exposed to damages. The background to the case was the Commission’s Graphite products decision,38 which found that there had been a cartel, the participants to which included Morgan. Some addressees of the decision challenged (unsuccessfully) various aspects of the decision before the General Court and, on appeal, before the Court of Justice. Section 47A of the United Kingdom’s Competition Act 1998 provides for actions for damages to be brought in the Competition Appeal Tribunal within two years from when an infringement ‘decision’ becomes final, but the limitation period does not begin to run if proceedings ‘against the decision’ are commenced in the General Court and, if so, until those proceedings are determined, including any appeal to the Court of Justice. Deutsche Bahn, taking the view that the existence of proceedings brought by other addressees meant that the limitation period against Morgan Crucible did not begin to run until those other proceedings were determined, did not commence proceedings against Morgan Crucible until 2010. Morgan objected that as it had not challenged the decision, the limitation period for claims against it had started to run immediately and that the action was now time-barred. The Court of Appeal accepted Deutsche Bahn’s argument that ‘the decision’ referred not simply to the decision as addressed to Morgan Crucible, but to the entire decision and that the challenges brought by other addressees meant that the action against Morgan was not time-barred.39 On appeal to the Supreme Court,40 the Supreme Court accepted that the principles of AssiDomän41 were applicable to determining the scope of civil liability for an infringement as they were to determining the scope of the finding of an infringement in public law. Deutsche Bahn had argued that, if a Commission decision had found Cartelists A, B, C and D to have infringed Article 101 between 2000 – 2008, and A left the decision unchallenged, but that B, C, and D were successful in having the finding of an infringement as concerned them annulled for the period 2005-2008, it would thereby follow that A’s joint and several liability with respect to purchasers of

37 Deutsche Bahn v. Morgan Advanced Materials [2014] UKSC 24. 38 Case C.38.359 - Electrical and mechanical carbon and graphite products. 39 Deutsche Bahn v. Morgan Advanced Materials [2012] EWCA Civ 1055. 40 The Commission intervened in the proceedings before the Supreme Court, arguing in favour of the application of AssiDomän in interpreting the concept of a ‘decision’ in the context of private enforcement. 41 Judgment in AssiDomän Kraft Products v. Commission, C-310/97 P, EU:C:1999:407.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 227 The relationship between public and private enforcement of EUcompetition law: some thoughts on recent developments the cartelised goods from B, C and D would be reduced to reflect the result of the cases brought by B, C and D. The Supreme Court, applying AssiDomän, held that ‘a Commission Decision regarding the existence of a cartel constitutes a series of decisions addressed to its individual addressees, which remain binding or not according to the lodging and outcome of any individual appeals. A successful appeal by one addressee, establishing that there was no cartel, has no effect on the validity and effects of the Decision determining that there was such a cartel and levying a fine as against another addressee who has not appealed.’ Accordingly, even if the cases brought by the other addressees had succeeded, as against Morgan, the decision ‘would have remained . . . in full force and effect’.42 Thus, in the example above, A would remain liable to a claim in respect of goods purchased from e.g., D, in 2007. In the rather extreme circumstances of the example debated in Morgan Advanced Materials it is unlikely that a purchaser from D would be able to show loss, but in cases where an immunity applicant has admitted to an infringement of e.g., five years’ duration, but the Commission’s further investigation, supported perhaps by admissions from other leniency applicants, has found an infringement of e.g., seven years’ duration, the risk of the immunity recipient being exposed to more extensive liability than the infringement it admitted to is evident. This approach had already been anticipated with respect to the Airfreight decision,43 where the immunity recipient, Lufthansa, has challenged some aspects of the decision44 and other addressees have based some of their arguments against the Airfreight decision on its implications for damages actions they face. It appears likely therefore that enforcement decisions will more readily be challenged, even by immunity recipients. Airfreight also illustrates the significance of the characterisation of infringements as single and continuous, an approach which can have significant implications for liability in damages. Characterising a range of infringing conduct as a single and continuous infringement has three main implications: (i) it allows conduct which might have been time barred for the purpose of imposing a fine to be taken into account in determining the fine, (ii) it means however that in applying the 2006 Fining Guidelines, a single ‘entry fee’ will be applied and the 10% turnover cap of Article 23(2) of Regulation 1/2003 will apply for the totality of the fine, and (iii) all the participants are jointly and severally liable for the loss resulting from each and every aspect of the infringement. The Commission has traditionally favoured a broad approach to the concept of a single and continuous infringement,45 but it is notable that in Bananas, one participant was

42 Deutsche Bahn v. Morgan Advanced Materials [2014] UKSC 24 §§21-22. 43 Case C.39258 — Airfreight, summary at [2014] OJ C 371/11. 44 Case T-46/11 Deutsche Lufthansa v. Commission (pending). 45 For a critique of this approach, see Joshua, ‘Single Continuous Infringement of Article 81 EC: Has the Commission Stretched the Concept Beyond the Limit of its Logic?’ [2009] European Competition Journal 451.

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held liable for only one aspect of a wider range of conduct that was characterised as a single and continuous infringement by other participants.46 The implications of an enforcement decision for consequent liability in damages are an increasingly large elephant in the courtroom in Luxembourg. Those with an interest in claiming damages have also sought to become a tangible presence in actions for annulment, but without success. In some of the proceedings brought against the Airfreight decision,47 a freight forwarder, Schenker, sought to intervene in support of the Commission, claiming that, as a prospective claimant in damages against the cartel members, it had an interest in upholding the Airfreight decision. The application to intervene was dismissed. At first instance,48 the Court held that Schenker’s interest in upholding the cease and desist order was ‘too general’ and that there would only be an interest in upholding such an order to the extent that the participants in the cartel had not already terminated their infringement. In that respect, a repetition of the conduct would again constitute an infringement that was already prohibited by Article 101.49 The Court also held that Schenker’s position was not comparable to that of interveners in other cases it relied on as the outcome of the proceedings in the other cases affected the interveners’ commercial freedom of action, whereas here the decision did not affect Schenker’s right to do business or the terms on which it did business.50 The Court observed that the objective of the intended intervention was in furtherance of a claim for damages, whereas there were numerous undertakings potentially affected by the cartel and Schenker had not shown that it was ‘distinguished from the other consumers of airfreight services’.51 The Court also noted that a Commission decision finding an infringement was neither necessary nor sufficient to uphold a claim for damages.52 This analysis was upheld on appeal, the President of the Court of Justice firstly appearing to suggest that as Schenker did not fall into a recognized category of intervener, it did not have a direct interest in the result of the case.53 The Court also held that, ‘the mere fact that an undertaking might possibly be affected by high prices caused by an alleged cartel does not distinguish it sufficiently from the other economic operators in the relevant sector which are also affected by the anti-competitive practices of the members

46 Case COMP/39 188 — Bananas, summary at [2009] OJ C 189/12. Judgment of 14 March 2013, Fresh Del Monte Produce v. Commission, T-587/08, EU:T:2013:129, §638, the Court upheld this approach, stating that ‘The fact that there is a single and continuous infringement does not necessarily mean that an undertaking participating in one or more aspects can be held liable for the infringement as a whole.’

47 Case COMP/39258 – Airfreight. 48 e.g., Case T-46/11 Deutsche Lufthansa v. Commission (pending). 49 Ibid., §15. 50 Ibid., §§16 – 17. 51 Ibid., §19. This echoes the test for direct and individual concern necessary to bring an application under Article 263 TFEU rather than applying the test of an interest in the result of the case necessary to establish a right to intervene.

52 Ibid., §24. 53 Order in Schenker v. KLM and Commission, C-596/11 P(I) EU:C:2012:334, §12.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 229 The relationship between public and private enforcement of EUcompetition law: some thoughts on recent developments of a cartel’,54 an approach which, it is submitted, incorrectly assimilates the test of a ‘direct, existing interest in the result of the case’ with that for individual concern under Article 263.55 The Court furthermore dismissed the relevance of national court proceedings for a negative declaration of non-liability towards Schenker by members of the cartel as insufficient to confer an interest in the result of the case before the Court.56 Although the President of the Court recognized that claims for damages were important in ensuring the full effectiveness of the competition rules, it is notable that he drew a firm distinction between the roles of public and private enforcement, holding that, ‘that the purpose of proceedings relating to an action for annulment of a Commission decision punishing the anti-competitive conduct of an undertaking is not to make possible or facilitate the bringing of civil actions in the national legal system, such as claims for damages and interest. Their purpose is to review the legality of the decision’.57 This view appears to result from the essentially pragmatic concern that, ‘to recognize that each physical or legal person who could potentially bring a civil action for damages for loss resulting from the anti‑competitive conduct of an undertaking has a direct and existing interest in the result of a case for the purposes of Article 40 of the Statute of the Court of Justice would risk seriously undermining the effectiveness of the procedure before the Courts of the European Union.’58 There is certainly a risk that if those with an interest in seeking damages were admitted as interveners, this would complicate proceedings for the judicial review of decisions and fines,59 but it is not so clear that reliance on this consideration is readily reconcilable with the test set out in Article 40 of the Statute on the Court of Justice, which refers simply to ‘an interest in the result of a case’. This approach was followed in proceedings seeking the annulment of the Car glass decision, where insurers against breakages of car glass unsuccessfully sought to intervene, this being refused by reference to reasoning used in Schenker.60 It is notable however that a different conclusion was reached by a chamber with the same compo- sition in the Akzo Nobel case about publication of the Hydrogen peroxide decision. There, the Court held that, since the proceedings did not concern the legality of the Commission’s enforcement decision but its decision about the confidentiality of information in the enforcement decision, the situation was different. The Court accepted

54 See also Schenker §22, where the Court referred to the fact that Schenker paid high prices for airfreight services conferred no right to intervene as any harm suffered ‘would be comparable to the harm suffered by any other direct or indirect customer of the members of that cartel’. 55 Surprisingly, the Court did not simply hold that Schenker’s interest was only the ‘distant repercussion’ of a claim for damages from the cartel participants, by analogy with Case T-383/03 Hynix Semiconductor v. Council (29 October 2004, not published in E.C.R.) at §72, since even if a decision finding an infringement is upheld, there are numerous legal obstacles thereafter for the alleged victims of the infringement in sustaining a claim for damages.

56 Schenker v. KLM and Commission, C-596/11 P(I), §§26 – 27. 57 Ibid., §23. 58 Ibid., §24. 59 Article 116(2) of the Rules of Procedure permits confidential documents to be withheld from an intervener, but the intervener can object to the extent of the redactions made, a procedure which can cause considerable delay.

60 Judgment in Pilkington Group v. Commission, T 462/12, EU:T:2013:670.

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that, as the publication of the fuller version of the decision might be useful to CDC (a vehicle for pursuing damages claims), it had a sufficient interest in the result of the case to be allowed to intervene in support of the Commission.61 Whilst a damages claimant has an interest in the publication of an enforcement decision by the Commission in the most extensive form possible, this is however not the only means of obtaining the decision, just as a damages action does not wholly depend on the Commission’s enforcement decision being upheld, as was noted in refusing interventions in the Airfreight cases.62 IV. Conclusion The adoption of the Damages Directive defines some of the contours of the relationship between public and private enforcement: whilst undoubtedly creating more favourable conditions for damages actions to be brought in jurisdictions whose civil procedure rules have not traditionally assisted those seeking recourse against clandestine practices, the Damages Directive also gives a certain primacy to public enforcement by protecting the machinery of the leniency regime from the potentially disruptive forces of private enforcement. It remains to be seen whether, despite the procedural protection afforded to the leniency regime and the substantive protection afforded to immunity recipients, the prospect of triggering damages claims will inhibit immunity and leniency applicants from coming forward to the Commission63 as damages claims become more widespread. The order of the President of the Court of Justice in Schenker has probably shut the door definitively on interventions by damages claimants in judicial reviews of the Commission’s enforcement decisions, but not on the ability of private enforcement to influence proceedings before the Court. The forthcoming judgments in theAirfreight cases will provide the first indications of whether arguments about the repercussions for private enforcement will be entertained as grounds for challenging findings made in public enforcement decisions.

61 Case T-345/12 Akzo Nobel v. Commission, order of 7 June 2013, unpublished. 62 See, fn.52 above. 63 Although a substantial number of damages claims have been commenced in England and Wales, the Netherlands and Germany, there is little information available about the quantum of damages that have been paid, as those cases that have concluded have been settled on confidential terms.

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Santiago Martínez Lage and Helmut Brokelmann

I. The problem of parallel trade in the pharmaceutical sector Unlike most competition regimes outside the EU, European competition law not only pursues the classical objective of enhancing consumer welfare, but also the objective of creating an internal market among the Member States of the EU (which, eventually, should also promote consumer welfare). This is why vertical restrictions of competition have traditionally been treated differently in EU competition law, since they are liable to compartmentalize the internal market along national boundaries, e.g., through the grant of absolute territorial protection, thus reversing the market integration sought by Article 3(3) of the Treaty on European Union, Article 3(1)(b) of the Treaty on the Functioning of the European Union (TFEU), its 27th Protocol and their predecessors in the EC Treaty (Articles 2 and 3(1)(g) EC). A specific concern of the European authorities in their competition policy concerning vertical restraints has been the promotion of parallel trade. Parallel trade is so important for the EU’s single market imperative because it fosters the interpenetration of national territories and acts as a corrective to excessive price differentials between Member States. One could therefore say that parallel trade has been, and still is, a ‘sacred cow’ of EU competition policy, all the more so in the Euro area of comparable prices and online cross-border shopping.

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While these policy aims are, as a matter of principle, completely legitimate to pursue in any industrial sector (e.g., tennis balls1), in the pharmaceutical sector, parallel trade has raised specific issues that put the European Commission’s policy into question. In the pharmaceutical sector, parallel trade stems from structural differences in the prices of medicines as a result of different national legislations which fix the prices of these products to a greater or lesser extent. The origin for parallel trade in this sector is therefore not a policy of price discrimination applied by manufacturers between different territories but State intervention in the determination of the price, which the public health systems of the different Member States are prepared to reimburse to pharmaceutical companies. This fact allows questioning the legitimacy of parallel trade in this specific sector, and explains why pharmaceutical companies have since the seventies tried to oppose parallel imports of their products from other Member States in which the intervened price of the same product is much lower than in the country of destination. While the benefits of parallel trade in pharmaceuticals for consumers in the country of import are limited because exporters usually pocket the advantage in terms of prices which parallel trade may entail as a windfall profit, parallel exports lead to shortages of supply in the country of export and reduce the ability of pharmaceutical companies to invest in R&D. In our contribution to this Liber Amicorum for our learned colleague and friend Ian Forrester, we will analyze the decisions adopted in the aftermath of that case by the Spanish competition authority, their reversal by the Spanish High Court (Audiencia Nacional) and Supreme Court (Tribunal Supremo), and the way forward as regards the yet unresolved issue of the compatibility of dual pricing schemes in the pharmaceutical sector with Article 101 TFEU.

II. Parallel trade and the free movement of goods The first route tested by pharmaceutical companies to oppose parallel imports of their products was the Treaty’s provisions on the free movement of goods. The companies attempted to oppose such imports on the basis that their intellectual property rights (patents or trademarks) had not been exhausted by marketing the same product in a lower-priced Member State in which there was also no patent protection.2 The European Court of Justice (ECJ), however, refused to limit the fundamental freedom of free movement of goods (Art. 34 TFEU) in such circumstances and held that the

* Martinez Lage, Allendesalazar & Brokelmann, Madrid. The authors were co-counsel to GSK in the proceedings before the European Commission and both EU Courts. 1 See Judgment of 27 October 1994, Dunlop Slazenger International Ltd/Commission, T-35/92, EU:T:1994:259 and Commission Decision 94/987/EC of 21 December 1994 relating to a proceeding pursuant to Article 85 of the EC Treaty (IV/32.948 - IV/34.590 Tretorn and others), OJ L 378/45 of 31.12.1994. 2 Judgment in Merck/Stephar, 187/80, EU:C:1981:180.

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exhaustion doctrine applied fully, irrespective of any price intervention or differing patent protection regimes.3 In the Centrafarm/Sterling Drug case, Sterling Drug had tried to argue that price differences resulting from State price control measures should permit the holder of a patent for the product in question to oppose parallel imports, although such opposition would normally be contrary to the exhaustion of rights principle (i.e., the ‘exhaustion’ of the right to invoke national intellectual property legislation in order to prevent parallel imports if the product in question has been put onto the market in the Member State of exportation either by the rightholder itself or with its consent). The Court, however, rejected the parties’ arguments to allow the patent holder to oppose parallel imports contrary to the exhaustion of rights principle, thus refusing to acknowledge that the legislation of the country of origin did not allow the IP rightholder to realize the full economic value of its right in that country. This case law was again confirmed in the 1996Merck/Primecrown judgment4 in which the Court declared that ‘although the imposition of price controls is indeed a factor which may, in certain conditions, distort competition between Member States, that circumstance cannot justify a derogation from the principle of free movement of goods. It is well settled that distortions caused by different price legislation in a Member State must be remedied by measures taken by the Community authorities and not by the adoption by another Member State of measures incompatible with the rules on free movement of goods’ (para. 47). Thus, the Court does not consider the fact of a Member State fixing the price of certain products to be sufficient to justify a restriction on imports under the terms of Article 36 (that is, the undertaking harmed by such imports cannot oppose those imports by invoking a national intellectual property right recognized under Article 36 as an exception to the free movement of goods). Pharmaceutical companies cannot justify the application of national trademark or patent laws to oppose parallel imports of their products on the basis of Article 36 TFEU.

III. Parallel trade and the competition rules: the EU proceedings in GSK Spain After it had become clear in the Merck/Primecrown judgment of 1996 that the free movement of goods provisions did not provide a solution to the problem of parallel trade, GlaxoSmithKline (GSK) decided to pursue a new route by justifying restrictions of parallel trade in the context of the competition rules. The Court’s above-mentioned Centrafarm/Sterling Drug ruling provided the basis for this novel approach. In this judgment the Court held that: ‘This question requires the Court to state, in substance,

3 Judgment in Centrafarm/Sterling Drug, 15/74, EU:C:1974:114 and Judgment in Merck/Stephar, EU:C:1981:180. 4 Judgment in Merck/Primecrown, joines cases C-267/95 and C-268/95, EU:C:1996:468.

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whether the patentee can, notwithstanding the answer to the first question [which dealt with the free movement of goods provisions], prevent importation of the protected product, given the existence of price differences resulting from governmental measures adopted in the exporting country with a view to controlling the price of that product. It is part of the Community authorities’ task to eliminate factors likely to distort competition between Member States, in particular by the harmonisation of national measures for the control of prices and by the prohibition of aids which are incompatible with the common market, in addition to the exercise of their powers in the field of competition.’

1. The Commission’s GSK decision Following this indication from the Court,5 in 1998, GSK Spain (then still Glaxo Wellcome) notified to the European Commission new sales conditions for its pharmaceutical products in Spain. Clause 4 provided for a system of differentiated prices: while the price set by the Spanish health authorities would apply to medicines funded by the National Health System and dispensed in the Spanish territory under the applicable Pharmaceutical Act,6 GSK would freely set a different (higher) price for any other medicine, in particular those to be exported. GSK never disputed that this clause was adopted for the purpose of limiting parallel exports of its products from Spain to other Member States. Nonetheless, in its notification, GSK argued that the clause did not restrict competition or, alternatively, deserved an exemption under the then Article 81(3) EC (currently Article 101(3) TFEU). In a decision adopted in 2001,7 the Commission eventually rejected GSK’s request for negative clearance or individual exemption arguing that GSK’s sales conditions amounted to a dual pricing scheme and to an export ban that restricted competition by ‘object’ and therefore did not qualify for an exemption under the third paragraph of Article 101.

2. The GSK judgment of the CFI GSK appealed and the then Court of First Instance (CFI, today the General Court) in its ruling of 27 September 20068 partially annulled the Commission’s decision insofar as it denied the requested individual exemption without sufficient analysis. On appeal, the European Court of Justice (ECJ, today Court of Justice) confirmed the CFI’s judgment,9 although the ECJ dissented with the lower court on the issue of whether a limitation of parallel trade restricted competition ‘by object’, as will be explained below.

5 The indication was taken up by Martínez Lage, S. in ‘State price control and EC competition law’, in Fordham International Antitrust Law & Policy 1995, pp. 161-175. 6 Art. 100 of Act 25/1990, of 20 December. 7 Commission Decision of 8 May 2001 relating to a proceeding pursuant to Article 81 of the EC Treaty Cases: IV/36.957/F3 Glaxo Wellcome (notification), IV/36.997/F3 Aseprofar and Fedifar (complaint), IV/37.121/F3 Spain Pharma (complaint), IV/37.138/F3 BAI (complaint), IV/37.380/F3 EAEPC (complaint) (notified under document number C (2001) 1202). OJ L 302, 17.11.2001, p. 1-43. 8 Judgment of 27 September 2006, GlaxoSmithKline Services v. Commission, T-168/01, EU:T:2006:265. 9 Judgment in GlaxoSmithKline Services v Commission, joined cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P, EU:C:2009:610.

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The CFI not only annulled the Commission’s rejection of the individual exemption sought by GSK but also disagreed with the Commission as to whether the sales conditions restricted competition by ‘object’ within the meaning of Article 101(1) of the Treaty. The Court held that it was necessary to take into account the specific legal and economic context of the pharmaceutical sector, in which the coexistence of different national legislations distorted competition. The Court confirmed that ‘the price of medicines reimbursed by the national health insurance schemes is not determined as a result of a competitive process throughout the Community but is directly fixed following an administrative procedure in most Member States and indirectly controlled by the other Member States’ (para. 125). Hence, ‘the differences between the applicable national provisions are a structural cause of the existence of significant price differentials between Member States’ (para.127) and ‘those price differentials are themselves the cause of parallel trade in medicines in the Community’ (para. 129). Thus, the Court concluded that ‘the prices of the products in question, which are subject to control by the Member States, which fix them directly or indirectly at what they deem to be the appropriate level, are determined at structurally different levels in the Community and, unlike the prices of other consumer goods to which the Commission referred in its written submissions and at the hearing, such as sports items or motor cycles, are in any event to a significant extent shielded from the free play of supply and demand. That circumstance means that it cannot be presumed that parallel trade has an impact on the prices charged to the final consumers of medicines reimbursed by the national sickness insurance scheme and thus confers on them an appreciable advantage analogous to that which it would confer if those prices were determined by the play of supply and demand.’ (paras. 133/134). Consequently, the Court rejected that GSK’s undisputed intention to limit parallel trade with its new sales conditions restricted competition by object, since it could not be taken for granted that parallel trade tends to reduce the prices set by the public authorities and thus to increase the welfare of final consumers. In spite of disagreeing with the Commission on the existence of a restriction by object, the CFI nevertheless upheld the Commission’s finding that the sales conditions restricted competition within the meaning of Article 101 (1) TFEU because of their anti-competitive effect. Although the CFI declared that an agreement limiting parallel trade does not necessarily restrict competition, it could do so if parallel trade contributes to price competition. In the case at hand GSK’s sales conditions barely had an appreciable effect on competition because intrabrand competition between exporting wholesalers and distributors in the country of destination was ‘limited’ and pressure on prices resulting from parallel trade was ‘marginal’ given that parallel traders would not pass the price differences on to consumers in those countries. Nevertheless, the Court understood that Clause 4 of GSK’s sales conditions could contribute to reinforcing pre-existing price rigidity, affecting, by network effect, a significant number of products and national markets, and therefore concluded that it had the effect of restricting competition.

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3. The ECJ’s judgment on appeal On appeal, the ECJ disagreed with the CFI’s conclusion that the sales conditions did not restrict competition by ‘object’. Although the higher Court acknowledged that it was necessary to take into account the legal and economic context to assess whether an agreement aimed at restricting parallel trade had as its object to restrict competition, it rejected the CFI’s conclusion that an agreement aimed at limiting parallel trade restricted competition by object only if it may be presumed to deprive final consumers of the advantages of effective competition in terms of supply or price. According to the ECJ, this conclusion is not supported either by the wording of Article 101 or the case law, since Article 101 protects not only interests of competitors or consumers, but also the structure of the market and, in so doing, competition as such.

The ECJ’s discrepancy with the CFI is surprising for three reasons. First, because the ECJ actually did not analyze the legal and economic context, after declaring that such an analysis was necessary. Second, because in our view there should be no contradiction between the analysis of whether an agreement restricts ‘competition’ and the analysis of whether an agreement harms consumers. Article 101 protects the structure of the market since it presumes that the competitive functioning of the market generates benefits for consumers.

Third, because the ECJ’s finding of a per se infringement arguably contradicts itsGSK Greece judgment10 on the compatibility of limitations of parallel trade with Article 102 TFEU. In that preliminary ruling, the Court held that restrictions of parallel trade resulting from a so-called supply quota system (by which the manufacturer unilaterally –and thus without infringing Article 101 TFEU because there is no ‘agreement’11—limits the amounts supplied to wholesalers to the needs of the national market) do not per se constitute an abuse since even a dominant manufacturer is entitled to protect its commercial interests. Thus, if the amounts requested by wholesalers are out of all proportion to those previously sold by the same wholesalers to meet the needs of the national market, a dominant company may limit the amounts it supplies to such wholesalers without infringing Article 102 TFEU. In other words, the refusal to meet orders that are out of the ordinary because they are disproportionate as compared to the quantities previously sold by wholesalers to meet the needs of the domestic market do not infringe Article 102 TFEU.

In our view, the conclusion to be drawn from the GSK Greece judgment is that, if a limitation of parallel trade by a dominant undertaking does not per se constitute an abuse of a dominant position pursuant to Article 102 TFEU, it should also not constitute a restriction ‘by object’ under Article 101 TFEU, contrary to what the Court held in GSK Spain.

10 Judgment in Sot. Lélos kai Sia, joined cases C-468/06 to C-478/06, EU:C:2008:504. 11 Judgment of 26 October 2000, Bayer v Commission, T-41/96, EU:T:2000:242 and Judgment in BAI and Bayer v Commission, joined cases C-2/01 P and C-3/01 P, EU:C:2004:2.

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4. The aftermath of the GSK judgments in the Commission’s proceedings In upholding the operative part of the CFI’s judgment (albeit overturning its reasoning as regards the existence of a restriction by ‘object’), the ECJ confirmed the annulment of Article 2 of the Commission’s Decision, which had denied the individual exemption under the former Article 81(3) EC sought by GSK. For the purposes of complying with its judgments, the CFI had declared that ‘To that end, although the notification procedure provided for in Regulation No 17 no longer exists under Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ 2003 L 1, p. 1), it falls upon the Commission, in the light of the partial annulment of the Decision and the retroactive effect thereof, to rule on the request for exemption presented by GSK by reference to the date of that request (see, to that effect, Judgment of 2 May 2006, O2 (Germany) v Commission, T‑328/03, EU:T:2006:116, paragraphs 47 and 48), in so far as that request remains before it.’ However, as the Commission reports in its second Glaxo Wellcome Decision of 27 May 2014,12 on 26 January 2010 GSK formally withdrew its application (of 6 March 1998) for an individual exemption under Article 101(3) TFEU, so that the Commission has never taken a new decision, in light of the judgments of both Courts, on the fulfilment of the four requirements of Article 101(3) TFEU by GSK’s dual pricing scheme. This 2014 Decision rejects the claim of the European Association of Euro-Pharma- ceutical Companies (EAEPC) that the Commission was still obliged to adopt a decision on GSK’s pricing scheme, against which the EAEPC had filed a complaint back in 1999. The Decision eventually rejected the complaint on grounds of lack of sufficient EU interest. According to the Commission, the EAEPC in reality did not seek an assessment of GSK’s dual pricing scheme of 1998 (which GSK had suspended in 1998 and has since then not reinstated in Spain13) ‘but rather the opening of a general investigation into parallel trade in the pharmaceutical sector in Spain which would go well beyond the scope of its Complaint.’ The Decision rejects the EAEPC’s argument that there is a ‘causal link’ between current pricing practices by other pharmaceutical companies in the Spanish market and the Commission’s lack of a definitive response to the legality of GSK’s 1998 scheme. In this regard it should be noted that the Commission opened another case file in January 2012 (AT.39973, Pricing schemes for distribution of medicines in Spain) to investigate current parallel trade and dual pricing issues in Spain more generally, ‘including pricing practices implemented by companies other than GSK.’14 The Decision

12 Adopted under the original case number AT.36957. 13 Para. 10 of the Decision. 14 Para. 11 of the Decision.

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also makes reference to two cases decided by the Spanish competition authority and the ensuing judicial appeals, to which we will refer below. The Decision also denies that the Commission’s rejections of various complaints brought against Pfizer’s dual pricing scheme in Spain were based on an analysis of that scheme according to the policy set in the GSK case, since those complaints were also rejected on the basis of a lack of EU interest. Finally, the Commission’s Decision also argues that national competition authorities (and national courts) are perfectly suited to adopt decisions concerning Article 101(3) TFEU. The Commission’s 2014 Decision has been appealed to the General Court by the EAEPC15 and it seems that it will be difficult for the GC to quash the Commission’s refusal to further investigate GSK’s 1998 sales conditions for lack of EU interest, since the scheme ceased to be applied a long time ago and similar schemes adopted subsequently have been analyzed by the Spanish competition authority and the Spanish courts. IV. The aftermath in Spain While the European Commission’s policy priorities in the pharmaceutical sector switched from parallel trade to patent-related issues, particularly during the period between the CFI’s and ECJ’s judgments in the GSK Spain case, parallel traders continued to bring complaints before national competition authorities and national courts. In Spain, these complaints gave rise to a number of decisions by the National Compe- tition Commission (CNC), all of which rejected the claims of parallel traders. Although there have been further decisions,16 the CNC’s policy was framed in two decisions —Spain Pharma/Pfizer17 and EAEPC/Laboratorios farmacéuticos18— regarding so-called ‘free pricing’ systems introduced by various manufacturers after the entry into force of the new Pharmaceutical Act in 2006.19 The new pricing schemes were introduced on the background of Article 90 of the Pharmaceutical Act, which reserves the application of the regulated prices fixed by the Spanish authorities to products that are financed with public funds and dispensed in Spain. Thus, the essential argument put forward was that there was no ‘dual’ pricing, since manufacturers only fixed one

15 EAEPC/Commission, Case T-574/14, OJ C 409/47, of 17.11.2014. 16 For a more detailed analysis of the CNC’s practice see Brokelmann, H., ‘Parallel Trade after the GSK Spain Judgments’, in Reviewing Vertical Restraints in Europe (Bellis, J.-F./Beneyto, J.M., eds., 2011), pp. 161-177. 17 Decision of the CNC of 21 May 2009 in case 2623/05 Spain Pharma. 18 Decision of the CNC of 14 September 2009 in case S/0017/07l; EAEPC vs. Laboratorios Farmacéuticos, 19 Act 29/2006, of 26 July 2006, on Guarantees and Rational Use of Pharmaceutical and Sanitary Products, Official State Gazette number 178 of 27.07.2006.

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price (for medicines not dispensed in Spain), the other price for pharmaceuticals publicly financed and dispensed in Spain being fixed by the health authorities.

1. The Spain pharma case The Spain Pharma case is a good example of the decreasing interest of the European Commission in parallel trade cases in the aftermath of the GSK Spain case. The Spanish wholesaler Spain Pharma lodged a complaint before the European Commission in relation to an alleged agreement between Pfizer and the association of wholesalers COFARES, whereby Pfizer would ensure supplies to the members of the association subject to the latter undertaking not to export. The European Commission informed the CNC of the complaint, indicated that in its opinion the CNC was the authority best placed to deal with it, and finally rejected Spain Pharma’s complaint for lack of Community interest.20 The CNC found no evidence of the alleged agreement between Pfizer and COFARES. In the same decision, the CNC also rejected Spain Pharma’s complaint against the agreements entered into by Pfizer and its wholesalers, which according to Spain Pharma established a ‘dual pricing’ system. Pursuant to these so-called free pricing schemes, the manufacturer establishes a free price which is replaced by the intervened price if the product in question is financed by the State and the wholesaler proves to the manufacturer that it has been dispensed in Spain. The CNC found that these agreements were covered by the then applicable Vertical Block Exemption Regulation.21 Moreover, the CNC held that these agreements did not establish a ‘dual pricing’ system. According to the CNC, the application of a ‘free price’ by Pfizer was a unilateral decision by Pfizer based on the Pharmaceutical Act. Pfizer only set one ‘free price’, which was replaced by law by the regulated price set by Spanish authorities pursuant to Article 90 of the Pharmaceutical Act (and Article 100(2) of the former Pharmaceutical Act22) for those products fulfilling the conditions established in this provision. In this respect, the CNC referred to the judgment of a first instance civil court of 27 April 200723 which confirmed that the application of the regulated price was conditional upon the fulfilment of the two requirements of public financing and dispensation of the product at issue in Spain. The CNC also invoked Recommendation VI of the ‘G10 High Level Group on innovation and provision of medicines in the European Union’ of 7 May 2002, pursuant to which ‘the Commission and Member States should secure the principle that a Member State’s authority to regulate prices in the EU should extend only to those medicines

20 Case 39.184 SP/Pfizer. 21 Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, OJ L 336/21 of 29.12.1999. 22 Act 25/1990, of 20 December. 23 Judgment of Juzgado de Primera Instancia of Valencia of 27 April 2007 in case 567/2003.

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purchased by, or reimbursed by, the State. Full competition should be allowed for medicines not reimbursed by State systems or medicines sold into private markets.’24

2. The EAEPC/Laboratorios Farmacéuticos case In the EAEPC case, the CNC rejected a complaint by the European Association of Euro-Pharmaceutical Companies (EAEPC) against several pharmaceutical companies in relation to their ‘double pricing’ systems which, according to the EAEPC, infringed Articles 1 LDC and 81 EC (now Article 101 TFEU). The EAEPC had already lodged a complaint against Pfizer for the same facts before the European Commission, which dismissed it for lack of Community interest.25 As in the above mentioned Spain Pharma case, the CNC distinguished between ‘double pricing’ and ‘free pricing’ systems. According to the CNC, pharmaceutical companies set up just one price that is replaced by the regulated price fixed by the Administration when the conditions for the application of the latter (public financing and dispensation in Spain) are fulfilled. The CNC held that the regulated price is fixed in view of the public interest of the Spanish State -in that it relates to products financed with public funds- and cannot be extended to exported products. It also found that pharmaceutical companies need to know the place of dispensation of their products to be able to apply the regulated price and that, consequently, information systems whereby wholesalers should provide information as to dispensation in Spain did not affect competition. Furthermore, the CNC discarded a possible concertation between pharmaceutical companies to apply their ‘free pricing’ systems. Again, the CNC stated that the establishment by these companies of information systems regarding dispensation in Spain could be explained by the need to comply with Article 90 of the Pharmaceutical Act. Finally, the CNC rejected the EAEPC’s allegations relating to the foreclosure of wholesalers. The CNC found no evidence of such foreclosure and held that pharmaceutical companies were free to determine the size of their distribution networks.

3. The judgments of the Audiencia Nacional The Spain Pharma and EAEPC decisions of the CNC dismissing the complaints brought by parallel traders against the free pricing schemes adopted in 2006 by several manufacturers were appealed by the complainants before the Audiencia Nacional (AN), a national court competent to hear actions against the CNC’s decisions and other important economic and criminal cases. In two (identical) judgments of 13 June 2011 and 05 December 2012, the court annulled the CNC’s decisions. The AN held that the compatibility of the free pricing schemes with the new pharmaceutical legislation, to which the CNC had devoted a great part of its reasoning, was ‘not enough to conclude that there has been no infringement of Articles 81 EC and 1

24 http://ec.europa.eu/health/ph_overview/Documents/key08_en.pdf. 25 Decision of 8 August 2006.

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LDC’. Similarly, the court rejected that several rulings from the Spanish Supreme Court confirming the compatibility of the said legislation with EU law (in particular the free movement of goods) were also not sufficient to discard a possible incompatibility of the pricing schemes with the competition rules. As regards the CNC’s second line of reasoning, that Pfizer had only established one price and no dual pricing, the AN applied the above-mentioned judgment of the then CFI (today General Court of the EU) in the GSK Spain case,26 holding that the national legislation in question did not oblige pharmaceutical companies to apply different prices depending on whether their products were financed by public funds and dispensed in Spain. According to the AN, the relevant question is not whether or not the intervened prices were negotiated with the Administration but rather whether Spanish legislation left room for autonomous and independent behaviour by Pfizer. As the CFI concluded in its 2006 judgment (paras. 71-74 were quoted by the AN): ‘Accordingly, it cannot be accepted that the national regulations in question required GW to apply, in the contracts which it concluded with Spanish wholesalers, prices which differ according to whether or not the medicines which it sells to them will be reimbursed by the Spanish sickness insurance scheme.’ In other words, Spanish legislation did not oblige manufacturers to apply a different (higher) price to exported medicines. Hence, GSK had room for autonomous behaviour when setting the export price, to which Article 101 TFEU could apply. The judgments of the AN reject that this situation would have changed under Article 90 of the new Pharmaceutical Act of 2006.27 The AN therefore denied that the free pricing schemes were different from GSK’s original dual pricing scheme since Spanish legislation did not fix a price for medicines that arenot financed by the State, and declared that they therefore posed the same competition problems as the latter, quoting the European Commission’s decision to reject a complaint from the EAEPC in its support.28 Nonetheless, the AN acknowledged that the issue of whether prices were negotiated with the Administration or simply imposed by the latter could be relevant for the analysis of the fulfilment of the four conditions of Article 101(3) TFEU, but not as regards the question of whether the pricing schemes restricted competition. In this respect, the AN applied the ECJ’s judgment in GSK Spain, holding that the agreements in question limited parallel trade and therefore restricted competition by ‘object’, irrespective of the particular legal and economic context of the pharmaceutical sector. The AN also followed the ECJ in holding that an agreement that restricts parallel trade may benefit from an exemption pursuant to Art. 101(3) TFEU if it fulfils the four conditions established therein. The judgments admit that the peculiarities of the pharmaceutical sector, in particular as regards the regulation of prices, must be taken into account when assessing whether such pricing schemes fulfil the conditions of

26 Judgment in GlaxoSmithKline Services Unlimited v. Commission, paragraph 9 above, EU:T:2006:265. 27 Act 29/2006, of 26 July, on Guarantees and Rational Use of Medicinal Products and Medical Devices, Official State Gazette number 178 of 27.07.2006. 28 Communication of 08.08.2006, SG-Greffe (2006) D/204521.

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Article 101(3) TFEU. The AN did not analyze the fulfilment of those conditions, but acknowledged that the legal and economic context may be important to that analysis. A relevant factor in that respect might be the disputed question of whether prices are unilaterally fixed by the Health Authorities or ‘negotiated’ with pharmaceutical companies, which the judgments of the AN analyze at length, although no conclusion is reached on the impact of the price-setting procedure on the application of Article 101(3) TFEU.

4. The judgment of the Supreme Court The judgments of the AN were appealed before the Supreme Court, which delivered its first judgment in the Pfizer appeal on 03 December 2014, fully upholding the AN’s first ruling of 13 June 2011. The Supreme Court (TS) rejects that there was no ‘agreement’ for the purposes of Article 101 TFEU between Pfizer and its wholesalers, since Pfizer had concluded supply contracts with each wholesaler which included the ‘free pricing’ provisions. The contracts expressly make reference to the application of a ‘Pfizer price’ (free price) to exports and the ‘intervened price’ to pharmaceuticals financed by the Spanish State and dispensed in the national territory. According to the TS, these clauses may have as their main object to impede or restrict parallel exports of pharmaceuticals into other Member States of the EU. Given that the CNC had not analyzed the restrictive object of the clauses in question, the language employed by the TS does not conclude that there actually is a restriction by object but rather asks the competition authority to examine and verify these clauses in light of the GSK Spain case law of the European Courts. The TS recalls that the judgment of the AN rests on the ECJ’s ruling in GSK Spain, where the Court held that the application of different prices to financed medicines dispensed in Spain and to exported medicines amounted to a restriction of competition contrary to Article 101(1) TFEU. The TS holds that the contracts between Pfizer and its wholesalers include a system of ‘selective double pricing’ which may prima facie limit parallel trade and thus restrict competition by object, thus rejecting the theory of a ‘unilateral free pricing system’ put forward by Pfizer on the basis of Article 90 of the current Pharmaceutical Act. The TS concludes that the ECJ’s case law is mandatory for the CNC’s analysis of the effects of Pfizer’s agreements with wholesalers on the structure of the internal market and of whether they hinder the integration of national markets, before evaluating whether the four conditions of Article 101(3) TFEU are met. It is foreseeable that the Spanish Supreme Court will rule on the still pending appeal against the second judgment of the Audiencia Nacional relating to the EAEPC’s complaint to the CNC and the free pricing systems introduced by six pharmaceutical companies in identical terms to those of the December 2014 ruling.

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244 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Santiago Martínez Lage and Helmut Brokelmann

V. Outlook: the future evaluation of Article 101(3) TFEU As a consequence of the Supreme Court’s ruling of December 2014, the Spanish competition authority (now the Comisión Nacional de los Mercados y la Competencia, CNMC) on 5 March 2015 formally re-opened the proceedings against Pfizer’s free- pricing system. After the rulings delivered by the Court of First Instance and, on appeal, the European Court of Justice in the GSK Spain case and the ensuing judgments by the Spanish Audiencia Nacional and Supreme Court, it has become clear that the solution to the distortions of competition caused by parallel trade in pharmaceuticals is to be found in the third paragraph of Article 101 TFEU. Although the courts acknowledged that there is a distortion of genuine competition due to the fact that the prices of these products are fixed by various Member States, a circumstance that makes parallel exports from low-priced to higher priced countries possible in the first place, the ECJ has nonetheless concluded that any limitation of parallel trade, also in such intervened products, restricts competition ‘by object’ within the meaning of Article 101(1) TFEU. It is also clear from the CFI’s judgment that ‘the conduct consisting in establishing, by contract, a system of differentiated prices prohibiting the Spanish wholesalers dealing with GW from purchasing at that price (the Clause 4A price) medicines which they will resell in other Member States, and obliging them to purchase those products at a higher price (the Clause 4B price), is not imposed by the Spanish regulations’ (para. 73). Article 101 TFEU therefore fully applies to such a system of differentiated prices even if the prices of reimbursable medicines are fixed wholly independently by the Spanish authorities and are binding. This is why the solution of the problem created by parallel trade in a product with intervened prices can only be found in the third paragraph of Article 101 TFEU. Although the GSK Spain case has not definitively settled whether a system of differentiated prices fulfills the four requirements of Article 101(3) TFEU, there are indications in the judgments of both EU Courts that at least some of these four conditions may be fulfilled, bearing in mind the specific circumstances of the pharmaceutical sector. Both the judgments of the EU Courts and those of the Spanish courts confirm that an agreement that restricts parallel trade –and thus, according to the ECJ, competition ‘by object’ within the meaning of Article 101(1) TFEU—may nonetheless benefit from an exemption pursuant to the third paragraph of Article 101 if it fulfils the four cumulative conditions established in that provision, i.e.,if it creates efficiencies, benefits consumers, the restriction is indispensable and it does not eliminate compe-

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 245 Parallel trade after the GlaxoSmithKline judgments

tition on the market. Both judgments include important statements as to the possible fulfilment of at least some of these conditions.

On the first condition of Article 101(3) —the generation of efficiencies— the EU Courts have acknowledged that an agreement restricting parallel trade may generate efficiencies by allowing pharmaceutical companies to increase their investment in R&D. According to the ECJ, it is enough that such an efficiency is ‘sufficiently likely’. Also, there is no need for all additional funds recovered by limiting parallel trade to be invested in R&D. The Court of Justice also confirmed that to determine whether an agreement generates efficiencies, it may be necessary to take into account the nature and specific features of the sector concerned. According to the judgment of the Audiencia Nacional it might also become relevant whether intervened prices are actually the result of a negotiation between manufacturers and the Administration or unilaterally imposed by the latter.

As regards the second requirement of benefiting consumers, an increase in R&D should normally benefit consumers (i.e., patients) because in a competitive industry it is in the interest of pharmaceutical companies to reinvest funds in R&D due to intense competition in innovation.

Regarding the fourth requirement of ‘no elimination of competition’, the CFI held that an agreement restricting parallel trade limits intrabrand (price) competition between exporting wholesalers and distributors in the country of importation, but does not exclude it completely since there is price competition following generic entry. Furthermore, the restriction of competition allows an increase in competition based on innovation (interbrand competition), which is usually regarded to weigh more than intrabrand competition. As the CFI put it in its judgment, ‘in those circumstances, it was still necessary, in accordance with the case-law cited at paragraph 109 above, to assess what form of competition must be given priority with a view to ensuring the maintenance of effective competition sought by Article 3(1)(g) EC and Article 81 EC. ‘

While there seem to be reasonable arguments to argue that these three conditions of Article 101(3) TFEU are met, neither the judgments of the CFI and the ECJ nor those of the Spanish AN and TS say a word on the crucial requirement of ‘indispensability’ in that provision. This third condition of Article 101 (3) requires balancing the restriction against the resulting efficiencies and thus applying the proportionality principle to assess whether the restriction is actually necessary to achieve these efficiencies or goes beyond what is necessary. Issues such as the level of prices that ensures an optimal financing of R&D, or the need to exclude or only limit parallel trade, might come up in the forthcoming discussions of this requirement.

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246 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Santiago Martínez Lage and Helmut Brokelmann

VI. Conclusion

The rulings of both the EU Courts and the Spanish Audiencia Nacional and Supreme Court show that the decade-long discussion in the GSK Spain case about the merits of parallel trade in products with intervened prices eventually has convinced competition authorities in Europe that parallel trade in such circumstances does not merit protection. This can be seen in the decisions of the Spanish competition authority delivered in the aftermath of the GSK case. In the EAEPC case, the CNC held that ‘it would make no sense to extend the fixing of prices by the Spanish State according to public interest criteria to other territories or that products for exportation were affected by the intervened prices determined in Spain, limiting in an unjustified manner the [fundamental] freedom of producers [to set their prices]’. In Spain, severe supply shortages due to parallel exports with the involvement of pharmacies have recently even led to criminal prosecution of such practices.

As the CFI confirmed in its GSK ruling, the effects of parallel trade on intrabrand competition are ‘marginal’, because price differences are usually entirely pocketed by parallel traders and not passed on to consumers in the Member State of destination. As the CFI reminds us in its ruling, the Commission itself has publicly conceded in a number of official communications, notably Communication COM(1998) 588 final, the ambiguous impact of parallel trade of medicines on the welfare of final consumers, recognizing that unless parallel trade can operate dynamically on prices, it creates inefficiencies because most of the financial benefit accrues to the parallel trader rather than to the health care system or the patient.29

It must therefore be questioned whether the Treaty’s competition rules may be employed to harmonize the prices of pharmaceuticals throughout the internal market.30 While such price harmonization is legitimate where prices are freely set by manufacturers, where there are price differentials due to regulation or State intervention, as is clearly the case in the pharmaceutical sector, it is not legitimate to impose price harmonization through a strained application of the competition rules that promotes parallel trade. As the CFI expressed it in its GSK judgment, in the pharmaceutical sector parallel traders ‘are the vectors of artificial competition and not of effective competition within the meaning of Article 3(1)(g) EC and Article 81 EC’ (para. 146).

29 Communication COM(1998) 588 final of 25 November1999 on the single market in pharmaceuticals, p. 6. 30 On this question, see Martínez Lage, S. and Martínez-Lage, P.: ‘Pursuing market integration through the application of EC competition rules. A critical perspective’, in Mélanges en hommage à Georges Vandersanden. Promenades au sein du Droit Européen. Bruylant : Bruxelles 2008, pp. 593-612.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 247 Parallel trade after the GlaxoSmithKline judgments

The goal of price harmonisation in the pharmaceutical sector may thus only be achieved via harmonisation within the boundaries established in the Treaty on the EU’s legislative competences in that field and not through the backdoor of allowing parallel trade in a sector in which a common market does not (yet) exist. As the CFI put it in the Bayer Adalat judgment,31 the Commission is not entitled, under the system of the Treaty, to attempt to achieve the harmonization of prices in the pharmaceutical products market, ‘by enlarging or straining’ the scope of the rules applying to undertakings, ‘especially since that Treaty gives the Commission specific means of seeking such harmonisation where it is undisputed that large disparities in the prices of medicinal products in the Member States are engendered by the differences existing between the state mechanisms for fixing prices and the rules for reimbursement, as is the case here’. The CFI did indeed recall in Bayer Adalat that it is settled case law that distortions caused by different price legislation in a Member State must be remedied by measures taken by the Community authorities. The CFI also stated that32 in any event, the Commission’s conviction that parallel imports will in the long term bring about the harmonization of prices of pharmaceutical products was completely unfounded, and it also clarified that the Commission could not rely, in support of its decision, on its claim that it is not acceptable for parallel imports to be hindered so that pharmaceutical companies may impose excessive rates in countries not applying any price control to compensate for lower profits in Member States where there is a stricter control of prices.

Since the CNC’s 2009 decisions to dismiss the complaints of parallel traders against so-called free pricing schemes have been overturned by the Spanish courts, it is now for the CNC’s successor, the CNMC, to articulate this policy within the framework of the third paragraph of Article 101 TFEU.

31 Judgment in Bayer AG v. Commission, para. 12 above, EU:T:2000:242. 32 Para. 181 of the judgment.

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248 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law

Luís Silva Morais*

I. Introduction and comprehensive remarks

1. General overview In the context of competition law analysis, we may identify some critical issues associated with the potential relevance of anticompetitive coordination, arising from shareholdings in certain undertakings which allow the exercise of influence over the behaviour of those entities. To some extent, such issues and their effects on competition bear resemblance to the competition law framework of joint ventures (and a host of situations of cooperation between undertakings comparable thereto).1 More precisely, these cases correspond to situations of acquisition or holding by an undertaking of shareholdings in a third undertaking which, without exceeding the threshold required for the acquisition of control, whether jointly or individually, may, nevertheless, influence the competitive relationships between the undertakings concerned.

* This paper was finalized on 31 March 2015. No developments subsequent to that date, either concerning the development of the Commission 2014 proposals on the reform of the MCR or further evolving case law in this domain, have been considered. 1 On this parallel and its significance see in general Luís Silva Morais,Joint Ventures and EU Competition Law, Hart Publishing, 2013, point 1.5., Chapter 2, pp. 182 ff, and especially, point 6, Chapter 3, pp. 481 ff.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 249 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law

This type of minority shareholding, due to the absence of any kind of control - as this concept has been perceived in EU competition law2 - does not lead either to the emergence of concentration operations, or to the creation of joint ventures, as such. Its potential impact on the relationship between the involved undertakings may, under certain circumstances, raise issues of distortion of competition, to some extent comparable, as mentioned, to those associated with certain joint ventures. Furthermore, given this potential for competition law problems, the European Commission, through its DG Competition, has launched a public consultation to deal with a hypothetical ‘enforcement gap’ concerning these minority shareholdings and to find adequate normative solutions for any problems identified in this area. In the wake of the comments received, the Commission has recently presented specific proposals in its White Paper, Towards more effective EU merger control, published in July 2014.3 The underlying rationale of these proposals concerning minority shareholdings is to widen the scope of EU merger control in order to systematically address potential harm to competition arising from the acquisition of non-controlling minority shareholdings. Conversely, the envisaged review purports to avoid undue burdens to businesses, both by targeting only transactions that are, prima facie, problematic from a competition point of view and by adopting a system for the control of such situations that would be lighter than currently foreseen under the Merger Regulation for full mergers.4 While this proposal is certainly anchored in understandable concerns in terms of competition law, the procedural framework it contemplates is, to my view, debatable (as I shall put forward brieflyinfra, 2). Whatever the final outcome of these reform proposals may be, the competition law treatment of minority shareholdings is definitely at a decisive crossroads in the context of EU competition law. Irrespective of future rules that will be procedurally applicable de iure condito in the wake of a future EU merger control reform, the substantive analysis of these situations, and the relevant hermeneutical parameters to be retained in order to ensure an adequate level of legal predictability to undertakings and economic operators, are of the essence now in this field. Hence, the current thoughts developed in this short paper, which purport to kindle a much needed discussion in this sensitive field; a discussion focussed on the substantive problems to be addressed in order to deal with the actual competition law issues underlying minority shareholdings, no matter the specific procedural regime applicable thereto in the wake of reform of the EU merger control rules. Such intentional focus

2 See on the concept of control over undertakings under EU competition law, Luís Silva Morais, Joint Ventures and EU Competition Law, cit. This concept has already been extensively analyzed and dealt with and, as such, it will not be further addressed here. See in particular for that analysis and relevant references, points 3.1., 4.2., and 5 of Chapter 1 of Joint Ventures and EU Competition Law, cit. 3 White Paper, Towards more effective EU merger control, available at http://ec.europa.eu/competition/consultations/2014_merger_control/.

4 See on this overall perspective pursued by the Commission in the proposals it has presented in the wake of the 2013 public consultation, e.g., Competition Policy Brief, Issue 15, October 2014, Minority Power – EU Merger Control and the Acquisition of Minority Shareholdings.

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on substantive issues, regardless to some extent of the procedural framework currently in flux, implies, somehow, an incursion into uncharted waters. Accordingly, this also represents, in my view, the best way to pay a modest tribute to the outstanding contribution of Ian Forrester for the development of competition law, always paving new analytical avenues and new areas of discussion that have fructified and led to a qualitative upgrade of competition law enforcement (and even to better normative solutions in certain areas of this complex and very dynamic body of law) – a fundamental contribution to which we are all indebted: competition law scholars and practitioners, courts, enforcement agencies, and all the economic stakeholders in general who have some sort of interest in the enforcement of competition law.

2. Key competition law issues in this domain and the evolving case law – the special importance of the financial sector in this field A particular concern with the competition law assessment of situations concerning minority shareholdings and related cases is, in my view, particularly relevant, given the rather high frequency with which they occur in the current context of business relationships in various economic sectors5 and considering that the potential impact on the competition process6 arising therefrom has not been appropriately dealt with in terms of enforcement of EU competition rules (hence evidencing a substantive enforcement gap, while not necessarily a procedural one, in this legal system). The insufficient attention granted to these situations of minority shareholdings may have resulted from some confusion between them and the situations relating to concentration operations in a given stage of evolution of EU competition law, prior to the adoption of the Merger Control Regulation (MCR) (a ‘confusion’ in which, somehow paradoxically, the recent 2014 reform proposals of the Commission may have incurred again, although from a different normative standpoint). In this context, the assessment of a situation concerning the acquisition of a shareholding in a third undertaking without obtaining control thereof, made by the Court of Justice of the European Union (CJEU) in its landmark Philip Morris ruling7 may have contri-

5 In a worldwide context of relations between undertakings characterized by an increasingly complex set of inter- dependencies, even when these do not assume the more traditional forms of concentration between undertakings, one is confronted not only with the proliferation of more flexible processes of cooperation between undertakings carried out through joint ventures, but also of multiple cross-shareholding relationships. On the importance of these situations in modern industrialized economies, illustrating the most recent advances in this field, see, David Gilo, ‘The Anticompetitive Effect of Passive Investment’, in Mich L R., 2000, pp. 2 ff.

6 The still relatively recent development in EU competition law of models of economic analysis of the functioning of markets, in order to materialize or ensure a proper densification of legal parameters for the assessment of various situations, has been gradually allowing a deeper grasping of such type of repercussions, depending on the circumstances, of these cases of acquisition of shareholdings in third undertakings which do not imply transfers of control. See, in general, on the new perspectives disclosed by the advances in theoretical economic analysis of certain relationship nexus between undertakings, Robin A. Struijlaart, ‘Minority share acquisitions below the control threshold of the EC Merger Control Regulation: An economic and legal analysis’, in W Comp., 2002, pp. 173 ff.

7 I refer here to the 1987 ruling of the CJEU normally identified and designated asPhilip Morris – as it will also be referenced herein and throughout this analysis of competition law problems related with minority shareholdings short of joint control – now corresponding to the Judgment in BAT and Reynolds v. Commission, Cases 142/84, 156/84, ECLI:EU:C:1987:490.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 251 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law buted to these rather grey areas (this judicial precedent being for a long time the only one dealing specifically with such matters until the 2010 ruling of the GC inAer Lingus v. Commission).8 As far as the Philip Morris precedent is concerned, and regardless of the contrasting readings of the case, I understand that the CJEU has not sustained the application of Article 101 TFEU to concentrations in this ruling.9 What strikes me is the terminolo- gical vagueness of the content of this ruling, that should still be highlighted.10 Indeed, this relative vagueness should be regarded, in itself, as the main source of the intense controversy among scholars concerning the reach of the precedent.11 Also, in the historic context in which the CJEU decided the case, the fluctuations in the terminology employed by the Court were, to a certain extent, ‘exploited’ by the Commission in the long and troublesome process of negotiation of the Proposal for a then Community Regulation on concentration control, which had been on the table since 1973, in view of fostering the final adoption of the MCR. In fact, as the reach of that ruling was not completely clear, the Commission came to the point of considering, in that light, the possibility of reviewing the position it had initially adopted in its Memorandum on the problem of concentration in the common market, dated 1 December 1965, where it had sustained in principle the non-applicability of Article 101 TFEU (then Article 85 EEC) to concentration operations12 thus paving the way, if that hypothetical reversal of hermeneutical reading was adopted, to a submission of certain categories of concentrations to that Article 101 regime. Although

8 See the Judgment of 6 July 2010, Aer Lingus v. Commission, T-411/07, EU:T:2010:281. 9 On the many contrasting hermeneutical readings proposed for the Philip Morris ruling following its adoption by the CJEU, see Willem Calkoen, J. Feenstra, ‘Acquisition of Shares in other Companies and EEC Competition Policy - The Philip Morris Decision’, in The International Business Lawyer, 1988, pp. 167 ff; E.-J. Mestmäcker, ‘Fusionskontrolle im Gemeinsamen Markt zwischen Wettbewerspolitik und Industriepolitik’, in EuR., 1988, pp. 349 ff, with these authors sustaining a reading of the ruling as acknowledging the applicability of the then article 85 EEC, currently Art. 101 TFEU, to operations of concentration; sustaining the opposite view, albeit with not entirely coincident readings of the Philip Morris ruling, see, inter alia, V. Korah, P. Lasok, ‘Philip Morris and Its Aftermath – Merger Control?’ in CMLR, 1988, pp. 333 ff; Bellamy, Mergers Outside the Scope of the New Merger Regulation - Implications of the Philip Morris Judgment, in Annual Proceedings of the Fordham Corporate Law Institute - European/American Antitrust and Trade Law – 1988, Editor Barry Hawk, Fordham Corporate Law Institute, Matthew Bender, 1989, pp. 22-1 ff.

10 There is no room here to recast the depiction of the complex situation covered in the Philip Morris case, nor the outline of the analysis carried out by the ECJ. This case involved the acquisition by Philip Morris of a non-controlling stake in a competitor (Rothmans International) with various related contractual engagements that might influence the structure of control of Rothmans International and its future evolution. However, there were some considerable ambiguities that could even be construed as conceptual flaws in the Court analysis in this case, as regards the use in the ruling of essential categories for the interpretation and application of Art. 101 TFEU such as ‘undertaking’, ‘legal or de facto control’ on the activity of enterprises, ‘economic independence’, or ‘enterprise business behaviour’. The not entirely clear use of these categories contributed to the ambiguity of the actual reach of the ruling in terms of contemplating the scrutiny under Art. 101 TFEU of mere acquisitions of significant holdings in another independent competitor undertaking, short of acquisition of effective control, or comprehending also in that scrutiny acquisitions leading to effective control. 11 As referred to in a previous footnote, various authors held that the Philip Morris ruling would stand for the application of Art. 85 EEC Treaty (current Art. 101 TFEU) for purposes of direct control of certain concentration operations, while other authors denied that this case law would have such a broad reach (besides various intermediate and composite views).

12 I refer here to the Memorandum of the Commission of 1 December 1965 – ‘Le Problème de la Concentration dans le Marché Commun’, Collection Etudes Serie Concurrence nº 3, Bruxelles, 1966 – corresponding to the first ex‘ professo’ analysis by the Commission of the issues related to direct control of concentrations. This 1965 Memorandum was adopted in the wake of a Report prepared by independent experts, the majority of which, curiously, had sustained the applicability of then Art. 85 EEC to some concentrations (while the Commission diverged from that position

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the subsequent approval of the MCR has set aside the particular significance that was initially attached to the issue of a possible application to concentrations of the regime of Article 101 TFEU,13 the confusion thus created between these operations of concentration and situations of acquisition of minority shareholdings without obtaining control has lingered beyond this precedent in the context of EU competition law. Moreover, during the first stages of enforcement of the MCR, the problems originated by the duality of treatment of joint ventures, depending on whether they were qualified, or not, as concentrations, and the procedural issues concerning the definition of criteria for distinguishing these two basic subcategories of joint ventures,14 continued somehow to downplay a consistent autonomous treatment of potential problems of distortion of competition arising from situations of acquisition of minority shareholding without gaining control (situations not fitting either the category of concentration or the category of joint ventures). Also, the importance attached by the Commission to the organization of an efficient EU merger control procedure, pursuant to the adoption of the MCR, and the administrative burden of the prior notification procedures within the context of the application of Article 101 TFEU (prior to the adoption of Regulation Nº 1/2003), further and decisively contributed to the relative ‘oblivion’ of the issues of minority shareholdings which do not confer control.15

and only contemplated the applicability under certain conditions of then Art. 86 EEC - current Art. 102 TFEU - to some concentration operations). See, on putting that controversy into historical context in terms of EU competition law, Aurelio Pappalardo, ‘Le Règlement CEE sur le Controle des Concentrations’, in Rev Int’l Dr Econ., 1990, pp. 3 ff.

13 See again on such developments and interplay, Luís Silva Morais, Joint Ventures and EU Competition Law, esp. points 4.2., 4.3. and 4.4. of Chapter 1 , in which an appreciable part of this analysis, particularly as regards the historical framework and preceding normative developments, relies.

14 I have previously highlighted the disproportionate relevance of procedural issues concerning the distinction between concentrative joint ventures and cooperative joint ventures during the period whilst the MCR was in force prior to its first reform (1997 amendment to the MCR). See, on this, and on the competition law analytical distortions associated with this distinction, Luís Silva Morais, Joint Ventures and EU Competition Law, esp. point 4.4. of Chapter 1. Again a disproportionate focus on procedural issues and frameworks may be emerging with the new 2014 proposals of reform of the MCR in order to address the issues related with minority shareholdings. History may be repeating itself here.

15 In the US antitrust law system, a greater deal of attention has been, for some time now, devoted to this type of issue, by such influential authors as Philip Areeda and Donald Turner in the classical study,Antitrust Law (1980). Therein, these authors maintained that the ‘noncontrolling acquisition has no intrinsic threat to competition at all’ (op. cit., par. 1203 d, 322). However, this understanding has been opposed by many US antitrust scholars, mostly after the adoption of the revised Merger Guidelines of 1982. See, for all, with regard to the development of such perception of the potential of distortion of competition inherent to the acquisition of minority shareholdings not granting their acquirer the control of the participated entity, Daniel O’Brien, Steven Salop, ‘Competitive effects of partial ownership: financial interest and corporate control’, in ALJ, 2000, pp 559 ff. Significantly, the importance attached to issues of distortion of competition that may be associated with this type of minority holding has even led some scholars to propose adjustments to the traditional formula of the Herfindahl-Hirschman Index (HHI), in order to consider the variables pertaining to situations of holding of stakes in third undertakings without obtaining corporate control. I refer, namely, to the so-called ‘modified HHI’ proposed by Timothy F. Bresnaham and Steven Salop (see the cit. authors in ‘Quantifying the competitive effects of production joint ventures’ in International Journal of Industrial Organization, 1986, pp. 155 ff). Furthermore, the US 1992 Horizontal Merger Guidelines (revised in 1997 and comprehensively reformed and replaced in 2010) contained a brief reference to issues associated with the holding of holdings in the share capital of undertakings, although such reference seems to be made to cross-shareholdings in undertakings participating in joint ventures (see the aforementioned Guidelines, cit., in paragraph 3.34 (c): ‘the Agencies also assess direct equity investments between or among the participants. Such investments may reduce the incentives of the participants to compete with each other’). In the new 2010 US Horizontal Merger Guidelines, its Section 13 on ‘Partial Acquisitions’ covers specifically and more broadly these situations and acknowledges that such acquisition of minority shareholdings (or ‘partial acquisitions’) when ‘not resulting in effective control’ may anyhow ‘present significant competitive concerns and may require a somehow distinct analysis from that applied to full mergers (…)’ (if originating effective control, in my view, those cases should be deemed equivalent to concentration operations under EU competition law and will not correspond as such to these particular situations

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 253 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law

This relative substantive enforcement ‘gap’ in the system of enforcement of EU competition rules, although undoubtedly less serious than the lacuna has been in the past in terms of direct control of concentrations (until 1989), should not linger on. In fact, several reasons contribute, in my view, to the development of a new analytical treatment of the matter, to which I attach paramount importance (as confirmed by the aforementioned very recent developments of the Aer Lingus v. Commission case and other cases).16 In the first place (i), theproliferation of these situations of acquisition of shareholdings without obtaining control in various business sectors and the consequent relevance of such cases for the practical operation of these sectors will lead to a predictable increase of its effect of restriction of competition and should trigger reactions from affected undertakings (and relevant affected stakeholders). Thus, in this area, a virtuous effect of a circular type could occur, to the extent the filing of complaints by affected enterprises will tend to strengthen and render more systematic the Commission scrutiny (or, as the case may be, from EU Member States’ National Competition Authorities) concerning these situations. Complementarily, once this increased attention from the Commission and other Competition Authorities is raised, the willingness of affected undertakings to react through the submission of complaints will also be greater. Also, renewed attention by the Commission and on the part of other Competition Authorities may also arise from issues related with acquisition or holding of minority shareholdings that are brought forward in the context of concentration control proceedings or as side-effects of some concentrations. Such a proliferation of cases of acquisition of minority shareholdings occurs, in particular - as highlighted in the context of US antitrust law - in the most dynamic business sectors, namely telecommunications, electronic communications, in general, or other high-tech industries.17 The practice of acquiring and holding this type of shareholding in competing undertakings is also extremely common in the financial sector, currently under focus in the wake of the recent international financial crisis (maxime in the banking and insurance

that I am herein considering and that justify autonomous treatment because these imply a change of competitive conditions short of control). The 2010 Guidelines, however, do not go to the point of specifying, as regards such ‘distinct analysis’ of those minority acquisitions – that I consider bearing significant parallels to the analysis of partial function joint ventures under EU competition law – a ‘modified HHI’ (in terms of structural analysis to be applied to such situations).

16 See, in general, on these very recent developments in this domain, Enrique González-Diaz, Minority Shareholdings and Creeping Acquisitions: The European Union Approach, in 2011 Competition Law Institute - International Antitrust Law & Policy, Fordham University School of Law, Editor, Barry Hawk, cit, pp. 423 ff. Complementarily, on the renewed analytical attention given to situations of acquisition of shareholdings without obtaining control, see, inter alia, Laurent Flochel, ‘Les Effets Concurrentiels des Prises de Participation Minoritaires’, in Concurrences, N.º 1-2012, pp. 1 ff; Nadine Mouy, ‘Participations Minoritaires et Contrôle des Concentrations’, in Concurrences, N.º 1-2012, pp. 10 ff; David Spector, Jacques-Philippe Gunther, David Bosco, Peter Kalbfleisch, Bernaerd van de Walle de Ghelcke, Peter Freeman, Andreas Bardong, ‘Merger Control and Minority Shareholdings: Time for a Change?’, in Concurrences, N.º 3-2011, pp. 14-41. 17 Daniel O’Brien and Steven Salop refer to that fact in the context of the US antitrust law system , emphasizing, e.g., among other cases, the Federal Trade Commission’s decision on the case Time Warner/Turner (Time Warner Inc., 61 Fed Reg. 5, 0301 – Sept. 25, 1996). See, in that sense, authors cit., ‘Competitive effects of partial ownership: financial interest and corporate control’, cit., pp. 560 ff.

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sub-sectors). Moreover, I consider symptomatic of the importance of those situations the fact that, on several decisions on concentration operations in the financial sector, such as inter alia in the Allianz/Dresdner or Nordbanken/Postgirot18 decisions, the Commission’s assessment has not only been focussed upon the main aspects of the acquisition of corporate control itself, that encapsulated the concentrations at stake and corresponded to direct object of the proceedings, but also on the repercussions stemming from the networks of minority shareholdings held by the undertakings involved in the concentrations in other undertakings. I even believe that, at EU level, beside the traditional importance of such cross-shareholdings among financial institutions, as a general feature of several of the most developed financial systems,19 other factors have also accrued, contributing to a remarkable weight of these situations in the portfolio of several institutions. Such factors are related with the development of a complex integration process in the various sub-sectors of the financial system, leading to the gradual creation of EU-scale financial conglomerates, or groups with a significant position in certain areas of the EU that already surpass the thresholds of domestic markets. This process has involved some concentration operations between financial institutions, which have increased with the implementation of the EU single currency.20 However, due to the issues that such transactions tend to raise in the financial sector, either for prudential reasons, or by particularities of the domestic markets - particularly in the segments of retail activities - such integration process may involve, as intermediate stages, the acquisition of minority shareholdings in financial institutions of other EU Member States. Conversely, the consolidation of domestic markets, which is also a reaction to these background movements within the EU national financial systems, is subject to natural constraints, dictated by the application of competition rules and national prudential standards so that, rather often, financial institutions unable to proceed further with certain concentration processes choose to maintain various cross-shareholdings in other national entities.21

18 See the Allianz/Dresdner and Nordbanken/Postgirot decisions, dated, respectively, 19 July 2001 (case M.2431) and 8 November 2001 (case M.2567). Symptomatically, it was the Commission itself who raised the relevance of this type of analysis concerning minority shareholdings in those decisions relating to concentrations in the financial sector, in analyses produced in the context of the Competition Policy Newsletter, 2002, February (See in that Newsletter, the paper of Enzo Moavero Milanesi and Alexander Winterstein, ‘Minority shareholdings, interlocking directorships and the EC competition rules – recent Commission practice’ (Newsletter, cit., pp. 15 ff).

19 See on the frequent situations of minority cross-shareholding in financial institutions in the more developed financial sectors, the paper Competition in UK banking – a report to the Chancellor of the Exchequer, Don Cruickshank, cit. For a more general outlook on the global changes in EU financial systems, in the context of which the acquisition of minority shareholdings has proliferated, see The transformation of the European financial system, Editors, Vitor Gaspar, Philipp Hartmann, Olaf Sleijpen, European Central Bank, 2003.

20 On the increase of the number of cross-border concentrations associated with the implementation of the Euro and with the completion of the last stages of the monetary union, see Banking Integration in the Euro Area, European Central Bank, Occasional Paper Series, N.º. 6, December 2002, Ines Cabral, Franck Dierick, Jukka Vesala.

21 On these acquisitions and holdings of stakes in financial institutions incorporated in other EU Member States and in domestic financial institutions, for different reasons, but related to the very same movement toward integration of the financial sectors within the EU, evidencing as yet unknown reach and boundaries, see, inter alia, ‘Banking Integration in the Euro Area’, European Central Bank, Occasional Paper Series, N.º 6, December 2002, cit. and ‘Bank Mergers, Competition and Liquidity’, European Central Bank, Occasional Paper Series, N.º 292, November 2003, Elena Carletti, Philip Hartmann, Giancarlo Spagnolo.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 255 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law

At another level, and in second place (ii), the overcoming of this substantive enforcement gap in the EU system of enforcement of competition rules concerning the scrutiny of acquisition of minority shareholdings, not subject to merger control, may also, in principle, result from the very process of ‘decentralization’ triggered by the adoption of Regulation (EC) No. 1/2003. Indeed, as I have already had occasion to highlight, one of the main reasons for this option, with the undeniable risks that it entails, corresponds to the creation of conditions for the Commission to focus on the treatment of the most serious situations of potential breach of EU competition rules, as well as on the analysis and clarification of legal issues that, until now, have not been adequately or sufficiently discussed.22 It happens that, in my view, the competition law scrutiny of such situations of acquisition of minority shareholdings, to which the Commission had not devoted systematic attention, despite this potential for disruption of competition in some situations, corresponds precisely to one of these fundamental issues, deserving further clarification and new hermeneutical definitions. It should, in any case, be acknowledged that the issues of distortion of competition associated with such situations have not been completely ignored by the Commission in the wake of the fundamental Philip Morris case (which originated the key aforementioned judicial precedent)23 and until the recent aforementioned 2014 reform proposals. In several cases, the Commission even sought to address these problems through the adoption of commitments by the undertakings involved in certain transactions.24 It did so, however, in the context of analysis of notifications of projects of creation of joint ventures under Article 101 TFEU and, above all, of notifications of

22 See various incidental references to these aspects related with the so-called ‘modernization’ process of EU competition law, in my book Joint Ventures and EU Competition Law, cit., Chapters 1 and 2 (e.g., point 1.1. of Chapter 2). The process of decentralization of application of EU competition law carries with it some unavoidable risks in terms of legal predictability and consistency, which, in spite of the undeniable practical success of the first stage of implementation of Regulation (EC) N.º 1/2003 that decisively contributed to setting aside initial doubts about the overall feasibility and consistency of such model, may have remained up to this date somehow overlooked by the Commission (see for a balance of this experience in the course of the first years of application of Regulation N.º 1/2003, albeit oversimplifying some critical issues in my view, Report of the European Commission to the Parliament and the Council - Report on the functioning of Regulation 1/2003, COM(2009) 206 final; Commission Staff Working Paper accompanying the Report on the functioning of Regulation 1/2003, SEC(2009) 574 final: their publication was mandated by Art. 44 of Regulation 1/2003). See, in general, on this modernization and decentralization process developed since 2003, considering its significant achievements but also the risks involved, Damien M. B. Gerard, ‘The ECN – Network Antitrust Enforcement in the European Union’, in D Geradin, I Lianos (eds.), Research Handbook on EU Competition Law, E Elgar, 2013.; F. Cengiz, ‘Multilevel Governance in Competition Policy: the European Competition Network’, Eur. L. Rev., 2010 pp. 660 ff; H.F. Koeck and M.M. Karollus (eds), FIDE XXIII Congress: The Modernization of European Competition Law – Initial Experiences with Regulation 1/2003, Vienna: Nomos/facultas, 2008. Anyhow, the chief reason for incurring such legal uncertainty risks – however transitory these may be – is the creation of the conditions for a more demanding application of EU competition rules by the Commission, extending not only to the more obvious situations, more often addressed, of control of cartels bearing a high potential of distortion of competition, but also focussing on types of problems less frequently addressed which need hermeneutical guidance and clarification, as is the case of an enhanced scrutiny and analysis of the effects of restriction of competition inherent to certain situations of acquisition of minority shareholdings. 23 I shall further mention some situations addressed by the Commission in this regard. As mentioned, the key judicial precedent up to now has been the Philip Morris ruling, cit., recently supplemented by the GC ruling Aer Lingus v. Commission, cit. 24 I refer both to commitments of a structural and behavioural nature, in particular concerning rules and procedures on the flow of information between undertakings holding cross-shareholdings, as referred to below.

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concentrations within the context of the MCR, incidentally addressing these aspects as side issues in wider analytical processes. The new developments that I believe possible and desirable in this regard, on the contrary, relate to the substantive scrutiny and autonomous assessment of potential effects of restriction to competition associated with this type of situation of acquisition of minority shareholdings (to be undertaken by the Commission on its own initiative or following complaints filed by affected entities).25 Such developments may, of course, benefit from the experience gained in the past in the context of analysis of notification procedures ex vi Article 101 TFEU and the MCR, but must be subject to a more developed and systematic analytical treatment. Such a treatment should, in turn, be largely influenced by the analytical parameters developed in connection with joint ventures subject to the regime set out in Article 101 TFEU. 26

25 I herein refer to developments in the field of theinterpretation and application of Art.101 TFEU. It should, however, be noted that the Commission pondered, in the Green Paper concerning the revision of the Merger Control Regulation, dated 2001, cit., - and anticipating here the 2014 reform proposals - the possibility, in the wake of related doctrinal suggestions, of extending this system of merger control to the acquisition of minority shareholdings, irrespective of the acquisition of control, as likewise happens in some jurisdictions (see 2001 Green Paper, cit., para. 108). Nevertheless the Commission came to consider at that time that it was disproportionate to submit all the acquisitions of minority shareholdings to the ex ante control set out in the MCR and – appropriately, in my opinion – such an option, mentioned in the 2001 Green Paper, was not enshrined in the second reform of the MCR. Conversely, I do not subscribe to the positive view stated by the Commission in that 2001 Green Paper where it holds that only a very limited number of transactions (of the aforementioned type) prone to raise issues of distortion of competition, would not be adequately dealt with within the framework of application of Art. 101 and 102 TFEU (see 2001 Green Paper, cit., para. 109). As far as I am concerned, while the normative programme enshrined in those provisions is, indeed, fit to cover the problems of restriction of competition usually generated by these situations of acquisitions of minority shareholdings (and cross-shareholdings or interlocking directorates or bodies of the entities involved in those transactions), nonetheless no systematic hermeneutical framework has so far been consolidated on the basis of those provisions and oriented for that purpose; hence, a substantive ‘gap’ – not necessarily a procedural one - may be identified in the EU system of application of competition rules in this domain.

26 I believe that minority shareholdings in third undertakings – maxime cross-shareholdings between two or more undertakings – may generate effects of distortion of competition very similar to those associated with some types of joint ventures subject to the legal regime set out in Art.101 TFEU, which may be scrutinized in light of such legal regime, thus explaining my brief reference to this issue. The treatment of this subject requires, however, an ex professo analysis of these matters. For that reason, I merely identify and depict, in extremely succinct terms, some of the most relevant issues which may arise in this field and which would justify a greater deal of attention from the Commission and, through the hermeneutical guidance of this institution, from EU Member States’ Competition Authorities.

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II. Analytical criteria for assessment of effects on competition arising from ownership of undertakings short of individual or joint control

1. Identifying relevant situations which inherently lead to potential restrictions of competition The key problems of restriction of competition that I deem potentially associated with situations of acquisition of minority holdings in third undertakings, without obtaining control thereof, essentially relate to the development of behavioural coordination processes between the undertakings involved in these situations (falling as such under the prohibition set out in Article 101 TFEU). This applies especially to cases where such relationships are established between competitors. It may be, somehow, considered that in such situations there are conditions for the occurrence of what I have designated in the context of joint venture analysis as spillover effects in the broad sense, impacting on the competitive behaviour of undertakings bound by such participation relationships. In the case of non-full function joint ventures I have depicted in past analyses such spillover effects in the broad sense as effects on effective or potential competition between participating undertakings in any given joint venture, construed or apprehended as the occurrence of repercussions triggered at a level of cooperation limited to certain entrepreneurial functions and which extend to the competitive behaviour, globally considered, of parent undertakings in the markets of final goods in which they operate and within which the specific functions pursued through the joint venture are projected to impact or to be performed. 27 28 Bearing in mind the potential relevance of these situations for the application of Article 101 TFEU, it is appropriate, in my view, to identify in a more systematic manner some paradigmatic situations of minority or joint shareholdings which do not involve the acquisition of control, but which should be brought more under the radar of competition law scrutiny. I am also assuming here that the substantive test of Article 101 TFEU

27 See the overall depiction of this type of effect of distortion of competition made in my book, Joint Ventures and EU Competition Law, cit., esp. p. 251 ff. 28 Those situations of acquisition of minority shareholdings, whenever the acquirer possesses a high degree of market power, may also raise issues of abuse of dominant position, which may be challenged in the context of the application of Art. 102 TFEU. However, these situations are very specific and not particularly relevant in relation to the similarity I herein seek to emphasize between the analysis of some types of joint ventures and these cases of acquisition of minority shareholdings which may originate anticompetitive behavioural coordination. This similarity obviously concerns the application of Art. 101 TFEU – and accordingly my very brief foray in the field of minority shareholdings is limited to such Art. 101 regime (on the basis of the assumption that certain issues of anticompetitive behavioural coordination do not exclusively result from joint control situations, usually associated with joint ventures, but may also be originated by joint shareholdings, regardless of the existence of joint control). Anyhow, on eventual issues pertaining to the application of Art. 102 TFEU related to that type of holding, see, in general, Robin Struijlaart, ‘Minority Share Acquisitions Below the Control Threshold of the EC Merger Control Regulation: An Economic and Legal Analysis’, cit., pp. 173 ff.

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would largely be a consistent one for that purpose and that, in such normative context, one should not necessarily require a submission of those situations to the procedural framework of a reformed MCR, even if under the so-called ‘targeted’ form of a ‘transparency system’ envisaged in the July 2014 White Paper (through which parties would be required, under reformed merger control rules, to produce a limited information notice on some acquisitions of non-controlling shareholdings provided these would give rise to a ‘competitively significant link’).29 Thus, I acknowledge that at least four types of situations should be identified, such as, namely:30 - (i) Situations in which joint shareholdings with some impact in a given entity result from an agreement between the undertakings owning those shareholdings; - (ii) Situations in which such shareholdings are the result of agreements established between these undertakings, holding the shareholdings at stake, or between several undertakings controlled thereby; - (iii) Joint shareholdings resulting from of an agreement between an acquirer undertaking and the undertaking which is the object of such partial acquisition (provided the acquisition does not involve the transfer of control over that acquired undertaking); - (iv) Joint shareholdings in a given undertaking, held by two other undertakings, which resulted neither from an agreement between these entities, nor from an agreement between any of such undertakings and the targeted undertaking. As regards the first three aforementioned types of situations, I think that the application of Article 101 TFEU is, in general, appropriate, with the possible apprehension of effects of restriction of competition scrutinized in light of this provision depending upon several factors, related with the actual conditions of operation of the markets at stake and with the variable layout of the undertakings involved, in a rather similar manner to that outlined in the framework of my study of the different functional types of joint ventures (that may not be qualified as concentrations).31 In this field of minority shareholdings, however, one particular factor may be of paramount importance in assessing the occurrence of adverse effects on competition and their expected intensity.

29 Again, the limited purview of this paper does not involve as such a comprehensive or even a specific analysis of the proposals put forwards by the Commission under the July 2014 White Paper. Conversely my focus here is to address the potential for an effective competition law scrutiny under the substantive test of Art. 101 TFEU regardless of changes of the procedural framework with the necessary regulatory cost these entail (also considering the substantive approximation or interplay between the substantive test of Art. 101 TFEU and the substantive SIEC test under the MCR, as I have purported to evidence through the specific analysis of joint ventures in my book Joint Ventures and EU Competition Law, cit. (esp. Chapter 2, points 1.2. and ff). 30 I take into consideration to some extent in this depiction of the most paradigmatic situations, the characterization set forth by John Temple Lang in ‘International joint ventures under community law’, in Annual Proceedings of the Fordham Corporate Law Institute – International Antitrust Law & Policy – 1999, Editor Barry Hawk, Fordham Corporate Law Institute, 2000, pp. 381 ff, esp. para.V. – Joint ownership and joint dominance – pp. 423 ff). However, I do not fully agree with the systematization proposed by Temple Lang and I depart from some aspects of his analysis concerning the typical consequences of some of these situations in the context of the application of Art. 101 TFEU.

31 See on this, referring to a proposed framework focused on four key functional sub-types of joint ventures, my book Joint Ventures and EU Competition Law, cit., esp Chapter 3.

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I refer to the existence of representatives of undertakings holding shareholdings in third companies in the corporate bodies of these latter entities. Even more noteworthy and problematic at this level will be the combination of cross-shareholdings with reciprocal representation in the corporate bodies of the concerned undertakings.32 As regards the fourth (aforementioned) type of situation, the possibility of these cases falling under the regime of Article 101 TFEU has raised more controversy. Thus, authors such as John Temple Lang maintain that the absence of an element of agreement between the undertakings involved would not really be compatible with the application of Article 101 TFEU to those situations (merely acknowledging that, under certain circumstances, those cases may be subject to Article 102 TFEU).33 However, I do not share this view. While I consider that this type of situation corresponds, in principle, to legitimate acquisitions of shareholdings, given the absence of any initial agreement between the involved undertakings - relevant, as such, for the purposes of application of Article 101 TFEU - I believe, nonetheless, that the continued holding of such shareholdings may, under certain conditions, come to originate restrictions of competition caught under the prohibition set out in that provision. Such situations of acquisition of significant shareholdings in certain undertakings, without involving any agreement between the acquirer and the existing shareholders are more common than one might suppose. These may result, inter alia, from the acquisition of shareholdings in securities markets or from the acquisition of control over another undertaking which, in turn, holds a minority shareholding in the participated undertaking concerned.34 Some authors also consider certain additional legal qualifications or characterizations as regards the set of situations of acquisition of minority interests involving an agreement between the concerned undertakings. Indeed, authors such as Thompson and Meadowcroft and, more recently, Moavero Milanesi. and A. Winterstein,35 acknowledge that, in some cases, minority interests in certain undertakings are acquired as an alternative to agreements with such undertakings that would be prima facie deemed as restrictive of competition (in other words, such purchasing agreements,

32 Notwithstanding the fact that I am recurrently taking into consideration the concept of undertaking with the very broad contours that it presents under EU competition law, undertakings using a corporate form deserve a particular attention. It should be noted that the above mentioned representation may assume a variety of legal forms. See, in that regard, and providing examples of such diversity, Enzo Moavero Milanesi and Alexander Winterstein, ‘Minority shareholdings, interlocking directorships and the EC competition rules – recent Commission practice’, cit, pp.15 ff.

33 See, in fact, in this regard, the cited author in International joint ventures under community law, cit, 424: ‘If joint ownership of one company by two others comes about without any agreement between any two of them, Article 81 does not apply (…)’.

34 These most blatant situations of joint shareholdings not resulting from agreements between the involved undertakings are, e.g., mentioned by John Temple Lang, who draws competition law corollaries therefrom to which I do not entirely subscribe, as aforementioned (see author cit., International joint ventures under community law, cit, p. 424).

35 See S. Meadowcroft, D. Thompson, Minority share acquisition: the impact upon competition, Office for official publications of the European Communities, Luxembourg, 1986. See also, Moavero Milanesi, A. Winterstein, ‘Minderheitsbeteiligungen und personelle Verflechtungen zwischen Wettberwerben –Zur Anwendung von Artikel 81 und 82 EG-Vertrag’, in Handbuch der Europäischen Finanzdienstleistungsindustrie, Rolfes, Fisher, Fritz Knapp Verlag, Frankfurt, 2001.

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under the conditions in which they occur, would have a similar effect to cooperation agreements, restrictive competition, to be entered into with the participated entity – ‘nichtangriffdenken’, in the qualification put forward by Milanesi and Winterstein).36 As far as I am concerned, I have some reservations to that legal qualification. In the event elements of cooperative agreement exist between the parties, they somehow prevail in the assessment of these situations, and the aspects concerning minority interests which may occur are ancillary elements in this process of cooperation between undertakings, to be perceived as a whole. I, therefore, reject in this domain, an analytical logic comparable to the one that leads to the identification of dissimulated cartels, construed under an apparent joint venture format and essentially oriented towards price-fixing by the participating undertakings. 37 Indeed, in these latter cases there is ab initio a specific process of cooperation, explicitly undertaken between the participating undertakings, which can be actually used to serve other collusive non-specified purposes, of a serious anticompetitive nature. Conversely, in a significant proportion of cases of acquisition of minority shareholdings in third undertakings, even in cases that involve an agreement between the involved undertakings, the parties do not assume, as such, any cooperation process to be developed beyond the mere acquisition acts in themselves. Such cooperation may, in particular, be induced by acquiring and keeping those shareholdings, but in that case, I sustain that the analysis of these situations should be carried out in order to ascertain possible negative effects of behavioural coordination between the involved undertakings and should not be oriented towards the qualification or characterization of such situations as alternative options to the establishment of ‘stricto sensu’ cooperation agreements between the parties (‘nichtangriffdenken’, as suggested by Milanesi and Winterstein). The mere identification of effects of behavioural coordination induced by keeping certain minority shareholdings will be sufficient to lead to competition law scrutiny in the context of the application of Article 101 TFEU, and any other complementary legal qualifications further complicate, unnecessarily, the proper analysis of these situations. Thus, I do not agree either with the analytical perspective of authors such as D. Reittman, who claim to identify certain situations in which undertakings acquire minority interests for the sole purpose of strengthening their market power.38 This effect of strengthening the market power of the undertakings concerned may indeed occur, through incentives for coordination, and, in the event it interferes, beyond a certain degree, in the competition process in certain markets, it should actually be

36 See in this regard the cit. authors, in ‘Minderheitsbeteiligungen und personelle Verflechtungen zwischen Wettber- werben –Zur Anwendung von Artikel 81 und 82 EG-Vertrag’,cit.

37 On these situations of use of the joint venture legal format to establish (dissimulated) cartels, oriented towards the joint fixing of prices, see again my book Joint Ventures and EU Competition Law, cit., esp. points 4.1.2. ff of its Chapter 3. Also in that book I acknowledged the possible use of purchasing joint ventures for the formation of buyers’ cartels (see esp., points 5.2.1. ff of its Chapter 3, cit.).

38 On this analytical perspective, see D. Reitman, ‘Partial ownership arrangements and the potential for collusion’, in J. Ind. Ec., 1994, pp. 313 ff.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 261 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law scrutinized (in the field of Article 101 TFEU and, as such, autonomously from the field of merger control covered by the MCR). However, the rationale for the scrutiny of these situations by the competition authorities lies, in my view, in the identification of such type of predictable effects (and should be focussed on such effects), rather than on a negative assessment intrinsically associated with a supposed project for strengthening the market power on the part of undertakings holding joint shareholdings short of joint control. The potential anticompetitive effect at stake, of reinforcement of market power interfering with the due functioning of the competition process of certain markets may, inter alia, occur, as suggested by the analysis of O’Brien and Salop, through unilateral effects due to the ability to influence a competitor’s behaviour, which, in itself, will vary according to the degree of influence over the partially owned competitor (since these authors rightly emphasize the various possible degrees of influence, short of control ‘stricto sensu’, that an undertaking might exercise over its partially owned competitors and producing, accordingly, different corollaries, to be properly assessed, as regards its strengthening and correlative excessive projection or exercise of market power).39

2. Anticompetitive effects arising from minority shareholdings – how to build a reliable analytical grid in this domain vis-à-vis the option of expanding the scope of the MCR envisaged in the Commission 2014 proposals In overall terms, I consider that the risks of distortion of competition associated with these situations of acquisition and holding of minority shareholdings correspond, to a large extent, to two of the categories of potential risks that I have identified in previous analyses in relation to joint ventures subject to the regime of Article 101 TFEU.40 I refer to the risks of collusion concerning prices or quantitative output levels of goods or services and to risks of anti-competitive coordination at the level of the quality of those goods or services. In reality, such situations, particularly when rather sizable holdings in third undertakings are at stake, lead to the emergence of specific and substantive interests in the results of these undertakings, which, in turn, may induce or influence either concerted actions or tacit ‘non-aggression’ arrangements between the involved undertakings, with a view to maximizing the joint results of the same undertakings.

39 See on this enhanced perspective of an antitrust theory of harm associated with minority shareholdings, D. O’Brien, S. Salop, ‘Competitive effects of partial ownership: financial interest and corporate control’, in ALJ, 2000, pp. 559 ff. See also on such perspective, A. Ezrachi, D Gilo, ‘EC Competition Law and the Regulation of Passive Investments Among Competitors’, in Oxford Journal of Law Studies, 2006, pp. 327 ff. 40 I refer here once more to my comprehensive analysis of joint ventures, especially non full function joint ventures, covered by Art. 101 TFEU, developed in my recent book, Joint Ventures and EU Competition Law, cit., and to the overall analytical framework and corresponding key risks for competition in connection with such joint ventures depicted in such book. In fact, those joint ventures seem to bear considerable affinities with minority shareholdings (and in any case more affinities to such joint ventures than withfull mergers covered by the MCR as, in a different sense and in a somewhat contradictory manner, the July 2014 White Paper proposals seem to imply). See esp. Joint Ventures and EU Competition Law, cit., Chapter 3, point 6.

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Moreover, this incentive for the collusion of commercial behaviours or business ‘non-aggression’ arrangements may be especially enhanced in situations of cross- shareholdings between competitors, coupled with reciprocal representation in the management of these undertakings. That results from the conditions that are hence objectively created for the flow of commercially sensitive information between these undertakings and for the inherent reduction of the levels of uncertainty concerning the behaviour of competitors (this relative uncertainty on third party commercial behaviour, it should be noted, constitutes the foundation of the whole competition process).41 The probability of the occurrence of cases of collusion will also tend to be more intense in cases in which an undertaking holds minority stakes in more than one competitor, as this broadens the horizon of converging business interests and creates conditions for an additional significant decrease of competition between involved undertakings. Although the criteria and models of economic analysis that may influence the competition law assessment of effects of restriction of competition arising from the acquisition and holding of minority stakes are still rather flawed or not duly consolidated,42 one may argue that the combination of cross-shareholdings, with a high level of concentration in the potentially affected markets,43 as well as the existence of significant barriers to entry in those markets, creates optimal conditions for the coordination of behaviours between undertakings (or even for the ‘cartelization’ of such behaviours). 44 In fact, this set of factors significantly contributes to reduce the incentives of undertakings to depart, for their own benefit, from the converging business orientations in the context of cartels or of situations of business cooperation comparable thereto.45 Such a reduction of the incentives to depart from convergent approaches reinforces, in turn, the viability and effectiveness of such anti-competitive coordination processes.

41 The manner in which this uncertainty may come to materialize, or not, or, conversely, the strategies or perspectives of anticipation of strategic behaviours of competing undertakings is, as I have highlighted in my recent analysis of joint ventures (see, again Joint Ventures and EU Competition Law, cit., esp, points 2.3.2. ff, Chapter 3, and several footnotes included therein) at the centre of the new analytical models proposed in the context of the so-called game theory (somehow overcoming the former theoretical clashes between structuralist trends and the criticism of the Chicago School thereto). 42 These flaws of economic analysis will be, anyhow, wider in the EU competition law framework than those in the US antitrust law context. On these shortcomings of economic analysis, albeit smoothened by developments in economic theory in the latest two decades, see Robin A. Struijlaart, ‘Minority share acquisitions below the control threshold of the EC Merger Control Regulation: An economic and legal analysis’, cit., esp. pp 183 ff. As regards new advances in economic theory in this area, see K. Morasch, ‘Strategic alliances as Stackelberg cartels – concept and equilibrium, alliance structure’, in International Journal of Industrial Organization, 2000, 257 ff. and Enrique González-Diaz, ‘Minority Shareholdings and Creeping Acquisitions: The European Union Approach’, in 2001 Competition Law Institute - International Antitrust Law & Policy, 2012, cited, above. Also referring to recent advances in this domain, see esp. the Report commissioned by the OFT, Minority Interests in Competitors, 2010, and the very relevant OECD Policy Roundtable Concerning Minority Shareholdings, 2008. Conversely, some recent proliferation of economic analytical models in this domain, strikes me as overly theoretical and unfit to support an adequately foreseeable legal assessment.

43 In the Philip Morris case the CJEU already emphasized that the competition authorities’ scrutiny of minority shareholding acquisitions should be particularly stringent in markets evidencing a high level of concentration or an oligopolistic structure.

44 Furthermore, these cross-shareholding situations in markets featuring a high level of concentration and involving enterprises with significant market power may, also, as briefly pondered above, contribute to the creation of positions of collective dominance.

45 For a characterization of these mechanisms, termed in Anglo-Saxon doctrine as ‘incentive to cheat on cartel agreements’, see, for all, Josepf Brodley, ‘Joint Ventures and Antitrust Policy’, in Harv L. Rev., 1982, pp. 1523 ff, esp. pp. 1544 ff.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 263 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law

Conversely, it is possible to consider as usually permitted situations, therefore not leading in principle to appreciable effects of restriction of competition, those in which minority stakes are held in markets with low degrees of concentration, involving undertakings with limited market shares and originating limited forms of representation in the management bodies of participated undertakings. Other relevant factors for the assessment of possible effects of distortion of competition resulting from this type of minority shareholding are those concerning the nature and extent of the rights attached to such shareholdings.46 Hence, even when not conferring control of the participated undertakings, such shareholdings may, under certain circumstances, provide their owners with effective means in order to oppose certain major decisions, or an influence that, in proportional terms, ranks beyond the quantitative dimension of the same shareholdings (very diverse factors, such as the degree of dissemination of the remaining share capital of the participated entity or the existence of certain rights that are contractually enshrined, e.g., in shareholders’ agreements in the case of corporate undertakings, may be taken into account in this context). Moreover, the association between these minority shareholdings and any cooperative agreements between the undertakings involved, even if these have a very limited scope or a very general nature, may also contribute to render more intense the incentives towards abstaining from competitive conduct, (which, in turn, may affect the competitive position of any one of these undertakings inter-connected through those nexus). These incentives may work twofold in the relationships between participant and participated undertakings. Indeed, not only the undertaking holding an appreciable shareholding in a third undertaking may be induced to coordinate its behaviour with the latter, so as to safeguard the value of its investment – especially if both undertakings hold considerable market power – but also, the participated undertaking may be induced to avoid a more aggressive commercial interplay in relation to the participant undertaking in order to prevent any reactions from the latter that could significantly affect its activity (e.g., reactions in the sense of increasing the degree of interference in the activity of the participated undertaking or, conversely, in the sense of disposing of the shareholding, thus creating conditions of instability for the activity of the participated undertaking). Moreover, in markets evidencing a significant degree of concentration and a substantial mutual interdependence of the undertakings involved therein, - as it frequently happens in the financial sector in terms that would accordingly justify greater attention on the part of Competition Authorities, particularly in the wake of the recent international financial crisis - the acquisition of minority shareholdings, even if they apparently are of an utmost passive nature, may, in itself, trigger a movement towards the strengthening

46 On this factor and on the preceding factor (dealt with above), enhancing or not, as the case may be, the possibility of partial acquisitions lessening competition, particularly by giving the acquiring undertaking the ability to influence the competitive conduct of the target undertaking, see the already mentioned Section 13 on ‘Partial Acquisitions’ of the new US 2010 Horizontal Merger Guidelines (thus providing in the context of the US antitrust system a specific hermeneutical guidance in this domain that is still lacking in terms of the EU competition law system, both as regards Commission Guidelines on merger control or relevant Guidelines related with the application of Art. 101 TFEU).

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of this interdependence (with ability to influence, in a dual sense, the behaviours of both the participating and participated undertakings).47 Ultimately, however, all relevant factors of assessment herein referred to – which, desirably, should be gradually consolidated in a systematic and foreseeable way in the enforcement practice of the Commission and of EU Member States’ Competition Authorities - must be properly weighed in the specific market context concerned. I also acknowledge, in any case, that the assessment of these situations tends to be subject to a greater degree of unpredictability than the analysis of the impact of joint ventures on the competition process. Given this relative lack of consolidation of the analytical criteria oriented towards competition law assessment of effects of restriction of competition arising from minority shareholdings - although as I tentatively envisage supra a comprehensive analytical framework for the assessment of those effects must be gradually delineated - the option of systematically covering the acquisition of these shareholdings through its submission to the EU merger control procedure, as currently contemplated for purposes of reform of the MCR in the wake of the July 2014 White Paper proposals, is to a large extent debatable. Conversely, it must be acknowledged that the Commission has somehow retreated from more far reaching options in terms of possible submission of the acquisition of minority shareholdings which had been pondered in the 2013 public consultation on changes to merger control rules (while, at the same time, also putting aside a diverse option, pondered in 2013, that would not imply regulatory burdens and costs to undertakings, since it would be based on a ‘self-assessment system’ in which no filing under the MCR would be required and the Commission would simply be free to open ex officio investigations about certain acquisitions of minority shareholdings). The retained normative option in the July 2014 White Paper proposals involves a variant of the so-called ‘transparency system’ that had been pondered in the 2013 public consultation (through which entities acquiring minority shareholdings would have to file a short information notice leading to a subsequent Commission decision on whether or not to investigate the acquisition at stake). It may be characterized as a ‘targeted’ or ‘selective’ form of the transparency system that would require parties to submit an information notice under the MCR, but restringing such mandatory requirement to cases of acquisitions giving rise to a ‘competitively significant link’. Relevant transactions would in turn be deemed to originate a ‘competitively significant link’ under a combination of three criteria. These would comprise a first parameter based on thecompetitive relationship between the acquiring entity and the target of the acquisition (this latter one being either a competitor or an entity active in a market upstream or downstream from that of the acquirer, while, as pondered in the preceding section, I tend to consider the first element,

47 See on that type of influence induced by shareholdings of an apparently passive nature, and providing several relevant examples, David Gilo, ‘The anticompetitive effect of passive investment’, cit., p. 2 ff.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 265 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law acquisition of competitors, as the decisive one in most cases for ascertaining the competition law relevance of minority shareholdings). The second and third criteria involve a combination of a fixed quantitative parameter and a quantitative reference parameter in interplay with general and rather indeter- minate qualitative parameters. Accordingly, a ‘competitively significant link’ would also be deemed to occur if, on the one hand, the acquired shareholding reaches 20 per cent, or, on the other hand, it is between 5 and 20 per cent but is accompanied by ‘additional factors’ (which correspond to the qualitative element involved in this overall pondering), comprising seats on the board of directors and, therefore, direct participation in management decisions, de facto blocking minorities or access to commercially sensitive information of the target entity. Under the terms of the Commission proposal, any undertaking wishing to acquire a minority stake originating a ‘competitively significant link’ as defined supra, would have to submit a short ‘information notice’ informing the Commission of the transaction. On the basis of this mandatory information, the Commission would decide whether further investigation of the transaction would be needed (while Member States could also ask for a referral to pursue the case themselves). In the wake of the submission of an information notice a standstill obligation would be established. The Commission has been considering for that purpose a waiting period of 15 working days (aligned with the current deadline under Article 9 of the MCR for a Member Stare referral request following a full notification). If no investigation is initiated by the Commission, nor do Member States request a referral within such waiting period, then the parties would be free to implement the transaction. Never- theless, the Commission would still have room to investigate the case after the waiting period, and even if the transaction had been implemented in the meantime, within a 4- to 6-month period after the information notice, thus preventing undue procedural pressure to initiate investigations during the waiting period (and avoiding, as such, investigations whose objective necessity would not be confirmed ex post) and also allowing time for relevant complaints by relevant stakeholders. On the whole, it is therefore unquestionable that through the July 2014 White Paper proposals the Commission has endeavored to avoid an excessive expansion of procedural requirements and the corresponding administrative burdens of prior notification of acquisition of minority shareholdings. Nonetheless, the scope of potential systematic control may still be too wide and, above all, too much prone to legal uncertainty. The regulatory risks and corresponding drawbacks associated with that level of legal uncertainty have to do largely with the latitude of the qualitative criteria used to identify or circumscribe ‘competitively significant links’. As I have pondered in the previous section, there is a vast array of analytical criteria which may be used to identify and assess the chief risks for competition attached to certain minority shareholdings and a significant part of these criteria are not univocal and require taking into consideration different market contexts (in which the so-called ‘additional factors’ identified by the Commission to ascertain competitive links

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potentially adverse for competition may be valued differently). Furthermore, the relative lack of consolidation of the relevant analytical criteria in this domain - highlighted in the previous section - also creates significant hurdles for an adequate delimitation of cases that are to be subject to ex ante communication, and for a balanced competitive assessment of the whole range of diverse effects on competition that may arise from such cases, when communicated to the Commission and, as such, specifically assessed. A second related area where legal safety and predictability could be possibly affected corresponds to the content and latitude of the disclosure requirements involved in the production of the‘short information notice’ in the cases that supposedly would generate competitively significant links. Particularly sensitive would be the level and extent of the requirements concerning ‘some limited market share information’ that the parties would have to produce under the envisaged system. In fact, there seems to be an inherent and unavoidable contradiction in the idea of, on the one hand, providing information at a very limited and low-key level and of, on the other hand, conveying some sort of references about market share of the involved parties (as these references are not conceivable if sustainable and credible at all without some exercise of market definition, with all the analytical hurdles it carries with it). Considerations of legal safety and predictability, that are of the essence of the business practices involved in these kinds of transactions, also raise concerns as far as the timeframe for opening an investigation is concerned. In fact, if the Commission were to use the maximum period of 4 to 6 months to decide on opening an investigation after the submission of the information notice, the rather contradictory consequence arising from it would be that potentially a significant number of acquisitions of minority shareholdings would be subject to a much higher degree of uncertainty or unpredictability than many full mergers involving the acquisition of control (given the known enforcement practice that leads to the approval of a large number of those transactions in less than 6 months).48 Another contradictory consequence of even a highly restrained ‘targeted’ or ‘selective’ form of ‘transparency system’ for ex ante control of minority shareholdings – as the one contemplated in the July 2014 White Paper – would be to establish more demanding requirements for the systematic scrutiny of those transactions, which do not transfer control, than for the competition law scrutiny of non full function joint ventures (which,

48 It must be acknowledged that, on the whole, the high level of concerns related with legal uncertainty or unpredictability attached to the ‘targeted’ or ‘selective’ form of ‘transparency system’ for ex ante control of minority shareholdings contemplated in the 2014 White Paper Proposals that I am taking into consideration here has been viewed in a widely different manner in many comments on this prospective reform of the EU merger rules. See, e.g., for a more favourable view of the envisaged changes to the MCR oriented towards the extension of its scope of application to minority (non-controlling shareholdings) without other substantive major changes to the MCR, Catalin Stefan Rusu, ‘(Non-Controlling) Minority Shareholdings as Self-Standing Transactions under EU Merger Control Analysis – Prospective Solutions’, in World Competition, 37 (4), 2014, pp. 485 ff; Alec Burnside, ‘Minority Shareholdings: An Overview of EU and National Case Law’, in e-Competitions, N.º 56676. Conversely, see for more critical views, although voiced from many different angles and with different emphasis, e.g., Porter Elliott, Johan Van Acker, ‘A Critical Review of the European Commission’s Proposal to Subject Acquisitions of Non-Controlling Minority Stakes to EU Merger Control’, in ECLR, 36, Issue 3, p. 97 ff; Kadir Bas, ‘Reforming the Treatment of Minority Shareholdings in the EU: Making the Problem Worse Instead of Better?’, in World Competition, 38 (1), 2015, p. 77 ff.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 267 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law since they affect the structures and ties of control, are prone to have more impact on the structures of the undertakings involved). Such normative contradiction or distortion would be even greater in connection to some sub-categories of non full function joint ventures that have a more lasting impact in the degree of integration of parent undertakings and of their key business assets, as it happens, e.g., with many production joint ventures (and it has to be remembered that the option of submitting these sub-categories of joint ventures to the MCR has been pondered in the not too distant past, but never retained ‘de iure condito’ as an option for the reform of the MCR).49 On the whole, regardless of an ultimate option of either adopting a ‘targeted’ or ‘selective’ form of ‘transparency system’ applicable to minority shareholdings under a reformed MCR or retaining a system of competition law scrutiny of these cases essentially based on the Article 101 TFEU regime under a more proactive enforcement of such regime to these situations, particularly in some economic sectors (as in the financial sector and especially if minority shareholdings appear combined with interlocking directorships in the various related undertakings) what seems to me fundamental is to consolidate some analytical guidance in this domain. For that purpose, I consider of paramount importance the adoption of a proper set of Guidelines by the Commission in this domain in order to start building a reference analytical framework around the lines discussed supra, in 2 (either supporting a more vigorous and target oriented enforcement of Article 101 TFEU in connection with minority shareholdings and building largely on analytical parameters relevant for joint venture analysis, or supporting a reformed MCR that would cover some cases of minority shareholdings).

3. The desirability of flexible solutions for dealing with minority shareholdings As mentioned above, infra, 2 and also the preceding sections, and likewise sustained in the context of the assessment of joint ventures, some of the potential issues of distortion of competition inherent to these types of situations of acquisition of minority shareholdings should be handled with as much flexibility as possible and, for that purpose, could be satisfactorily addressed through commitments from the undertakings involved.50

49 See on this Luís Silva Morais, Joint Ventures and EU Competition Law, cit., esp. point 4.4. and ff,, Chapter 1. 50 It should be borne in mind that, in relation to joint ventures I sustain, precisely, that the Commission should adopt a more creative and flexible approach, in order to ponder certain commitments oriented towards avoiding issues of distortion of competition in the context of the application of para. 1 of Art. 101 TFEU, and without further intervening through the granting of exemptions (in line with what happens in the enforcement practice of assessment of joint ventures by US federal competition authorities). Moreover, the new EC Regulation Nº 1/2003, in terms that have been highlighted above, strengthened the normative support for the adoption of regulatory decisions that accept and make duly binding such types of commitments.

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Among other commitments addressed in decisions adopted under notification procedures ex vi Article 101 TFEU or within the MCR,51 one may consider, e.g., engagements to refrain from acquiring additional or supplementary shareholdings, to refrain from seeking representation on boards of directors of participated undertakings, or even to prevent the flow of commercially sensitive information by limiting the scope of action and the information available to non-executive directors. Particularly noteworthy in this last type of situation were the arrangements accepted in the Commission’s Olivetti/ Digital decision, dated 1994. One of the concerned undertakings was represented on the other undertaking’s Board of Directors; however, the executive powers material for the management of the undertaking had already been delegated to the Chairman of the Board of Directors. This decision strikes me as especially significant, for it was already adopted under the MCR, with the Commission clearly acknowledging an interpretation of the Philip Morris case law allowing the application of Article 101 TFEU to situations of acquisition of shareholdings which would not involve crossing the thresholds concerning a transfer of control, relevant for the purposes of application of the MCR.52 Equally important is the precedent corresponding to the Warner-Lambert/Gillette decision. However, in this case, the issues of distortion of competition addressed by the Commission mainly focussed upon the application of Article 102 TFEU (which are not the focus of the analysis in this paper).53 In some cases, characterized by a particular sensitivity of the flow of certain business information – maxime, it should be reiterated in the financial sector - such commitments may even involve the termination of situations of representation in the management bodies of third competitor undertakings. One may consider in this regard, inter alia, as paradigmatic cases – not by chance concerning the financial sector – the ones concerning the Commission decisions Generali/INA, dated 2000, and Nordbanken/ Postgirot, dated 2001.54

51 I refer herein to the decisions adopted in the context of notification procedures under then Art. 85 EEC and Art. 81 EC (whilst Regulation No. 17/62 was in force), or under the MCR, concerning situations in which, incidentally, the problems arising from shareholdings detained by firms involved in cooperation agreements or by companies participating in concentrations have been brought up for discussion. 52 See the Commission decision Olivetti/Digital, dated 1994 (IV/43.410; OJ Nº L 309/24, 1994). 53 See the Warner-Lambert/Gillette decision, OJ Nº L 116/21, 1993. 54 I refer here to the aforementioned Commission decisions Generali/INA, dated 2000, and Nordbanken/Postgirot, dated 2001, on concentration cases, respectively, COMP/M. 1712 and M.2567.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 269 Joint ownership of undertakings without joint control: minority shareholdings at a crossroads in competition law

III. Concluding remarks On the whole, given the nature and contours of the complex web of minority shareholdings that characterize these days the functioning of vital economic sectors – such as the financial sector, with the high degree of interdependence between its operators, or digital and electronic communications markets, relying on networks of innovation that may be supported in not too publicized minority shareholdings held in various innovative undertakings in niche areas – an effective competition law scrutiny of these situations is essential. Alongside the effectiveness of this antitrust scrutiny, a flexible approach should be privileged in this domain, regardless of the procedural framework ultimately chosen to deal with these situations (either a more proactive enforcement of Article 101 TFEU in this domain or a tailored reform of the MCR under the lines contemplated in the Commission July 2014 White Paper, possibly with an appreciable fine-tuning to enhance flexibility of such control). Furthermore, at the current crossroads, a proper consolidation of the overall analytical framework in this domain, developing the parameters I put forward infra, 2. and others – that will stimulate a more active stance on the part of affected third parties, thus contributing to reduce the substantive enforcement gap on minority shareholdings – will also depend significantly on the issuing of Guidelines by the Commission for the treatment of those situations (a much needed development in either scenario, of reform of the MCR or of a more active enforcement of Article 101 TFEU in this field).

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270 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Should reverse payment patent settlements be prohibited per se?

Valerie Meunier and Jorge Padilla*

Using the same competition test and counterfactual that has been used in the economic literature that is often cited to justify intervention against virtually all reverse payment patent settlements (RPPSs), we conclude that (1) RPPSs can benefit consumers and, therefore, it is wrong to presume that RPPSs are necessarily anticompetitive; (2) it is also incorrect to presume that RPPSs are by their very nature injurious to competition; (3) such a presumption is unjustified even for those involving reverse payments in excess of the originator’s expected litigation costs; (4) there is therefore no justification for treating RPPSs as per se illegal; (5) a case-by-case assessment of the effects on competition and consumer welfare of an RPPS that uses the expected date of entry as the standard of comparison in the counterfactual world would necessarily require informed judgments as to (at a minimum) the strength of the patent at issue and the likelihood of patent infringement; (6) as a result, assessing RPPSs on a case by case basis using the expected date of entry standard for comparison is bound to lead to errors and reduce consumer welfare and, hence, cannot constitute an appropriate legal standard; and (7) RPPSs, even those involving reverse payments greater than the originator’s litigation costs, should be assessed under a rebuttable presumption of legality rule—i.e.,they should be presumed legal unless there is direct evidence of a conspiracy to delay entry.

* The authors advised TEVA in the European Commission Perindropil (Servier) case. Jorge Padilla is fortunate to have worked with Ian Forrester on the Microsoft case, which was a memorable and enjoyable experience. The views in this paper are the authors’ sole responsibility. Please send your comments to [email protected].

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 271 Should reverse payment patent settlements be prohibited per se?

I. Introduction

A reverse payment patent settlement (RPPS) in the pharmaceutical industry is an agreement between a patent holder producing an original drug (an originator) and a generic manufacturer which (a) settles a patent dispute between them, (b) causes the generic manufacturer to forego independent entry into the market until a later date, and (c) involves the transfer of value from the originator to the generic manufacturer, whether in the form of cash payments or other inducements.

RPPSs between originators and generic entrants have been under the scrutiny of competition authorities and courts for more than a decade on both sides of the Atlantic.

In the US, antitrust enforcement agencies have considered that RPPSs should be presumed unlawful. The Department of Justice (DoJ) Antitrust Division argued in Ark Carpenters Health & Welfare Fund that RPPSs should be presumed unlawful.1 Defendants should be able to rebut that presumption by showing either that the value transfer was ‘not greatly in excess of avoided litigation costs’, or that the settlement exclusion period did not exceed the exclusion period that was expected without the settlement given the originator’s and generic manufacturer’s estimates of the likelihood that the patent would have been held valid and infringed. The Federal Trade Commission (FTC) also holds that RPPSs should be treated as presumptively illegal, with the burden being on defendants to demonstrate offsetting procompetitive effects.2

Against this consensus, US courts have differed in their antitrust approaches to reverse payment settlements in pharmaceutical patent litigation. The first two appellate courts to address this issue, from the District of Columbia Circuit and the Sixth Circuit, subjected such agreements to strict antitrust scrutiny.3 The Sixth Circuit held that a reverse payment settlement agreement was per se invalid. Three other appellate courts—from the Second, Eleventh, and the Federal Circuits—reached a different result, ruling that an RPPS is presumed lawful so long as the settlement’s provisions fall within the scope of the patent. Their rulings supported the so-called ‘scope of the patent’ test. Adding to the controversy, on 16 July 2012, the Court of Appeals for the Third Circuit in K-Dur rejected the scope of the patent test and adopted a ‘quick rule of reason’ test. 4 Under this test, RPPSs are presumed anticompetitive. The parties can rebut that presumption by demonstrating that (i) the payments received by the generic manufacturer did not compensate for delayed entry and/ or (ii) the settlement was pro-competitive.

These conflicting views and standards led the US Supreme Court to hear a reverse payment settlement case brought by the FTC. On 17 June 2013, the Court held that RPPSs should

1 Brief for the United States in Response to the Court’s Invitation, Ark Carpenters Health & Welfare Fund, 604 F.3d 98 (No. 05-2851-cv(L)).

2 FTC’s petition for a writ of certiorari in FTC v. Watson Pharmaceuticals, Inc, et al. (4 October 2012). 3 See In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003); Andrx Pharms. Inc. v. Biovail Corp., 256 F.3d 799 (D.C. Cir. 2001).

4 See In re K-Dur Antitrust Litigation, 686 F.3d 197 (3rd Cir. 2012).

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not be considered to be per se illegal or per se legal, but should instead be considered under a rule of reason analysis.5 The Court rejected both the scope of the patent test (which had been applied by the Eleventh Circuit in this case) and the quick rule of reason test (proposed by the FTC).

The European Commission (Commission) has also scrutinised patent settlements between pharmaceutical companies, challenging several agreements between originators and generic manufacturers aimed at resolving patent disputes. In June 2013, the Commission announced that it had fined an originator and several producers of generic drugs, because the latter ‘agreed with [the originator] not to enter the market in return for substantial payments and other inducements from [the originator] amounting to tens of millions of euros’.6 The Commission concluded that such an agreement constituted an infringement by object which produced no offsetting efficiencies and, therefore, could not be exempted according to the provisions of Article 101(3) TFEU.

The main goal of this paper is to consider from an economic perspective whether RPPSs should be treated as restrictive by object and/or prohibited per se.7 More precisely, we investigate whether it is justified as a matter of economics to treat all RPPSs involving a value transfer greater than the originator’s expected litigation costs as restrictive of competition by object, as it has been recently proposed by some antitrust economists.8 Finally, we also consider whether the case-by-case assessment of the likely effects on competition and consumer welfare of an RPPS that has been proposed in some economic papers9 and appears to be endorsed by the US Supreme Court in Actavis,10 is feasible in practice.

In consistence with the economic literature on RPPSs we review in this paper, we assess the procompetitive or anticompetitive character of RPPSs by comparing expected consumer welfare with and without the settlement.11 We conclude that RPPSs are procompetitive if consumer welfare is likely to be higher with the settlement than without the settlement or, in other words, if the date of entry of the generic drug provided for by the settlement is before the expected date of entry absent the settlement. The expected date of entry absent the settlement, which is calculated by reference to the (objective) probability that the patent will be found valid and infringed by a court—i.e.,the (objective) strength of the patent—will correspond to a date that falls between the

5 FTC v. Actavis Inc. (17 June 2013). 6 European Commission’s press release of 19 June 2013 in Case AT 39225 Lundbeck: ‘Antitrust: Commission fines Lundbeck and other pharma companies for delaying market entry of generic medicines’. See also Case AT 39612 Perindopril (Servier). 7 We agree with Kühn (2010) that ‘the concept of “per-se rules” and “restrictions by object” (as used in the EU) [should be seen] as equivalent’. As noted by Kühn, ‘[w]hile exemptions can be granted for restrictions by object in EU law, the burden of proof is so high that effectively there will not be a great difference between these concepts in practice’. Kai-Uwe Kühn, ‘Designing competition policy towards information exchanges – looking beyond the possibility results’, in OECD, Information Exchanges Between Competitors under Competition Law, 2010, p. 422. 8 Einer Elhauge and Alex Krueger, ‘Solving the patent settlement puzzle’, Texas Law Review, 2012. 9 See e.g., Carl Shapiro, ‘Antitrust limits to patent settlements’, RAND Journal of Economics, 2003. 10 See supra note 5. 11 We do not comment on whether any jurisdiction uses such ‘expected date of entry’ as the relevant counterfactual in assessing the legality of RPPSs. We use the expected date of entry as the counterfactual against which we compare the entry date in RPPSs in assessing whether the RPPSs are procompetitive or anticompetitive because the economic literature we discuss uses that counterfactual in asserting that RPPSs should be considered anticompetitive whenever the reverse payment exceeds the originator’s litigation costs.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 273 Should reverse payment patent settlements be prohibited per se?

end of the litigation and patent expiry (unless the litigation is a sham and one party has no reasonable prospect of success).

A business practice or agreement is typically regarded as restrictive by object if, by its very nature, it is (i) highly likely that the practice will produce anticompetitive effects and (ii) highly unlikely that it will have procompetitive effects.12 For example, a horizontal price-fixing cartel is prohibited per se on both sides of the Atlantic because horizontal cartels are almost always injurious to the proper functioning of competition. This approach makes sense from an economic viewpoint. According to decision theory,13 a per se prohibition is justified if and only if the expected cost of a type II error (i.e., the expected cost of finding that the practice is procompetitive when it is in fact anticompetitive) is large while the expected cost of a type I error (i.e., the expected cost of finding that the practice is anticompetitive when it is in fact procompetitive) is negligible or zero.14 This condition is satisfied when (i) and (ii) above hold.

Our review of the existing economic literature shows that there is no justification for adopting a per se illegality rule in RPPS cases. This is because, while the expected cost of a type II error is positive and may even be large, RPPSs have procompetitive effects in many circumstances and, therefore, it is not true that the expected cost of a type I error is negligible or zero. For example, Shapiro (2003) showed that RPPSs can benefit society by allowing a more efficient allocation of resources than if all litigation were to be pursued to judgment when the quantum of reverse payment is below the expected litigation costs of the originator.15 Langefeld and Li (2003) argue that a strict per se illegal treatment of such payments would unduly limit the patent holder’s ability to protect its intellectual property rights when there is a risk of under-compensation in case of infringement.16 Willig and Bigelow (2004) show that reverse payments may be essential for welfare-enhancing settlements to be reached.17 Dickey, Orszag and Tyson (2010) reach a similar conclusion and conclude against treating RPPSs as per se illegal.18 Lastly, Dickey and Rubinfeld (2012) argue that RPPSs can increase the incentives to develop new generic drugs and patent challenges.19

12 See Matthew Bennett and Philip Collins, ‘The law and economics of information sharing: the good, the bad and the ugly’, European Competition Journal, 2010, p. 311, and references therein. See also Matthew Bennett and Jorge Padilla, ‘Article 81 EC revisited: deciphering European Commission antitrust goals and rules’, in Xavier Vives (ed.), Competition Policy in the EU: Fifty Years on from the Treaty of Rome, Oxford University Press, 2009. 13 According to the Stanford Encyclopaedia of Philosophy, ‘Given a set of options constituting a decision problem, decision theory recommends an option that maximizes utility, that is, an option whose utility equals or exceeds the utility of every other option. It evaluates an option’s utility by calculating the option’s expected utility. It uses probabilities and utilities of an option’s possible outcomes to define an option’s expected utility. The probabilities depend on the option.’ See http://plato.stanford.edu/entries/decision-causal/.

14 See Frank H. Easterbrook, ‘The limits of antitrust’, Texas Law Review, 1984; C. Frederick Beckner III and Steven C. Salop, ‘Decision theory and antitrust rules’, Antitrust Law Journal, 1999; Keith N. Hylton and Michael Salinger, ‘Tying law and policy: a decision-theoretic Approach’, Antitrust Law Journal, 2001; and David S. Evans and Jorge Padilla, ‘Designing antitrust rules for assessing unilateral practices: a Neo-Chicago approach’, University of Chicago Law Review, 2005. 15 Shapiro (2003) supra note 9. 16 James Langefeld and Wenqing Li, ‘Intellectual property and agreements to settle patent disputes: the case of settlement agreements with payments from branded to generic drug manufacturers’, Antitrust Law Journal, 2003. 17 Robert D. Willig and John P. Bigelow, ‘Antitrust policy toward agreements that settle patent litigation’, Antitrust Bulletin, 2004. 18 Bret Dickey, Jonathan Orszag and Laura Tyson, ‘An economic assessment of patent settlements in the pharmaceutical industry’, Annals of Health Law, 2010. 19 Bret M. Dickey and Daniel L. Rubinfeld, ‘Would the per se illegal treatment of reverse patent settlements inhibit generic drug investment?’ Journal of Competition Law and Economics, 2012.

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The model recently developed by Elhauge and Krueger (2012)20 supports a ‘modified’ per se illegality rule,21 which seems closely related to the quick rule of reason test proposed by the FTC in Actavis. They claim that RPPSs with reverse payments in excess of the originator’s expected litigation costs are anticompetitive by their very nature—that is, irrespective of (i) the validity of the patent, (ii) the likelihood of infringement, and (iii) the parties’ evaluations of the strength of their litigation cases. As Elhauge and Krueger put it, this rule, based on comparing the cash payment to the originator’s expected litigation costs, ‘provides an easily administrable way to determine when a reverse payment settlement is necessarily anticompetitive, without requiring any inquiry into the patent merits’. This claim stems from a basic property of the Elhauge and Krueger model, namely that the originator is willing to accept a settlement with a reverse payment above his expected litigation costs only if the settlement delays entry beyond the expected entry date under litigation. Given this, Elhauge and Krueger claim, all competition agencies and courts would need to do in order to identify anticompetitive RPPSs is to compare the quantum of the reverse payment to the magnitude of the litigation costs that the originator could reasonably incur if its patent is challenged. Importantly, agencies and courts would not need to investigate and assess the validity of the patent, the likelihood of infringement, and the parties’ evaluations of the strength of their respective litigation cases.

Elhauge and Krueger’s findings and policy implications hinge on a series of assumptions that do not fit reality. Most importantly, Elhauge and Krueger’s model (a) considers market scenarios with a single generic entrant or, alternatively, where the originator’s profits following entry are independent of the number of generic entrants; and (b) assumes that the originator and the entrant have complete information about their subjective beliefs regarding the strength of the patent.22 We show in the present paper that when either of these two assumptions (i.e.,conditions (a) or (b)) is relaxed, a rule that condemns as per se illegal any RPPS that exceeds litigation costs is unjustified. Contrary to Elhauge and Krueger, we find that, when either of these two key assumptions is relaxed, the originator may offer a settlement in which the reverse payment exceeds his expected litigation costs but accele- rates entry. This implies that competition agencies and courts adopting the same framework of analysis and counterfactual as Elhauge and Krueger cannot rely on a mere comparison of the reverse payment and the originator’s expected litigation costs in order to determine the procompetitive or anticompetitive nature of an RPPS. Instead, they would need to assess the strength of the patent as well as each party’s subjective evaluation of its litigation case, in particular taking into account the uncertainty about the judicial outcome of the case. Otherwise, competition agencies and courts would risk concluding that the settlement harms consumer welfare (relative to the litigation scenario) when it fact it does not.

The model developed by Elhauge and Krueger also abstracts from a number of key features of patent systems like the UK system and other European systems, such as the availability

20 Elhauge and Krueger (2012) supra note 8. Other papers supporting the adoption of a rebuttable presumption of illegality for RPPSs are Herbert Hovenkamp, Mark Janis, and Mark Lemley, ‘Anticompetitive Settlement of Intellectual Property Disputes’, Minnesota Law Review, 2003, and Michael A. Carrier, ‘Unsettling Drug Patent Settlements’, Michigan Law Review, 2009. All of them rely on similar assumptions—namely, perfect and complete information and a single entrant.

21 That is, a rule that establishes a per se prohibition provided one or more conditions are satisfied. For example, in EU law, below cost pricing is prohibited per se but only for companies enjoying a dominant position.

22 The importance of these assumptions is recognized by Shapiro (2003) at p. 410, see supra note 9.

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of preliminary injunctions and the possibility that a generic entrant whose entry was delayed by an injunction is compensated by the originator if no infringement is found when the case is tried on the merits. When those features are taken into account, we find that competition agencies and courts would have to be prepared to assess the strength of the patent in question as well as each party’s subjective evaluation of its litigation case before they are in a position to distinguish procompetitive or anticompetitive patent settlements. The reason is twofold. Firstly, whether an RPPS with a reverse payment above the originator’s expected litigation costs but below the sum of the originator’s expected litigation costs and the expected value of the damages that the originator may have to pay to compensate a generic manufacturer whose entry was delayed incorrectly by means of a preliminary injunction is anticompetitive requires assessing inter alia the patent’s strength. Secondly, while we find, within the framework proposed by Elhauge and Krueger, that the originator is willing to accept a settlement with a reverse payment above the sum of his expected litigation costs and the expected value of the damages caused by an erroneous injunction only if the settlement delays entry beyond the expected entry date under litigation, it is not possible to calculate the expected value of the damages caused by an erroneous injunction without detailed information regarding the originator’s own assessment of the validity of the patent, the likelihood of infringement, the uncertainty of judicial outcomes, etc.

Since there is no justification for a per se illegality rule and the modified per se rule advocated inter alia by Elhauge and Krueger will cause excessive intervention, it would seem that the case for a ‘rule of reason’ assessment of RPPSs is well grounded in economics. However, as we will demonstrate in this paper, such an effect-based assessment would require competition agencies and/or antitrust courts to assess the strength of patents, the validity of infringement claims, and the subjective evaluations of the strength of each party’s litigation case (taking into account the uncertainty of judicial outcomes). This is obviously impractical. Competition agencies and courts would likely incur substantial type I and type II errors if they tried. Because there are reasons to believe that when assessing RPPSs the expected cost of type I errors is greater than the expected cost of type II errors, a pure effects-based approach—i.e.,a rule that treats type I and type II errors as equally costly in expected terms—is likely to cause inefficiencies.23 By exclusion, and given that a per se legal rule is also unjustified, our analysis favours the adoption of rebuttable presumption of legality.

The remainder of this paper is structured as follows. In Section 2 we briefly explain the conditions that need to be met for an agreement to be considered restrictive by object and prohibited per se. We then explain why RPPSs with a settlement date prior to patent expiry should not be prohibited per se because they are likely to generate substantial procompetitive effects. In Section 3, we explain why RPPSs ‘by their very nature’ are not highly likely to produce anticompetitive effects and, hence, should not be treated as restrictions by object. Section 4 discusses how to assess the competitive implications of RPPSs in light of our previous results and under the framework and counterfactual proposed by Elhauge and Krueger. It compares two alternative approaches—a full effects-based analysis and a rebuttable presumption of legality approach— from an error-cost perspective. We conclude that RPPSs with a settlement date prior to patent expiry should be presumed legal, though that presumption could be rebutted in some exceptional circumstances. Section 5 concludes.

23 Intervention risks undermining the pro-innovation effects of the patent system unless there is evidence that the originator and the entrant conspired to delay entry. Furthermore, a policy that bans RPPSs will have a negative impact on the incentives of generic manufacturers to develop new drugs.

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II. The case against per se illegality

As explained above, an agreement should be prohibited per se if, by its very nature, it is (i) highly likely that the practice will produce anticompetitive effects and (ii) highly unlikely that it will have procompetitive effects. When those two conditions are verified, the expected cost of a type II error is large while the expected cost of a type I error is negligible or zero, and the legal rule that minimizes the expected cost of error is the per se illegality rule. There is no justification to incur the administrative costs of a full assessment of the likely procompetitive and anticompetitive effects when conditions (i) and (ii) hold true.

This is why price-fixing horizontal cartels are prohibited per se on both sides of the Atlantic.24 Price-fixing causes prices to increase and output to fall and, hence, harms consumers. Under some limited circumstances—such as, for example, when there is substantial excess capacity, demand is falling, and free riding problems prevent the rationalization of capacity via exit or mergers—they may prevent a market collapse. But those circumstances are so rare and extreme that it makes no sense to adopt a case-by-case approach to price-fixing cartels.

The allegation that RPPSs constitute restriction of competition by object is based on the premise that RPPSs are anticompetitive irrespective of the settlement date of entry. We see no justification for adopting a per se illegality rule when the settlement date is set before patent expiry. This is because RPPSs have procompetitive effects in many circumstances and, therefore, it is not true that the expected cost of a type I error is negligible or zero. An outright prohibition of RPPSs would harm consumer welfare in a range of circumstances, as we explain in what follows.

1. Settlements may lead to a more efficient allocation of resources

Shapiro (2003) showed that settlements can benefit society by allowing a more efficient allocation of resources than if all litigation were to be pursued to judgment. Shapiro proposes a general rule for evaluating patent settlement, requiring that a proposed settlement should leave consumers no worse off than if no settlement were reached and the litigation had continued until final judgment. He shows that under general conditions, there will be settlements that raise companies’ joint profits and also improve consumers’ surplus.25 Finally, his model can be used to show that RPPSs can be procompetitive when the quantum of reverse payment is below the expected litigation costs of the originator. (This last result is formally shown in Annex 1 below.)

Willig and Bigelow (2004) show that, under many circumstances, reverse payments may be essential for welfare-enhancing settlements to be reached.26 They show that some procompetitive settlements may be agreeable to the originator and the generic entrant—

24 See Keith N. Hylton, Antitrust Law: Economic Theory and Common Law Evolution, Cambridge University Press, 2003, Part IV.

25 For example, settlements which set a certain entry date close to the expected day of entry under litigation will benefit (risk-averse) consumers and will save the originator’s and entrant’s litigation costs.

26 See supra note 17.

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i.e.,the parties to the litigation—only if they provide for a payment from the originator manufacturer to the generic manufacturer. Indeed, it may be impossible for parties to agree on a procompetitive settlement without a financial payment from the patent holder when (i) companies (or their managers) are risk averse, (ii) there are asymmetries of information regarding, for example, the state of the market and, in particular, the duration of the patent monopoly, (iii) parties to the litigation have different expectations about their likelihood of success at trial or about future market conditions, and (iv) parties have different discount rates. Dickey, Orszag and Tyson (2010), drawing on Willig and Bigelow (2004), reach a similar conclusion: namely, that a per se rule against RPPSs would be misguided, because such settlements can increase or decrease competition and consumer welfare depending on the facts and circumstances of each specific case.27

Dickey and Rubinfeld (2012) argue that an RPPS can increase the incentives of generic manufacturers and branded manufacturers to innovate and develop new drugs and enter the market to challenge branded patents. They have explained that ‘[e]ven those settlements that do result in delays in generic entry relative to the expected outcome from litigation, could increase welfare to the extent they […] provide increased incentives for generics to invest in pursuing future challenges.’28 The option to settle reduces the uncertainty associated with investing in new generic drugs and, other things being equal, increases the incentives of generic manufacturers to invest in new drugs. On the one hand, investment expenditures into new drugs are irreversible—i.e.,they cannot be recovered or used for an alternative purpose. On the other, their returns are highly uncertain.29 Future market conditions and market structure are difficult to predict accurately.30 The outcome of potential litigation with generic drug manufacturers, as well as the duration and cost of litigation, are also highly uncertain. It is well-known that uncertainty reduces the incentives to undertake irreversible investments.31 Patent settlements are thus valuable for society not only because they save litigation costs, but most importantly because the option to settle contributes to reducing ex ante uncertainty and consequently to promoting investment.

2. RPPSs should not be regarded as restrictions by object

A recent paper by Elhauge and Krueger, closely related to Shapiro (2003), claims that RPPSs with reverse payments in excess to the originator’s expected litigation costs are

27 See supra note 18. 28 Dickey and Rubinfeld (2012), p. 7. See supra note 19. 29 Costa-i-Font et al (2011) explain that market size, measured by population size and the originator’s revenues, has a positive impact on the likelihood on generic entry. They also show that the likelihood of generic entry is lower when the number of incumbents and entrants increases. See Joan Costa-i-Font, Nebibe Varol, and Alistair McGuire, A. (2011): ‘Does pharmaceutical price regulation affect the adoption of generic competition? Evidence from the OECD, 1999-2008,’ CESifo working paper, n° 3441, available at http://eprints.lse.ac.uk/37537/.

30 Market size is uncertain because alternative treatments or substitute brand-name drugs may be developed and introduced before the generic manufacturer manages to commercialize his product. Also, for reasons pertaining to the qualitative characteristics of the generic drug, the generic manufacturer may not reach market shares as high as initially expected. Future market structure is also quite uncertain: when the generic manufacturer decides to invest in a new generic, he cannot know with certainty how many of his rivals will enter the market in the future, nor can he know how quickly they will be ready to enter. Given that a generic drug manufacturer’s profits crucially depend on being the first on the market, uncertainty about future market structure can have a decisive impact on the decision to invest.

31 See Avinash Dixit and Robert S. Pyndick, Investment under Uncertainty, Princeton University Press, 1994, and references therein.

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always anticompetitive.32 The Elhauge and Krueger model is summarized in Annex 2 below. The intuition is simple. Under the assumption that the generic entrant enters the market only after the litigation is resolved,33 the difference between the originator’s expected profits with and without settlement is given by two terms. The first term is the difference between the originator’s expected litigation costs and the reverse payment. This term is negative when the reverse payment is greater than the originator’s expected litigation costs. The second term is equal to the product of (i) the difference between the entry date without and with settlement and (ii) the difference between the originator’s profits under duopoly and under monopoly. Because (ii) is negative under most circumstances,34 the sign of this second term will be positive only if (i) is also negative; that is, if the entry date with settlement exceeds the entry date without settlement. It follows then that when the reverse payment is greater than the originator’s expected litigation costs, the difference between the originator’s expected profits with and without settlement can only be positive if the settlement delays entry. Put differently, under this model, the originator, all things being equal, will pay to the generic company more than the originator’s expected cost of litigation only if the originator obtains an entry date that is later than the one that the originator expected with litigation. This would be true under the Elhauge and Krueger model, irrespective of the validity of the patent, the likelihood of infringement, whether a settlement agreement would be reached without a payment, which party would in fact have won the litigation, and the parties’ respective evaluations of the strength of their litigation cases.

Therefore, the Elhauge and Krueger model appears consistent with the position regarding the anticompetitive nature of RPPSs adopted by the US and EU antitrust authorities. However, a careful review of their model shows that what Elhauge and Krueger have shown is that an originator will offer an RPPS with a reverse payment greater than the originator’s expected cost of litigation if the settlement date of entry exceeds the originator’s expected date of entry. But since the originator’s expected date of entry need not coincide with the objective date of entry, that RPPS need not be anticompetitive even using the framework and counterfactual adopted in Elhauge and Krueger. Moreover, as we will explain in what follows, their model hinges on a series of restrictive and unrealistic assumptions.

(a) Multiple entrants

The Elhauge and Krueger model considers a market scenario with a single generic entrant.35 This is obviously a restrictive assumption, which will fail to apply to many RPPSs cases. The conclusion that any RPPS involving payments in excess of the originator’s expected litigation costs is anticompetitive per se need no longer hold when there are multiple entrants and the originator’s and entrants’ profits following entry fall with the number of generic entrants. This is demonstrated formally in Annex 3 below, where we develop and analyse a

32 See supra note 8. 33 Elhauge and Krueger called this the strong patent case (as opposed to the weak patent case where the generic entrant prefers to enter at risk and pay damages in case the patent is found to be infringed). Shapiro (2003) only considers this case.

34 Since competition tends to dissipate rents. 35 This is clear from the model set up in section II.A of the paper, which identifies a patent holder P and a single entrant E as the two agents in the model.

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highly stylised and simplified model which is closely related to the model developed by Elhauge and Krueger but does not seek to capture the specific features of any case.36 The intuition for this result is as follows. Generic entrants are likely to differ in terms of the nature of their products and, hence, they are also likely to differ as regards the likelihood with which their products will infringe the originator’s patent. Generic entrants may also have different estimates of the validity of the patent and may also have different means to engage in costly litigation. For these reasons, generic entrants’ incentives and ability to litigate will differ, and some of them will be more likely to litigate and prevail than others. Entrants with weaker incentives to challenge will free ride on the litigation efforts of the more aggressive ones. In the model in Annex 3, we assume for simplicity that, while there are N generic companies ready to enter the market, there is only one with the incentives to litigate. We show that the originator has substantial incentives to settle with that litigator. He will be prepared to enter into an RPPS with a payment in excess of his expected litigation costs even if that involves permitting the litigator’s entry prior to the patent holder’s expected date of generic entry under litigation. By doing so, it avoids the risk that his patent will be declared invalid and hence avoids the entry of N-1 additional entrants. In other words, the originator settles because it prefers to facilitate the early entry of the litigator rather than running the risk of an adverse court finding and a competitive landscape with N competitors. The impact of such an RPPS on consumer welfare is ambiguous. While the litigator enters the market earlier than the date of generic entry expected by the originator and that, under the Elhauge and Krueger model, benefits consumers, the free riders will have to wait until patent expiry to enter the market and that is welfare detrimental. The model in Annex 3 shows that a competition agency seeking to balance these two effects in order to determine the overall competitive impact of the settlement within the framework and under the counterfactual of the Elhauge and Krueger model would need to assess the strength of the patent as well as calculate profits and consumer welfare under various market structures.37

36 Note that, in order to disprove the per se illegality claim by Elhauge and Krueger, we need to find only one reasonable economic scenario where their proposition fails to hold. However, the specifics of the model analysed in Annex 3 are oversimplified and far narrower than the range of circumstances in which the same general conclusions are apt to apply. For example, the effect uncovered in our simple model would extend to a more realistic model scenario where there are multiple entrants with the incentive and ability to challenge the originator’s patent but the strength of their respective litigation cases is not the same. However, this extended model would be considerably more complex to analyse because one would need to investigate how an early settlement impacts the assessment of each non-settling entrant about the strength of his litigation case and, therefore, the implications of early settlements for subsequent entry and settlement decisions.

37 Elhauge and Krueger refer to a scenario with multiple entrants only once in their paper. They appear to suggest that their results would carry through to a model with non-settling entrants. Elhauge and Krueger are wrong about that assertion. They state that in that scenario ‘[t]he patent holder would make a reverse payment that exceeds its anticipated litigation costs only if excluding the settling entrant confers an enhanced market power on the patent holder that it otherwise would not enjoy’ (supra note 8, p. 33). However, note that this does not imply that such an RPPS with a reverse payment that exceeds the originator’s anticipated litigation costs would delay the entry of the settling entrant as compared to the date of generic entry expected by the originator after litigation. It simply means that the originator may have been willing to accept an earlier settlement date of entry in the absence of a reverse payment. Consequently, the RPPS cannot be regarded as anticompetitive under the counterfactual employed by Elhauge and Krueger (i.e.,the world without a settlement and generic entry as expected by the originator after litigation). Note also that Elhauge and Krueger do not investigate whether the settlement without reverse payment would have been accepted by the entrant.

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Our findings here are consistent with the results in Kobayashi et al. (2015)38 and Edlin et al. (2015).39 Kobayashi et al. demonstrate that it is impossible to infer that a settlement is anticompetitive based solely upon the size of the RPPS when multiple generic firms enter rapidly following the invalidation of the patent (and the expiration of the marketing exclusivity period that is granted to the first generic entrant under the US Hatch-Waxman Act). This is because in their multiple entrant model, like in ours, the patentee may agree to allow entry of the first generic firm prior to the expected date of entry even when the RPPS exceeds its expected litigation costs. Contrary to our findings, however, Kobayashi et al. find that RPPS always harm consumers, including in circumstances when they accelerate entry of the first generic firm. Yet they find that there is a wide range of feasible settlements that would raise total welfare net of litigation costs. The authors conclude therefore that a rule that prohibits RPPS when the size of the payment exceeds the originator’s expected litigation costs will deem some welfare increasing settlements anticompetitive. Like us, Edlin el al. find that with multiple entrants the consumer welfare impact of RPPSs with large reverse payments to be ambiguous. The conditions under which such RPPS would be welfare increasing are similar to the conditions in Annex 3 below.40

(b) Informational asymmetries Elhauge and Krueger and Shapiro assume that the originator and the entrant have complete information about their subjective beliefs regarding the strength of the patent.41 That is, they both know each other’s assessment of the validity of the patent and of the likelihood of a patent infringement (and both know that they both know and so on). This is obviously unrealistic.

As shown in Annex 4 below, once this assumption is relaxed, a rule that condemns as per se illegal any RPPS that exceeds expected litigation costs is unjustified. When each party’s assessment of the strength of the patent is private information,42 competition agencies and courts seeking to identify anticompetitive RPPSs can no longer rely on the mere comparison of the reverse payment with the originat-or’s expected litigation costs, because there may be RPPSs with reverse payments that are greater than the expected litigation costs that are

38 Bruce Kobayashi, Joshua D. Wright, Douglas H. Ginsburg and Joanna Tsai, “Actavis and Multiple ANDA Entrants: Beyond the Temporary Duopoly” Antitrust, 2015. 39 Aaron Edlin, Scott Hemphill, Herbert Hovenkamp and Carl Shapiro, “The Actavis Inference: Theory and Practice”, working paper, 2015.

40 Edlin et al. claim that RPPSs with reverse payments larger than litigation costs reduce consumer welfare, relative to litigation, under the conditions that apply in practice”. (Id., p.18.) This proposition is based on a particular numerical simulation and, hence, the claim is in our opinion unsubstantiated.

41 Although this assumption is not explicitly stated, in their model the patent holder adjusts its settlement offer to reflect the entrant’s assessment of the strength of the patent. The patent holder can do so only if he knows the entrant’s assessment of the strength of the patent. The model developed by Elhauge and Krueger requires the entrant to know the originator’s assessment of the strength of the patent. When that assumption is relaxed, the originator’s offer conveys information about his assessment of patent strength which, in turn, may affect the entrant’s own views on patent strength and hence his decision to enter, the timing of his entry, his willingness to settle and the amount of money that will be necessary to induce him to settle. The analysis of the Elhauge and Krueger model when the entrant is not informed about the originator’s views on patent strength is extremely complex. While we have not attempted to analyse such a model, we conjecture that the competitive assessment of RPPSs under that scenario would require a detailed assessment of the originator’s and the entrant’s beliefs on the validity of the patent and the likelihood of patent infringement.

42 The originator does not know the generic entrant’s beliefs on the validity of the patent and the likelihood of patent infringement.

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nonetheless procompetitive, by permitting entry before the originator’s expectation as to the probable date of entry after litigation. Instead, still operating within the Elhauge and Krueger framework and counterfactual, competition agencies and courts will have to assess the strength of the patent, the likelihood of infringement, and in particular they will have to determine the originator’s and the entrant’s subjective evaluations of patent strength.

In the model analysed in Annex 4, the originator offers an RPPS—i.e., a reverse payment and an entry date—without knowing whether the generic entrant is optimistic about its litigation chances and is willing to enter at risk or, instead, he is pessimistic and hence will wait to enter until the litigation is resolved. We show that the originator may consent to pay the entrant an amount in excess of its expected litigation costs in order to delay the entry of an optimistic entrant. However, such a settlement proposal need not delay entry if the generic entrant is instead pessimistic about his litigation case.43 Hence, as noted above, a competition agency or court seeking to determine whether the settlement hurts consumers using the framework and counterfactual in Elhauge and Krueger will not only have to assess the patent’s objective strength but also the entrant’s beliefs and the originator’s beliefs about the entrant’s beliefs. This is of course an incredibly complex task for a competition agency or a court to undertake.

The model developed by Elhauge and Krueger does not allow for preliminary injunctions, either. This assumption is unduly restrictive, as it rules away a key institutional feature of various European patent systems. This is important because extending the model to account for preliminary injunctions has significant implications for the conclusions of the Elhauge and Krueger model.

A preliminary injunction will delay the entry of a generic manufacturer until the patent litigation is resolved. Generic entrants whose entry is delayed by an injunction can demand to be compensated for damages if the patent is finally declared invalid or not infringed. As shown in Annex 5 below, when preliminary injunctions and the associated damage claims are taken into account, RPPSs involving payments in excess of the originator’s expected litigation costs do not delay entry relative to the originator’s expected entry date in the absence of a settlement. Only RPPSs involving payments in excess of the originator’s expected litigation costs and the expected value of the damages resulting from an erroneous injunction would delay entry relative to the expected entry date absent the agreement. Note that it is not possible to calculate the originator’s expected value of the damages caused by an erroneous injunction without detailed information regarding the originator’s own

43 Elhauge and Krueger (2012) state that ‘when the entrant is relatively pessimistic, a reverse payment is never necessary to reach settlement, even if the patent is strong. Further, because adding a reverse payment can only increase the entrant’s willingness to agree to a later settlement entry date, the settlement they would have reached without the reverse payment would provide an earlier entry date less harmful to consumer welfare’. See supra note 8, p. 20. This seems to suggest that any RPPS with a pessimistic entrant would necessarily be anticompetitive and, hence, consumer welfare reducing. This is not the right interpretation of the abovementioned statement. What Elhauge and Krueger really say is that, when the entrant is relatively pessimistic, an RPPS will produce less consumer welfare than a settlement with no reverse payment. However, this does not imply that the RPPS is anticompetitive under the counterfactual employed by Elhauge and Krueger (i.e.,the world without a settlement and generic entry as expected by the originator after litigation).

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assessment of the validity of the patent, the likelihood of infringement (taking into account the likely judicial outcome), etc.

The intuition behind this result is simple. While in the Elhauge and Krueger model, the only way to deter at-risk entry is to offer a settlement with a late entry date and a high reverse payment, in the model in Annex 5, the originator can try to delay entry without settlement by means of a preliminary injunction. Delaying entry in the absence of a settlement requires suing the generic entrant for patent infringement and requesting a preliminary injunction. This is a costly strategy. The originator will have to pay litigation costs and may also have to compensate the entrant if the court concludes the patent was invalid or not infringed when the case is finally decided on the merits. It is also a risky strategy since the injunction may not be granted and the infringement suit may not be successful. An RPPS eliminates the litigation uncertainty but is also costly. Under the Elhauge and Krueger construct, the originator will not accept an RPPS with a reverse payment greater than expected litigation costs and compensation damages—i.e.,an RPPS that is more costly than the litigation/injunction option—unless it delays entry to a date that is later than the date of entry expected by the originator. However, RPPSs that are less costly than the litigation/ injunction option need not delay entry.

(d) Conclusion While some economic models—namely, Shapiro (2003) and, more clearly, Elhauge and Krueger (2012)—claim that RPPSs involving payments in excess of the originator’s expected litigation costs are necessarily anticompetitive, those models rely, among other things, on assumptions that do not fit reality.

We have demonstrated that, when some of the key assumptions in Shapiro (2003) and Elhauge and Krueger (2012) are relaxed, (1) RPPSs involving payments in excess of the originator’s expected litigation costs need not be anticompetitive, and (2) distinguishing between procompetitive and anticompetitive RPPSs would require assessing the objective strength of the patent and likelihood of infringement, each party’s subjective evaluations of patent strength and anticipation of the outcome of the litigation case, and consumer welfare under alternative market structures. III. Assessing RPPSs: effect-based analysis or per se legality?

An agreement between firms that can have both procompetitive and anticompetitive effects should not be treated as per se illegal. Instead, it should be analysed under a full effects analysis, and prohibited only when it is likely to produce significant anticompetitive effects and there are no offsetting efficiencies.

However, assessing RPPSs under such an effects analysis is bound to be an extremely complex exercise. As we explained in the previous Section, assessing the procompetitive and anticompetitive effects of a RPPS under the framework and counterfactual suggested

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in the contribution of Elhauge and Krueger and other related economic papers would require competition agencies and/or antitrust courts to assess the strength of patents, the validity of infringement claims, and the subjective evaluations of the strength and likely outcome of each party’s litigation case. This is an impractical task. If competition agencies and courts tried, they would likely incur substantial type I and type II errors. They risk concluding incorrectly that patent settlements that are procompetitive are anticompetitive and vice versa.

When implementing a full-effects or rule of reason analysis is impractical and there is no justification for a straight per se illegality rule, the appropriate legal standard must be either a rebuttable presumption of legality or a rebuttable presumption of illegality.44 Under a rebuttable presumption of legality rule, the agreement is presumed legal but that presumption can be rebutted under some exceptional circumstances. These rules are commonly used in EU competition law. As explained in the European Commission’s Guidance on the application of Article 102 TFEU, refusals to deal are presumed legal but that presumption can be rebutted under exceptional circumstances.45 Loyalty discounts are presumed illegal when the net effective price is below long-run incremental costs, but that presumption can be rebutted if the dominant firm is able to demonstrate that such discounts do not foreclose a significant part of the market.46

The choice between those two rebuttable-presumption rules should be determined by comparing the likelihood and cost of the type I and type II errors that are likely to result from the adoption of a naked rule of reason approach. In our opinion, the expected costs of the type I errors are likely to be greater than the expected costs of the type II errors in the case of RPPSs. This is for several reasons. First, unless there is evidence that the parties have conspired to delay entry (an example is provided below), intervention to facilitate entry prior to patent expiry risks undermining the pro-innovation effects of the patent system by thwarting the incentives of the originator to develop new drugs. Furthermore, a policy that bans RPPS will have a negative impact on the incentives of generic manufacturers to develop new drugs.47

Because type I errors are likely to be more likely and more costly than type II errors in RPPS cases, we consider that the right approach to assessing the competitive implications of patent settlements involving reverse payments is to adopt a rebuttable presumption of legality. That presumption could be rebutted, for example, if contemporaneous documentary evidence shows that both originator and entrant conspired to delay entry by agreeing that, even though the patent was invalid and/or not infringed (i.e., both knew and agreed that the infringement litigation was a sham), they would delay generic entry in order to share monopoly profits.

44 It can be shown that a per se legality rule will give rise to substantial type II errors, and so in principle it will be welfare dominated by a rule that establishes a rebuttable presumption of legality. See David Evans and Jorge Padilla, ‘Designing antitrust rules for assessing unilateral practices: a Neo-Chicago approach’, University of Chicago Law Review, 2005, and Christian Ahlborn and Jorge Padilla, ‘From fairness to welfare: implications for the assessment of unilateral conduct under EC competition law’, in Claus-Dieter Ehlermann and Mel Marquis (eds.), European Competition Law Annual 2007: A Reformed Approach to Article 82 EC, Hart Publishing, 2008. 45 Communication from the Commission, Guidance on its enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings. OJ C 45, 24.2.2009, section IV.D. 46 Id., section IV.A. 47 See Dickey and Rubinfeld (2012), supra note 19.

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284 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Valerie Meunier and Jorge Padilla

A key advantage of the rebuttable presumption of legality rule we propose is that it can be specified clearlyex ante. As Kühn (2010) has argued in a recent paper ‘a policy that cannot specify ex ante what the grounds for intervention would be, has no serious incentive effects and is therefore not useful for policy’.48 IV. Conclusions We have shown in this paper that RPPSs should not be treated as restrictions by object and prohibited per se even when the reverse payment is substantial and exceeds the originator’s expected litigation costs. This is for three reasons. First, RPPSs can have procompetitive effects. Second, some procompetitive settlements may not be achieved if reverse payments are banned. Third, contrary to the claim of a recent study by Einer Elhauge and Alex Krueger, RPPSs with reverse payments greater than the originator’s expected litigation costs need not delay entry.

Furthermore, we have demonstrated that assessing the procompetitive or anticompetitive nature of RPPSs under the framework and counterfactual proposed by Shapiro (2003) and Elhauge and Krueger (2012), would require knowledge of (1) the objective strength of the patent, (2) the parties’ subjective evaluation of the strength of their respective case, (3) the parties’ beliefs about their opponent’s evaluation of the case, etc. This is an impractical task and one that in principle may lead to under- or over-enforcement. We believe the likelihood and cost of over-enforcement is likely to be substantially large. In particular, we are concerned that excessive intervention may have a negative impact on the incentives of originators and generic manufacturers to develop new drugs. This is why we conclude that RPPSs should be examined under a rebuttable presumption of legality rule and prohibited only in exceptional circumstances, for instance when contemporaneous documentary evidence shows that both originator and entrant conspired to delay entry by agreeing that, even though the patent was invalid and/or not infringed (i.e.,both knew and agreed that the infringement litigation was a sham), they would delay generic entry in order to share supra-competitive profits.

Our analysis supports the US Supreme Court’s conclusions that RPPSs should not be (a) regarded as per se illegal,49 or reviewed under a ‘quick look’ approach.50 However, we disagree with the Court’s view that assessing RPPSs under the rule of reason will prove administratively feasible.51 Our analysis has demonstrated that, contrary to what the Court states,52 the size of the reverse payment does not provide a workable surrogate for a patent’s weakness. We agree with the dissenting opinion of Justices Roberts, Scalia and Thomas, who conclude, against the Court’s majority opinion, that agencies and courts trying to implement the rule of reason will be forced to consider patent validity and infringement on a case-by-case basis.

48 See Kühn (2010), supra note 7, p. 430. 49 FTC v. Actavis Inc. (17 June 2013), p. 17. 50 Id., p. 20. 51 Id., p. 18. 52 Id., p. 19.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 285 Should reverse payment patent settlements be prohibited per se?

Annex 1. Procompetitive RPPSs in Shapiro’s model

Shapiro’s model can be described as follows. There is a patent holder (P) who brings a suit against a single generic entrant (E) for patent infringement. The patent is due to expire at date 1. The patent’s strength—i.e., the probability with which it will be found valid or not infringed by the court—is θ. E and P’s estimates of θ are perfect and common knowledge.

Litigation costs incurred by P and E are denoted by Cp and CE, respectively.

The patent holder’s profits when he holds a monopoly position are denoted by . When the generic enters the market, P and E’s duopoly profits are denoted Dp and DE , respectively. It is assumed that M > Dp + DE—i.e., that monopoly profits exceed joint duopoly profits.

At date 0, the generic entrant challenges the patent holder’s patent rights. The patent holder can offer a settlement consisting of a date on entry for the generic drug, T, and a reverse payment R. If he does not offer such a settlement, or if the generic entrant rejects the offer, litigation continues until the court’s final judgment at dateL ∈(0,1).

Shapiro assumes that without settlement E will enter at L or later—i.e., E will not take the risk of entering before the end of litigation. Consequently, the expected entry date without settlement is L + θ (1 − L)

As explained above, Shapiro considers a settlement to be procompetitive if it leaves consumers no worse off than if no settlement were reached and the litigation had continued until final judgment. Let Ś denote consumer surplus without settlement and Ŝ be the level of consumer surplus if a settlement is reached. It can be shown that S − Ŝ = [L + θ (1 − L)−T]

(SM − SD); where (SM − SD) < 0 is the difference between consumer surplus under monopoly and under duopoly. Hence, consumers are better off with a settlement (i.e. (S − Ŝ) < 0) if and only if [L + θ (1 − L)−T] > 0 That is, if the settlement date is before the expected entry date without settlement.

We now demonstrate that RPPSs with R below Cp can be procompetitive using Shapiro’s criterion. To see this, we first compute the difference in E’s profits with and without a settlement. This difference equals R + CE + DE [L + θ (1 − L)−T] and is positive if the settlement date is before the expected entry date without settlement for all levels of the reverse payment. Then, we compute the difference in P’s profits with and without a settlement. This difference equals Cp −R −(M − Dp)[L + θ (1 − L)−T] which, assuming [L + θ (1 − L)−T] > 0, will be positive only if Cp > R + (M − Dp) [L + θ (1 − L)−T]. In conclusion, an RPPS with a settlement date T and reverse payment R, such that (i) T < L + θ (1 − L) and (ii) R < Cp −(M − Dp) [L + θ (1 − L)−T], would be mutually agreeable to both parties and welfare increasing.

Annex 2. The Elhauge and Krueger model

Elhauge and Krueger build a model where, at date 0, P brings a suit against a single generic entrant E for patent infringement. Unlike Shapiro (2003), Elhauge and Krueger assume that information might be imperfect, such that the parties’ estimates of the patent scope differ from the court’s estimate, but it is nevertheless symmetric, in that each party’s belief

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286 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Valerie Meunier and Jorge Padilla

about the strength of the patent is known by the other party. That is, E and P’s estimates of

θ are denoted θE and θP respectively. θE and θP are common knowledge.

If E rejects the settlement offer, he can either enter at risk or wait until the court judgment. If E enters while the litigation is on-going, he takes the risk of having to pay infringement damages to P if he loses the litigation. Infringement damages are assumed to be equal to P’s lost profits during the litigation: L(M − Dp). Supposing there is no settlement and E E p enters at risk, the expected payoffs for E and P, πE and πP , are: (1 − θ )D − θ L(M − D E E p P − D ) − C and πP = θM + (1 − θ) D − C . Supposing, instead, that E decides to wait until E E the litigation is resolved, then πE = (1 − θ) (1 − L) D − C and πP = θM + (1 − θ) [L M + p p. E (1 − L )D ] − C Supposing both parties settle, then πE = (1 − T) D + R and πP = TM + (1 − T) Dp −R and Without a settlement, E will enter at risk only if its expected payoffs from doing so exceed its payoff from not entering at risk. Thus, E will enter at risk if θE<θ*, where θ*= DE /(M − Dp).

Strong patents

When the patent is strong (i.e., when θE > θ*), E does not enter at risk. Expected entry is delayed by at least the duration of litigation L and with probability θ, for the remainder of the patent term (1 − L). The expected entry date is L + θ (1 − L) = θ (1 − θ) L. P will only agree to those settlements that make him better off than litigation. That is, when T < θP (1 − θP) + (R − Cp) /(R − Mp). E will agree to settle if its expected profits from the settlement exceed its expected profits from litigating, that is if E E) E) E.

If P E , as demonstrated in Annex 1 above, (i) an RPPS with a reverse payment smaller than P’s expected litigation costs need not 𝑇 delay < 휃 entry + (1 and − 휃 (ii) 𝐿 an + (𝑅RPPS + with 퐶 /퐷 a reverse 휃 = 휃payment = 휃 greater than P’s expected litigation costs will necessarily delay entry.

If P E—i.e., when E is relatively pessimistic about his chance in court—the parties would be able to reach an agreement even without any reverse payment and thus there is no justification 휃 < 휃 for reverse payments. If E P, a reverse payment may be necessary for an agreement to be reached. Note that this sort of settlement with reverse payment may be procompetitive, 휃 < 휃 particularly in cases where both litigants are optimistic, that is, when E < P

Weak patents 휃 휃 < 휃. When E enters at risk, he is active on the market during litigation, and for the rest of the period with probability 1 − Hence the expected period of time during which there will be a duopoly on the market is Conversely, the expected period of time during which entry is precluded—or,휃. the ‘constructive’ expected entry date—is . 𝐿 + (1 − 휃)(1 − 𝐿) . P will only accept settlements where P P P P E the settlement date will exceed the ‘constructive’ expected entry date since > (1 −휃( 1. − If 𝐿 ) 𝑇 > 휃 + (𝑅 − 퐶 )/(𝑀 − 퐷 ) . If 휃 = 휃 = 휃, p < E, as in the strong patent case, the parties would be able to reach an agreement even without any reverse payment and thus there is no justification for reverse 휃 payments.휃 𝐿 ) 휃 휃 Annex 3. Multiple entrants

We extend the model described in Annex 1 to have multiple generic entrants. Let N be the number of generic entrants. Suppose that only one of the generic entrants, E, has the financial resources to challenge P’s patent. The remaining N-1 generic manufacturers will free ride

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 287 Should reverse payment patent settlements be prohibited per se?

on the litigation efforts of E. P and E’s N-opoly profits are P and E respectively. Let ∆P=

P − P and ∆E= E − E, respectively. We assume that ∆! and ∆! are both positive, as is the case under most oligopoly models. 푁 푁 퐷 푁 퐷 푁 As in Annex 1, we assume for simplicity that without settlement E will only enter after the litigation is resolved. Consequently, the expected entry date without settlement is + (1 − . The difference in E’s profits with and without a settlement equals + + [ + (1 − E E 𝐿 휃 𝐿) − + ∆E(1 − (1 − and is positive if the settlement date is before the expected entry date without settlement for all levels of the reverse payment R—i.e. if𝑅 [ +퐶 퐷1 −𝐿 −휃 > 𝐿0. ) The𝑇 ] difference𝐿 in ) P’s 휃)profits with and without a settlement equals − − ( − [ + (1 P 𝐿 �( 𝐿) P 𝑇 ] − − + (1 − )(1 − )∆P. The difference in P’s profits with and without a settlement is positive if < − − ) [ + (1 − − + (1 − )(1 − )∆퐶. It is𝑅 easy𝑀 to 퐷see) that𝐿 this휃 𝐿) 𝑇 ] P𝐿 휃 P P condition holds even if > P, provided that ( − P [ + 1 − − < (1 − )(1 − )∆P. This last inequality𝑅 퐶 (holds𝑀 퐷for values𝐿 휃 of 𝐿which ) 𝑇 ]are lower𝐿 but close휃 to + (1 − ). 𝑅 퐶 𝑀 퐷 ) 𝐿 휃( 𝐿) 𝑇 𝐿 휃 𝑇 𝐿 휃 𝐿 That is, when the model in Annex 1 is extended to include multiple entrants, it is no longer true that a reverse payment in excess of P’s expected litigation costs necessarily delays the entry of the generic entrant that is a potential challenger. Consequently, in order to determine whether the settlement is procompetitive or anticompetitive, one needs to compare S—i.e. consumer surplus without settlement—and Ŝ—i.e. consumer surplus when a settlement is reached. It can be shown that Ŝ − S = [ D M P P

, where P represents consumer surplus with N firms, P P is positive and D M is negative. Note that, unlike in the model𝐿 + of휃( Annex1 − 𝐿 1, ) −𝑇](푆(1 − − 푆 ) − + 1 > − 0 𝐿 does 1 − �not푆 imply − 푆 푆 푆 − 푆 (푆 − 푆 ) that Ŝ −S > 0. In other words, a settlement may not delay the entry of E and yet prove 𝐿 +휃 𝐿 ) 𝑇 anticompetitive because it prevents the entry of the other N-1 in case of a finding of no infringement.

Thus, an RPPS with a settlement date < + (1 − and reverse payment > P would be mutually agreeable to both parties and welfare-increasing if the following two conditions 𝑇 𝐿 휃 𝐿 ) 𝑅 퐶 are satisfied: (i) ( − P [ < (1 − )(1 − )∆P and (ii) [ ( − >(1 − (1 − − . Whether (i) and (ii) are satisfied depends on , D M 𝑀 퐷 ) 𝐿 + 휃(N 1 −D 𝐿 ) −𝑇] 𝐿 휃 𝐿 + 휃(1 − 𝐿) ∆P, M, D and N. To demonstrate that there are circumstances under which (i) and (ii) are satisfied,− 𝑇 ] 푆 푆we )construct𝐿 )a simple휃)(푆 example.푆 ) There are K consumers with unit inelastic demands휃 𝐿 , and 푆a reservation푆 푆 value . While E and all other potential entrants supply the drug at marginal cost (0, , P’s marginal costs are assumed to be zero. Neither P nor his generic competitors face capacity푣 constraints. Firms can choose between three possible prices: {0, }.𝑐 We ∈ restrict푣) attention to symmetric market outcomes—i.e. companies setting identical prices have identical market shares. It can be shown that = ( − ) ; = /2; = 𝑐, 푣 P P /( + 1); M = 0; D = N = ( − . Therefore, ( − P > 0; ∆P > 0; ( D − M > 0; and ( − ) = 0. As a result, (i) and (ii) hold for values of which𝑀 are푣 close𝑐 퐾 to퐷 + 𝑐 퐾1 − 푁). 𝑐 퐾P 푁 P 푆 푆 푆 푣 𝑐)퐾 𝑀 퐷 ) 푆 푆 ) 푆 푆 𝑇 𝐿 휃( 𝐿 Annex 4. Modelling asymmetric information The model developed here departs from the model in Annex 2 only in that we assume that P does not know the exact beliefs that the entrant holds about patent scope. We suppose that P has an accurate estimate of the probability that its patent will be upheld in court. However, E has a different estimate of patent strength: . For the sake of � E GO TO TABLE OF CONTENTS 휃 288 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Valerie Meunier and Jorge Padilla

simplicity, we assume that E can either be low (E is optimistic about winning at trial) or high (E is pessimistic about his chance at trial). We assume that . 휃 = Absent a settlement, i E is low E the entrant would enter at� risk,< 𝜃 whereas 휃 if P is high ( = , he would wait until the litigation is resolved. That is, P P f 휃 (휃 휃), 휃 does not know . P believes with probability that E is optimistic ( = = ) 휃 휃) E � 0. This inequality could P (𝑅 , 𝑇 ) P only hold when 퐶 − 𝑅 +P 𝑀 − 퐷 𝑇 − � − (1 − 휆)(1 − 휃)𝐿 = From Annex 2 above,𝑅 we> 퐶 if 𝑇see that > the 𝑇(휆) = expected � (1 − date휆)( 1of − entry휃)𝐿 . if P ( . In other words, any settlement offer that is acceptable to P and involves 휃 � is �(1− 𝐿)

퐶 expected date of entry is: . So, if E is pessimistic but P is uncertain 휃 = 휃, about whether E is pessimistic or optimistic, there are settlement agreements with > � (1 − 휃)𝐿 > 𝑇 (휆) that are acceptable to P and do not delay entry. P 𝑅

Both퐶 types of E will accept a settlement ( as long as both inequalities (1) E+ [ ] + > 0 and (2) + [ (1 L ] > 0 E P 𝑅 , 𝑇) E 𝑅 +E퐶 simultaneously hold. When ), inequality (2) is satisfied because �(1 − −𝐿 𝑇 퐷 � (𝑀 − 퐷 ) 𝐿 𝑅 + 퐶 �+ − 휃) − 𝑇 퐷 Inequality (1) will hold when + >[ − ] . With 𝑇 ∈(𝑇(휆 ), 𝜃(E1 휃)𝐿 P E ) [ ] (condition for P to agree on a settlement) 𝜃 휃.P P 𝑅+ 퐶 � (𝑀 − 퐷 ) 𝐿 𝑇 𝜃(1 − � 퐷 and + (1 − (1) will hold when parameters are such that +[ 𝑅 < 퐶 + (𝑀 − 퐷 𝑇 − � − (1 − 휆)(1 − 휃)𝐿 P E ] − [ ] [ − ] , for instance 𝑇 < 휃 휃)P 𝐿 , E 퐶 + 퐶E 휆(1 − 휃) when is large enough relative to , or when litigation costs are high enough. 𝐿 + 𝜃 � (𝑀P 퐷 ) > � +(1−휃) 𝐿 − � (1E −) � 퐷 > 𝑇 𝜃(1 − �퐷 𝑀 −퐷 퐷 Annex 5. Preliminary injunctions Let us consider again the perfect information model presented in Annex 2. Suppose that P P is low enough so that E decides to enter at risk. Suppose also that when E chooses to enter at risk, a preliminary injunction is granted with probability 휃 = 휃 = � (0,1). Such an injunction will prevent E from effectively entering the market until the court judges on the merits whether the patent is infringed or not. If an interim 𝛼∈ injunction is granted and the patent is ultimately found invalid or not infringed, the generic entrant will have been wrongly prevented from entering the market, and will thus be entitled to claim damages from P. We assume that in this case, P will have to

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 289 Should reverse payment patent settlements be prohibited per se?

pay damages to E equivalent to E’s lost profits during the litigation period, E. E’s expected profits under a settlement agreement are: (1 − E E’s expected profits from litigation equal (1 − . 𝐿 퐷 E P 𝑇 )퐷E) + 𝑅.E

P’s expected profits under 휃)퐷a settlement − (1 − 𝛼agreement )휃𝐿(𝑀 − are:퐷 − 퐷 − 퐶 P P’s profits from litigation are: (a) P if an interim injunction is granted (probability ) and 𝑇 𝑀 +(1 − 𝑇 )퐷 − 𝑅 . the court finds the patent infringed (probability ); (b) E) + (1 − P P if an interim injunction𝑀 is − granted퐶 (probability ) and the court finds the patent𝛼 not infringed (probability 1 − ); (c) if no interim휃 injunction𝐿 (𝑀 − is퐷 granted (probability𝐿 )퐷 − 퐶 P 𝛼 1 − ) and the court finds the patent infringed (probability ); and (d) P P if no interim injunction is granted휃 (probability𝑀 −퐶 1 − ) and the court finds the patent not 𝛼 휃 퐷 − 퐶 infringed (probability 1 − ). Note that, since P E > 0, P’s expected supracompetitive rents if an injunction is granted and the𝛼 patent is upheld exceed the expected damages if the injunction is휃 granted but the patent𝑀 − is퐷 found − 퐷 not to be infringed. As a result, P will always seek to obtain a preliminary injunction. Therefore, P’s expected profits from litigation equal P P E P. = It can be shown that S Ŝ 휃𝑀[ + (1 − 휃 )퐷 + (1 −M 휃) 𝛼D 𝐿(𝑀, where − 퐷 (−M 퐷 ) −D 퐶 < 0 is the difference between consumer surplus under monopoly and under duopoly. Hence, consumers are better off − with a𝛼 settlement 𝐿 + 휃 (1 − (i.e. 𝐿 ) −(S 𝑇] Ŝ푆 <− 0) 푆 if and only푆 if − [ 푆 ) > 0. That is, if the settlement date is before the expected entry date without settlement, which in this case— i.e. with at risk entry − )but preliminary injunctions—is𝛼 𝐿 + 휃 (1 − 𝐿 ) −𝑇] .

P𝛼 𝐿will offer+ 휃 (1 −a settlement 𝐿 ) as long as it leaves him better off than under litigation— i.e. as long as ( [ P (𝑅 , 𝑇 ) P P E > 0. The first term is negative when P. The second term is also negative when 퐶the − agreement 𝑅) + (𝑀 is welfare-increasing—i.e. − 퐷 ) 𝑇 − 𝐿𝛼 − 휃(1 −)] � when − (1 − 𝛼)(𝑀 𝐿 −퐷))— + (1 − 휃) 𝛼퐷 𝐿 𝑅 > 퐶 since P > 0. So P will only accept an agreement that involves a reverse payment in excess of its expected litigation costs and does not delay entry 𝑇 if <𝛼 −𝐿 +휃(1 − � (𝑀 −퐷 ) P) + (1 − E > 0. Now, this condition is satisfied provided that is sufficiently close to 1 (since it is satisfied for = 1 and the LHS of the inequality is 휃(monotonically1 − 𝛼)𝐿 (𝑀 increasing− 퐷 in휃 )). 𝛼 퐷 𝐿 𝛼 𝛼

This settlement𝛼 will be accepted by E provided that E E +(

P E )> 0. With P and ), E will accept the agreement if for instance is large enough relative to , or when𝑅 + litigation퐶 + (� costs− 𝑇)퐷 are high1 − 𝛼) enough. 휃𝐿 (𝑀 − 퐷 − 퐷 P 𝑅 > 퐶 𝑇 <𝛼𝐿 + E (1 − � 𝑀 −퐷 퐷

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290 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Has merger control spun out of control? The effects of a quarter of a century of EU merger control

Mark Powell

I. Introduction Merger control regimes have spawned a growing industry of lawyers, economists, public affairs advisers all offering the ability to ‘get their clients’ deals through’. It is no longer a cottage industry, consisting of just a few generalists. This is a multi-million dollar enterprise. However, the time has come to rethink the value added to consumers and society at large by having such a sluggish, heavy-handed system of prior merger control. Competition authorities have become weighed down by the merger control beasts that they have created. They certainly should not be augmenting them, for example, to include acquisitions of minority stakes to fill gaps. Not only does the system of prior merger control generate huge cost for industry, which has either to be recouped from consumers or from shareholders, post-transaction, but it also deflects authorities’ valuable resources away from pursuing other competition goals. That is not to say merger control should be scrapped altogether, but it does need to be given a new lease of life. It is no longer fit for purpose in a global economy. This article will identify some of the problems. It is by no means exhaustive. But the one single reform that could lighten the burden is to make merger control voluntary. No more

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 291 Has merger control spun out of control? The effects of a quarter of a century of EU merger control fines for failure to notify. No more negative legal consequences for such an omission. It should be up to the companies to choose: they should be free to take the risk of ex post control, or not. At a stroke, this would mean the majority of utterly pointless notifications would be avoided. No more notifications of Vietnamese pipeline deals to the European Commission! Sadly however, this call for action will almost certainly fall on deaf ears. A merger control industry has been created and those who benefit from within the authorities and outside will not readily stand by and see it dismantled. II. Background When Ian Forrester was a baby lawyer embarking on a successful career as a competition lawyer, he was not too troubled by merger control regimes. His ‘meat and potatoes’ were cartels and vertical agreements. For example, in the early 1990s, only France,1 Germany and the UK had merger control rules. In Germany, notification was by way of a polite letter and in the UK, notification was voluntary. It was all very civilized. Then after twenty-five years of debate, in 1989, the Council finally granted the European Commission powers to review mergers, and the first Merger Regulation was introduced in Europe.2 This was a bold step in a bright new world. These were exciting times. European competition law was coming of age by adding merger control to its portfolio. And, it was a system of prior merger control, because, according to the Regulation’s architects, it was devilishly complex to unpick deals that had already been concluded. In fact, in the first version of the Regulation, mergers had to be notified not more than one week after the conclusion of the agreement or the announcement of the public bid.3 Had we known the consequences, I believe we would have thought twice. It was like releasing a pair of rats on a desert island. The inevitable happened. They started breeding. Everyone got in on the act. Today, within the 31 Member States of the EEA, only Liechtenstein and Luxembourg currently lack national merger control regimes. Had it stopped there, the consequences would not have been so dramatic, due to the way in which the One-Stop Shop at EU level has evolved. But it did not. Like a flu pandemic, it spread across the globe. No self-respecting authority was complete without a system of merger control. And of course, they would invariably take the European model (mainly because the US system is unfathomable) and tweak it. The result is, quite frankly, a mess, with approximately 120 merger control

1 See para 4 of the Guidelines on Merger Control, http://www.autoritedelaconcurrence.fr/doc/ld_concentrations_juill13. pdf: ‘Le contrôle des concentrations a été créé en France par la loi du 19 juillet 1977. Son fonctionnement a été amélioré, successivement, par l’ordonnance du 1er décembre 1986 relative à la liberté des prix et de la concurrence, par la loi du 15 mai 2001 relative aux nouvelles régulations économiques, et par la loi du 4 août 2008 de modernisation de l’économie.’ 2 Council Reg. (EEC) No. 4064/89 of 21 December 1989 on the control of concentrations between undertakings, OJ L 395/1, 30.12.1989 and subsequent amendments. 3 See article 4(1) of Council Reg. (EEC) No 4064/89, available here http://eur-lex.europa.eu/LexUriServ/ LexUriServ. do? uri=CELEX:31989R4064:EN:HTML

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regimes, many of which with abstruse rules and procedures (here, we are not just talking about outliers such as Ukraine, but the EU itself, which has to rank amongst the most absurd with its approach to joint ventures). It just has to stop. III. First level of complexity: identification of filing obligations In today’s economy, multinational corporations that carry on their business on a global scale are more and more frequently the norm. Companies interested in merging with or in acquiring controlling participation in other undertakings must take into account the global implications of their business choices and strategies. It is not uncommon for even relatively small transactions to give rise to merger reviews in several jurisdictions. While years ago, obtaining regulatory approval was considered one of the various steps leading towards closing of the deal, today, seeking regulatory approvals from competition authorities around the world has become one of the main priorities for companies, especially considering the challenging level of coordination needed for a successful global transaction. One of the first things to do on any transaction is to identify the ‘filing pattern’, because this has an impact on the timing and, often, the attractiveness of a particular deal. Here, the world has been turned on its head and the regulatory process starts to drive the deal. This is utterly wrong. In fact, considering the recent trend towards the multiplication of merger control regimes, cross-border mergers and acquisitions need approval from an increasing number of competition agencies. While in the 1990s only fewer than a dozen jurisdictions engaged in merger review, the number of jurisdictions with a complete merger system has increased from approximately 60 in 2000 to more than 90 ten years later.4 Today, a rough estimate suggests that more than 120 jurisdictions have a merger control regime in place.5 Furthermore, not only there are newly-introduced merger control systems,6 but the pre-existing ones are constantly being reformed, updated and ‘improved’.7 Therefore, it is extremely important to identify as early as possible where a transaction warrants notifications, as regulatory approvals are generally pre-conditions to closing.8 To this end, the companies’ counsels have to engage in complex multi-jurisdictional

4 M. Coppola, ICN Best Practice: Soft Law, Concrete Results, CPI Antitrust Chronicle July 2011 (1). 5 See the ICC Comments on the EU White Paper on Merger Control, available at http://ec.europa.eu/competition/ consultations/2014_merger_control/icc_en.pdf, in which it is noted that ‘The International Competition Network (ICN) counted 126 member competition authorities in the summer of 2013’. 6 Notably, among the most recent jurisdictions to have introduced a merger control regime are Costa Rica (2013) and the Common Market for Eastern and Southern Africa (COMESA, 2013). 7 Recent reforms regarded, for instance, merger control systems in Italy, Norway and Brazil in 2013 and in Poland, China and India in 2014. 8 While there are various examples of voluntary merger control regimes (for instance, the UK and Australia), the vast majority of the merger control systems are mandatory and suspensory.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 293 Has merger control spun out of control? The effects of a quarter of a century of EU merger control analysis at a very early stage of the transaction. While this might be regarded as a fairly mechanical operation, an accurate multi-jurisdictional analysis exposes various pitfalls which could result in costly outcomes both for the companies and for the assisting law firms.9 First, due to the fragmentation of the regulatory framework,10 lawyers are required to have a thorough knowledge of compliance with several complex filing rules across all countries.11 Second, lawyers must comply with an array of forms and formalities in accordance with various national requirements.12 For instance, in Ukraine there is a peculiar procedure used to bind documents to be submitted to the authorities. The procedure involves punching two holes along the left margin of the document, passing a ribbon through such holes, securing the ribbon, gluing the ends of the ribbon to the back of the document and covering them with a square piece of paper. The company (or notary) stamp or seal is placed on the back of each document, partially covering the square piece of paper. Ukrainian authorities generally reject any document which is not properly bound. Third, given the diversity of the review and waiting periods of the various regimes, lawyers are also required to plan well in advance and coordinate the various filings.13 In addition, multi-jurisdictional analyses can be particularly time-consuming and might entail a certain degree of uncertainty.14 Filing requirements and thresholds triggering the obligation to notify may sometimes be vague, unsure under national legislation or difficult to interpret.15 While lawyers are generally very familiar with revenue-based thresholds, they might not be fully acquainted with other triggering criteria.16 Notably,

9 Many merger control regimes foresee heavy fines on companies which fail to notify their transactions in the relevant jurisdiction (for instance, USA, Europe, and Japan). Under these circumstances, assisting law firms have liability and reputational costs to take into account. 10 While the EUMR created a first supra-national one-stop shop regime in Europe, it must not be forgotten that Europe presents a quite fragmented situation as it counts 27 jurisdictions, each having a diverse merger control regime. 11 ICN Advisory Committee Final Report to the Attorney General Janet Reno and Assistant Attorney General for Antitrust Joel I. Klein, 28 February 2000 (Chapter 3, ‘Multijurisdictional Mergers: Rationalising the Merger Review Process Through Targeted Reform’), available at http://www.justice.gov/atr/icpac/finalreport.html. 12 Very specific procedures required under national law in order to comply with filing obligations may significantly increase the level of complexity. For instance, in Ukraine there is a peculiar procedure used to bind documents to be submitted to the authorities. The procedure involves punching two holes along the left margin of the document, passing a ribbon through such holes, securing the ribbon, gluing the ends of the ribbon to the back of the document and covering them with a square piece of paper. The company (or notary) stamp or seal is placed on the back of each document, partially covering the square piece of paper. Ukrainian authorities generally reject any document which is not properly bound. 13 Please refer to para. 4 below. 14 Many companies have marketed automated systems capable of generating multi-jurisdictional analysis in record time. However, the reliability of these systems and related databases is questionable in light of the peculiarities involved in each transaction. 15 Seeking advice from local counsel may sometimes be helpful in this respect. 16 It must be observed that even behind apparently clear rules concerning revenue thresholds, there might be a level of uncertainty related, for instance, to the correct year of (audited) revenues or to the appropriate group of undertakings concerned whose turnover must be taken into account for the purposes of the calculation (for instance, in some jurisdictions, the seller’s turnover has to be computed).

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certain jurisdictions foresee notification thresholds based on assets or market share tests.17 Furthermore, mergers are almost always time-sensitive, and it is not unusual for M&A lawyers to work under pressure. Similar complex multi-jurisdictional analyses may be required overnight, as companies might have to take strategic business decisions in hours. Indeed, delays may prove fatal for the transaction, as parties may lose the savings, synergies and efficiencies that motivated the transaction in the first place. Ultimately, the assessment that merger lawyers are required to perform, often under considerable time constraints, already demands a careful examination of the potential impact that the merger control requirements will have on the particular transaction. IV. Second level of complexity: information and evidence gathering exercise The second aspect which has contributed to intensify the level of complexity of the current merger control system is related to the scope, the amount and the level of detail of the information required by competition authorities throughout the entire merger review, i.e.,before, in the context of, and after a formal filing. The information and evidence gathering can be particularly cumbersome in certain jurisdictions.18 For example, over the years, preparing for a filing in Europe has become an increasingly challenging requirement of the merger practice as well as an extremely burdensome exercise for both the parties and their lawyers. The excessiveness of the efforts required is most (although not exclusively) apparent in complex cases involving an in-depth review from the Commission. Over time, the degree of sophistication in the Commission’s analysis has increased. Lately, decisions are centered on market facts and focus on the economics of the transaction. It is worth a brief pause to focus on the main reason for an evolution in this direction. The Commission is under the duty to take reasoned decisions which ultimately prohibit or allow the merger depending on whether or not the transaction significantly impedes effective competition on the geographic and product markets considered. Yet, any merger analysis carried out by the Commission entails a forward- looking analysis which, by its very nature, speculates on the foreseeable market situation on the basis of the current available evidence. It is therefore clear that with the view of limiting appeals against its decisions as much as possible, the Commission must

17 Indeed, these are far from being unusual criteria. For instance, jurisdictions such as Armenia, Azerbaijan, or Poland use asset-based thresholds, whereas jurisdictions such as Spain, Portugal or Brazil use a market share test. Market share tests can be highly imprecise and may impose uncertainty and unnecessary burdens upon the merging parties. Drawbacks of using market share tests arise from the inherent subjectivity of market share calculations as well as the frequent lack of reliable data available to the merging parties concerning the size of the relevant market. 18 For the avoidance of doubt, the Author will focus the attention on the European landscape, drawing, where appropriate, the necessary comparison with the US merger control system.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 295 Has merger control spun out of control? The effects of a quarter of a century of EU merger control thoroughly reason its decisions by providing reliable evidence substantiating the envisioned market developments. The question can be raised as to whether the costs of such duty to reason should be borne by the parties and their lawyers or, rather, to which extent the parties should cooperate in proving the Commission’s case, often respecting short deadlines dictated by the tight timeframe in which the Commission has to adopt a decision. After all, the burden of proof in merger cases rests upon the Commission.19 Surely parties have an interest in bringing forward convincing arguments and evidence to ultimately see their transaction cleared by the Commission. However, merger proceedings should also involve a careful balance of interests. Legal certainty is a priority; nonetheless, motivated and timely decisions should not be adopted at the expense of proportionality and streamlined procedure. The argument in favour of a detailed decision is that it provides legal certainty. But this is untrue. The Commission is not bound by past decisions and quite easily walks away from past precedents when it suits them.20 In fact, I would argue that some of the decisions can be misleading and you rely on them at your peril. In Europe, there are several demanding steps in the preparation of a filing. They affect each of the phases of the merger investigation and proceedings: the pre-notification phase, the phase in which parties have to prepare the prescribed forms to notify their transaction, and the post-notification stage.

1. Pre-notification Pre-notification contacts, in which the notifying parties and the Commission engage prior to a formal filing, are a well-known practice explicitly recommended by the European Commission.21 The purpose of these contacts is to allow better preparation for the upcoming investigation and to ensure that notification Forms are complete, so that declarations of incompleteness are avoided as far as possible. The parties discuss jurisdictional and other legal issues with the Commission, as well as the scope of the information to be submitted in the relevant Forms. While the length of pre-notification discussions typically varies depending on the complexity of the case, the Commission encourages the parties to initiate contacts at least two weeks before the expected date of notification.22 In practice, pre-notification contacts often extend to several months, especially for more complex cases.

19 Judgment of 21 September 2005, EDP v Commission, T-87/05, ECR, EU:T:2005:333, para 61, in which the Court established that ‘it is for the Commission to demonstrate that a concentration cannot be declared compatible with the common market’. See also Judgment of 6 June 2009, Airtours plc v Commission, T-342/99, ECR, EU:T:2002:146. 20 Case COMP/M.2337 – Nestle/Ralston Purina, para 21, available at http://ec.europa.eu/competition/mergers/cases/ decisions/m2337_en.pdf – ‘While it is true that the Commission in two previous decisions has indicated that the relevant geographic market for industrial pet food is EEA-wide, a closer examination of the market condition that has been conducted in this case has revealed that the markets remain national in scope.’ 21 DG Competition Best Practices on the conduct of EC merger control proceedings, January 2004, para. 7. 22 DG Competition Best Practices on the conduct of EC merger control proceedings, January 2004, para. 10.

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During this timeframe, the notifying parties should provide the Commission with a substantially complete draft of the relevant Form before filing a formal notification. It is quite common for the parties to receive Requests for Information (‘RFIs’) already at this stage of the procedure.23 The Commission may send questionnaires to the parties addressing issues linked to market definition, market data or other methodological issues regarding data and information gathering in the relevant economic sector. While at this stage parties do not have formal deadlines to provide the Commission with their responses, they might already be requested to provide very specific and detailed information in relation to product markets which may appear as prima facie problematic. In pre-notification, parties aim at obtaining the Commission’s ‘green light’ for filing as early as possible, in order to reduce the overall length of the competition-related aspects linked to the transaction. To this end, parties provide the Commission with one or more versions of the Form prescribed for the specific transaction: depending on the type of concentration to be notified, parties will have to opt either for the Form CO or for the Short Form CO.24

2. Filing The preparation of a Short Form CO and, to an even greater extent, of a complete Form CO, is an extensive, highly demanding, time-consuming and onerous task. In recent years, Form COs have required the combined drafting efforts of large teams of lawyers and economists and it is not uncommon for such documents to exceed hundreds of pages—annexes excluded. The Form CO requires a variety of information linked to the transaction. This includes a description of the concentration; a description of the parties involved and of their business activities; details concerning the structure of ownership and control of the undertakings before and after completion of the concentration; latest turnover information; supporting documentation; relevant product and geographic market definitions; detailed market information (covering various years) for all affected and plausible markets; additional market information for all affected and plausible markets regarding the structure of supply and demand, closeness of competition, market exit and entry, R&D, cooperative agreements, trade and imports, trade associations, and contact details; efficiencies and cooperative effects in the case of a joint venture.25 The Commission requires the submission of an extensive amount of information and, in specific cases,

23 Article 11 of the EUMR. 24 Annexes 1 and 2 respectively of Commission Regulation (EC) No. 802/2003 of 21 April 2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, OJ L 133, 30.4.2004, p.1 as recently amended by Commission Implementing Regulation (EU) No 1269/2013 of 5 December 2013, OJ L 336, 14.12.2013, p. 1 (the ‘Implementing Regulation’). Certain types of concentrations may be handled by the Commission under a simplified procedure. For this procedure, EU Competition Law rules establish the use of a simplified version of the traditional Form CO which is used to notify to the Commission transactions with an EU dimension triggering the EU thresholds. The simplified version of the Form CO goes under the name of Short Form CO. 25 Sections 1-10 Form CO, Annex I of the Implementing Regulation.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 297 Has merger control spun out of control? The effects of a quarter of a century of EU merger control also prescribes the adoption of particular templates for the parties.26 This information is required in Phase I reviews and even for transactions which pose few or no competition issues. Given that, often, large transactions, especially in particular market industries, entail the identification of several hundred affected markets, it is already clear that the amount and level of detail of the information required is considerable. The Merger Simplification Package has widened the scope of the simplified procedure by increasing the market share thresholds for affected markets to 20% for horizontal overlaps and to 30% for vertical relationships.27 In this way, it has reduced the number of affected markets requiring a complete analysis under the Form CO. The Commission estimated that the changes brought about by the Simplification Package would result in about 60-70% of all notified transactions qualifying for the simplified procedure, an increase of around 10% compared to the pre-2014 position. After the first year from the latest reform, the increase in the number of the cases handled under the simplified procedure has exceeded 10% (67.7% of all notified cases were dealt with under the simplified procedure in 2014 against 59.9% in 2013). On the other hand, however, the Merger Simplification Package has not alleviated the amount of information which is required for a complete Form CO. Two elements have considerably raised the bar in terms of information gathering: the supporting documentation under section 5.4 of the Form CO and the need to provide detailed market information regarding all plausible markets under sections 6 to 8 of the Form CO. As regards the aspect related to internal documents, it must be considered that the former version of the Form CO already demanded that the parties produce a quite extensive list of internal documents.28 Following the recent Merger Simplification Package reform, the scope of the so-called ‘5.4 documents’ has grown even further. Today, parties need to include in their production any documents merely ‘received by’ any members of the companies’ board, as well as documents relating to the conditions of competition on any affected markets generally, regardless of whether the documents are connected with the transaction. Surely, these additional elements have not reduced the burden on the companies, nor on their lawyers. Indeed, it is an extremely time- consuming and onerous exercise for companies to retrieve and provide all of their relevant reports, presentations, analyses, minutes, studies and surveys. Documents might not be well organized, classified or stored in the companies’ databases and might

26 See http://ec.europa.eu/competition/mergers/legislation/regulations.html#impl_reg where the Commission provides, for instance, the relevant models and templates (sometimes coupled with a set of detailed instructions) for power of attorney, turnover data, and contact details. 27 The Merger Simplification Package, which entered into force on 1 January 2014, included a revised version of the Implementing Regulation, including of the annexed Form CO, Short Form CO and Form RS; a revised version of the Commission’s Notice on the Simplified Procedure; and a revised version of the ‘model texts’ relating to divestment remedies. 28 The supporting documentation requested under the old version of section 5.4 of the Form CO included ‘copies of all analyses, reports, studies, surveys and any comparable documents prepared by or for any member(s) of the board of directors, or the supervisory board, or the other person(s) exercising similar functions (or to whom such functions have been delegated or entrusted), or the shareholders’ meeting, for the purpose of assessing or analyzing the concentration with respect to market shares, competitive conditions, competitors (actual and potential), the rationale of the concentration, potential for sales growth or expansion into other product or geographic markets, and/or general market conditions’.

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have been originated over time across various departments of the same company. Further, it is certainly not an easy job for the parties’ lawyers to review, analyze, classify, organize, index and prepare for production all sets of available documents. In large transactions, the amount of relevant documents will easily reach several hundred thousand and require the efforts and coordination of teams composed of hundreds of lawyers. The order of magnitude increases exponentially whenever the Commission requires parties to provide the same categories of documents across several years. The new Form CO prescribes that relevant market data and information has to be provided in relation to all affected markets, including all plausible affected alternative product and geographic markets.29 The parties’ obligation also to describe and provide relevant market information for all plausible markets has significantly increased the drafting work. In addition, certain extremely burdensome tasks, such as, for instance, the collection of contact details of the parties’ competitors, of each of the parties’ customers in each of the affected markets, of recent and potential entrants, of suppliers, and of trade associations, have not been alleviated by the reform. Therefore, in order to avoid seeing their Form CO declared incomplete, the parties have to meticulously fill in the Commis- sion’s contact details template, ensuring the correct identification of the relevant Company’s name, address, legal counsel or head of legal department, his or her personal email, phone number and fax. No deviation from the template is permitted and parties cannot adapt it to overcome the obsolescence of certain entries (for instance, fax numbers are rarely used nowadays). This process is very time-consuming as it entails extended research and multiple phone calls and exchanges of emails for the correct identification of the required information. In practice, this means that a complete template can be considered ‘ready’ only after several weeks of work. Furthermore, in the context of targeted RFIs, the Commission may request additional or a greater number of contact details per category, or may ask to classify the information already submitted per product category, while imposing on the parties short deadlines to achieve the final result. Therefore, considering the sizable amount of product and geographic markets often present in large transactions, parties are faced with an arduous task. Thus, it is fair to question whether the Commission truly needs such a large amount of information. Also, in light of a more streamlined approach, it would seem appropriate for the Commission to find possible avenues to ‘recycle’ the vast majority of the information provided by parties in the context of different cases involving the same industry. Admittedly, it is true that the Commission has identified certain categories of information for which parties may already advance their request for waivers in the

29 Section 6 of the revised Form CO establishes that ‘plausible alternative product and geographic market definitions can be identified on the basis of previous Commission’s decisions and judgements of the Union Courts and (in particular where there are no Commission or Court precedents) by reference to industry reports, market studies and the notifying parties’ internal documents.’

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 299 Has merger control spun out of control? The effects of a quarter of a century of EU merger control pre-notification phase.30 However, it is not unlikely that the Commission will nonetheless reserve the right to demand such information at a later stage.31 The trend in Europe is dangerously moving towards formalism and over-complication. The amount of data, documents and information described above is required in order to comply with the very first stage of the competition analysis involved in the merger review, i.e.,Phase I. This is in contrast with many systems in which the formal filing does not entail a burdensome exercise. Significant in this regard is the US example, as the Hart Scott Rodino (‘HSR’) system avoids placing undue burdens on merging parties in the initial filing stage; however, it is considered by far the most demanding system in the second stage review process with respect to the information and documents that parties are required to provide.

3. Post-notification Typically, shortly after the filing of a complete Form CO, the case team will examine the documentation provided by the parties and will start to require additional or more specific information which will be used for the purposes of the assessment of whether the transaction significantly impedes effective competition on the market. The Commission will prepare more detailed RFIs addressing the relevant methodological and economic aspects related to the specific transaction and focusing on the substantive issues related to the most problematic markets, eventually requesting further internal documents. In addition, it will gather additional information through a market investigation by sending questionnaires to competitors and customers. On the basis of all these elements, the Commission will gain insight on the market and will form its view on whether the transaction raises serious doubts as to its compatibility with the common market. Should the Commission have concerns, it will open an in-depth investigation, i.e.,proceedings will move to Phase II. Unlike in Phase I, where the Commission has to adopt a decision in a rather short amount of time,32 Phase II is a lengthier investigation phase. In addition, especially towards the end of this Phase, the Commission may decide to ‘stop the clock’ in order to gain additional time for the assessment concerning the remedy package,33 with considerable risks for the overall transaction timetable. In Phase II, lawyers and economists will continue to receive detailed RFIs. While economists will discuss the possibility of providing one type of economic data rather than another one with the economists in the case team, lawyers will mainly be occupied in finding convincing and robust arguments to rebut the Commission’s theory of harm

30 See Annex I of the Implementing Regulation, Form CO, Introductory part, point 1.4(g). 31 See Annex I of the Implementing Regulation, Form CO, Introductory part, point 1.4(g). 32 In Phase I, the Commission has to adopt a decision under article 6 of the EUMR within 25 working days from receipt of a complete notification. This period can be extended to 35 working days if parties offer remedies or in case of a referral request. 33 See this practice in recent cases: Case COMP/M.7265 Zimmer/Biomet; Case COMP/M.7018 Telefonica Deutschland/E-Plus; Case COMP/M.6992, Hutchison 3G UK/Telefonica Ireland.

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and preliminary assessment contained in the article 6(1)(c) decision and, eventually, at a later stage, in the Statement of Objections. Once again, lawyers will have to review internal documents, emails and reports to further substantiate their arguments, while gaining insight into competitors’ and other market players’ views of the proposed transaction.34 In addition, the Commission may deem necessary various site visits at the companies’ manufacturing premises, or interviews with key employees of the parties. The state of play meetings with the Commission will give the parties and the case team a chance to narrow down the relevant substantive issues and to initiate discussions regarding remedies. The volume of data, documents and information required by the case team in Phase II is comparable to, if not significantly larger than, the volume of data, documents and information required before the filing and during Phase I. Thus, while Europe’s Phase II proceedings have not reached the degree of administrative burden proper of the HSR second requests, the system is increasingly moving towards greater levels of formalism and over-complication. Second requests under the US merger control system are drafted to ensure the authorities’ access to a wide array of potentially relevant information. In practice, the authorities frequently seek far more information and documents than they reasonably need. This is due to the fact that in the US, unlike in Europe, the authorities do not have the power to block a merger themselves; on the contrary, they have to challenge the proposed transaction and litigate the case before a federal court.35 As a consequence, parties are bound to provide the authorities with hundreds of boxes of documents, multiple gigabytes of computerized data, and extensive answers to dozens of interro- gatory questions. A few famous multi-jurisdictional cases may serve as an example to appreciate the different levels of magnitude of document production needed to comply with the filing requirements under various merger regimes. In the Halliburton/Dresser transaction, the parties submitted 670 boxes of documents to the US Justice Department, 4 to the Mexican authorities, and only 2 to the European Commission. In the Boeing/McDonnell Douglas transaction, the parties produced 5,000 boxes of documents containing 5 million pages. The FTC also conducted extensive depositions. By contrast, in Europe, only a few thousand documents were gathered by the Commission and there were no interviews.36 While, as a practical matter, only a few companies can fully comply with second requests, parties may still have undertaken a full document research, so as to comply with the authorities’ request in the event that settlement negotiations turn out to be

34 Following the Statement of Objections, the parties are granted access to the Commission’s file. See article 17 of the Implementing Regulation. 35 ICN Advisory Committee Final Report to the Attorney General Janet Reno and Assistant Attorney General for Antitrust Joel I. Klein, 28 February 2000 (Chapter 3, ‘Multijurisdictional Mergers: Rationalising the Merger Review Process Through Targeted Reform’), p. 122. 36 Ibid., pp. 138-39.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 301 Has merger control spun out of control? The effects of a quarter of a century of EU merger control unsuccessful. Another relevant issue is the fact that second requests in the United States call for English translations of all responsive documents,37 whereas, in Europe, responsive documents may be submitted in their original language as the Commission’s officials are proficient in the relevant EU languages. Undeniably, this contributes to a saving of time and money. V. Third level of complexity: coordination and coherence of parallel merger proceedings The final aspect which has added complexity to multi-jurisdictional filings is the need to ensure coordination and coherence of the various proceedings before different competition authorities. Indeed, considering the difference in review time-phases foreseen under the various merger requirements, merger control proceedings may be started concurrently or consecutively, may proceed in parallel in some countries or be accelerated or stopped for undefined periods of time in others. It is therefore quite common that clearance decisions will be adopted more rapidly in some countries than in others. Given the uncertainty linked to the date of the adoption of clearance decisions, merger lawyers should keep these considerations in mind while drafting sale and purchase agreements (‘SPAs’) and other relevant contractual documents in order to avoid the risk of closing deadlines which realistically cannot be met. It is therefore crucial to ensure a good level of coordination and dialogue between merger and competition lawyers. Similarly, it is equally important to make sure that the various filings are substantially coherent.38 While this might prove a challenging exercise, it is another aspect that has to be carefully taken into account in view of a successful deal. Over the years, in fact, there has been a greater level of cooperation both in Europe, between various NCAs, and transnationally.39 This is motivated by the fact that, exactly as in Court proceedings, in merger proceedings there is a need to ensure consistent decisions while avoiding conflicting outcomes.

37 Ibid., p. 142. The Report estimates that ‘At an average cost of $40 a page word for word (one box is roughly 2000 pages, thus $80,000) or $10 a page for a summary ($20,000 a box), translation requirements can impose a significant cost on parties with multinational operations’. Due to the high costs involved, the FTC has developed a practice whereby parties are required to provide summaries of the documents and, at a later stage, are required to produce full translations of only those documents particularly relevant to the inquiry. 38 Coherence should also be ensured when proposing a remedy package: parties should consider proposing commitments that address concerns across the various jurisdictions. 39 See, in this sense, the role played by the European Competition Network (‘ECN’) and by the International Compe- tition Network (‘ICN’). More information is available on the ECN’s and ICN’s webpages, available respectively at http://ec.europa.eu/competition/ecn/mergers.html and at http://www.internationalcompetitionnetwork.org/.

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VI. Practical implications The consequences of the trend towards complexity and formalism are significant costs and the associated risks. The obligation to notify a deal has always imposed a certain degree of costs, both in terms of money and resources on the one hand, and of time on the other hand. However, lately, the complexities of the system as described above have accentuated the issue. Although no comprehensible data are available that quantify the overall public and private costs imposed by compliance with multi-jurisdictional merger notification and review requirements, it has been suggested that these costs are nonetheless sizable.40 Among the costs associated with multi-jurisdictional merger review, some are considered most burdensome: (i) the costs associated with ascertaining notification and filing requirements, (ii) the costs associated with complying with notification requirements for transactions that lack an appreciable nexus to the notified jurisdiction, (iii) the costs associated with complying with unduly burdensome filing requirements, and (iv) the costs associated with unnecessary delays and differentiated timing in the merger review process.41 A research survey conducted few years ago on over 60 international M&A deals confirmed that, with the growth of cross-border merger activity and the proliferation of merger control regimes, multi-jurisdictional merger review costs were escalating.42 The survey identified three general areas at the origins of the burdens linked to multi- jurisdictional filings.43 These are the duration of the review, the external direct costs and the internal indirect costs. While it is not surprising that the average duration of review for transactions was found to be of approximately seven months, the most interesting results of the survey were linked to the direct and indirect costs of the transaction. Direct costs include attorneys’ fees, filing fees and document production costs. In addition, local counsel advice is often sought in a multiplicity of jurisdictions to obtain guidance on whether the proposed transaction is subject to notification requirements, a task complicated by the fact that, in many jurisdictions, few attorneys may be experienced in competition law. Direct

40 ICN Advisory Committee Final Report to the Attorney General Janet Reno and Assistant Attorney General for Antitrust Joel I. Klein, 28 February 2000 (Chapter 3, ‘Multijurisdictional Mergers: Rationalising the Merger Review Process Through Targeted Reform’), p. 91. 41 ICN Report on the Costs and Burdens of Multijurisdictional Merger Review, prepared by Merger Working Group, Notification and Procedures Subgroup (November 2004), available at http://www.internationalcompetitionnetwork. org/uploads/library/doc332.pdf. 42 PWC Report: A Tax on Mergers? Surveying the time and costs to business of multi-jurisdictional merger reviews, commissioned by the International Bar Association and the American Bar Association to measure the costs to business of multi-jurisdictional merger reviews, produced by PricewaterhouseCoopers (June 2003), available at http://www.globalcompetitionforum.org/PWC_Merger_Cost_Study_Report_Final_2003_Jun.pdf. 43 ICN Report on the Costs and Burdens of Multijurisdictional Merger Review, prepared by Merger Working Group, Notification and Procedures Subgroup (November 2004), available at http://www.internationalcompetitionnetwork. org/uploads/library/doc332.pdf. The Report recalls the three areas identified in the PWC Report.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 303 Has merger control spun out of control? The effects of a quarter of a century of EU merger control costs may therefore also include advisory fees and translation costs.44 The survey revealed that the average external costs per transaction attributable to initial reviews were €3.28 million and the average cost per filing was estimated at approximately €540,000; the average external costs per transaction attributable to in-depth reviews were much higher and estimated at approximately €5.44 million.45 The survey calculated that the average external costs represented approximately 85% of the overall costs to businesses.46 Internal costs may be more difficult to quantify, and are related to in-house lawyers, management time and other company resources. Indeed, gathering information is a burdensome exercise not only for the parties’ legal representatives, but also for the parties themselves. Many jurisdictions require extensive information on market conditions, and on the parties’ customers, competitors and suppliers. Several of the competition authorities’ requests are dealt with by employees of the merging undertakings. By virtue of their specific know-how or their market-specific knowledge, senior employees (generally managers and executives) often have to devote a considerable amount of their time to coordinating the drafting of responses to the authorities’ questionnaires or to the preparation of various presentations and interviews, thus being distracted from the ordinary course of their business activities. The survey conducted on the 60 sample international transactions provided an idea of the costs to businesses of merger reviews in terms of person-week and concluded that, for initial reviews, average internal costs were approximately 28 person-weeks, while internal costs for in-depth investigations averaged 120 person-weeks.47 In addition to all of the costs involved in multi-jurisdictional transactions, the importance of a careful risk assessment conducted a priori should not be underestimated. Undeniably, the risks involved in the transaction are another important implication of multi-jurisdictional filings. In order to limit the uncertainties associated with filing requirements and approvals, the parties often evaluate the risks in advance and, through contractual agreements, make sure that the risks entailed by the transaction are mutually shared or accepted entirely by one of them, depending on the purchase price. Therefore, in the pre-transaction arrangements such as the SPA, it is sometimes possible to find ‘hell or high water clauses’. According to this type of clause, the buyer accepts all the risks and will provide for the payment irrespective of all the difficulties the parties might encounter in the course of the deal. Another common provision is the so-called

44 Some jurisdictions require full text translations of transaction documents (which can extend up to several hundred pages) as well as compliance with notarization and apostille obligations. 45 ICN Report on the Costs and Burdens of Multijurisdictional Merger Review, prepared by Merger Working Group, Notification and Procedures Subgroup (November 2004), p. 7. 46 ICN Report on the Costs and Burdens of Multijurisdictional Merger Review, prepared by Merger Working Group, Notification and Procedures Subgroup (November 2004), p. 7. The breakdown of component costs differed as well, depending on whether there was only an initial review (65% of the external costs were represented by legal fees, 19% by merger filing fees, 14% by other advisory fees and 1% by translation costs and other activities) or an in-depth review (54% of the external costs were attributable to legal fees, 23% to other advisory fees, 20% to filing fees and 3% to translation and other miscellaneous costs). 47 ICN Report on the Costs and Burdens of Multijurisdictional Merger Review, prepared by Merger Working Group, Notification and Procedures Subgroup (November 2004), p. 8.

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‘reverse break-up fee’ whereby the buyer agrees to provide the seller with a large payment that both provides the seller with recompense if the deal does not close and provides a strong incentive for the buyer to complete the deal. Given the above considerations, it is worth questioning the efficiency of the system of multi-jurisdictional notifications as a whole. In particular, in Europe, businesses, practitioners and in-house counsels have welcomed the recent declarations by Commis- sioner Vestager in relation to the Commission’s long-debated reform directed to increase the scrutiny on companies acquiring minority shares in other undertakings.48 The newly appointed Commissioner has shown consideration to the widespread concerns regarding the proportionality of the reform and demonstrated a willingness to take a more cautious approach, to ensure that any future changes are carefully designed and ensure the right balance.49 These declarations are clearly linked to the opportunity of the upcoming reform, and might indicate the new direction in which merger control should be heading. In this light, the Commissioner also questioned whether ‘the time was ripe for common merger control rules in the internal market’.50 If the aim of these rules is to contribute to the launch of a new, constructive dialogue on the possible ways to re-think the problematic areas of the EUMR, as well as to improve and alleviate the degree of burden upon the parties and their lawyers, I think times are mature. VII. Conclusion The merger control system has significantly evolved over the years. However, today, merger control involves certain levels of complexity which undermine the efficiency of the system as a whole. Notably, the multiplication of merger control regimes and the information gathering process are among the most burdensome steps for merging parties and their lawyers. In light of the increasing level of costs involved, I believe it is time for a new wave of structured reforms which may help contain the risk of an over-formalistic and inefficient approach to merger control review, while favouring the general convergence process.51 One major step forward would be to make merger filing voluntary. The UK and Australian authorities are no pussy cats when it comes to merger control. These are serious regimes. But the voluntary regimes, although largely viewed as anachronistic, are in fact enlightened. The UK recently reviewed its merger control regime and quite sensibly decided to retain the voluntary system. I

48 Commission’s White Paper, ‘Towards more effective EU merger control’, 9 July 2014, COM (2014) 449 final. 49 M. Vestager’s keynote speech, ‘Thoughts on merger reform and market definition’ at Studienvereinigung Kartellrecht- Brussels on 15 March 2015, available at http://ec.europa.eu/commission/2014-2019/vestager/announcements/ thoughts-merger-reform-and-market-definition_en. 50 Ibid. 51 The need for a greater level of convergence in competition, and in merger control specifically, is commonly perceived. See on the ICN’s webpage: ‘The ICN’s mission statement is to advocate the adoption of superior standards and procedures in competition policy around the world, formulate proposals for procedural and substantive convergence, and seek to facilitate effective international cooperation to the benefit of member agencies, consumers and economies worldwide.’ See also the recent speech of M. Vestager reported by MLex on 20 April 2015, in which the Commissioner refers to the Practical Guide on cooperation in mergers which will be presented at the ICN annual conference in Sydney later in 2015.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 305 Has merger control spun out of control? The effects of a quarter of a century of EU merger control applaud this decision. In the interim, authorities should consider reducing the information burden on those transactions that clearly have no impact on their markets. Block exemption regulations could achieve speedier outcomes, creating presumptions that could be relied upon by parties to move ahead quickly with a transaction where market shares are below certain thresholds. In a nutshell, today’s baby competition lawyers need to focus more on substantive issues and to spend less time on humdrum filings. This would be good for their professional development. It would also be good for the economy and society at large. Now is the time for such reform.

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306 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Relations between regulatory and competition law in the light of Lucentis/Avastin (Novartis/Roche) case law

Francesco Setti

I. Introduction The purpose of this paper is to analyse the relationship between the rules governing the marketing of proprietary medicinal products and competition legislation. The reflection arises from the Avastin/Lucentis case,1 the former drug produced by Roche and the latter by Novartis. The Italian and European regulatory authorities have pronounced on the matter, as well as the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato, hereinafter the ‘Authority’), on one hand, and the Italian Administrative Court, on the other; the case has even attracted considerable media coverage. In broad summary, Avastin, which is a biotechnological drug, has been registered in the European Union as a medicinal product intended for oncological use, but has been used in Italy ‘off-label’, i.e.,for therapeutic indications other than those for which it was authorised, and in particular for the same indications as Lucentis, an ophthalmic

1 Avastin® is a drug with bevacizumab as its active pharmaceutical ingredient, and is developed and patented by Genentech. Lucentis® is a drug based on ranimizumab, again developed and patented by Genentech, for the treatment of age-related macular degeneration (‘AMD’).

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 307 Relations between regulatory and competition law in the light of Lucentis/Avastin (Novartis/Roche) case law biotech drug.2 The Authority concluded that there was collusion between the two pharmaceutical companies in order to alter the competitive framework and to promote sales of the second product (much more expensive) at the expense of the first, to the significant detriment of the National Healthcare Service. Our investigation aims to establish whether it is true that regulatory issues are substantively irrelevant in the evaluation of conduct deemed harmful to free competition, as supported by the Authority and confirmed by the Italian administrative Court, and – if so – whether this view is correct in light of an analysis of the current legislation. In particular, consideration will be given to relations between the principle of the protection of health, which is set forth in Article 32 of the Italian republican Consti- tution3, in Articles 9 and 168 of the Treaty on the Functioning of the European Union (‘TFEU’)4 and in Article 35 of the Charter of Fundamental Rights of the European Union (‘Charter’)5, and the provisions on economic freedom and competition contained in Article 41 of the Italian republican Constitution, as well as in Articles 3 and 114 of the TFEU and in Article 16 of the Charter.6 In fact, these principles are then implemented in a number of provisions at both European and national level. For the present purposes, we shall be recalling Regulation No. 726/2004 of the European Parliament and of the Council of 31 March 2004 on the marketing of drugs for human use and which also regulates the tasks of the European

2 As hereinafter explained, the Italian regulatory authority allowed the off-label use provided that a drug was not available on-label.

3 Italian Constitutional Court, no. 282/2002, affirms that the State is not free to regulate the right to health according to assessments governed by political discretion, but must take account of guidelines based on the verification of up-to-date scientific knowledge through institutions and bodies created to this purpose, given the importance of such technical and scientific bodies.

4 Public health, first timidly governed by Art. 129 of the TEC as an autonomous policy, was strengthened by the Amsterdam Treaty (Art. 152 TEC), with the addition of specific policy areas (measures on substance abuse, safety of organs and human substances, veterinary and phytosanitary controls) and is now the subject of the provisions of Art. 168 of the TFEU. The provision in question enables the EU to protect health, an objective that, introduced by the Maastricht Treaty, has broadened and gained importance over time. This is also because of the ‘horizontal’ character of this sector with respect to the definition and implementation of the policies and activities of the European Union. Also relevant in this respect are provisions on: freedom of movement of goods (medicines and medical equipment are ‘goods’), freedom of movement for persons (doctors can be employed or self-employed and thus subject to the recognition of professional qualifications) and the freedom to provide services (health services provided for a consideration are ‘services’). The prominence that the Treaty, since its original formulation, has given the protection of health and human life is reflected in the wording of the existing exceptions to the principles of the internal market. This protection is in fact invoked as an exception in Art. 36 TFEU (movement of goods), and in Art. 45 TFEU (movement of persons), as well as in Arts. 52 and 62 TFEU (establishment and services).

5 Following the recognition of the binding effect of the Charter pursuant to Art. 6.1 TEU, the fundamental right to protection of health has been recognised in EU law for every human person with the dual meaning of access to preventive health care and the benefit of medical care provided by laws and practices of the Member States. However, Art. 35 of the Charter can be read in connection with Art. 3 of the Charter (Right to the integrity of the person): openness to scientific inventions of biotechnology must respect the precautionary principle, as established in EU case law (Order of 30 June 1999, Pfizer Animal Health v Council, T-13/99 R, EU:T:1999:130, § 417-419, as confirmed by judgment in Pfizer Animal Health v Council, C-329/99 P(R), EU:C:1999:572; and Judgment of 11 September 2002. Alpharma v Council, T-70/99, EU:T:2002:210, § 175 and 181). 6 The freedom to conduct business is not absolute, but is exercised in compliance with EU and national rights and can admit, pursuant to Art. 52.1 of the Charter, the restrictions necessary for the pursuit of the objectives of general interest, as long as they are provided by law and in compliance with the principle of proportionality (F. Pocar [coordinator], Trattati dell’Unione Europea, p. 1752). Moreover, the balance that the EU legislator must carry out (as well as the national legislators must, when applying EU law) involves a wide discretion, requiring choices of a political, economic and social nature, and only the evident unsuitability of a measure to its aim may invalidate it (Judgment in Germany v Parliament and Council, C-380/03, ECLI:EU:C:2006:772, § 145).

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Medicines Agency, (hereinafter the ‘EMA’), and the European Code of Medicines (Directive 2001/83/EC of 6 November 2001, as amended). These provisions are reflected in Legislative Decree of 24 April 2006, No. 219/2006 and in the Law Decree of 30 September 2003, No. 269/2003, then enacted in Law 24 November 2003, No. 326, establishing the Italian Medicines Agency – AIFA. With respect to Antitrust legislation, Article 101 TFEU is reflected, at a domestic level, in Article 2 of Law 10 October 1990, No. 287 (the so-called ‘Antitrust Law’), which essentially incorporates its content7. II. The case: the authority’s investigation and its conclusions In February 2013, the Authority took proceedings against the companies F. Hoffmann- La Roche Ltd., Novartis AG, Novartis Farma S.p.A. and Roche S.p.A. to ascertain whether these companies were colluding to restrict competition in relation to the marketing in Italy of the drugs Avastin and Lucentis. At the end of the investigation, the Authority8 concluded that widespread and continued collusion existed to obtain a ‘contrived differentiation between the drugs Avastin and Lucentis, by manipulating the perception of the risks of the use of Avastin in ophthalmology’. The objective of this scheme was the ‘unlawful maximisation of their revenues – revenues deriving to Novartis Group from direct sales of Lucentis as well as from the shareholding at 33% in Roche’s capital, and to Roche Group from the royalties obtained on such revenues by its subsidiary Genentech – and a direct impact on the equilibrium of health care spending, both public and private’, the said conduct constituting, pursuant to letter c) of Article 101 TFEU, an unauthorised market sharing operation.9 In particular, the two products were differentiated by ‘emphasizing the safety profiles for the intravitreal use of Avastin (off-label) through the production and dissemination of information aimed at influencing the choices of physicians responsible for therapeutic decisions and the choice of the relevant drugs.’ This practice also extended to responses

7 In recent years, the priorities of EU competition policies have been rethought, as well as the implementation of the antitrust law, initially focused on the goal of market integration. It was characterised by the formalistic application of the prohibitions contained in Arts. 101 and 102 TFEU, oriented towards an economic analysis driven by the goal of protecting competition as a means to stimulate economic growth and improve the welfare of consumers (COM(04)293 def. dated 20 April 2004). Although the elimination of obstacles to the internal market remains a key objective (Judgment in GlaxoSmithKline Services and Others v Commission and Others, C-501, 513, 515 and 519/06, EU:C:2009:610, §61), the change in perspective has led the Commission to focus, in the application of antitrust rules, on the repression of practices deemed particularly harmful to consumer welfare. Taking up this approach, the ECJ stressed that ‘the function of those rules is precisely to prevent competition from being distorted to the detriment of the public interest, individual undertakings and consumers, thereby ensuring the well-being of the European Union’ (Judgment in Konkurrensverket v TeliaSonera Sverige AB, C-52/09, EU:C:2011:83, §22). 8 Decision I-760, dated 27 February 2014. 9 The Authority concluded that ‘at least as of June 2011’, F.Hoffmann-La Roche Ltd. and Novartis AG, through its subsidiaries Roche Italy and Novartis Farma S.p.A., engaged – ‘through direct meetings and exchanges of emails’ – in ‘widespread and continuous’ collusion, which is contrary to Art. 101, lett. c), TFEU.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 309 Relations between regulatory and competition law in the light of Lucentis/Avastin (Novartis/Roche) case law to a variety of actors (the press, stakeholders in the sector, even legislators, when an attempt was made to introduce legislation to support the ophthalmic use of Avastin). According to the Authority, all this must be evaluated within a context ‘such as the pharmaceutical sector, which is characterised by a marked imbalance in information between producers and consumers and which takes advantage of the highly technical and regulatory complexity of the sector for its own purposes’. The cartel ‘aimed to reduce demand, and therefore the quantities sold, of a less expensive product (Avastin) in favour of the more expensive competing product (Lucentis) by unduly influencing the individuals responsible for treatment decisions’. This strategy was followed ‘despite the fact that companies were aware of the scarcity and questionable nature of data on adverse events of the off-label use of Avastin’. According to the Authority, ‘faced with two drugs equivalent in every ophthalmologic respect (our emphasis), the two companies deceitfully differentiated products, belittling the contrary scientific knowledge, in order to promote the more expensive product (Lucentis initially costing €1,100 per injection, falling to €902 in November 2012), the sales of which produced profits for both companies, and to prevent or limit the use of the less expensive treatment (Avastin, costing €81,64 per injection)’. Thus the agreement facilitated ‘the maximisation of the profits of all firms, because of the complex business relationship between the Roche and Novartis groups’. On 27 February 2014, the Authority adopted a decision in which it: 1) ascertained that the companies F. Hoffmann-La Roche Ltd., Novartis AG, Novartis Farma S.p.A. and Roche S.p.A. implemented a horizontal cartel agreement restricting competition in violation of Article 101 TFEU; 2) instructed the companies to refrain in the future from engaging in any conduct analogous to that of the ascertained infringement; and 3) in view of the gravity and duration of the infringements, imposed material fines on the companies in question. III. The proceedings and the judgment of the administrative court According to the Administrative Regional Court,10 with which the pharmaceutical companies had filed a recourse to overturn the Authority’s decision, ‘following the examination of the evidence adduced by the Authority in its decision and then inferred in court, it emerges that the contested decision is based on objective documentary evidence attesting to repeated contacts between competitors for the purposes of defining a common strategy to prevent the spread of the ophthalmic use of Avastin, and the repeated pursuit of this strategy in places and in contexts in which it was possible to generate the idea that Avastin was a more dangerous drug than Lucentis, as it has no

10 Judgment 2 December 2014, No. 12168/2014 of Regional Administrative Court of Lazio, Sec. I, according to which the court that has jurisdiction over the case.

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marketing authorization for ophthalmic use. It is therefore clear that the Authority had conducted a proper investigation, which led to the discovery of substantial and unequivocal circumstantial evidence of the existence of restrictive practices, wilfully and systematically adopted and implemented by the top management of the applicant companies to gain an undue advantage from the differentiation of the sales of the two drugs. Thus the Authority’s assessment of the severity of the relevant conduct in the contested decision is not unreasonable or questionable, as it is in accordance with the guidelines of the European Commission in the field of sanctions, which focus on an assessment of the severity of anti-competitive conduct (and not on the actual damage) within the parameters of the nature of the offence and its actual implementation’. The judgment limited itself to upholding the arguments of the Authority, and did not address the issue of the rules for the marketing of drugs, for off-label use and for pharmacovigilance. IV. The regulatory framework for drug marketing authorizations and pharmacovigilance It is firstly necessary to review the complex regulatory environment surrounding the matter in question. The regulation of pharmaceutical products for human use, with specific reference to European Union law, is contained in Directive No. 2001/83/EC of 6 November 2001 (hereinafter also simply the ‘Directive’) – which has been implemented in Italy by Legislative Decree 24 April 2006, No. 219 (the so-called ‘Pharmaceutical Code’) – and in Regulation No. 726/2004/EC of 31 March 2004 (hereinafter also simply the ‘Regulation’). As is known, a pharmaceutical product can be placed on the market only after a long scientific and administrative process, involving several stages of study and trials, before obtaining a marketing authorization (hereinafter, also referred to as ‘MA’), from the competent authorities (the Medicines Agencies). In the European Union there is a separation of powers between the European Medicines Agency and national authorities of the individual Member States. More precisely, if the marketing authorization is for a drug within the categories listed in the Annex to the Regulation – which includes, inter alia, biotechnology drugs such as Avastin and Lucentis – a centralised procedure must be followed, for which the EMA is exclusively competent, in order to obtain the MA at the European level. Thus, Article 3 of the Regulation provides that ‘No medicinal product appearing in the Annex may be placed on the market within the Community unless a marketing authorisation has been granted by the Community in accordance with the provisions of this Regulation’.

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This procedure consists of an assessment of the documentation submitted by the applicant company, the Marketing Authorization Holder (hereinafter also, simply, the ‘MAH’), together with the application for a marketing authorization – which is made by a special scientific committee – the Committee for Human Medicinal Products (hereinafter the ‘CHMP’) – and then forwarded to the European Commission, which, with its decision, issues an MA which is valid throughout EU territory. After the issue of the Marketing Authorization, the EMA, on the basis of the assessments made by the CHMP, may operate revisions to the MA of a drug authorized by a centralised procedure arising from changes in the risk/benefit profile or from requests from the MAH. However, when the marketing authorization relates to drugs other than those listed in the Annex to the Regulation, the national medicines agencies are responsible for granting the MA, each of them for their own territory.11 Simultaneously with the granting of the MA, whether it is issued following a centralised procedure or following a procedure at the national level, the competent drug agency approves a document on the therapeutic indications, the ways and means of administration of the drug: this document, called the Summary of Product Characteristics (hereinafter, the ‘SmPC’), is the fundamental guideline for the proper use of the product by medical and healthcare facilities ‘according to its label/registration’, i.e.,‘on-label’. Within the Italian territory, the authority responsible for granting the MA is the Italian Medicines Agency (hereinafter, ‘AIFA’)12, to which, pursuant to the provisions of Article 8, paragraph 1 of Legislative Decree No. 219/2006, the application for the marketing of the drug is to be submitted, except in the cases provided for in the Regulation. After the release of the MA, the competent authorities in the Member States – in Italy, the AIFA – are responsible for ensuring the safety of the marketed products. Such an activity, the pharmacovigilance, consists of the monitoring of supervision of marketed drugs in order to monitor the possible risks of the drugs to the patients’ health or, more generally, to public health. This is done by collecting on databases all reports of adverse reactions/serious adverse events related to a drug detected in medical practice or in the course of new research. According to current European legislation, the responsibility for pharmacovigilance lies with the EMA, with the authorities of the individual Member States, and with the MAH of the drug.

11 Art. 6, para. 1, of the Directive provides that ‘No medicinal product may be placed on the market of a Member State unless a marketing authorisation has been issued by the competent authorities of that Member State in accordance with this Directive or an authorisation has been granted in accordance with Regulation (EC) No. 726/2004, read in conjunction with Regulation (EC) No. 1901/2006 of the European Parliament and of the Council of 12 December 2006 on medicinal products for paediatric use and Regulation (EC) No. 1394/2007’.

12 AIFA was established by Art. 48, para. 2, of Law Decree of 30 September 2003, No. 269/2003, then enacted in Law 24 November 2003, No. 326.

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More specifically, Article 101 of the Directive states that: Member States shall operate a pharmacovigilance system for the fulfilment of their pharmacovigilance tasks and their participation in Union pharmacovigilance activities. The pharmacovigilance system shall be used to collect information on the risks of medicinal products as regards patients’ health or public health. That information shall in particular refer to adverse reactions in human beings, arising from use of the medicinal product within the terms of the marketing authorisation as well as from use outside the terms of the marketing authorisation, and to adverse reactions associated with occupational exposure (paragraph 1). Member States shall, by means of the pharmacovigilance system referred to in paragraph 1, evaluate all information scientifically, consider options for risk minimisation and prevention and take regulatory action concerning the marketing authorisation as necessary (paragraph 2). Each Member State shall designate a competent authority for the performance of pharmacovigilance tasks (paragraph 3). Paragraph 1 of the following Article 104 establishes that ‘The marketing authorisation holder shall operate a pharmacovigilance system for the fulfilment of its pharmacovigilance tasks equivalent to the relevant Member State’s pharmacovigilance system provided for under Article 101(1)’ and establishes a series of obligations on the holder in the following paragraphs. Similarly, Article 21 of the Regulation provides that ‘The obligations of marketing authorisation holders set forth in Article 104 of Directive 2001/83/EC shall apply to marketing authorisation holders for medicinal products for human use authorised in accordance with this Regulation’. Furthermore, the following Article 24 of the Regulation provides that: The Agency shall, in collaboration with the Member States and the Commission, set up and maintain a database and data processing network (hereinafter, the ‘Eudravigilance database’) to collate pharmacovigilance information regarding medicinal products authorised in the Union and to allow competent authorities to access that information simultaneously and to share it. The Eudravigilance database shall contain information on suspected adverse reactions in human beings arising from use of the medicinal product within the terms of the marketing authorisation as well as from uses outside the terms of the marketing authorisation, and on those occurring in the course of post-authorisation studies with the medicinal product or associated with occupational exposure. Furthermore, Article 28(e) of the Regulation provides that ‘The Agency and the Member States shall cooperate to continuously develop pharmacovigilance systems capable of achieving high standards of public health protection for all medicinal products, regardless of the routes of marketing authorisation, including the use of collaborative approaches, to maximise use of resources available within the Union.’

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In implementation of the aforementioned Community legislation, the National Legis- lator, by Article 129 of Legislative Decree No. 219/2006, established that ‘The national pharmacovigilance system is headed by AIFA,’ which operates in accordance with the procedures agreed at Community level and defined by the EMA, and the guidelines developed by the Commission pursuant to Article 106 of the Directive. V. Off-label use In some cases it is permissible to use a drug in a manner not indicated in the indications set out in the SmPC. Such use, commonly referred to as ‘off-label,’ may involve the use of the drug according to a different therapeutic indication or a different dosage or for a group of patients other than those for which the drug obtained its MA and which are indicated in the SmPC. At the European level, a general reference in the legislation on the legality of national provisions which permit the off-label use of a drug is Article 5 of the Directive, which in paragraph 1 states as follows: ‘A Member State may, in accordance with legislation in force and to fulfil special needs, exclude from the provisions of this Directive medicinal products supplied in response to a bona fide unsolicited order, formulated in accordance with the specifications of an authorised healthcare professional and for use by an individual patient under his direct personal responsibility’. It should be noted, in this respect, that the Court of Justice of the European Union has clarified that: It is apparent from the conditions as a whole set out in Article 5(1) of Directive 2001/83, read in the light of the fundamental objectives of that directive, and in particular the objective seeking to safeguard public health, that the derogation provided for in that provision can only concern situations in which the doctor considers that the state of health of his individual patients requires that a medicinal product be administered for which there is no authorised equivalent on the national market or which is unavailable on that market. Where medicinal products having the same active substances, the same dosage and the same form as those which the doctor providing treatment considers that he must prescribe to treat his patients are already authorised and available on the national market, there cannot in fact be a question of ‘special needs’, within the meaning of Article 5(1) of Directive 2001/83, necessitating a derogation from the requirement for a marketing authorisation under Article 6(1) of that directive.13 At the national level, the regulations for the prescription and use of off-label drugs applicable in individual Member States are characterised by unevenness: in some

13 Judgment in Commission v Poland, C-185/10, EU:C:2012:181, § 36-37.

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countries – such as Sweden14 – regulatory authorities are not favourable and tend to ban or discourage the use of drugs for purposes other than their therapeutic indications, in observance of the precautionary principle. In other countries, the rules governing the use of off-label drugs are more permissive, due mainly to economic considerations and the containment of public spending. The Italian legislator regulated the matter of off-label drugs firstly with Law Decree No. 536 of 21 October 1995 (converted into Law No. 648 of 23 December 1996), Article 1, paragraph 4, which states: If no valid therapeutic alternative exists, the National Healthcare Service may, as of 1 January 1997, supply those innovative medicines having a marketing authorisation in other States but not in the national territory, medicinal products not yet authorised but undergoing clinical trials, and those medicines to be used for a therapeutic indication other than that for which they are authorised that are included in a special list drawn up and regularly updated by the Commissione Unica del Farmaco, the National Drug Commission15 (now, AIFA), in accordance with the procedures and the criteria adopted by the said Commission. This provision, therefore, provides for the reimbursement of drugs that are not yet registered, or for an unauthorized indication, provided that there is no viable therapeutic alternative. To this end, the AIFA has drawn up a special list of drugs eligible for this exceptional reimbursement (the ‘648 List’), which is periodically updated by AIFA itself. Once a medicine has been included in that list, it remains there as long as the requirements that led to its inclusion pertain. It is therefore evident that the Italian legislator set itself the goal of protecting public health, giving patients the chance to use an unauthorized medicinal product without asking them for a contribution to the price, or the chance to use a drug for indications other than those authorized, only in cases where no therapeutic alternatives exist, while placing the AIFA exclusively in charge of the relevant assessments. Subsequently, the government enacted Decree Law No. 23 of 17 February 1998 (converted into Law No. 94 of 8 April 1998), Article 3, paragraph 2, which provides that physicians, in derogation of the general principle that, when prescribing a proprietary drug or another industrially produced medicine, they are obliged to follow

14 France also used to share this position and to discourage the use of drugs for purposes other than their therapeutic indications, in observance of the precautionary principle. France has now enacted new rules on the off-label use of medicines. A new Decree amending the rules on Temporary Recommendations for Use (‘RTU’) established pursuant to Art. L5121-12-1 of the French Public Health Code (‘PHC’) was published on 31 December 2014. The new requirements for issuing RTUs depart significantly from the initial rules on off-label use from December 2011. The rules originally required the absence of a therapeutic alternative for the off-label use of medicines under RTU. The new RTU rules reflect a recent trend in favour of off-label use of medicines in Europe with a number of Member States broadening such use, sometimes openly for economic reasons (C. Burton, New French Rules on Off-Label Use, in http://www.natlawreview.com/article/new-french-rules-label-use). EFPIA, the European Federation of Pharmaceutical Industries and Associations, harshly criticized the new discipline as soon as it was proposed as a draft for examination and approval by the French Parliament.

15 Since the establishment of the AIFA, the functions of the Commissione Unica del Farmaco have been taken over by the former.

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‘the therapeutic indications and the ways and means of administration indicated in the marketing authorisation granted by the Ministry of Health’, may in individual cases [ . . .] under the doctor’s own direct responsibility and after informing and obtaining the consent of the patient, use an industrially produced medicine for an indication or via an administration or a method of administration or use other than that for which it is authorised or recognised [ . . .] if the doctor considers, on the basis of documented information, that the patient cannot be successfully treated with the medicines approved for the therapeutic indication or method of administration, provided that such use is known and complies with literature published in internationally accredited scientific publications. It is therefore very clear that a physician can administer an off-label drug only when he deems, on the basis of documented information, that the on-label treatment cannot be used for an individual patient. In other words, these regulatory provisions regulated cases of off-label prescriptions in a more general sense, allowing physicians to prescribe a drug for an unapproved indication, subject to the informed consent of the patient – which is the ultimate goal that the rule seeks to protect – and in any case without prejudice to the patient’s full assumption of the expense, without cost to the State, in the case of drugs not included in the so-called ‘648 List’.16 Thus, the principle of uniqueness and necessary personalisation of treatments through off-label treatments is confirmed and clarified17. Lastly, the Italian Legislator has introduced a relevant change to the previous discipline, amending Law Decree No. 536 of 21 October 1995 by means of Law Decree No. 36 of 20 March 2014, as converted into Law No. 79 of 16 May 2014. Now, even if there is a therapeutic alternative among authorized medicines, following an assessment of AIFA, the medicines that may be used for an indication different from that authorized may be included in the 648 List, ‘resulting in their supply at the expense of the National Health Service, provided that such indication is known and in conformity with studies carried out within the national and international medical-scientific community, according to cost and suitability criteria (our emphasis). In such a case,

16 Subsequently, due to the increasingly widespread use of off-label drugs, the Legislator decided to intervene again in order to partially restrict its scope: with the adoption of Art. 1, paragraph 796, lett. z), of Law 27 December 2006, No. 296, it was provided that ‘the provision of 3, paragraph 2, of Law Decree 17 February 1998, No. 23, then enacted, with amendments, as Law 8 April 1998, No. 94, is not applicable to the use of drug therapies reimbursed by the National Healthcare System, which is widespread and systematic in hospitals or in other healthcare facilities and serve, beyond the terms of the marketing authorisation, as a therapeutic alternative for patients with illnesses for which drugs bearing a specific treatment indication are authorised’.

17 Finally, a further limitation on the use of off-label drugs was established by Art. 2, para. 348, of Law 24 December 2007, No. 244, which states as follows: ‘In no case may a doctor prescribe, for the treatment of a specific illness, a medicinal product without a marketing authorisation when, at the very least, no favourable second-phase clinical trial data on the proposed use of the product is available. Similarly, pursuant to Art. 3, para. 3, of Law Decree 17 February 1998, No. 23, then enacted, with amendments, as Law 8 April 1998, No. 94, doctors are not permitted to use an industrial medicine for a therapeutic indication […] if there is no at least favourable phase II clinical trial data available for that indication’.

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AIFA shall establish appropriate monitoring tools to protect the safety of patients and shall promptly adopt the necessary measures’.18

VI. Continued: in particular, the off-label use of Avastin With respect to Avastin, this particular treatment was included by AIFA in the 648 List by means of a decision dated 23 May 2007 for the treatment of: (1) exudative maculopathy (including AMD, DME, RVO, MMD), and (2) neovascular glaucoma. By this decision, AIFA included the drug Avastin in the 648 List, thereby making it available entirely at the National Healthcare Service’s expense due to the fact that, as provided in the aforementioned legislation, no viable therapeutic alternative existed at the time. Subsequently, in late 2008, the approval in Italy of Novartis’s drug Lucentis and Pfizer’s Macugen® meant that therapeutic solutions were available for the treatment of AMD. Thus, the conditions for intraocular Avastin’s remaining on the 648 List for the illness no longer pertained, and accordingly, on 4 March 2009, AIFA issued a new decision in which it confirmed that Avastin would remain on the 648 List only for the specific treatment of (1.1) non-age related exudative maculopathy (i.e.,DME, RVO, MMD), (1.2) age-related exudative maculopathy (AMD), previously treated with bevacizumab, and (2) neovascular glaucoma. After the overturning of AIFA’s decision of 4 March 2009 by the Administrative Regional Court of Lazio (by judgment no. 13777 of 27 May 2010, issued as a result of a petition filed by Pfizer, the manufacturer of the drug Macugen), in November 2010, AIFA issued a new decision, as a result of which the off-label use of Avastin was maintained on the 648 List exclusively for the treatment of (1.1) non age-related exudative maculopathy (DME, RVO, MMD) and (2) neovascular glaucoma. Essentially, AMD patients already treated with Avastin were also switched to treatments based on Macugen or Lucentis. Once more, following the introduction of new drugs to the market, the Administrative Court, by decision no. 1383 of 18 April 2012, excluded Avastin from the 648 List for the treatment of RVO disease, even more significantly reducing the possibility of the off-label use of Avastin.

18 Art. 3, Law Decree No. 36 of 20 March 2014. In January 2015, EFPIA, together with EUCOPE (European Confederation of Pharmaceutical Entrepreneurs) and EuropaBio (European Association for BioIndustries), submitted a complaint in the context of Art. 258 TFEU against such measures, as non-compliant with the EU Acquis on off-label use of medicines. In fact, ‘[…] The measures infringe and undermine the Union marketing authorisation system that protects public health – and in particular patients – by setting detailed standards for the quality, safety and efficacy of medicines and by operating clear procedures for assessing medicines against these standards and for monitoring products on the market. In addition, the measures are based on budgetary considerations that should never overrule the protection of public health.’

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On 27 September 2012, the AIFA’s Technical Scientific Committee (‘CTS’) decided to remove the intravitreal use indication of Avastin from the aforementioned residual uses still present in the 648 List, and then confirmed its concerns about the safety of the intraocular use of Avastin at the following meeting of the CTS held on 5-6 December 2012. The removal in question was, according to the reconstruction of the facts set out in the decision of the Italian Antitrust Authority, the result sought and obtained by the alleged collusion between the two pharmaceutical companies and the moment at which a problem of access to the drug was created. Finally, enforcing the new discipline set forth in the aforementioned Law Decree No. 36 of 20 March 2014, as converted into Law No. 79 of 16 May 2014, by a decision dated 23 June 2014, AIFA has included ‘bevacizumab – Avastin’ on the 648 List again, raising a reaction from the associations of pharmaceutical industries, both at a national and at the European level.19 VII. The position of the regulatory authorities Following the European regulatory authority’s decision of 30 August 2012, on 3 October 2012 AIFA drew the attention of healthcare professionals to the changes made by the EMA to the SmPC for Avastin20 in an announcement of updates that had taken place and the reasons for them, which were primarily related to reports of systemic adverse reactions following the unauthorised intravitreal use of the drug.

19 Please see note 18, with reference to the Complaint, submitted to the European Commission by, inter alia, EFPIA. 20 Decision issued by CHMP, 30 August 2012, No. EMA/H/C/000582/II/0044. The amendment introduced to the SmPC concerns the reference to reports of serious adverse reactions such as systemic non-ocular haemorrhages and arterial thromboembolic events following intravitreal injection of VEFG inhibitors. In particular, paragraph 4.4 was updated as follows: ‘Intravitreal use Avastin is not formulated for intravitreal use. Eye disorders Following unapproved intravitreal use of Avastin® (bevacizumab), consisting of vials approved for intravenous administration in cancer patients, serious ocular adverse reactions have been reported in both individuals and groups of patients. These events include infectious endophthalmitis, intraocular inflammation such as sterile endophthalmitis, uveitis, inflammation of the vitreous, retinal detachment, retinal pigment epithelial tear, increased intraocular pressure, intraocular haemorrhage and intravitreal haemorrhage or retinal haemorrhage and conjunctival haemorrhage. Some of these events have resulted in varying degrees of vision loss, including permanent blindness. Systemic effects following intravitreal use A reduction of the concentration of VEGF in the circulation has been demonstrated following treatment with intravitreal anti-VEGF. Serious adverse reactions such as systemic non-ocular haemorrhages and arterial thromboembolic events were reported following intravitreal injection of VEGF inhibitors, and there is a theoretical risk that it may involve inhibition of VEGF. In order to ensure the safety of patients, the AIFA recommends that doctors carefully evaluate the risk/benefit ratio for each use of the drug, informing patients about the possible risks associated with the treatment, especially for the intravitreal treatment.’

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In its communication, the AIFA recommended that physicians carefully evaluate the risk/benefit ratio for each use of the drug and inform patients of the possible risks associated with the treatment, especially for the intravitreal treatment.21 The Agency also created a specific system for monitoring and collecting data on patients who switched from the use of intravitreal Avastin to another treatment for macular degeneration and sought data from the Regions on local and systemic adverse reactions detected in the intravitreal use of Avastin. As indicated, in December 2012, off-label Avastin was excluded from the list of drugs distributed by the National Health Service pursuant to Law no. 648/96, in view of the safety risks of the medicine cited by the EMA, and the concomitant presence of a drug (Lucentis) specifically designed and registered for intravitreal use.22 VIII. The position of the European Union A few weeks after the Authority’s decision, the AIFA sent a note to the Director General of the DG for Health and Food Safety at the European Commission, requesting feedback on the role of regulatory authority in a situation of this kind.23 The DG’s swift24 response pointed out, on the one hand, that Avastin had not been authorized for any ophthalmic treatment as the holder of the marketing authorization had not requested it and had not even presented results of the necessary clinical trials to develop a new indication for a drug already on the market, and it could not be authorized without adequate data on its quality, safety and efficacy. On the other hand, it recognized that the exclusion from the 648 List was also justified by the textual amendment to European legislation on pharmacovigilance, applicable as of July 2012, which provided that all adverse reactions to drugs, either in the context of permitted indications or as part of ‘off-label’ use, must be reported to the competent authorities, as they could lead to regulatory action on the regime governing marketing authoriza-

21 AIFA also provided that, in specific cases, Avastin could be used for intravitreal use when a hospital doctor judged its use essential to safeguard the health of a patient already in treatment, including in relation to an assessment of the risk arising from the suspension of a treatment already begun. The doctor could have resorted to this use (pursuant to Law No. 94/1998, also known in Italy as ‘Di Bella Law’), assuming sole responsibility, after obtaining the consent of the patient, who is informed in advance by the doctor that the use of the drug was not among the indications and methods of administration authorised by the competent regulatory authority.

22 With respect to the use of Avastin and Lucentis in macular degeneration, the off-label use of Avastin had already been considerably limited by some judgments of the Regional Administrative Court of Lazio following the marketing authorization of medicines with approved indications, in application of Art. 1, para. 4, of Law No. 648/1996, according to which ‘where there is no viable therapeutic alternative, […] drugs to be used for a therapeutic indication other than their authorised use that are included in a special list drawn up and regularly updated by the National Drug Commission in accordance with its own procedures and criteria may be fully paid by the National Healthcare System’.

23 Note by Director General AIFA, 12 March 2014, in http://www.agenziafarmaco.gov.it/sites/default/files/Nota_del_DG_AIFA_Luca_Pani.pdf .

24 Note by Director General of the DG Health and Food Safety, European Commission, 13 March 2014 http://www.agenziafarmaco.gov.it/sites/default/files/Nota_del_DG_della_DG_SANCO_Paola_Testori_Coggi.pdf.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 319 Relations between regulatory and competition law in the light of Lucentis/Avastin (Novartis/Roche) case law tions and the addition of contraindications or warnings to prevent use outside of the terms of the authorization if there is evidence that such use may pose a risk to patients. In short, the Commission drew attention to the essential purpose of European legislation on the production, distribution, and use of drugs – and therefore to the fundamental role of the competent national authorities, i.e.,the protection of public health. Its conclusion was as follows: changes to Avastin’s SmPC were introduced correctly, in order to inform healthcare professionals of the fact that Avastin had not been formulated for intravitreal use, and to warn them of the serious adverse reactions reported in relation to such unauthorised use. The most responsible strategy that could be adopted by the competent national regulatory authority in the event of doubts as to the use of an off-label drug and in the event of safety warnings in the SmPC could only be to protect public health, regardless of the cost of the drug, as financial considerations must not ever prevail over patient safety. IX. The position of the AIFA • The Italian regulatory agency has also defended its actions in the matter through the publication of ‘Clarifications’ on its institutional website.25 It sets out a series of arguments which can be summarized as follows: • AIFA is an entity that constantly strives to ensure that the drugs available on the market are of proven efficacy, quality and safety, and that the public can duly have access to them quickly and regardless of their cost. To this end, the Agency shall at all times ensure that the principles underpinning the regulatory system are observed in accordance with national and European legislation; • in the meantime, in the exercise of its institutional function of monitoring costs for the National Health Service, the Agency has conducted intensive negotiations to reduce the price of Lucentis;26 • as regards the treatment of neovascular glaucoma, it should be stressed that bevacizumab (Avastin) and ranibizumab (Lucentis) are two similar molecules in their mechanism of action (i.e.,they inhibit the vascular growth factor VEGF), but they are not identical to one another either from a pharmacological or from a structural point of view, because Avastin is a whole antibody, whereas Lucentis is a fragment of it, which has a shorter half-life and remains in circulation for less time (2 hours compared to around 20 days). This is in view of the fact that there are still no studies of the pharmacokinetics or pharmacodynamics of Avastin in intravitreal use, which are required to meet the standards for registration, just as – despite the fact that off-label clinical practice exists – no studies have ever

25 AIFA: regulatory clarifications on Avastin and Lucentis, 7 March 2014, in http://www.agenziafarmaco.gov.it/it/ content/aifa-precisazioni-regolatorie-su-avastin-e-lucentis.

26 AIFA apparently detected a possible overestimation of the value proposed by Novartis for its drug. The price of Lucentis was decreased significantly, from the original €1,800 (negotiated in 2007) to its current price which, net discounts for the National Healthcare System, is less than €700.

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been conducted to determine the optimal dose and treatment protocol of Avastin for use in ophthalmology; • it is an essential duty of a regulatory body to protect the health of patients by promoting the safe and appropriate use of medicines. In the event of doubts as to the consistency of the risk/benefit data, the Agency’s task is to guarantee responsibly the protection of the health of citizens, as cost-saving parameters cannot override the drug safety assessments (AIFA refers then to the precepts of the ECJ, III Ch., March 29, 2012, C-185/10); • the Agency also provided that, in specific cases, Avastin could be used for intravitreal use when a hospital doctor deemed its use essential to safeguard the health of a patient already in treatment, including in relation to an assessment of the risk arising from the suspension of a treatment already begun. The doctor could have resorted to this use (pursuant to Law No. 94/1998), assuming exclusive responsibility and after obtaining the consent of the patient, who must be informed in advance by the doctor that the use of the drug is not among the indications and methods of administration authorized by the competent regulatory authority. X. Has the Italian Antitrust Authority misrepresented its functions and the concept of the market in general? It must be pointed out that, groundlessly contradicting both its own precedents and the precedents of the European Commission, the Authority has abandoned the approach that holds that the relevant market in the pharmaceutical sector, due to its intense and pervasive regulation, is identified on the basis of the ATC classification of medicines, so that medicines that are in the same third or fourth level of classification according to the authorized indications are in competition with each other. The Authority, on one hand, points out that Lucentis is ATC classified as S01LA (Anti neovascularization agents) and Avastin as L01XC (Other antineoplastic agents, monoclonal antibodies), while, on the other hand, it explains that the classification of Avastin was an error [literally: ‘on the basis of these registrations, in the ATC Index the drug is classified (not at the S01LA fourth level like all the other anti-angiogenic drugs used in ophthalmology, but rather) at the L01XC fourth level], which ends up establishing an equivalence which is transformed into a competitive relationship between two products that, in regulatory terms, are not equivalent. Furthermore, in its decision, the Authority affirms that ‘the defensive inferences [of the pharmaceutical companies], that the failure to register Avastin’s MA for ophthalmic uses would preclude the classification of that product in the same market as Lucentis, appear to be without merit (our emphasis). If one was to accept the argument that such registrations define the relevant market, it would ultimately allow companies to establish

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 321 Relations between regulatory and competition law in the light of Lucentis/Avastin (Novartis/Roche) case law the terms of comparability and substitutability of various products on the basis of the antitrust assessment of their conduct, with a substantial debasement of the function of demand, which is the fundamental regulating mechanism of a market economy. In fact, from an antitrust perspective the MA is a barrier to a drug’s entry to general marketing, after which the relevant markets in which the positioning of the product will be evaluated are defined by its actual uses – including off-label uses – as adopted in medical practice (our emphasis).

‘In this perspective’ – continues the Authority – ‘the objection of the Parties that the definition of the relevant market adopted by the Authority is based on clinical practices that are contrary to the regulations for sector, cannot be accepted. In fact, the Authority simply acknowledges the competitive scenario in which the corporate conduct takes place, without making judgments on the legitimacy of the choices of consumers and/or producers, let alone endorsing them.’

This appears to be a conception of the market wholly contrary to that contemplated by Article 41 of the Italian Constitution, which the Authority is required to protect it in its entirety. It is, in fact, a vision in which ‘the market is postulated before values and rights’.27 Article 41 of the Italian Constitution, in the paragraphs following the first one, with respect to safety, programmes and controls, lays the constitutional foundations of regulation, with strong emphasis on economic values and above all the discipline of competition.28 The Authority, however, seems not to consider it significant that the MA implies the availability of standardized and constantly controlled product information (a summary of product characteristics, package leaflets, pharmacovigilance reports), which in the case of off-label use is not available to the user except through the subjective mediation of the doctor that applies the treatment, and which even for him comes through the mediation of investigators. A further two consequences arise from this situation. Firstly, the MAH/authorized

27 A distinguished legal opinion observes that: ‘This economic naturalism – which in our time reproduces characteristics and movements of jus naturalism – has been criticised by me since 1995. It is pure invention of zealous liberals, who, in the face of political struggles and risks, raise economic naturalism. As natural law advanced the claim to control and measure the legitimacy of positive rules, so the natural market becomes the judge of law, approving adequacy or censuring diversions. The natural economy would contain the principles of private property, competition among enterprises, the profit, and so on. [...] The truth is that the market, any market, is a locus artificialis, built by the law and formed according to criteria and human will. Private property, competition, protection of profit are not in rerum natura, but are policy decisions, which translate into and express legal principles. The place is an unnatural place, not found by among the things of the external world, but built by the will of man. Thus it is a locus historicus, politicus, juridicus. The adjective ‘artificial’ should not intimidate, because it designates what is done with art, i.e.,with the arts practised by man in the problems of coexistence. [...] Every market is built from by law, and every law is made and is imposed on the basis of certain criteria and to achieve given ends [...].’ (N. Irti, Diritto Europeo e tecno-economia, in Il salvagente della forma, Bari, 2007, p. 63 et seq.). Consider also F. Galgano, Sub Art. 41 of the Italian Constitution, in Commentario della Costituzione, a cura di G. Branca, Rapporti economici, II, Bologna, 1982, p. 26: ‘Economic freedom does not receive, from the republican Constitution, that character of “inviolable right” which is on the other hand attributed to civil freedoms; it is included among the freedoms recognised by our basic law, but less guaranteed.’

28 It is interesting to consider a ruling of the Italian Constitutional Court (dated 7 July 2006, No. 279), that goes as far as to affirm that the class ‘A’ drugs (i.e.,those reimbursed by the National Healthcare System), distinguished by far-reaching powers of regulation and Ministry of Health intervention, in the determination of the price and also the profit margins along the supply chain (manufacturer, wholesaler, pharmacist), do not constitute a competitive market. At least as regards the price in particular, they are products that do not give rise to competitive comparison.

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manufacturer is objectively liable for damage caused by the product if it is proven unsafe; in the case of off-label use, the MAH would certainly not be objectively liable and responsibility rests only with the medical staff on the basis of a general criteria of malice/negligence. Secondly, the existence of an MA implies the possibility of revocation if the product proves harmful under normal conditions of use (Article 141, Legislative Decree. no. 219/2006), while a medicine used off-label cannot ever be revoked due to the riskiness of such use. In other words, it could be said that that the MA is important not only because it exists, but also because it can be revoked by the Regulatory Authority.

Ultimately, the Authority has effectively classed as a ‘market’ what a market cannot be, because it refers to a set of products the use of which is banned,29 invoking in support of its position – albeit not entirely coherently in our view – the case law of the ECJ;30 and in considering Avastin and Lucentis to be therapeutically equivalent, superimposed, without adequate investigation and without having the necessary legal or technical skills, its own clinical-scientific judgments over those of the EMA and AIFA31.

29 As indicated previously, in Italy the widespread use of off-label medicines reimbursed by the National Healthcare System is forbidden by Art. 1, para. 796, lett. z), Law 27 December 2006, No. 296 and Art. 2, paragraph 348, Law 24 December 2007, No. 244.

30 Judgment in Commission v Poland, EU:C:2012:181; ut supra. This held that the right arising from Art. 5, para. 1, Directive No. 2001/83/EC, to exclude the application of its provisions can therefore be exercised only when necessary, taking into account the specific needs of patients. A different interpretation would be contrary to the purpose of protecting health, pursued through harmonization of the provisions concerning medicinal products, in particular those governing the MA. The concept of ‘special needs’ mentioned in Art. 5, para.1, of the Directive, refers only to individual situations justified by medical considerations and presupposes that the product is necessary to address the needs of patients. Similarly, the requirement that products be supplied in response to a ‘bona fide unsolicited order’ means that the product should be prescribed by a doctor following an actual examination of his patients and based on purely therapeutic considerations. Thus the derogation established by Art. 5 can only address situations where the physician believes that the health of his specific patients requires the administration of a drug for which there is no authorized equivalent on the national market or that is not currently available on that market. When certain medicines, which have the same active pharmaceutical ingredient, the same dosage, and the same form as those that the doctor feels the need to prescribe to treat his patients, are already approved and available on the national market, one cannot in fact speak of ‘special needs’ pursuant to Art. 5, para. 1, Directive No. 2001/83/ EC, which requires that the requirement for an MA established in Art. 6, para. 1, of such a Directive be derogated. Financial considerations cannot per se lead to recognition of the existence of special needs that justify the application of the derogation established in Art. 5, para. 1, Directive No. 2001/83/EC. The Authority mentions the judgment issued by the ECJ, but in our view it does not in fact take any account of it.

31 With respect to the positions taken by doctors’ associations who have spoken out in favour of the off-label use of Avastin, the Authority entirely neglects the conduct of other operators, strong promoters of off-label use, forgetting that it constitutes illegal advertising. According to the ECJ, in the sector that concerns us, advertising is not just what is performed by companies that have a direct interest, but according to a proper interpretation of Art. 86, Dir. No. 2001/83/EC the ‘dissemination by a third party of information about a medicinal product, including its therapeutic or prophylactic properties, may be regarded as advertising within the meaning of that article, even though the third party in question is acting on his own initiative and completely independently, de jure and de facto, of the manufacturer and the seller of such a medicinal product’ (Judgment in Damgaard, C-421/07, EU:C:2009:222, § 29).

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XI. Can the ophthalmic use of Avastin be called ‘off-label’? As we have seen, according to the Authority, Novartis and Roche are competing in the ophthalmic market because Avastin is used off-label in that market. This is the premise on which the whole resolution rests. The position of the Authority assumes that the off-label use of Avastin concerns the same medicinal product – Avastin – marketed by Roche and conforming to the MA issued. This, however, is questionable. Avastin manufactured and marketed as provided in its MA32 is not the ‘Avastin’ manipulated and used off-label. The manipulation of the product makes a new and different medicine. In fact, what is being administered off-label in the field of ophthalmology is a masterful formulation (Art. 3, paragraph 1 (a) of Legislative Decree N. 219/2006) obtained from vials of Avastin, the content of which is diluted, fractionated and reassembled, creating a different dose, a different pharmaceutical form, as well as a route of administration and a presentation for different treatments. In other words, what is in competition with Lucentis in the field of ophthalmology is a product not only ‘legally’, but also ‘as a commodity’ different to Avastin and incorrectly named ‘Avastin’ (where, however, the inaccuracy is not purely linguistic, but constitutes false information to the consumer/ patient, to whom it is depicted as ‘Avastin’). 33 Any company that decides to seek an MA for a form of bevacizumab administered by intravitreal injection with ophthalmic indications would have to make the investments necessary to create a complete ‘dossier’ of pharmacological, toxicological and clinical trials. Only by ignoring these considerations has the Authority been able to consider the off-label use of Avastin in the field of ophthalmology as ‘normal’.34

32 Avastin is the commercial name of an industrial medicine with an MA and as such identified by dosage, pharmaceutical form, route of administration and presentation, so that a change of even one of these elements requires its own MA (Art. 6, Legislative Decree No. 219/2006 and Art. 6, Dir. No. 2001/83/EC).

33 The difference between the commodities is demonstrated by the further fact that ‘Avastin’ thus manipulated – while unaffected by problems of industrial property and exclusivity of the ‘dossier’ guaranteed by Art. 10, Dir. No. 2001/83/EC – could never be authorized as a biosimilar of Lucentis or a biosimilar of the original Avastin, because Art. 10, Legislative Decree No. 219/2006 (as well as Art. 10, Dir. No. 2001/83/EC) requires not only the identity of the raw material, but also that, in the event of changes in therapeutic indications, the dosage, pharmaceutical form or route administration compared to those of the reference product, the results of appropriate pre-clinical tests or clinical trials be provided.

34 This is clear from what was decided recently by the Hamburg Landgericht, Judgment of 14 January 2014, 416 HKO 78/11, on the basis of the Judgment issued by the ECJ, to which the German court, presented by Novartis Pharma GmbH with a claim for unfair competition against a pharmacy that prepared, on a semi-industrial basis, fractionated packs of Lucentis and Avastin manipulated for intravitreal use, preliminarily referred the question of whether these operations require regulatory authorization in the light of Community legislation. The ECJ in Judgment Novartis Pharma GmbH v Apozyt GmbH, C-535/11, EU:C:2013:226, held that it is for the national court to determine whether, regardless of the mode and limits governing the prescribing of an off-label medicine, fractionation and re-dispensing operations nevertheless give rise to a requirement for production licences and MA for the modifica- tions.

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324 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Francesco Setti

XII. Critical aspects of the judgment of the administrative court The grounds in support of the judgment of the Administrative Court show that the conclusions reached by the Authority in its decision can be endorsed only if, in assessing the complex events in question, the finding for regulation of the sector is eliminated, or the marketing of the drugs and pharmacovigilance are completely eliminated.

With reference to the importance of the regulation of the sector, the Administrative Court (judge of first instance) stated, in the introduction to his (erroneous) methodological decision, recognizing that the matter involves ‘medical, technical-scientific and technological aspects of the highest level concerning the medical properties of the two drugs considered and the resulting implications for human health’, nevertheless then chose to limit the scope of his cognizance only to an assessment of the preliminary findings of the Authority in order to verify the existence of a commercial cartel restricting the market. The judgment stated: ‘This will also allow the Board to decide – consistently with the aforementioned complexity of the ex parte arguments – according to the principle of brevity, without indulging in considerations actually extraneous to the areas of decision reserved to this Court’.

The artificiality of such an operation to ‘simplify’ the case is quite clear if one only considers that the products in question are drugs and their marketing is subject to strict public regulation. According to the Administrative Court, the irrelevance of the medical- scientific aspects results from the fact that the Authority is responsible only for the commercial aspects.

In our view, since the products in question are for the care of people’s health, their regulation in terms of safety and therapeutic validity cannot be avoided in an analysis of the commercial conduct of the pharmaceutical companies. The Administrative Court’s adhesion to the methodological option (and logic) of the Authority, which leads one to consider assessments affecting technical and scientific aspects to be completely irrelevant, cannot be endorsed: the Administrative Court will end up making assessments of pure technical merit, without merely transposing the pharmacovigilance data which in any case was deliberately excluded from its cognizance.

On the contrary, in order to prove the unlawfulness of the conduct in antitrust terms, the full substitutability between the two drugs and, therefore, the possibility of a competitive relationship, is postulated: without the affirmation of full substitutability between the two drugs (in effect excluded by the results of pharmacovigilance) the Authority’s argument and the judgment of the Administrative Court which upheld the decision will fall.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 325 Relations between regulatory and competition law in the light of Lucentis/Avastin (Novartis/Roche) case law

XIII. Conclusions Bringing to its natural consequences the position taken by the Authority and adopted by the Administrative Court, the predominance of economic reasons and the freedom of the market must be inferred at the expense of the principle of protection of public health.

However, this supremacy is not reflected in the European and Italian legislation reviewed.

It cannot be inferred from the limits placed on citizens’ right to health, a right which obviously cannot be unlimited35, that the decisions and views taken by the authorities that dictate rules on the use of drugs are irrelevant.

The errors and contradictions which first the Authority and then the Court make arise mainly from having ignored the limits of the powers of the former, reserved by law, and taking positions on issues on which the European and domestic regulatory authorities are competent to decide.

In other words, economic reasons can lead to a restriction of the right to health, a limitation which is expressed primarily through the processes of pricing and reimbursement, as state finances cannot be burdened with unsustainable costs.36

This, however, does not mean subordinating the right to health to the rules of the market and competition.37

The Italian Supreme Court of Cassation has stated that the right to health ‘[ . . .] remains a primary and fundamental right and the public administration does not have any power of supremacy to as to weaken this right, not only when a situation of emergency exists

35 Judgment in Damgaard, ut supra., EU:C:2009:222 36 The fundamental rights protected by the Italian Constitution are part of a reciprocal relationship. It is not possible to identify one of them which has absolute prevalence over others. In a harmonious and not unbalanced constitutional system not even the freedom of private economic initiative is absolute, as it must conform to social utility, security, freedom and human dignity, while the legislator remains with the task of determining appropriate programmes and controls to enable it to be directed and coordinated for social purposes. Restrictions and limitations on free enterprise, even in a system increasingly leaning towards liberalization, are always not only permitted but indeed are laudable when they find precise justification in constitutional interests, such as the fundamental right of the individual and the collective interest in health enshrined in Art. 32 of the Italian Constitution: Regional Administrative Court, Trentino-Alto Adige (Trento), I Ch., 10 July 2013, No. 221.

37 Regional Administrative Court, Lazio (Roma), III Ch., 7 February 2013, No. 1345: The second and third paragraphs of the constitutional provision, as is known, place limits on the freedom of private economic initiative, stating that it cannot be conducted in conflict with social utility (or in a manner that could damage safety, liberty and human dignity), and also providing that the legislator may direct and coordinate private economic activity for social purposes through the provision of programmes and controls. Obviously this does not mean that a social goal can replace economic calculation as the guiding standard for business activities, but it does mean that when there are specific objectives to be pursued and there is a need to protect social needs which have equal or greater importance than the constitutional autonomy of the market, the legislator may well intervene in entrepreneurial activities, reducing the margin of autonomy of enterprises and then directing economic activity for social purposes.

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(for the care of the citizens), but also in cases where there is a requirement to balance of the primary right to health with other constitutionally protected interests [ . . .]. ’38

In assessing the basic outlines of the public health system, the Constitutional Court has long emphasized the importance of the link between performance and cost, noting that the autonomy of the various players and bodies working in the field must always be related to available finance and cannot ignore the scarcity of resources and the requirements of national budgetary consolidation (Constitutional Court, 28 July 1995, No. 416 e 23 July 1992, No. 356).

In other words, the pursuit of the objective of a primary and fundamental health sector objective consisting of the right to health, in its irreducible core (Constitutional Court, 20 November 2000, No. 509) can never be separated from the full control of expen- diture, planned and divided among different providers, thanks to the setting of maximum volumes of providable benefits (Constitutional Court, 2 April 2009, No. 94).

But apart from the need to take into account the sustainability of the National Healthcare Service, no further limits due to economic reasons were considered by the national courts.

The prevailing of the market economy ahead of public health was never affirmed.

Therefore it is reasonable to conclude that the Authority’s inspection and coercive rights, recognized by law, are to be exercised in the case of the pharmaceutical market, with due account of regulatory issues.

It is easy to predict that more opinions will be expressed, and more court orders issued, on the case in question, as the Administrative Court’s ruling can be challenged before the Council of State. It is desirable that the relationship between regulatory authorities and authorities that oversee the market be rebalanced.

38 Italian Supreme Court of Cassation, 6 February 2009, No. 2867. Hence the need to intervene with determinations of an authoritative and binding nature – not agreed and conventional – for setting the maximum annual limit for sustainable spending with the health fund by individual institution or groups of institutions, and to determine the annual services budgets (Italian Council of State, Grand Chamber, 3 March 2008, No. 1; Italian Council of State, V Ch., 19 November 2009, No. 7236; Italian Council of State, 25 January 2002, No. 418). The ECJ (Judgment in Damgaard, ut supra., EU:C:2009:222) also took a stance on the positions of the national courts.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 327 Some thoughts on legality and legitimacy

Jacques Steenbergen

Members of the Bar are the guardians of justice, at least with regard to the proper functioning of the institutional framework that should provide an outcome the legislator considers to be just. Few have pursued this task with the same elegant persistence as Ian Forrester.1 Drawing on more than thirty years of stimulating contacts, I will try to summarize in this contribution some lines of thought as I see them from my present perspective. I. The key challenges for competition authorities Competition law and the institutions in charge of its enforcement (the courts as well as the competition authorities) need, as in respect of all branches of law, to seek a balance between the optimisation of (i) the democratic justification of their decisions, (ii) the procedural guarantees for all parties involved, (iii) the need to deal with issues within a timeframe that allows their interventions to have a useful effect, and (iv) the need to take into account their usually limited resources.

1 His entry on the website of his firm mentions some 25 publications on due process related topics. See in particular I. Forrester, ‘Due Process in EC competition cases: a distinguished institution with flawed procedures’,E. L. Rev., December 2009, p. 817.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 329 Some thoughts on legality and legitimacy

In an admittedly minimalistic approach, competition authorities need to balance these often-conflicting goals by: (i) Ensuring the legality of their decisions: We must assume that the competition law reflects the democratically expressed will of the people, either because they want the law to be what it is, or at least because they want to be part of the EU -- which implies the acceptance of the EU rules of competition. Seeking support for a competition policy that goes beyond meeting the legality test is not without risk. It requires a careful balancing of the needs for independence and for accountability – and both are essential to achieve legitimacy.2

(ii) Complying with the due process standards defined by law: a. In the Charter as interpreted by the ECJ for the EU Commission, and indirectly also for the NCAs in so far as they are a condition for the effective enforcement of the EU rules of competition by national authorities.3 b. In the ECHR and national law. Given the hierarchy of norms, this means in practice that national procedures need to comply with the Menarini case law of the ECtHR.4 The test focuses therefore for administrative authorities on the review procedure rather than on the administrative procedure before the competition authority.5 It may be added that the concept of ´full review’ does not imply under the Menarini case law the power to replace an annulled decision by a decision of the review court.6

2 I have tried to develop this line further in J. Steenbergen, ‘Some reflections on legitimacy, accountability and independence’, in N. Charbit and E. Ramundo (eds), William E. Kovacic Liber Amicorum: An Antitrust Tribute, Volume II, Institute of Competition Law/Concurrences, Paris, 2014, pp. 93-100. 3 See e.g., Judgement in Bundeswettbewerbsbehörde and Bundeskartellanwalt v Schenker & Co. AG and Others, C-681/11 EU:C:2013:404 and Judgement in VEBIC, C- 439/08, EU:C:2010:739. 4 ECtHR, 27 September 2011, Menarini. See on the General Court and the Menarini test e.g., M. van der Woude, ‘Pour une protection juridique effective: un rappel des objectifs de 1988’, Concurrences, 4-2014, 9-12. 5 No wonder then that Ian has showed a keen interest in the role of judges. See e.g., by him: ‘A Challenge for Europe’s Judges: The Review of Fines in Competition Cases’ (2011) 36 E.L.Rev. 185 ; ‘A Bush in Need of Pruning: the Luxuriant Growth of “Light Judicial Review”’, European Competition Law Annual 2009: Evaluation of Evidence and its Judicial Review in Competition Cases, Claus-Dieter Ehlermann and Mel Marquis (Editors), Oxford and Portland, Oregon, 2011; ‘The judicial function in European law and pleading in the European Courts’ (Third Annual Wendell Gauthier Lecture, Tulane Law School, 2006; 81 Tul. L. Rev. 2006, p. 647). 6 See with sometimes divergent assessments of the case law and practice in the EU: the Dossier ‘La pleine juridiction du Juge de l’Union sur les décisions de la Commission’, with introduction by D. Bosco and T. de Bovis, Concur- rences, 4-2014, pp. 19-43. The present Belgian competition rules provide explicitly in article IV.79 Code of the Code of Economic Law that the Court of Appeal must exercise full jurisdiction including the power to replace a litigious decision by its own, except with regard to merger control and decisions on remedies.

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330 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Jacques Steenbergen

(iii) Taking decisions within a timeframe that protects their useful effect: This objective can be interpreted in several ways. Even the most severe time limits on investigations, such as in Latvia7 and Spain8 cannot avoid having decisions in infringement cases come more than one year after the opening of a procedure, and thus more than one year after the facts that constituted the infringement. This points not only to the importance of follow-on actions in respect of damage claims, it also highlights the need for effective provisional remedies.9 The latter may be less effective in cartel cases where injured parties are seldom aware of the damage they suffer before the infringement has been established, but provisional remedies can be very effective in respect of abuse cases. Efficiency must, however, not only be assessed with regard to the parties directly involved in cases. Decisions are often at least as important for their deterrent effect on the behaviour of other undertakings that may envisage similar agreements or practices.10 (iv) The need to take into account the availability of resources: It is now generally held that competition authorities must be able to determine enforcement priorities in order to enable them to take into account the availability of resources.11 Credibility requires moreover a realistic expectation management.

7 ‘The Competition Council takes a decision within six months from the day of the initiation of a case. If due to objective reasons it is not possible to observe the six month time period, the authority may extend it by up to one year counting from the day of initiation of the case. However, if prolonged fact-finding is required in the case, the Competition Council may, with a justified decision, extend the time period for taking a decision to a period not exceeding two years from the day of initiation of a case’: http://www.competition.lv/en/prohibited-agreements. 8 ‘The maximum period for issuing and notifying the resolution that brings an end to sanctioning proceedings for restrictive competition conduct shall be eighteen months as of the date of the institution decision and its distribution between the phases of handling and resolution shall be set by regulations’: Art. 36(1) of the 2007 Competition Act. 9 See e.g., the contributions by Bruno Lasserre to the abovementioned BWB conference in Vienna and to the European Competition Day of the Italian Presidency on 10 October 2014. 10 A British study e.g., concluded that the deterrent effect of the establishment of an infringement on third parties is at least equal and up to five times more important than its direct effect, and that parties directly involved abandoned on average five restrictive agreements or practices for every condemnation: ‘The deterrent effect of competition enforcement by the OFT’, OFT discussion paper for NMA conference on measuring the effects of competition law enforcement, October 2007. See further on ways to improve the leverage of decisions and to bring their useful effect forward: J. Steenbergen, ‘Concurrence: effet utile sans culture de la concurrence?’, in M. Behar-Touchais, N. Charbit and R. Amaro (eds.), A quoi sert la concurrence, Institut de droit de la concurrence, Paris 2014, pp. 727-733. 11 See e.g., Communication from the Commission - Ten Years of Antitrust Enforcement under Regulation 1/2003: Achievements and Future Perspectives (COM(2014) 453, 9.7.2014); and Commission Staff Working Document SWD (2014) 231 - Enhancing competition enforcement by the Member States’ competition authorities: institutional and procedural issues, (SWD(2014) 231/2, 9.7.2014). The Belgian Competition Authority has the possibility to select cases according to its priorities and the availability of resources (article IV.42 §2 Economic Law Code).

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 331 Some thoughts on legality and legitimacy

II. Legality and legitimacy Debates at conferences and in specialized (legal) journals suggest that parts of the competition community tend to consider that the Menarini case law is not the last word on due process standards for competition authorities, and that the standard is likely to be raised.12 They tend, but in our experience unsuccessfully13, to hold competition authorities to higher standards than those applicable in criminal procedures, a tendency that is unlikely to find much support in the ECHR. It is in my opinion more productive to say that legitimacy can not be reduced to legality, and to recognize that effectiveness requires legitimacy in the opinion of all who need to comply with the rules or to rely on their enforcement. It is more difficult to define the prerequisites for legitimacy than to determine the legality of the measures taken by competition authorities14, if only because different stakeholders may have conflicting expectations. All probably agree that competition authorities need to be independent. But that may well be the only of the objectives discussed in this contribution on which all stakeholders are likely to agree. While society at large and complainants in particular require e.g., efficiency (i.e., the swift handling of relevant cases), defendants obviously put a higher value on extensive rights of defence. The common denominator is that it is not efficient not to be seen as legitimate, and that authorities are unlikely to be considered legitimate for long if they are not efficient. III. Independence It is important for the legitimacy of competition authorities that the authorities are independent when they take decisions in individual cases, especially when imposing sanctions. It is in my opinion equally important that competition authorities can decide independently on, if not the opening, at least the investigation of cases. This is not only important in order to enable authorities to adjust their enforcement efforts to the available resources, but even more for the protection of stakeholders. We should not underestimate the extent to which enforcement efforts not only produce a significant part of their useful effect, but also impose a burden on the undertakings involved as from the opening of the investigation, i.e., when it is not yet properly established that they were involved in any infringement.

12 Ian’s publication referred to in footnote 1 was written before the Menarini judgment, but I would not be surprised if I had to differ respectfully with him as to what extent there might be legal arguments requiring a quasi-judicial handling of competition cases in which the authority intends to impose significant sanctions. But I hope he can be more comfortable with the way the Belgian Competition Authority tends to mimic judicial procedures (without feeling an international legal obligation to do so). 13 See e.g., the judgment of the Belgian Constitutional Court of 10 December 2014 in the case brought by the Ordre de Barreaux Francophones et Germanophones and the Institut des Juristes d’Entreprise. 14 See further my abovementioned contribution ‘Some reflections on legitimacy, accountability and independence’, in N.Charbit and E. Ramundo (eds), William E. Kovacic Liber Amicorum: An Antitrust Tribute.

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332 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Jacques Steenbergen

Authorities should, for the acts for which they must be independent, be independent from the government, from industry and various pressure groups. As a corollary, they should give effective guarantees with regard e.g., to conflicts of interest. Independence can be organised in different ways, but the structure should ensure that all who are involved in the handling of cases can only accept instructions from officers who are appointed for a sufficiently long term of office, and on terms and conditions that allow them to feel independent and to be perceived as being independent. Independence also implies that authorities can rely on stable funding of which they can dispose within the limits of their budget without the need for a preliminary authorisation by the government or other government agencies.15

IV. Independence and accountability A lack of accountability affects legitimacy. Authors rightly insisted on the need to make accountability and independence mutually supportive.16 Credibility, accountability, independence and effectiveness are often mentioned more or less together in the search for benchmarks for good regulation.17 The obligation to publish decisions and an annual report seems to be a minimum condition for organising meaningful accountability. The adoption of budgets by Parliament after hearing recommendations from the authority may be another way of organising accountability without undue restrictions of independence, provided Parliament shows reasonable restraint in respect of the budget when inclined to criticize the authority. The issue is less clear with regard to the extent to which the need to balance independence and accountability requires e.g., that secondary rules (implementing regulations of the competition law, guidelines, etc.) and priorities for the authority’s enforcement, or advocacy efforts should be defined by the legislator, by the government, by the agency, or in cooperation between two or more of these entities. For example, one may, as is the case in Belgium, provide that regulations are issued by the government after recommendations from the authority, and guidelines and priorities by the authority after recommendations from the minister.18

15 See further A. Italianer, ‘The independence of national competition authorities’, contribution to the conference organized by the Austrian competition authority on 12 December 2014. (http://www.en.bwb.gv.at/Events/Seiten/ Competition-Conference-2014.aspx), and the abovementioned Communication from the Commission - Ten Years of Antitrust Enforcement under Regulation 1/2003: Achievements and Future Perspectives (COM(2014) 453, 9.7.2014); and Commission Staff Working Document SWD (2014) 231 - Enhancing competition enforcement by the Member States’ competition authorities: institutional and procedural issues, (SWD(2014) 231/2, 9.7.2014). 16 G. Majone, ‘Europe’s democratic deficit: the question of standards’, European Law Journal, 1998, pp. 5-28. 17 See for a recent survey e.g., the PhD thesis of Ian’s wife: S. Keegan, Legitimacy in the EU single market: the role of normative regulatory governance, PhD thesis at the University of Edinburgh 2013, pp. 54-56. 18 Art. IV.25 Economic Law Code.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 333 Some thoughts on legality and legitimacy

There may be many ways to achieve accountability, but the key factor is, as Judge van der Woude indicated, that competition law and policy need the support of a broader base of stakeholders than the experts of the competition community.19 V. Independence, due process, and the institutional design of competition authorities One of the more delicate issues, and one on which consensus seems unlikely, concerns the question of whether the decision makers in individual cases should also be independent from the officers who decide on the opening of cases and who direct the investigations. Lawyers are generally convinced that they should be independent from each other in infringement cases, but they may have different views in respect of phase I merger control procedures. Economists seem to be rather uninterested, or tend to see the distinction as a source of inefficiencies. And stakeholders are mostly, but not always, more in line with the lawyers. In the successive reforms of the Belgian competition authority, all parties in government and most in opposition were united to insist on a genuine separation between the investigative and decision making powers. They were thus united in their preference for the approach advocated by Ian, even though they did not necessarily share the view that they were under any legal obligation to do so.20 They saw the prosecutorial model as existing e.g., in Ireland and Scandinavian countries as the only acceptable alternative to the (present and previous) models, where decisions that may involve sanctions are taken by a body that is functionally independent from the officers in charge of investigations. This was achieved in the previous structure by the Competition Council as an independent administrative tribunal with a separation between the bench and the prosecutors, in line with the continental judicial model. It is structured in the present authority by having Competition Colleges where the majority of the members are not employed full time by the institution.21 But sensitivities and possibilities may vary significantly between jurisdictions. In some jurisdictions, the civil service is e.g., very independent and (part of) the services of the agency may well be integrated in existing structures in order to reduce costs. In others it may be more important that agencies are totally outside the existing ministries. In yet others there already are a number of independent agencies, and the debates focus more on the question of whether a total or partial merger of agencies should be envisaged.

19 See in this sense e.g., R. Wesseling and M. van der Woude, ‘The lawfulness and acceptability of enforcement of European cartel law’, World Competition, 2012, pp. 573-598. 20 See the solutions advocated in the article referred to in footnote 1. 21 Articles IV.21 and IV.22 Economic Law Code.

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334 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Jacques Steenbergen

And in some jurisdictions, the constitutional culture requires that only courts judge the behaviour of individual companies and impose sanctions. In these jurisdictions it is logical to set up the competition agency as an investigating and prosecutorial authority, while others may not have the judicial infrastructure to be charged with the decision making in first instance. VI. Legitimacy and economic analysis Another delicate issue is concerned with the place of economic analysis in competition law (cases). Nobody questions the need for a proper and robust assessment of facts, and least of all Ian.22 And nobody seems to question that the rules of competition are based on economic thinking, and that their interpretation requires economic thinking.23 But the reactions to the Intel judgement of the General Court24 showed the degree of animosity25 that can be triggered by the question of to what extent the interpretation of these rules requires an economic assessment of the impact of an agreement or behaviour in a given case along the lines advocated by economists, or to what extent the rules themselves as interpreted by the ECJ define the parameters for such assessment.26 The issue is a good illustration of the balancing efforts required for good governance, especially of smallish competition authorities. We do not have the resources for a fully-fledged sophisticated economic impact analysis in each and every case. If we did, we would disregard the 4th of the abovementioned key challenges and fail to take into account the available resources. But even if we did have the resources, we would be unlikely to meet the 3rd objective: decide within a timeframe that protects the useful effect of a decision. We are therefore not only confronted with the sometimes conflicting views and expectations of lawyers and economists in respect of legitimacy; from a more economic perspective, we also need to find the right balance, and we need to convince both the legal and the economic environment that the outcome respects the standards of due process legitimacy requires.

22 See e.g., I. Forrester, ‘Facts are chiels that winna ding’, Paper presented at the 38th Annual Conference on Inter- national Antitrust Law & Policy 2011, 2011 Fordham Corp. L. Inst. 175, B Hawk (Editor), Juris Publishing, Inc., New York, 2012. 23 W.P.J. Wils, ‘The judgment of the EU General Court in Intel and the so-called more economic approach to abuse of dominance’, World Competition, 2014, p. 420. 24 Judgement of 12 June 2014, Intel Corp. v European Commission, T-286/09, ECR, EU:T:2014:547. 25 R. Whish, noting that the judgment ‘has been greeted with huge hostility’, quotes reactions like ‘a return to the dark ages’: R. Whish, ‘Keep calm and carry on!’, Journal of European Competition Law and Practice, 2015, 1-2. 26 See the (by the competition community’s standards) animatedly expressed and widely differing views of W.P.J. Wils in the above mentioned article (pp. 405-434), and of J.S. Venit,’Case T-286/09 Intel v Commission – the judgment of the General Court: All steps backward and no steps forward‘, European Competition Journal, 2014, pp. 203-230. See also on a reading of the judgment to which I feel inclined to subscribe, the above mentioned editorial of R. Whish (with some reservations in respect of the de minimis argument that seems to me to be somewhat theoretical in case of dominance on the relevant market in which the alleged abuse needs to be assessed).

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 335 Some thoughts on legality and legitimacy

I find it (at least for myself) useful to see the distinction between infringements by object and infringements by effects rather as the distinction between categories of agreements and practices of which the economic impact has been assessed ex ante, and agreements and practices of which the economic impact needs to be assessed ex post. We regularly need to scrutinize the list of what we see as infringements by object, in an effort that is not unlike the regular review of block exemptions under article 101(3) TFEU. But the swift, efficient, and also economically justified assessment of infringements requires a robust category of infringements by object. The extent to which authorities can afford to look into other alleged infringements will then depend on the extent society sees fit to grant them the necessary resources. VII. Conclusions No one size fits all. Every competition law system needs to find its own balance between procedural and outcome-focussed values and objectives. But a sustainable and effective enforcement requires legitimacy. And that may require more than ‘mere’ legality. It is therefore necessary to find what legitimacy requires in a given society, to take into account what that society is willing or required to invest in competition law enforcement, and to adjust the balance between other objectives and values such as due process and efficiency accordingly. I warmly thank Ian (and it runs in the Forrester family)27 for his many highly valued contributions to this debate.

27 See e.g., the above mentioned PhD thesis of Ian’s wife: S. Keegan, Legitimacy in the EU single market: the role of normative regulatory governance, PhD thesis at the University of Edinburgh, 2013.

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336 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Compensation for damages as a result of antitrust violations: European Union and Argentina

Pablo Trevisán*

I. Introduction The compensation and recovery of damages as a result of antitrust violations (which is herein referred to as private enforcement of competition law) are a material part of the antitrust enforcement system and, in turn, may serve as a deterrent element in addition to the penalties imposed by the competition authority (i.e.,public enforcement). Private enforcement of competition law is perhaps the only way to compensate the aggrieved parties that have sustained damages as a result of antitrust violations. On the other hand, public enforcement through the competition authorities is a required and essential part of the integral enforcement system of antitrust laws, but it rarely contributes to the victims recovering their losses from unfair competition practices.

* The author is extremely honoured to participate in this tribute to Ian Forrester QC LL.D, for whom he has the highest words of gratitude and admiration, considering Ian to be one his main mentors in the field of competition law. The author wishes to thank the editorial committee led by Assimakis Komninos, Jacquelyn MacLennan and Sir David Edward for giving him the chance to participate in this beautiful endeavour.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 337 Compensation for damages as a result of antitrust violations: European Union and Argentina

Without private enforcement it is impossible for both companies and individuals to recover the profits, losses or damages sustained as a result of such unlawful conducts. In addition, the amounts involved remain with those who carry out acts that infringe antitrust laws. An organized and solid system allowing for the compensation and recovery of damages as a result of unfair competition practices will provide benefits in addition to those that might be obtained by means of a system that is solely supported by the enforcement of the rules through the public administration.1 Unfortunately, the private enforcement system of competition law in Argentina is still in its early stages.2 Argentina’s enforcement system of competition law, the same as in Europe and Latin America in general, has been based, to date, upon an enforcement system that is almost exclusively public. It is in the United States that this system has had sustained and significant growth, where over 90% of antitrust cases in the past few years have been brought using the private enforcement system.3 Even though in Europe there have been more cases over the past few years, the system still has certain inconsistencies associated with the diversity of countries and the number of different legal frameworks applicable to the matter. For the purpose of attempting to remove such inconsistencies, on 26 November 2014, the European Union (hereinafter, the ‘EU’) laid down Directive No. 2014/104/EU (hereinafter, the ‘Directive’)4 related to certain rules governing the actions for damages caused by infringements of competition law in member States (hereinafter, the ‘Member States’) and the EU. This rule became effective on 25 December 2014 and forces Member States to implement it by no later than the end of 2016. By means of the creation of a common legal framework for the EU, the intention is to overcome legal insecurity and the obstacles that have discouraged private actions, in order to lay the ground for the victims of antitrust violations (e.g., cartels or the abuse of a dominant market position) to be able to claim compensation.5 In Argentina, there are obstacles for the aggrieved party at the time of attempting to claim such damages, including, without limitation: (i) the difficulty involved in producing the evidence to prove the existence of the unlawful activity, since, generally, such evidence is complex and is usually in the possession of those who committed the illegal act and, therefore, is not easily accessible by the aggrieved party; (ii) the claims often involve small amounts, which do not justify engaging in expensive and lengthy

1 Foer, Albert A. and Stutz, Randy M., Private Enforcement of Antitrust Law in the United States: A Handbook, Edward Elgar Publishing, Inc., 2012, p. 13. 2 For a more thorough analysis of the subject, see Trevisán, Pablo, ‘Compensation for Damages for Infringement of Antitrust Laws’, JA 2013-IV, part 4, Ed. La Ley, Buenos Aires, 2013. 3 See ‘Sourcebook of Criminal Justice Statistics Online’, Table 5.41, http://www.albany.edu/sourcebook/pdf/t5412012. pdf (Antitrust Cases filed in U.S. District Courts, by type of case, 1975-2012). 4 OJ L 349, 5 Dec. 2014, pp. 1-19. 5 Migani, Caterina, ‘Directive 2014/104/EU: In Search of a Balance between the Protection of Leniency Corporate Statements and an Effective Private Competition Law Enforcement’, Global Antitrust Review 2014, p. 81.

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court proceedings; and (iii) the length of time required for the competition authority to investigate and solve the cases reported to it. Certain difficulties similar to those currently present in Argentina, as well as other specific reasons in the region, led Europe to establish a general legal framework applicable all throughout the EU, designed to provide a solution to these major difficulties. The system adopted in the EU is intended to lay the ground for the parties aggrieved by these antitrust violations, so that the actions for damages in the EU may evolve on a more organized basis. Taking into account that some of the difficulties Argentina’s legal system is facing nowadays are similar to those of the European systems, we will first briefly outline the background and current status of the issue, and we will then analyze, on a comparative basis, the solution proposed by the Directive to some of these difficulties, and that currently offered by the Argentine legal system. We will not go deeper into the analysis of the virtues and/or flaws of the Directive, but, instead, we will solely outline the main aspects thereof that we believe are relevant for a comparison with the Argentine legal framework.

II. Brief description of the background and development of antitrust damages actions

1. Background in the United States and Europe Historically, this type of civil suit for damages as a result of antitrust violations has more often occurred in the United States. In the United States, aggrieved parties may even claim treble damages, and they may file class actions and obtain contingent fees for the attorneys involved, which significantly encourage the filing of these actions. Conversely, in the EU, the public enforcement system of Competition Law prevails over private actions. The EU has mostly focussed on the investigations and penalties imposed by the relevant antitrust authorities, which are primarily for deterrent purposes. The development of civil suits for damages has been slow in the EU,6 and has been mainly limited, in the past few years, to certain European jurisdictions, such as the United Kingdom, Germany or the Netherlands.

6 Haasbeek, Luke and Canetta, Emanuela, ‘The Directive on Antitrust Damages Actions (2014/104/EU)’, DG Competition Private Enforcement Unit, ABA Programme, ‘Litigation in Europe after Passage of the EU Directive on Antitrust Damages Actions’, 15 Dec. 2014. The authors state that, notwithstanding the growing trend, during the period 2006-2012, less than 25% of the decisions of the European Commission were followed by damages actions.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 339 Compensation for damages as a result of antitrust violations: European Union and Argentina

The Directive is primarily intended to reverse the current situation as regards compensation for damages as a result of antitrust violations, since, even though there has been progress on the matter in the past few years,7 redress for damages is one of a few areas in Competition Law that has not achieved consistent growth in EU books of authority and case law. Pursuant to the principle of effectiveness, the Directive instructs Member States to ensure that all domestic rules and procedures related to the filing of actions for damages are devised and enforced in such a manner that they do not make it virtually impossible or excessively difficult for the EU to exercise its right to full compensation for damages caused as a result of an infringement of Competition Law.8 In this respect, the Directive attempts to reconcile certain inconsistencies existing between the legal systems of the various Member States and optimize the interaction between public and private enforcement of Competition Law by establishing minimum rules permitting the bringing of actions for damages all throughout the EU. The Directive has been emphatically encouraged by the European Commission, which has described the Directive as the most important legal initiative of the past few years.9 However, it has also been subject to criticism from certain legal scholars.10 We should analyze what the facts really are in order to determine the actual impact this Directive will have.

2. Background in Argentina In Argentina, we might well state that the actions for damages on antitrust matters have not got off the ground yet. Since the enactment of Argentine Antitrust Law No. 25156 (hereinafter, the ‘Antitrust Law’),11 there have been just a few cases seeking to impose civil liability upon the perpetrators of antitrust violations. Even though there have been some precedents that could have been an indication that this type of action would occur more often in Argentina, the truth is that, to date, very little has happened in this respect.

7 The right to compensation for antitrust damages and the application of Arts. 101 and 102 TFEU have been clearly upheld by the ECJ, specifically in the following cases: Judgment in Courage, C-453/99, EU:C:2001:465 and Judgment in Manfredi, joined cases C-295-298/04, EU:C:2006:461 and, more recently, in the Judgment in Kone, C-557/12, EU:C:2014:1317. 8 Art. 3 of the Directive. In addition, whereas Clause 9 of the Directive provides as follows ‘(...) It is necessary to ensure a more level playing field for undertakings operating in the internal market and to improve the conditions for consumers to exercise the rights that they derive from the internal market.’ 9 Joaquín Almunia, the former Commissioner for Competition of the European Commission, has said that the Directive was the most important initiative during his term of office. On the other hand, Margrethe Vestager, the current European Commissioner for Competition, expressed that the Directive will make it easier for European citizens and undertakings to receive actual compensation for damages caused by antitrust violations. 10 Kortman, Jeroen and Wesseling, Rein, ‘Two Concerns regarding the European Draft Directive on Antitrust Damage Actions’, CPI Antitrust Chronicle, August 2013; Kortman, Jeroen and Swaak, Christof, ‘The EC White Paper on Antitrust Damage Actions: Why the Member States are (Right to Be) Less Than Enthusiastic’, ECLR, Volume 30, Issue 7, 2009, p. 340. 11 Law No. 25156, http://www.infoleg.gob.ar/infolegInternet/anexos/60000-64999/60016/texact.htm.

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The development of the matter in Argentina is not too different from the EU in 2004, when they began to analyze in depth the status of the situation surrounding the private enforcement of antitrust laws, which resulted, ten years later, in the recently published Directive. The findings at the time presented by the law firm Ashurst12 to the European Commission concluded that the matter was completely ‘underdeveloped’ in the EU. Such diagnosis is not far from the current situation in Argentina since, following the enactment of the Antitrust Law, there have been just a very few cases seeking to impose civil liability for antitrust violations.13 The ‘underdeveloped’ status of private enforcement of antitrust laws in Argentina is largely due to the fact that significant changes are required in the applicable legal system to create adequate conditions permitting antitrust damages actions to have a reasonable framework available in Argentina for development thereof. Many of these changes are similar to those that have been demanded all throughout the EU, and the Directive is attempting to reverse such situation.

III. Material aspects of the Directive We will now analyze the Directive, emphasizing its most relevant chapters and, more specifically, reviewing those specific topics that might be of special interest in connection with the Argentine legal framework applicable to antitrust damages.

1. Full Compensation

(a) General principle The Directive initially provides, as a general principle, that the Member States of the EU shall ensure that any victim of an infringement of Competition Law shall obtain ‘full compensation’14 for the harm sustained. Full compensation means ‘compensation for the actual loss and loss of profit, as well as payment of any interest accrued as from the time the harm was caused.’15

12 Ashurst Report, ‘Study on the conditions of claims for damages in case of infringement of EC competition rules’, http://ec.europa.eu/competition/antitrust/actionsdamages/study.html. 13 Trevisán, Pablo, ‘Compensation for Damages for Infringement of Antitrust Laws’, JA 2013-IV, part 4, Ed. La Ley, Buenos Aires, 2013. 14 Dir. 2014/104/EU, Art. 1, Section 1: ‘1. This Directive sets out certain rules necessary to ensure that anyone who has suffered harm caused by an infringement of competition law by an undertaking or by an association of undertakings can effectively exercise the right to claim full compensation for that harm from that undertaking or association (...).’ Dir. 2014/104/EU, Article 3, Section 1: ‘1. Member States shall ensure that any natural or legal person who has suffered harm caused by an infringement of competition law is able to claim and to obtain full compensation for that harm.’ 15 Dir. 2014/104/EU, Art. 3, Section 2: ‘2. Full compensation shall place a person who has suffered harm in the position in which that person would have been had the infringement of competition law not been committed. It shall therefore cover the right to compensation for actual loss and for loss of profit, plus the payment of interest.’

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 341 Compensation for damages as a result of antitrust violations: European Union and Argentina

The same principle governs Argentine Law. The harm sustained by the victim as a result of the antitrust violation consists of two elements: (i) actual loss (damnum emergens) for non-performance of the obligations owed to the victim; and (ii) loss of profit (lucrum cessans) for the gain of which that person has been deprived as a result of the offending party’s breach. Pursuant to Argentine Law, the compensation for damages as a result of competition offences will consist in the valuation in money of the entire damage that the violator will have to pay in favour of the victim. On the basis of the need for justice, the main purpose of this compensation consists in attempting to remedy the imbalance caused to the legal system as a result of the violator’s breach, and restore the victim to the financial situation that is closest to the situation in which the victim would be had the competition offense not occurred (balancing and levelling function). In addition, for the damage involved to be capable of being remedied, the typical requirements applicable to civil liability must be satisfied. That is to say, the damage must be actual (and not potential), persist at the time demanded, personal to the individual or legal entity seeking compensation, affect a lawful interest of the aggrieved party and have a causal connection with the offense attributed to the offender. Special emphasis should be placed on the fact that within the framework of private competition, the harm must necessarily be unlawful, since many of the harms caused in antitrust matters may be lawful. That is to say, harm may be caused as a result of the normal operation of the freedom of competition in the market, which, consequently, must be borne and is not subject to compensation.

(b) Punitive damages The Directive expressly provides that ‘full compensation’ may not give rise to excessive compensation, whether in the form of punitive damages, multiple compensations or other types of compensations.16 Under the Argentine legal system, the compensation must be primarily for redress purposes. So far, the characteristics and scope of both systems are very similar. However, and unlike the solution offered by the Directive in the EU, we believe that nothing in the Argentine legal system prevents the victim of antitrust offences from expressly requesting the court that a penalty be imposed upon the violator as punitive damages,17 as provided under Section 52 bis of Consumer Protection Law No. 24240.18

16 Dir. 2014/104/EU, Art. 3, Section 3: ‘3. Full compensation under this Directive shall not lead to overcompensation, whether by means of punitive, multiple or other types of damages.’ 17 Lorenzetti, Ricardo L., La responsabilidad civil, LLP 2002-1302. In this book, Lorenzetti states that one of the main roles of tort liability is to prevent torts, which is fulfilled by means of the protection granted by restraining orders, including, without limitation, punitive damages. 18 Law No. 24240, Section 52 bis: ‘Punitive Damages. Any supplier failing to perform the obligations prescribed by law or contract towards the consumer may, if requested by the aggrieved party, be subject to the imposition of a civil fine by the courts in favor of the consumer, which fine shall be adjusted depending upon the seriousness of the event and other circumstances of the case, regardless of any other remedies available. Whenever two or more suppliers are liable for the breach, they shall all be jointly and severally liable to the consumers, notwithstanding

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Under Argentine Law, punitive damages represent an undoubtedly useful tool to reinforce the deterrent effect upon potential violators of the Antitrust Law, restrict the abuses of certain firms and, particularly, prevent situations in which it might seem cheaper to cause the harm and then remedy it, instead of preventing the harm at all. In this respect, for the purpose of the application of this tool within the context of damages actions for antitrust violations, we believe that evidence shall be given of the existence of the three main elements required by Section 52 bis of Consumer Protection Law No. 24240: (i) a consumer relationship; (ii) a supplier that breaches the obligations prescribed by law or contract; and (iii) a consumer that has sustained harm. In light of these three elements, and subject to the victim having previously and expressly claimed punitive damages, the court shall evaluate whether such petition should be sustained.

2. Statute of limitations In the EU, Member States must establish a statute of limitations for exercising these actions of at least five years, as provided under Paragraph 3 of Article 10 of the Directive. This statute of limitations shall start to run on the date the claimant becomes, or is reasonably expected to become, aware of the fact that the defendant has committed an antitrust violation resulting in harm to the claimant. The Directive also provides for the obligation to interrupt the running of the statute of limitations during any on-going investigations (in connection with the infringement of the antitrust regulations that caused such harm). Such interruption shall continue in effect for not less than one year following a final decision by the domestic authority. In practice, the foregoing may expose violators to an extremely long period of time during which they might be sued. Regarding the statute of limitations under review, the Argentine legal system has a legal framework that is similar to that contained in the Directive. In Argentina, the liability for antitrust violations is primarily tort liability. Notwiths- tanding the foregoing, it should be noted that the term of the statute of limitations applicable to the action is not two years as provided under Section 4037 of the Argentine Civil Code (nor that of Section 847 of the Argentine Commercial Code). In these cases, the five-year term provided for under Section 54 of the Antitrust Law applies, which governs all actions arising out of the Antitrust Law, including civil actions for damages as a result of antitrust violations. The special rule (i.e.,Section 54, Antitrust Law) prevails over the general civil rule on the matter (i.e.,Section 4037, Argentine Civil Code). However, as an exception, it should be noted that in certain cases, the ten-year statute of limitations has been applied when the victim of the harm caused as a result of the

any actions for recovery available to them. The civil fine imposed may not exceed the cap of the fine provided for under Section 47, Subsection b) of this law.’

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 343 Compensation for damages as a result of antitrust violations: European Union and Argentina antitrust violation was able to prove that there was a contractual relationship with the violator. So was it resolved in the case Auto Gas,19 taking into account that the relationship could be otherwise proved by means of, including, but not limited to, invoices, delivery notes and registered letters, which reasonably convinced the Judge, in accordance with the provisions of Section 1190 and subsequent Sections of the Argentine Civil Code. With respect to the date that must be taken into account for the statute of limitations to start running, we believe that there might be two scenarios within the framework of Argentine Law, depending on whether or not there has been a prior administrative resolution: (i) if there has not been a final resolution by the administrative authority: we believe that, even though, as a general principle, the statute of limitations for torts starts running on the date when the tort occurred, when the victim is not aware of the existence of the harm, the statute of limitations should start running as from the date when the victim becomes aware of the harm;20 (ii) if there has been a final resolution by the administrative authority: in this case, we believe that the statute of limitations starts running as from the date such resolution becomes final, whether it is (a) an administrative resolution laid down by the antitrust authority imposing the penalty or (b) a court decision confirming such penalty, if any.

3. Joint and several liability As provided under Article 14 of the Directive, Member States shall ensure that the companies that have infringed competition law shall be jointly and severally liable for the payment of the compensation in full. As opposed to the Argentine legal system, the Directive provides for the application, all throughout the EU, of two exceptions to the preceding general rule: • A company that has been exempted from the payment of the penalty by application of the leniency programme shall only be liable for the damage caused to its (direct or indirect) purchasers when the claimant can prove that full compensation may not be obtained from the other infringing companies. This limitation is not applicable under the Argentine legal system because, to date, there are no leniency programmes in Argentina in connection with antitrust matters. • Small and medium-sized companies that have not led the infringing conduct, or coerced other companies into becoming involved in such conducts, and which

19 See JNCom. No. 14, Court Clerk’s Office No. 27, 16/9/2009,Auto Gas S.A. v. YPF S.A. y otro s/ordinario, where the court resolved as follows: ‘In this respect, since we are dealing with an action seeking compensation for damages resulting from the agreement between the parties, the statute of limitations provided for in Section 4037 of the Argentine Civil Code is not applicable to the extent this breach does not involve tort liability. The hypothesis described upon which the complaint is based falls within the scope of the ten-year statute of limitations, as provided by Section 4023 of the Civil Code, since we are dealing with a non-standard contract with no specific statute of limitations.’ 20 See CNCiv., Division E, 10/25/1994, in re Lovera Maruto v. Fernández, Alejandro; CNCom., Division C, 9/5/2006, in re Chemlik Martinec, Andrés v. Firestone de Argentina; Id., Division D, 8/18/2007, in re Mattei, Ana María v. Banco de la Ciudad de Buenos Aires; CNCiv., Division E, in re 15/12/2010, Benítez, Elena C. v. Interacción A.R.T. S.A. s/ordinario.

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have not been previously penalized due to an infringement of antitrust laws, shall only be liable for the damage caused to their (direct or indirect) purchasers, provided that: (i) their market share has been less than 5% during the period of the infringement, and (ii) the application of the general rule referred to above causes irreparable harm to its economic viability. Such limitation is not expressly provided under the Argentine legal system. Any infringing firm may demand from any other company the involvement of which in the conduct has been evidenced, by means of an action for recovery, a contribution for the payment of the compensation, the amount of which shall be set taking into account its relative liability for the damage caused. In the EU, the amount of the contribution of a company that has been exempted from the payment of the penalty under a leniency programme may not exceed the amount of the harm caused to its own (direct or indirect) purchasers. Such protection also applies to any infringing firm that enters into a settlement with the claimants.

4. Legal standing to sue and the passing-on defence Article 12 of the Directive adopts the criterion of the legal standing to sue for both direct and indirect purchasers.21 This criterion had been upheld in the EU under the decision laid down in the case Courage.22 Pursuant to such decision, in Europe, damages may be claimed by firms as well as by any other aggrieved third party, whether consumers, users, shareholders, investors or any person adversely affected by the restrictive practices. The Directive therefore adopts a compensatory approach: its purpose is to compensate those who have been harmed by an infringement of competition rules, which compensation shall be borne by the infringing firm(s). We understand that an approach similar to that applicable in the EU is applicable in Argentina. In this respect, compensation for damages under Section 51 of the Antitrust Law may be sought by both the parties directly affected by the anticompetitive practices and the competitors excluded by the predatory practices, whether or not they have a relationship with the infringing firm, as well as the consumers that have paid price increases as a result of an abuse of dominant position or other anticompetitive practices, and the employees or suppliers of such excluded competitors.

21 It should be noted that, in the EU, some domestic legal systems contain restrictive rules concerning the legal standing to sue for damages actions related to the freedom of competition. The various Member States are expected to adjust their systems as provided by the Directive. In civil law systems based on the Roman-Germanic tradition, the issue regarding competition offences has been more or less clear in those jurisdictions that have adopted the French Civil Code (Section 1382), thus permitting a broader approach with respect to who has legal standing to sue. However, there have been certain problems in countries that have adopted the German system of Schutznorm, whereby the plaintiffs claiming damages should belong to a group of persons that is intended to be protected by the lawmaker. On the other hand, in other countries –such as Italy -- courts have found it difficult to grant legal standing to sue to certain persons, particularly consumers, as a result of the distinction between legal rights (diritti soggettivi) and lawful interests (interessi legitimi). Pursuant to this approach, competition rules are only intended to protect lawful interests and consumers may not make use of this protection (which approach, in turn, is currently being discussed in the Italian courts). 22 Judgment in Courage, EU:C:2001:465.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 345 Compensation for damages as a result of antitrust violations: European Union and Argentina

In this respect, it should be noted that the civil liability applicable under both Argentine Law and EU Law is broader than that of the United States,23 where only direct purchasers have legal standing to sue. In connection with the ‘passing-on’ defence, Article 13 of the Directive provides that Member States shall ensure that the defendant may allege that the overcharges resulting from the anticompetitive practices have reverberated ‘downstream’ in the market. The foregoing is intended to prevent claimants that have passed on their losses to their customers from obtaining compensation. Defendant shall prove that the excessive cost was actually passed on by claimant. For such purpose, defendants may require disclosure of evidence from defendant or third parties. In Argentina, any aggrieved party may claim compensation for damages, adopting an approach that is most similar to the EU approach. Accordingly, the decision in Auto Gas24 also sheds some light on the viability of asserting the passing-on defence by resolving to sustain in part the defence filed by YPF in this respect. Specifically, the court held that a portion of the damage claimed by plaintiff was not capable of being compensated, because plaintiff had passed on ‘downstream’ a portion of the price increase claimed from defendant. On the basis of the foregoing, we believe that indirect purchasers (e.g., final consumers) may claim for the excess of the portion of the damage not granted to the direct purchaser, i.e.,the plaintiff in the case Auto Gas.

5. Nature of the resolutions of the competition authorities Article 9 of the Directive provides that Member States shall ensure that final decisions rendered by competition authorities or by review courts shall be deemed irrefutable for the purposes of an action for damages brought within the same national State.25 Such final decisions, when taken in another Member State, shall be presented before their national courts as at least prima facie evidence that an infringement of competition law has occurred. It should be noted that in Argentina, as opposed to the provisions contained in the Directive with respect the irrefutable nature of such decisions inside each Member State, the Antitrust Law does not expressly provide decisions rendered by the competition authority with the same effect.

23 Cabanellas de las Cuevas (h.), Guillermo, ‘Derecho...’, cit., t. II, p. 390. 24 See Auto Gas, where the Court took into account the information supplied by CNDC that the price increases had been passed on to the final price paid by consumers (i.e., the persons adversely affected by YPF’s acts had been mainly the consumers, and not GLP’s distributors). Based upon the accounting expert’s report, the court decided to accept 30% of the amount claimed by the plaintiff. 25 To date, the countries in which the system provides for the binding effect upon civil courts of the resolutions laid down by the antitrust authority are: United Kingdom (Sections 58A and 47A of the UK Competition Act 1998), Germany (Section 33.4 of the GWB (i.e.,German Competition Law), Hungary (Section 88/B.6 of the Hungarian Competition Law), Poland (as provided by the Supreme Court of Poland). On the other hand, in certain European countries there is still a certain degree of refusal to accept the binding effect of the decisions of the administrative authority, such as Spain (see Ibáñez Colomo, Pablo, ‘A Spanish Court refuses to qualify a contract as a resale agreement and holds that the qualification given by “administrative bodies” to similar agreements is not binding upon national Courts [Melón/Repsol]’, e-Competitions, No. 171, 7/7/2004).

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The Argentine legal system should have provided that, in those cases where the competition authority has actually heard and decided a case related to anticompetitive practices that are the subject-matter of a civil action, such decisions may be comparable to a res judicata decision, so that they may serve as basis for courts and the parties to the proceedings (i.e.,follow-on actions under Comparative Law). The foregoing, in addition to making the burden of proof upon the victims lighter, will also permit proceedings to be conducted as summary proceedings and not ordinary proceedings -as is currently the case.

In this respect, special reference should be made to the decision of the Court in the case Auto Gas,26 already referred to above, which held that the anticompetitive behavior attributed to YPF would not be discussed because the same had already been considered and penalized by CNDC and confirmed by the Supreme Court of Justice. Consequently, the Court held that evidence had already been given that the act had been performed with fraudulent intent.

6. Collective redress mechanisms The Directive does not provide for the possibility of filing class actions for damages.

The first formal precedent of the Directive, theEuropean Commission’s Green Paper of 2005, stated that, for practical reasons, it was very unlikely, if not impossible, that consumers and purchasers with small claims may file an action for damages for breach of antitrust laws. Therefore, efforts were made to find the ways in which these interests may be best protected by class actions, thus saving time and money.

However, after the relevant public consultations, both on the Green Paper and on the subsequent White Paper of 2010, the recent Directive chose not to provide anything concerning class actions specifically applicable to antitrust matters and, instead, the European Commission adopted a horizontal approach providing for common proposals on class actions for all political spheres, including antitrust matters, in which damages are often caused, which consumers and small and medium sized companies find it difficult to recover.27 Even though it is a legally non-binding document, Member States are advised that they should allow for the possibility, in their legal systems, to bring opt-in class actions for infringements of the EU laws.

26 See Autogas, Clause II, Para. 1: ‘It should be noted that, concerning the abuse of dominant position, such aspect has been finally established. The foregoing on the basis of the decision laid down by the Antitrust Authority (CNDC) resulting in a penalty imposed upon YPF S.A. by the Secretariat of Industry, Trade and Mining under Resolution No. 189/1999 (Exhibit V to the Complaint), which was fully supported by Division B of the Court of Appeals in Criminal and Economic Matters in the decision dated 11/24/2000 (Exhibit VI to the Complaint), as confirmed by the Supreme Court of Justice of the Republic of Argentina.’ 27 Communication from the European Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Towards a European Horizontal Framework for Collective Redress, COM, 2013, 401 final.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 347 Compensation for damages as a result of antitrust violations: European Union and Argentina

Several Member States have recently approved domestic rules allowing for the filing of class actions for damages as a result of infringements of competition law.28

In Argentina, the constitutional reform of 1994 extended the spectrum of persons entitled to sue, which was traditionally limited to those holding an individual legal right.

Later, the Argentine Supreme Court, in its decision in the case entitled Halabi29 tried to clarify the scope and application of certain constitutional rules and invited the Legislature to adequately regulate the matter, under the guidelines set forth in Halabi. Thus, the Court shed some light on the scope of Article 43 of the Argentine Constitution, more specifically paragraph two thereof,30 by incorporating class actions into the Argentine legal system. Hence, the case Halabi has become a clear turning point with respect to collective redress mechanisms, since the position upheld in such decision was successively confirmed in decisions rendered subsequently to Halabi and in the recent Decree 32/2014.31

Concerning the Supreme Court’s invitation, we believe that collective redress mechanisms should be specifically regulated, just as several EU Member States have done as well. Section 1432 of the Argentine Civil and Commercial Code, which will become effective on August 2015, only provides for certain general and basic guidelines on the matter.

These proceedings may be an important tool for the purpose of permitting the growth of damages actions for antitrust violations, particularly, when it comes to cases involving insignificant amounts, which do not justify the commencement of separate legal actions.

28 For example, the cases of the United Kingdom and France. In France, the new Consumer Protection Law (known as Loi Hamon, published on 18 Mar. 2014), incorporated a specific legal framework for opt-in class actions. On the other hand, the United Kingdom is expected to soon pass the bill that is currently being discussed in Parliament, which will introduce opt-out class actions. 29 Supreme Court, Decisions 332:111. 30 Argentine Constitution, Art. 43, para. 2: ‘This action may be brought against any form of discrimination and, in connection with environmental, competition and consumer protection rights, as well as collective rights in general, by the aggrieved party, the Ombudsman and the associations designed for such purposes, to the extent registered as prescribed by law, which shall determine the conditions and formal requirements for organization thereof.’ 31 Supreme Court, Cavalieri, Jorge y otro v. Swiss Medical S.A s/amparo, 26 June 2012, Decisions 335:1080; Supreme Court, PADEC v. Swiss Medical S.A s/nulidad de cláusulas contractuales, 21 Aug. 2013, expediente Letra P, nro. 361, t. XLIII; case M.1145 XLIX, Municipalidad de Berazategui v. Cablevisión s/amparo, 23 Sept. 2014; Decree 32/2014, which creates the Public Registry of Class Actions filed with the courts of the Argentine Judiciary. 32 Argentine Civil and Commercial Code, Article 14: ‘Individual and Collective Rights. This Code recognizes: (a) individual rights; (b) collective rights. The law does not allow for the abusive exercise of individual rights when doing so might severely affect the environment and collective rights in general.’

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IV. Other matters governed by the Directive So far we have dealt with the issues we understand are more relevant for the purposes of analysis thereof in connection with the Argentine legal system applicable to antitrust violations. The Directive contains other relevant aspects which will most certainly have an impact upon the legal framework applicable to antitrust damages at EU level, but which, as far as we are concerned, are not very much related to Argentina’s reality. We will briefly outline the major aspects below.

1. Disclosure of evidence This change proposed by the Directive will entail a significant change for several jurisdictions, including for those that already have a broad pre-trial discovery system (as is the case of the United Kingdom). The treatment afforded by the various EU legal systems to the scope of the obligation to disclose evidence by defendants or third parties has been an essential element of the popularity of certain jurisdictions (e.g., United Kingdom) for those who are claiming damages as a result of infringements of antitrust laws. This is due to the fact that antitrust litigation typically presents substantial information asymmetry and the extent to which claimant may demand the disclosure of relevant documents belonging to defendant is essential for the purpose of establishing liability (in a stand-alone action, i.e.,not yet decided by the competition authority), the causal connection and quantification of harm (both in stand-alone actions and in follow-on actions, i.e.,those brought subsequently to the decision rendered by the competition authority). Section 1 of Article 5 of the Directive grants domestic courts the power to order defendant or a third party to disclose relevant evidence. However, such power must be reasonably exercised on a proportionate basis. The purpose of this limit is to prevent fishing expeditions by providing that domestic courts shall ‘prevent non-specific searches for information which is unlikely to be of relevance for the parties in the procedure.’ In addition, Member States shall also ensure that domestic courts shall fully respect the confidentiality of such information as protected by professional secrecy under the laws of each Member State and the EU (particularly, communications between independent counsels and clients), and have at their disposal effective measures to protect such confidential information. A competition authority may only be required to facilitate evidence where it is not reasonably possible to obtain such evidence from a party to the proceedings or from a third party.

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2. Disclosure of evidence included in the file of a competition authority. Protected documents In connection with the documents that have been entered on the files of antitrust authorities, the Directive provides for a general rule in Article 6 thereof, whereby domestic courts may require competition authorities to disclose evidence contained in their files only where no party or third party is reasonably capable of providing such evidence.

The Directive also makes a distinction between documents that may never be disclosed (‘Black List’), those that may only be disclosed when the proceedings have been completed (‘Grey List’) and, finally, all other documents (‘White List’).

Such distinction, on the one hand, allows for the disclosure of a wide range of evidence entered on administrative case files and, on the other hand, maintains the appeal of leniency programmes by limiting the risk that certain documents filed with administrative authorities by a leniency applicant may be subsequently used against him/her within the framework of civil actions for damages.

• The ‘Black List’: In no event may domestic courts order the disclosure of corporate statements made by leniency applicants or settlement submissions.

The European Commission has chosen to excuse the disclosure of corporate statements contained in a leniency application for the purpose of safeguarding the companies that might be interested in cooperating with it in the identification of cartels.

By means of such absolute prohibition, the European Commission intends to end the uncertainty created by the Court of Justice of the EU in its decision laid down in Pfleiderer33, where it held that, in the absence of community rules on the matter, domestic courts are to decide on a case-by-case basis whether or not to grant access to the documents supplied by a leniency applicant.

• The ‘Grey List’: Once the competition authority has rendered its decision and closed the administrative proceedings, domestic courts may order the disclosure of documents such as requests for information and related answers, list or charges/ accusations or settlement submissions that have been dismissed by the competition authority.

• The ‘White List’: Domestic courts may order, at any time, the disclosure of documents that do not fall into any of the categories listed above.

33 Judgment in Pfleiderer, C-360/09, EU:C:2011:389.

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V. Conclusions Private enforcement of competition law is perhaps the only way to compensate the damages sustained as a result of antitrust violations. We have noted that the antitrust private enforcement system is currently in its early stages in Argentina. For the purposes of development thereof, the required conditions should be created so that individuals and companies that are victims of these unlawful acts may be sufficiently encouraged to file this type of claims. We have already noted the relationship between public and private enforcement of competition law and how private enforcement plays a significant deterrent role in such relationship. For such deterrent effect to occur in Argentina, it is important that the mere threat of antitrust damages actions becomes a reality and not just a remote possibility. In Europe, some of the difficulties of the private enforcement system are not very different from those in Argentina. Europe, in addition, is faced by the aggravating circumstance that in the EU there are tens of different legal systems. However, for the purpose of reconciling the various legal systems, the EU has laid down the Directive, whereby it creates a regulatory framework common to all Member States. A similar solution may be attempted in Argentina in order to lay the foundations that may permit a more consistent and foreseeable development of the Argentine private enforcement system of competition law. As noted above, the Directive provides for some valuable aspects that are worth analyzing under Argentine Law, bearing in mind that some of the solutions proposed by the Directive might be applicable to Argentine reality.

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James S. Venit*

In 1984, Ian Forrester and Christopher Norall published their seminal article, ‘The Laicization of Community Law – Self Help and the Rule of Reason.’1 In that article the authors focussed on two aspects of the EU’s enforcement system: (i) the prior notification of restrictive agreements as a pre-condition for exemption; and (ii) and the application of a rule of reason in assessing the applicability of then Article 85(1).2 They concluded that the prior notification system was ‘broken’ and had at least two very undesirable consequences: (i) the irremediable procedural consequence that an exemptible agreement was void if it had not been notified notwithstanding its pro-competitive nature; and (ii) the Commission’s inability to deal with the volume of agreements notified to it. To address these systemic procedural failures, Forrester and Norall advocated replacing the prior notification system under Regulation 17/62 and eliminating the Commission’s monopoly on the application of Article 85(3) via a set of reforms that included (i) application of Article 85(3) by the national courts;3

* The views expressed herein are those of the author only and do not reflect the views of any past or present clients.

1 Ian Forrester and Christopher Norall, ‘The Laicization of Community Law – Self Help and the Rule of Reason’, 21 Common Market Law Review 1, 11-51 (1984). 2 Since 1984, the numbering of the Treaty Articles setting forth the competition rules has changed twice. This article will use the numbering system in force at the time of the relevant decisions, judgments and articles referred to.

3 Forrester and Norall advocated the use of an opposition procedure which would have permitted the Commission to intervene or influence the national courts’ handling of a case. Forrester and Norall, cited above note 1, at pp. 42-43. The decentralization established under Regulation 1/2003 did not include such procedures, although it did provide for Commission pre-emption vis-à-vis the national authorities and mandated national consistency with prior or contemplated Commission decisions. Regulation 1/2003, at Art. 16(1). Art. 15(3) also gave the Commission

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(ii) increased reliance on private actions to enforce the competition rules; and (iii) on the substantive side, a more relaxed ‘rule of reason’ approach to Article 85(1) which would preclude its application to ‘reasonable’ restrictions.4 These reforms, the authors said, would enable the Commission to do more by doing less – focusing on policy issues, prosecuting only the most important cases and providing guidance on the correct interpretation and application of Community law.5

Nearly twenty years later, the European Commission responded boldly to these procedural proposals by adopting Regulation 1/2003, which replaced the system of prior notification by a decentralized regime of self-assessment and national enforcement supervised by the EU courts.6 In so doing, the Commission arguably went further than Forrester and Norall had advocated by putting an end to the notification system and allowing national competition authorities and courts to apply Article 81(3) under the supervision of the EU courts.7 Whereas the reforms Forrester and Norall had proposed were primarily viewed from the demand-side perspective of consumers of competition law whose interests lay in a more efficient, supple system, the Commission viewed the new system of decentralized enforcement from the supply side as a mechanism for setting priorities and establishing control over its enforcement agenda.8

A positive response to the article’s substantive proposal for the introduction of a rule or reason was rendered more difficult by the bifurcated nature of Article 101 and the Commission’s early ordoliberal tendency to equate restrictions of contractual freedom with restrictions on competition.9 Nevertheless, by 1984 there had been a number of Commission decisions and Court Judgments that had reduced the scope of Article 85(1) as concerns restrictions designed to avoid channel confusion in distribution systems (Distillers/Victuallers, Metro, Villeroy & Boch), exclusive rights (Maize Seed,

the power to intervene as amicu curiae before the national courts. 4 Ibid, at pp. 38-40. 5 Ibid, at p. 38. 6 Council Regulation (EC) No 1/2003 on the implementation of the rules of competition laid down in Articles 81 and 82 of the Treaty (16 December 2002), 2003 OJ L1/1. See James S. Venit, ‘Brave New World: The Modernization and Decentralization of Enforcement Under Articles 81 and 832 of the EC Treaty’, 40 Common Market Law Review 3, 545-580 (2003).

7 Forrester and Norall also envisioned private enforcement as a key element of a modernized enforcement system. Forrester and Norall, cited above note 1, at pp. 44-45. Although third-party enforcement had already become a feature of some national systems, in 2014 the Parliament adopted a directive on national damages action whose accent was ensuring compensation for harm suffered as a result of infringement of the competition rules. Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union, 2014 OJ L349/01. The emphasis on compensation suggests that cultural acceptance of private actions as an enforcement mechanism is far less embedded in Europe than in the US.

8 According to the Commission’s ‘White Paper on Modernisation of the Rules Implementing Articles 85 and 86 of the EC Treaty’, 28 April 1999 available at http://europa.eu/documents/comm/white_papers/pdf/com99_101_en. pdf (the ‘White Paper’), the main goal of the reform was to enable the Commission to ‘refocus its activities on the most serious infringements of Community law in cases with a Community interest.’ White Paper at para. 13.

9 In the oral argument before the Court of Justice in Grundig-Consten¸ the Commission stated that ‘The decisive criterion for the coming into force of the prohibition mentioned in Article 85(1)…consists of the finding that the agreement interferes with the freedom of action of the parties or with the position of third parties on the market not only in a theoretical but also in a perceptible manner.’ Judgment in Consten and Grundig v Commission of the EEC, joined Cases C-56 and C-58/64, EU:C:1966:41, para. 326.

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Coditel) and non-compete clauses (Remia), and restrictions on acting outside a purchasing cooperative (Gattrup-Klim), which sharply curtailed the ordoliberal approach to Article 101.

Further steps were also taken in the period between 1900 and 2000 to increase the role of economic analysis, with some of the key milestones being the Commission’s 1996 Green Paper on Vertical Restraints,10 followed in 1999 by the revised Vertical Agreement Block Exemption Regulation,11 in 2000 by the Guidelines on Vertical restraints,12 and in 2004 by the Commission’s horizontal guidelines.13

The Commission’s modernizing initiatives in respect of Article 101 received a considerable boost from the judgment of the Court of First Instance in Night Services14(1998), the judgment of the 2006 judgment of the Court of First Instance in GlaxoSmithKline Services Unlimited15 and most recently the judgment of the ECJ in Cartes Bancaires16 which in their different ways greatly increased the rigour of the analysis under Article 101.

I. Same agenda different outcomes One of the major consequences of the adoption of Regulation 1/2003 (and one of its underlying rationales, from the Commission’s perspective) was the Commission’s ability to set its own enforcement agenda proactively. As a result, that agenda quickly settled into its current focus on cartel enforcement, merger control and regulation of dominant firms, particularly in the area of high tech. As a result, by 2010 it could be said that, in terms of focus, the EU and the US shared a common enforcement agenda. However, it could also be said that, although the enforcement activities of the US and EU agencies were basically aligned in terms of focus, the results in parallel cases frequently differed, as demonstrated by cases such

10 Ekaterina Rousseva, Rethinking Exclusionary Abuses in EU Competition Law, Hart Publishing, 2010, at p 301. 11 Commission Regulation (EC) No 2790/1999 on the application of Art. 81(3) of the Treaty to Categories of Vertical Agreements and Concerted Practices (22 December 1999), 1999 OJ L336/21.

12 Commission Notice – Guidelines on Vertical Restraints, 2000 OJ C291/1. 13 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, 2004 OJ C31/5.

14 Judgment of 15 September 1998 European Night Services Ltd (ENS), Eurostar (UK) Ltd, formerly European Passenger Services Ltd (EPS), Union internationale des chemins de fer (UIC), NV Nederlandse Spoorwegen (NS) and Société nationale des chemins de fer français (SNCF) v Commission of the European Communities, joined cases T-374/94, T-375/94, T-384/94 and T-388/94, EU:T:1998:198. 15 Judgment of 27 September 2006, GlaxoSmithKline Services Unlimited v Commission of the European Communities, T-168/01, EU:T:2006:265.

16 Judgment in Groupement des cartes bancaires (CB) v European Commission, C-67/13 P, EU:C:2014:2204.

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as GE/Honeywell,17 and Oracle/Sun,18 in the merger area, and Microsoft,19 Intel,20 MasterCard/Visa21 and, more recently, Google22 in the enforcement area. II. Ordoliberalism and Article 102 In contrast to Article 101, modernization has proceeded much more slowly (if at all) as concerns Article 102. The resistance of Article 102 to economic analysis was noted by Giuliano Amato, who observed that

17 Commission Decision of 3 July 2001 in Case COMP/M.2220 – General Electric/Honeywell. The DOJ cleared the transaction subject to commitments relating to Honeywell’s helicopter engines business. The European Commission considered that GE held a dominant position in the market for large jet engines and that this would be strengthened, and that Honeywell would gain a dominant position in the markets for small engines, avionics and non-avionics. GE’s proposed undertakings in respect of these concerns did not sway the Commission, which prohibited the transaction.

18 Commission Decision of 21 January 2010 in Case COMP/M.5529 – Oracle/Sun Microsystems. The DOJ cleared the transaction following an extended review. The European Commission ultimately cleared the transaction, having expressed concern that Oracle, a leading proprietary database company, would gain control of the leading open source database MySQL: a public pledge by Oracle to extend MySQL’s functionality and that third parties would be able to continue to develop storage engines integrated with MySQL helped allay the Commission’s concerns.

19 Commission Decision of 24 March 2004 in Case COMP C-3/37.792 – Microsoft; Commission Decision of 16 December 2009 in Case COMP/39.530 – Microsoft (Tying). The DOJ settled with Microsoft after a prolonged battle during which, at one point, it looked as though Microsoft might be split into two companies. Microsoft agreed, inter alia, to not prohibit PC manufacturers from adding competing software programs to PCs and to allow end users to remove middleware products. In its 2004 decision, the Commission ordered Microsoft to disclose protocols so that competitor servers could achieve interoperability with Windows PCs and servers, and to offer a version of the Windows operating system not including the Windows Media Player. Microsoft was also fined EUR 497.2 million. In the 2009 decision, Microsoft responded to Commission concerns regarding the tying of the Internet Explorer web browser to the Windows operating system by committing to make available in the EEA a ‘choice screen’ to enable Windows users to choose between web browsers. In 2013 the Commission fined Microsoft EUR 561 million for failure to comply with the commitment between May 2011 and July 2012 with its Windows 7 Service Pack 1.

20 Commission Decision of 13 May 2009 in COMP C/337.990 – Intel. The FTC settled, with Intel prohibited from making benefits to computer makers conditional on exclusively buying chips from Intel, or withholding benefits from computer makers doing business with non-Intel suppliers. Intel was also required to modify restrictive intellectual property agreements with AMD and others, and make certain disclosures to software developers regarding Intel compilers (programs that translate computer programming languages). The European Commission considered that Intel had implemented a strategy aimed at foreclosing rival AMD from the market for x86 CPUs through the use of conditional rebates, and payments to original equipment manufacturers conditional on the postponement or cancellation of the launch of AMD products, and fined Intel EUR 1.06 billion (Intel is appealing to the Court of Justice following an unsuccessful appeal before the General Court). The issue in the Intel case is not so much the difference in outcome but the quasi per se approach taken by the Commission which was fully upheld by the General Court.

21 Commission Decision of 24 July 2002 in Case COMP/29.373 – Visa International – Multilateral Interchange Fee; Commission Decision of 19 December 2007 in Case COMP/34.579 MasterCard I; Commission Decision of 26 February 2014 in Case AT.39398 Visa MIF. The DoJ challenged rules preventing merchants from offering discounts, rewards and information about card costs to consumers and settled with MasterCard and Visa. American Express did not settle, recently lost at trial in New York and has said that it is planning an appeal. The actual level of interchange fees on debit card transactions is capped under a Federal Reserve ruling, Regulation II (Debit Card Interchange Fees and Routing). The European Commission challenged the level of multilateral interchange fees (‘MIFs’) in its proceedings against Visa and MasterCard and secured commitments to reduce their level. Ultimately, the issue of interchange fees has now moved beyond antitrust to the regulatory sphere on both sides of the Atlantic; in December 2014, the EU Council announced agreement with the EU Parliament regarding regulation of MIFs for cross-border European and domestic payments.

22 Case AT.39740 Google, ongoing. The FTC settled with Google after Google made an informal commitment in relation to its online search advert placing software and specialized search services, and a consent decree addressed FTC concerns regarding Google’s licensing of critical standardized technologies patents. Whilst the FTC considered there to be evidence that Google altered its search algorithms to favour its specialized search websites over competitors, the FTC considered that these alterations could be justified as improving the experience of users. The European Commission’s investigation into Google is ongoing, the Commission having found Google’s commitments proposals in respect of Google search to be wanting in light of negative feedback from market tests.

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…our abuses of dominant positions express a lasting, unchanging severer antitrust orientation than the American ones, and no economic analysis has been able to modify or mitigate the ‘special responsibility’ of firms which, surrounded by weaker competitors, are strongly restricted from conduct that in the USA would today be classed as ‘aggressive’ competition. This means that by a long path that is all our own, and quite far away from the one that at the turn of the century set up the notion of efficiency on the other side of the Atlantic as openness of market processes, we have arrived at adopting one that has a similar aim regarding abuses and continue to be loyal to it, even assuming decisive regulatory nuances in doing so.23 This European exceptionalism has produced a static approach to market power under which a finding of dominance -- whether based on a 90% or a 45% market share24 -- gives rise to special responsibilities which severely restrict the ability of dominant firms to compete, most notably in respect of pricing. Whilst there has been at least one ECJ judgment that appears to have considerably relaxed these constraints, at least in the absence of predation and a finding of intent to exclude,25 and other judgments that have accepted that dominant firms may exclude less efficient competitors,26 the recent General Court judgment in Intel27 has reaffirmed a presumptive per se approach (no need to show actual effects, no de minimis threshold, no need to demonstrate that the discount is the decisive factor in customer choice, no application of a price cost test to see if the discount is exclusionary) to exclusive rebates, and has done so in a case in which the facts concerning exclusivity were sometimes murky, where exclusive discounting appeared to increase price competition and, in some cases, where the ‘exclusivity’ accounted for only between 28% and 42% of the customer’s demand. The Intel judgment has been appealed, and the ECJ faces a second reference involving Post Danmark which may further clarify the rules.

Although not accepted by all commentators, the uniquely European approach to market power and its abuse would appear to be a by-product of ordoliberalism, the social and political philosophy developed in Germany in the 1930’s-1950’s in response to the havoc wrought by national socialism and sometimes referred to as the Frieburg school. Ordoliberalism was a social and political philosophy based on protecting individual

23 Giuliano Amato, Antitrust and the Bounds of Power: the Dilemma of Liberal Democracy in the History of the Market, Hart Publishing, 1997, pp. 114-115. 24 Judgment in Konkurrensverket v TeliaSonera Sverige AB, C-52/09, EU:C:2011:83 at paras 80-82. ‘…the degree of market strength is…Significant in relation to the extent of the effects of the conduct of the undertaking concerned rather than in relation to the question of whether the abuse as such exists’. Ibid. at para. 81. 25 Judgment in Post Danmark v Konkurrenceradet, C-209/10, EU:C:2012:172. 26 Judgment in Telefónica and Telefónica de España v Commission, C-295/12, EU:C:2012:172 P; Judgment in Konkurrensverket v TeliaSonera Sverige AB, EU:C:2011:83; Judgment in Deutsche Telekom v Commission, C-280/08 P, EU:C:2010:603.

27 Judgment of 12 June 2014, Intel v European Commission, T-286/09, EU:T:2014:547.

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freedom and ensuring a rule of law, one of whose pillars was ‘the shaping of competition policy into a rule of law rather than a mechanism of discretionary decisions.’28 As will be seen below, the academic debate about the role and impact of ordoliberalism on Article 102 and the latter’s resistance to reform is complex and not always consistent. The underlying issue of ordoliberalisms’s influence on Article 102 may also be something of a red herring since ultimately the key issue is not whether consumer welfare can be the decisive criterion under Article 102 but rather, the extent to which the European Courts may or, indeed, must adapt their approach to Article 102 when it can be demonstrated that the dominant firm’s conduct is either pro-competitive, or, at least, not anticompetitive.

The academic debate is, however, worth examining briefly because it both helps identify the ideological fault lines underlying the European approach to Article 102 and reveals the sensitivity that defenders of the traditional approach to Article 102 display when confronted with that approach’s ordoliberal roots.

On the basis of her review of the legislative history, Pinar Akman rejects the contention that Article 102 was a product of ordoliberalism.29 Akman’s research into legislative history is predicated on her assumption that the intent of the drafters of Article 102 is relevant to the issue of whether a consumer welfare standard can be applied under Article 102 without amendment of the Treaty.30 Both this assumption and the relevance of legislative intent for the interpretation of Article 102 are questionable.

First, Akman’s concern and the claims made in the literature concerning Article 102’s rejection of the relevance of consumer welfare31 are not borne out by the language of

28 Wernhard Möschel ‘Competition from an Ordo Point of View’, in Alan Peacock and Hans Willgerodt, eds., German Neo-Liberals and the Social Market Economy, Macmillan, 1989, at p. 142. Möschel further notes that ‘The actual goal of the competition policy of Ordo-liberalism lies in the protection of individual economic freedom of action as a value in itself, or vice versa, in the restraint of undue economic power.’ Ibid. at p. 146. See also Giorgio Monti, ‘Article 81 and Public Policy’, 39 Common Market Law Review 5, 1057-1099 (2002). 29 Pinar Akman, ‘Searching for the Long-Lost Soul of Article 82’, 29 Oxford Journal Legal Studies 2, 267-303 (2009). 30 See Akman, ibid. at pp. 301-302: ‘The arguments in the literature that adopting the consumer welfare approach would imply a fundamental change in the goals of Article 82EC and that Article 82 EC cannot make consumer harm the ultimate test of anti-competitiveness do not find support in the provision itself as demonstrated by the intent of its drafters.’

31 See David J. Gerber, ‘The Future of Article 82: Dissecting the Conflict’ in Claus-Dieter Ehlermann and Mel Marquis, eds., European Competition Law Annual 2007: A Reformed Approach to Article 82 EC, Hart Publishing, 2008, pp. 37-54, at pp. 50-51 and Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus, Clarendon Press, 1998; See also Heike Schweitzer, ‘The History, Interpretation and Underlying Principles of Section 2 Sherman Act and Article 82 EC’, in Claus-Dieter Ehlermann and Mel Marquis, eds., European Competition Law Annual 2007: A Reformed Approach to Article 82 EC, Hart Publishing, 2008, pp. 119-164, at p. 161. Schweitzer appears to share Akman’s conclusion that efficiency was a key concern in the drafting of Article 102 (see Schweitzer, at p. 137), but nevertheless concludes, that ‘Article 82 protects the “institution” of competition, the competitive process itself, instead of making consumer harm the ultimate reference point. This concept is enshrined in the EC Treaty itself: it follows from Article 3(1)(g) EC, which makes a “system ensuring that competition in the internal market is not distorted” one of the fundamental Treaty goals. It is a particular normative underpinning of EC competition law, and not a policy choice that competition lawyers or the Commission would be free to change’. (Schweitzer, at p. 161). It is interesting that reformers such as Rousseva and Akman, who favour an effects-based approach, differ profoundly over the content of the philosophy underlying Art. 102, while authors like Schweitzer and Wils, who believe that Art. 102 precludes taking into account consumer welfare, nevertheless stress the need to preserve undistorted competition which, of course, is the best way to enhance welfare. One wonders if preserving undistorted competition and ensuring consumer welfare really are alternatives or whether they are actually comple-

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either Article 102 or Article 3(1)(g) EC, now Article 3(3) TEU and Articles 119 and 120 TEFU.32 On its face the language of these Treaty provisions is quite broad. Neither permits nor prevents consideration of consumer welfare.33 More important, Article 3(3)(g) TEU etc indicate that the goal of competition enforcement is to distinguish between pro and anti-competitive behaviour.

Second, to date the EU Courts have refrained from invoking legislative history to justify one approach to Article 102 or the other. Indeed, at least one scholar, Heike Schweitzer, has argued that the Treaty authors were themselves eager to preclude legislative history from colouring the interpretation of Article 102:

Strictly speaking, the drafting history of the EC Treaty is not relevant to the application of this provision [Article 102]. The signing of the Treaty of Rome and the establishment of the EC as a supranational entity was accompanied by a deliberate decision of the Member States to commit to a functional interpretation, and not to revert to ‘original intent’. It was thought that the EC should be developed dynamically with a view to the implementation of its own goals, and not with a view to positions taken by the Member States during the negotiations. Indeed, in order to avoid interpretations based on ‘original intent’, the official records of the drafting process were not published.34 Faithful to this fundamental decision, the ECJ has never referred to the drafting history in interpreting the EC Treaty.35

ments. See Telia/Sonera in which the ECJ stated that ‘Article 102 TFEU is one of the competition rules referred to in Article 3(1)(b) TFEU which are necessary for the functioning of that internal market. The function of those rules is precisely to prevent competition from being distorted to the detriment of the public interest, individual undertakings and consumers, thereby ensuring the well-being of the European Union.’ Paras. 21-22, emphasis added. 32 Article 3(1)(g) EC has now been replaced by Article 3(3) TEU and Articles 119 and 120 TFEU and Protocol 27 on the internal market an competition annexed to the Treaty of Lisbon.

33 As cited above note 31, Telia/Sonera appears to treat consumer welfare as a consequence of undistorted competition but not as in any way in opposition to it. As the ECJ put it ‘…Article 102 TFEU must be interpreted as referring not only to practices which may cause damage to consumers directly…but also to those which are detrimental to them through their impact on competition.’ Telia/Sonera at para. 24. 34 See Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus, cited above note 31, at p. 343.

35 Schweitzer, cited above note 31 at p. 124. Akman cites a number of, with one exception, old precedents to the contrary, none of which involved Art. 102: Judgment in Jean-E Humblet v Belgium, C-6/60, EU:C:1960:48; Judgment in Gabriel Simon v ECJ, C-15/60, EU:C:1961:11, 125; Judgment in French Republic and SCPA and EMC v EC Commission, joined cases C-68/94 and C-30/95, EU:C:1998:148, paras.167-168; Opinion of Advocate General Lagrange in Fédération Charbonnière Belgique v High Authority, C-8/55, EU:C:1956:7, 271; Opinion of Advocate General Roemer in Netherlands v High Authority, C-6/54, EU:C:1955:5, 125-6. Legislative history and original intent do not play a role in seminal Art. 102 precedents such as Continental Can, Hoffmann-LaRoche, Michelin, or in more recent judgments such as British Airways, Tomra or Intel, nor in the opinion of Advocate General Colomer persuasively arguing that, for both legal and economic reasons, acceptance of per se abuses of Art. 102 ‘would run counter to the proposition that it is necessary to examine each case within the economic and legal context in which it arose….even when it is clear from the circumstances of the case that there is both intent and an anti-competitive effect.’ Opinion of Advocate General Ruiz-Jarabo Colomer in in Sot. Lélos kai Sia EE and Others v GlaxoSmithKline AEVE Farmakeftikon Proïonton, formerly Glaxowellcome AEVE, joined cases C-468/06 to C-478/06, EU:C:2008:504.

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In her comparative study of Section 2 and Article 102,36 Heike Schweitzer purports to reject ordoliberalism37 and an overly regulatory approach as the key reasons for the acknowledged difference in approach in the US and the EU to market power.38 Never- theless, she does identify a key ordoliberal element – protection of individual freedom – as the reason why consumer welfare cannot be the decisive factor in applying Article 102.39 Schweitzer also, and in my view correctly, rejects differences in statutory wording and fairness considerations as being decisive or defining factors underlying the European approach to market power.40 She also identifies, again correctly, the key challenge faced on both sides of the Atlantic—distinguishing methods of exclusion from competition on the merits, and acknowledges that ‘the perfectly legitimate and pro-competitive intent to outperform, and thereby damage or even eliminate competitors may be difficult to distinguish from an intention to exclude by anticompetitive means.’41 According to Schweitzer, in addition to the role played by private enforcement in the US,42 the key difference between the EU and US approaches is to be found in the legal framework43 which in Europe ‘protects the ‘institution’ of competition, the competitive

36 Schweitzer, cited above note 31. 37 Ibid. at, inter alia pp. 133 and 164. According to Schweitzer, ‘…the degree of congruence between Article 82 EC and ordoliberal positions is difficult to determine…[because] “No fully developed ordoliberal position on the treatment of market dominance existed at the time the EC Treaty was negotiated.” Ibid at p. 133. Nevertheless, Schweitzer acknowledges that ‘German ordoliberalism…has certainly been influential in shaping the law’ although she goes on to note that ‘its influence has not consisted of infusing non-economic fairness concerns or a regulatory philosophy into the interpretation of Article 82. What is indeed close to German ordoliberal thought, rather, is the conception of the competitive process as a process resulting from the exercise of individual economic liberties.’ Ibid at p. 164. Schweitzer’s argument turns in part on the conflicted attitude of German ordoliberals to the concept of treating technologically or economically unavoidable monopolies under a regulatory regime that required them to as ‘as if’ they were subject to competitions. Schweitzer, cited above note 32 at p. 134. While this approach was advocated by Walter Eucken, one of the founding ordoliberals, it was rejected by prominent ordoliberals such as Ernst-Joachim Mestmäcker, who was influential in excluding this approach from both German and EU competition law. Ibid. at p. 135. According to Schweitzer, the reasons for the German rejection of a per se condemnation of monopoly (and use of and application of an ‘as if’ approach to unavoidable monopolies was (i) the recognition that competition for a superior market position could have ‘important incentive effects’; and (ii) a per se approach to dominance would have been politically unacceptable since it could have led to the breaking up of leading German firms. Ibid. at p. 135.

38 Ibid. at pp. 121-122. According to Schweitzer, ‘… the degree of congruence between Article 82 EC and ordoliberal positions is difficult to determine. No fully developed ordloliberal position on the treatment of market dominance existed at the time the EC Treaty was negotiated.’ Schweitzer at p. 133. Nevertheless she does acknowledge that ordoliberalism ‘has certainly been influential in shaping… [the approach to Article 102]. But its influence has not consisted of infusing non-economic fairness concerns or a regulatory philosophy into the interpretation of Article 82. What is indeed close to German ordoliberal thought, rather, is the conception of the competitive process as a process resulting from the exercise of individual economic liberties.’ Ibid. at p. 164. 39 In rejecting use of a consumer welfare standard Schweitzer relies in the Kantian (and ordoliberal) assumptions underlying Article 102’s approach to protecting competitors and cites Ernst-Joachim Mestmäcker’s ‘Bausteine zu einer Wirtschaftsverfassung – Franz Böhm in Jena’, Wirtshaft und Verfassung in der Europaischen Union, 2 ed., 2006, pp. 116, at 123-127. Schweitzer, cited above note 31 at p. 162 and fn. 211.

40 Ibid. at pp. 160-161. 41 Ibid. at p. 161. 42 Ibid. at p. 163. According to Schweitzer, ‘underinclusive rules on single-firm conduct may in fact emerge as a reaction to an environment which provides (overly) strong incentives for private enforcement by making treble damages available and which charges lay juries with the task of applying the relevant tests.’

43 Schweitzer identifies and appears to reject another factor underlying the uniquely European approach to Art. 102 which this author believes to be both as important as, and inseparable from ordoliberalism – the ‘deeply rooted pro-regulatory philosophy which underestimates the ability of markets to self-correct, puts excessive trust in the ability of competition law enforcement institutions to correct market failures, and is concerned more with avoiding ‘false negatives’ than ‘false positives.’ Schweitzer, cited above note 31 at p. 121. The paradox here is that, in an overly regulated economy that is less relatively closed and un-dynamic, excessive intervention reinforces rather

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process itself, instead of making consumer harm the ultimate reference point.’ Schweitzer concludes that this distinction is mandated by the provisions of the EU Treaties which make ‘a system ensuing that competition in the internal market is not distorted one of the fundamental Treaty goals.’44 She further characterizes this ‘normative underpinning’ as a policy choice that neither the Commission nor competition lawyers are free to change45 and one that (notwithstanding her rejection of ordoliberalism as a decisive influence on Article 102) has its roots in Kantian philosophy – i.e., the ‘understanding that the process of competition flows from the exercise of individual rights’46 which in her view explains ‘why EC law cannot make consumer harm the ultimate test of anti-competitive conduct as US antitrust tends to do.’47 The importance Schweitzer attaches to the link between the competitive process and ‘the exercise of individual rights’ would seem to establish, rather than contradict, ordoliberal ideology as the underlying basis for the European approach to controlling market power. Moreover, for Schweitzer this link between competition and individual rights provides the normative basis for the difference in approach between Article 102 and Section 2 of the Sherman Act and precludes use of consumer welfare as the litmus test for determining the existence of anti-competitive harm. Ekatarina Rousseva48 is far firmer on the influence of ordoliberalism on Article 102, although her argumentation is not always consistent. Thus, on the one hand Rousseva argues that …the influence of the ordoliberal school on EC competition law should be sought at a general level, as an ideological and philosophical inspiration for the development and enforcement of EC competition policy.49 However, she also concludes that ordoliberalism is deeply embedded in EU case law: …the early case law (especially that on refusals to deal and rebates) grasps the ordoliberal idea that the goal of the competition law is to ensure individual’ economic freedom of action. This is shown by the Community concern to ensure that small competitors’ access to the market is not prevented, and that the dominant undertaking also takes care that its customers’ freedom of action is not unduly restricted….The concept of the ‘special responsibility’’ of dominant undertakings elaborated by the Community Courts, which informs the entire jurisprudence under Article 82, also has its intellectual inspiration in the ordoliberal intolerance

than breaking down the anti-competitive tendencies at work.

44 Ibid. at p. 161. 45 Ibid. 46 Ibid. at pp. 161-162. 47 Ibid. In identifying this Kantian underpinning, Schweitzer calls to attention one of the key goals of ordoliberalism identified by Möschel – ‘the protection of individual economic freedom of action as a value in itself, or vice versa, in the restraint of undue economic power.’ See Möschel, cited above note 28 at p. 146. 48 Rousseva, cited above note 9. 49 Ibid at p. 31.

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towards monopoly positions and the ordoliberal recommendation for close scrutiny of monopolists’ conduct.50 Rousseva further notes that The ordoliberal notion of competition on the merits, which includes only conduct that does not impede rivals and does not rely on market power, is the core of the classical definition of exclusionary abuse provided by the Court of Justice in the seminal Hoffmann-La Roche case.51 According to Rousseva, the most serious consequences of the ordoliberal approach to Article 102 are: the exclusion of efficiency considerations; the compartmentalization of the substantive legal analysis on the basis of the form of the content; and the treatment of consumer welfare as no more than a by-product of an undistorted competitive process rather than as an end in itself.52 Thus, as does Schweitzer, Rousseva concludes that the ordoliberal roots of Article 102 preclude consumer welfare as the decisive element in the application of Article 102. Rousseva’s commentary was written before the ECJ issued its judgment in Post Danmark and at a time when the principle question appeared to be whether the paramount importance attached by EU law to the protection of the competitive process meant that efficiencies and consumer welfare have no (or only a diminished) role to play in the application of Article 102. It is not clear to what extent this issue retains its force in the light of Post Danmark.53 That judgment, which appreciably relaxed the approach to selective, targeted discounts,54 supported the use of an as efficient compe-

50 Ibid. 51 Ibid at p. 32. As Wouter Wils’ recent article on the Intel judgment suggests, ordoliberal values are also present in the preference for a form-based approach that places the greatest value on clear, easily administrable rules that properly assign risk and are not overly concerned with consumer welfare as a guiding principle. Wils, ‘The judgment of the EU General Court in Intel and the so-called “more economic approach” to abuse of dominance’, 37 World Competition 4, 405-434 (2014). While Wils nowhere refers to ordoliberalism, in his article, the values he invokes as guiding principles such as the protection of ‘individual freedom as an end in itself’ as opposed to the ‘neo-classical position’ that ‘focuses on the maximization of total welfare without any regard to the position of individuals’ and the rejection of a ‘case-by-case analysis of the effects of the conduct on consumer welfare.’ fall squarely within the ordoliberal value system. Wils, at pp. 427-428, 431-432 and 414, respectively. See Möschel, cited above note 29. According to Möschel, two of the four pillars of ordo-liberalism are (i) ‘the shaping of competition policy into a rule of law rather than a mechanism of discretionary decision’ and (ii) ‘securing individual freedom of action, from which the goal of economic efficiency is merely derived.’ Ibid. at p. 142. Möschel further notes that ‘The actual goal of the competition policy of Ordo-liberalism lies in the protection of individual economic freedom of action as a value in itself, or vice versa, in the restraint of undue economic power.’ Ibid. at p. 146. See also Monti, cited above note 29.

52 Rousseva at p. 32. 53 See E. Rousseva and M. Marquis, ‘Hell Freezes Over, A Climate Change for Assessing Exclusionary Conduct under Article 102 TFEU’, 4 Journal of European Competition Law and Practice 1, 32-50 (2013). 54 Judgment in Irish Sugar v Commission, C-497/99 P, EU:C:2001:393 and Judgment in Compagnie Maritime Belge Transports and Others v Commission, joined Cases C-395/96 P and C-396/95 P, EU:C:2000:132.

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titor test,55 suggested that actual effects can be relevant in an ex post case,56 rejected price discrimination as the sole basis for a finding of abuse in a case of alleged exclusionary conduct,57 and, in general, challenged the very restrictive approach that the EU Courts have taken to the ability of dominant firms to use selective discounts in competition with their smaller rivals. To the extent that Post Danmark considerably expands the ability of dominant firms to compete, it arguably loosens the stranglehold that the need to protect the process of competition has in the past imposed on the pricing conduct of dominant firms. The judgment also calls into question the purported opposition between protecting competition and ensuring consumer welfare, and explicitly notes that Article 102 ‘covers not only those practices58 that directly cause harm to consumers but also practices that cause consumers harm through their impact on competition.’59 It would appear that as a result of Post Danmark, two issues require deeper, critical analysis: (i) the purported opposition between the competitive process and consumer welfare and (ii) the extent to which the EU Courts can modify their approach to Article 102 without running afoul of the Treaties’ requirements to protect the competitive process. III. The purported conflict between protecting undistorted competition and consumer welfare On the one hand, traditionalists such as Wouter Wils60 and Schweitzer robustly reject the notion of consumer welfare as guiding principle under EU competition law and argue that its consideration as such is barred by the language of the EU treaties.61 On the other hand, modernizers like Rousseva view the subordination of consumer welfare

55 Post Danmark¸ cited above note 25 at para. 21. 56 Ibid at para. 22. 57 Ibid at para. 26. 58 Presumably exploitative abuses. 59 Post Danmark, cited above note 25 at para. 20. 60 See Wils, cited above note 51. 61 Schweitzer, cited above note 31 at pp. 161-162; Wils cited above note 51 at pp. 417-418. The residual role of efficiencies and its subordination to ensuring individual freedom of action is, of course, one of the four pillars of ordoliberalism. See Möschel, cited above note 28 at p. 142. Schweitzer argues that criticism of an approach which ‘protects competitors as a part of the competitive process’ but only against those harms that result from ‘exclusionary, non merit-based acts’ as lowering the incentives of dominant firms to compete and thus chilling competition can be successfully countered ‘by the observation that an effective protection of competitors against exclusionary acts will increase the incentives of non-dominant market players and potential newcomers to invest and compete.’ However, this assertion merely throws us back on efficiencies and the path to consumer welfare, albeit under a questionable model under which, if the regulatory assessment is not given meaningful economic content, the result may be the protection of less efficient competitors and a reduction of overall, welfare enhancing competitive pressure.

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to the protection of the competitive process as a negative by-product of the ordoliberal approach. It is far from clear, as a legal and practical matter that the resumed dichotomy between consumer welfare, which has been called ‘the most abused term in modern antitrust analysis’62 and protecting competition is really meaningful. Rather, ‘consumer welfare,’ appears to act as a sort of polarizing ideological lightning rod in the debate between traditionalists and modernizers over Article 102.63 Thus, Wouter Wils castigates the usurpation of economics by what he labels as the welfarist approach,’64 while rejecting what he characterizes as a ‘discretionary’ approach to decision making -- an approach which he seems to identify with decisions based on case-by-case economic analysis rather than clearly articulated a priori rules.65 On the other side of the debate, Akman invokes the concerns about efficiency in the legislative history to read consumer welfare into Article 102, although, as Joseph Brodley has pointed out, there are many kinds of efficiencies not all of which are consistent with consumer welfare.66 Again there is a long history to the academic debate. Amato contrasts Section 2’s requirement that human welfare must be reduced for monopolization to be condemned with the imposition by Article 102 of ‘special obligations’ on dominant firms.67 Schweitzer notes that pursuant to the ‘standard narrative’ US law protects consumers while EU law protects competitors with Section 2’s populist tendencies having been tamed by the Chicago School’s emphasis on consumer welfare.68 However, the wording

62 Joseph F Brodley ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare and Technological Progress’, 62 NYU Rev. 1020, 1987, 1020-1053, at p. 1032. Brodley shows that the equation of efficiency and consumer welfare is not automatic or without its nuances. First, according to Brodley, efficiencies will not always and necessarily lead to enhanced consumer welfare (defined economically as that part of total surplus that accrues to consumers) in three situations: (i) price discrimination which may increase allocative efficiency but reduce consumer welfare by transferring economic wealth from consumers to producers; (ii) collaboration between competitors that lowers production costs but enables the rivals to raise price; and (iii) adoption of antitrust rules (by courts) that impose no apparent injury on consumers but that adversely affect the incentives of producers. Brodley at pp. 1033-1034. Second, Brodley argues there are alternative paths by which efficiency and consumer welfare can be reconciled. In these alternative, antitrust rules can focus: (i) solely on efficiency and dismiss consumer welfare; (ii) an immediate and near-term consumer interest as the decisive factor in antitrust analysis; or (iii) subordinate the immediate interest of consumers to the economic welfare of society as a whole while still recognizing consumer welfare as the long-term goal of antitrust policy. Brodley at p. 1035. Brodley rejects the first two approaches and accepts the third provided that consumers eventually share significantly in the economic welfare that is generated and three conditions are satisfied: (i) the activity in question increases total social wealth by realizing significant production and innovative efficiencies; (ii) the activity achieving such efficiencies is the least harmful in its effects on consumers; and (iii) the activity does not permanently suppress rivalry. Brodley at pp. 1035-1041.

63 Given the erosion in judgments like Post Danmark it is not clear that one can continue to speak of a ‘traditionalist’ position as something that has a future. The law moves slowly, but when it does the earth shudders.

64 Wils, cited above note 51 at pp. 412-413. 65 Ibid at pp. 413-414, 427-428 and 431-432. 66 Brodley, cited above note 63, at pp. 1020-1021: ‘…contrary to current usage, efficiency and consumer welfare are not identical, but have distinct meanings, with sometimes conflicting policy implications…Efficiency is not unitary, but breaks down into several differing types of efficiencies, some more vital to antitrust enforcement than others. Consumer welfare in turn is not the identical twin of efficiency, but a distinct concept that refers to the direct and immediate welfare of the consumers of a specific product.’ Ibid at pp. 1020-1021.

67 Amato, cited above note 23. 68 See Schweitzer, cited above note 31.

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of Article 102 does not reject or exclude consumer welfare,69 and Wils’ insistence that the Treaties place paramount importance on protecting the competitive process (undistorted competition) can easily be reconciled with enhancing welfare. In its July 2005 paper,70 the Economic Advisory Group on Competition Policy (the ‘EAGCP’) focussed squarely on the importance of protecting the competitive process, which it defined as … a process that forces firms to be responsive to consumers’ needs with respect to price, quality, variety, etc.; over time it also acts as a selection mechanism, with more efficient firms replacing less efficient ones. Competition is therefore a key element in the promotion of a faster growing, consumer-oriented and more competitive European economy.71 Although consumer welfare is the likely result of a system of undistorted competition, it is not necessarily an end in itself. Thus, the EAGCP report did not oppose protecting consumers’ interests to protecting the ‘system of competition’. Rather, it identified the competitive process as a means of enhancing welfare: Protecting the competitive process (inter alia, by ensuring that competition is not distorted by anti-competitive conduct) is most likely to ensure productive and innovative efficiencies which, in turn will contribute to consumer welfare.72 Indeed, the EAGCP report emphasized that excessive intervention, including intervention in the name of consumer welfare, may well disrupt this system: In focusing on consumer welfare, one must not fall into the trap of seeing competition policy as a tool of active policy intervention designed to correct the inefficiencies associated with monopolies and oligopolies so as to maximize some measure of welfare. Competition policy is based on the principle that competition itself is the best mechanism for avoiding inefficiencies, so the competition

69 The situation in respect of Article 1201 is more complex. In GlaxoSmithKline Services Unlimited, the CFI took the view that ‘The application of Article 81(1) EC to the present case cannot depend solely on the fact that the agreement in question is intended to limit parallel trade in medicines or to partition the common market… but also requires an analysis designed to determine whether it has as its object or effect the prevention, restriction or distortion of competition on the relevant market, to the detriment of the final consumer.’ at para 119. However, the ECJ reversed, holding that ‘There is nothing in [Article 81] to indicate that only those agreements which deprive consumers of certain advantages may have an anti-competitive object….Article 81 EC aims to protect not only the interests of competitors or of consumers, but also the structure of the market and…competition as such. Consequently, for a finding that an agreement has an anti-competitive object, it is not necessary that final consumers be deprived of the advantages of effective competition in terms of supply or price.’ Judgment in GlaxoSmithKline Services and Others v Commission and Others, C-501/06 P, EU:C:2009:610 at para 63. More recently the ECJ in Cartes Bancaires has arguably re-instated consumer welfare as a relevant consideration under Article 101(1) by identifying restrictions by object as practices that ‘result…in poor allocation of resources to the detriment, in particular, of consumers.’ Cited above note 15 at para. 51.

70 Report by the Economic Advisory Group on Competition Policy (EAGCP), An Economic Approach to Article 82 (July 2005), http://ec.europa.eu/dgs/competition/economist/eagcp_july_21_05.pdf (accessed on 4 Nov. 2014).

71 Ibid at p. 2. 72 EAGCP Report, cited above note 70.

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authority should not try to let its own intervention replace the role of competition in the market place.73 The EAGCP’s position on the benefits of the competitive process is not distinguishable from Hayek’s: …competition not only shows how things can be improved, but also forces all those whose income depends on the market to imitate the improvements… Competition represents a kind of impersonal coercion that will cause many individuals to change their behavior in a way that could not be brought about by any kind of instructions or commands.74 Against this background the consumer welfare/competitive process dichotomy looks like more of a red herring than a real concern. Rather, it would seem that the competitive process and the enhancement of consumer welfare are complements rather than alternatives and that they are inevitably and harmoniously linked75 with the result that the real task under Article 102 is to give the concept of undistorted competition a meaningful economic content. Thus, the focus of the debate naturally shifts to how, in practice, this goal can best be achieved. Here, insofar as exclusionary abuses are concerned, even the traditionalists acknowledge that the task under Article 102 is to distinguish between anti-competitive exclusionary and pro-competitive conduct.76 Thus framed, the key question becomes whether it is preferable to do so, as Wils argues, through clear, predictable and administratively efficient a priori rules77 or by relying on individual economic analysis to draw this distinction. Here it would seem that the

73 Ibid at p. 10. Brodley, cited above note 63, comes to a similar view, noting that an approach to antitrust enforcement that gives ‘priority to innovation and production efficiency; that in its pursuit of efficiency, antitrust policy must also ultimately protect the consumer interest’ is consistent with the view that ‘the fundamental goal of antitrust law is economic freedom.’ Brodley, at p. 1021 note 1. Another way of phrasing this is to say that ‘Antitrust law attempts to change the incentives of business firms to ensure that the pursuit of private profit more fully promotes social welfare.’ Ibid at p. 1024.

74 F.A. Hayek, ‘Competition as a Discovery Procedure’, 5 The Quarterly Journal of Austrian Economics 3, 9-23 (Fall 2002) at p. 19.

75 See, inter alia, the recent ECJ judgment in Cartes Bancaires, cited above note 16 at paras. 78 and 51: ‘In order to assess whether coordination between undertakings is by nature harmful to the proper functioning of normal competition, it is necessary, in accordance with the case-law… to take into consideration all relevant aspects – having regard, in particular, to the nature of the services at issue, as well as the real conditions of the functioning and structure of the markets – of the economic or legal context in which that coordination takes place, it being immaterial whether or not such an aspect relates to the relevant market… Consequently, it is established that certain collusive behaviour, such as that leading to horizontal price-fixing by cartels, may be considered so likely to have negative effects, in particular on the price, quantity or quality of the goods and services, that it may be considered redundant, for the purposes of applying Article 81(1) EC, to prove that they have actual effects on the market. Experience shows that such behaviour leads to falls in production and price increases, resulting in poor allocation of resources to the detriment, in particular, of consumers.’ See also Rousseva and Marquis, cited above note 53 at p. 50. Rousseva and Marquis argue that Post Danmark makes ‘the defence of consumer interests the central aim of Article 102’ and that the judgment endows ‘the term “competition on the merits” with meaningful content.’ As noted above, since traditionalists like Wils and Schweitzer would dispute the legitimacy of referring to consumer welfare as a basis for the application of Article 102, it may be preferable to defuse the potential debate and instead stress the Court’s insistence on providing meaningful economic content to the application of Article 102. First, the latter falls squarely within the Treaties’ aim of ensuring undistorted competition. Second, if given meaningful economic content, undistorted competition, undistorted competition is indeed likely to benefit consumers.

76 Ibid. 77 Wils, cited above note 51 at, inter alia, p. 427. While Wils acknowledges that the form-based categories used to apply Article 102 should be ‘economically sound’ he appears to place far greater value on their clarity, foreseeability and ease of administration. Ibid at p. 422.

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only possible answer is, wherever possible, to give the notion of exclusionary conduct meaningful economic content. Structuring the argument in this way enables us to dispense with, and avoid, the philosophical debate about the teleological role of consumer welfare under the EU Treaties and allows us to focus instead on the issues that really count. IV. The courts’ ability to modify the traditional approach to Article 102 The traditional approach to Article 102 has been both supported and undermined by the recent judgments of, respectively, the General Court in Intel and the Grand Chamber of the Court of Justice in Post Danmark.78 The former judgment comes down squarely within the tradition of the presumptive per se condemnation of exclusive rebates79 and, in a case involving ex post conduct,80 rejects the need to show actual effects, any de minimis threshold the need to demonstrate a causal link between the abusive conduct and customers’ sourcing decision, and a price/cost test that would link legality of pricing conduct to its exclusionary effects on only an equally efficient competitor. Moreover, in its rejection of the need to show effects and of the as efficient competitor test as overly generous, the tone of the Intel judgment is both traditional and ordoliberal in that, as Wils observes, the judgment relies on clear a priori rules that are in keeping with ‘the philosophy underlying the EU Treaties.’ In contrast, as noted above, the tone and analytic style of Post Danmark are remarkably different. In Post Danmark, the ECJ has challenged the very restrictive approach that the EU Courts have taken to limit the ability of dominant firms to compete. In particular, considering the pre-existing jurisprudence,81 it has taken a remarkably flexible approach to targeted, selective and discriminatory discounting by a dominant firm seeking to win back customers from a smaller rival. At the same time, the judgment endorses approaches -- including the use of an as efficient competitor test – which traditionalists like Wils maintain is incompatible with the EU Treaties.82 In his Intel article, Wouter Wils acknowledges that the Treaty identifies goals but does not set out a road map for their achievement,83 and he accepts the primacy of the ECJ

78 Post Danmark, cited above note 25. 79 Among its novelties, the Intel judgment equated exclusivity with discounts applying to only 28% and 42% of the customer’s total requirements.

80 Intel’s alleged anti-competitive conduct in the period October 2002 to December 2007 had come to an end some 15 months before the Commission adopted its decision on 8 May 2009, leaving ample time to assess its effects.

81 Irish Sugar, cited above note 54. 82 See Wils, cited above note 51 at pp. 428-431. 83 According to Wils, ‘The EU Treaties clearly specify the objective of the EU competition rules… [which is] a system of undistorted competition, as part of the internal market established by the EU (Wils at pp. 417, emphasis in the original). However, Wils also acknowledges that ‘The text of Article 102 TFEU does not provide an immediate answer to the question whether or to what extent or under what conditions or circumstances the use of exclusivity rebate systems by undertakings in a dominant position constitutes a prohibited abuse’. Wils, cited above note 51,

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in interpreting Article 102.84 To be sure, Wils does assert that ‘Whatever views this or that economist or other person or many or most of them may have as to what the objective of Article 102 TFEU should be is irrelevant, unless a debate were to be opened on changing the EU Treaties.’85 However, aside from an undeveloped reference to the ‘philosophy underlying the EU Treaties’86 Wils does not provide any legal basis for this assertion, and he does accept that ‘In the EU legal system, which is founded on the rule of law, it is the task of the Court of Justice to provide the authoritative interpretation of Article 102 TFEU.’87 The goal of preserving undistorted competition is a form of words that must be given content by action in a given context. Thus, while the Court must interpret Article 102 consistently with the goal of preserving a system of undistorted competition as part of the internal market, the EU Treaties do not contain any language that specifies what is meant by ‘undistorted competition’ or how this goal is to be achieved in any specific case. To put it another way, neither ordoliberalism nor the preference of some commentators like Wouter Wils for clear a priori rules rather than an empirical case-by-case approach is anywhere mandated by the wording of the EU Treaties. Thus, for example, if it can be shown that certain practices such as exclusive rebates actually intensify price competition or encourage investment and are thus pro-competitive, treating these practices as presumptively illegal per se would actually distort the competitive process. In such a case, the EU courts would not be legally constrained from changing their approach to exclusive rebates and indeed would be required by the Treaties to do so.88 Wils defends the Intel judgment as faithful to the European Treaties’ injunction to preserve undistorted competition which, he asserts can only be achieved by an approach that intervenes swiftly, clearly and forcefully through presumptive per se rules when faced with certain forms of conduct (such as rebates that are conditioned on exclusivity). According to Wils, such an approach can be legitimately characterized as ‘effects based’ and is ‘economically sound’ because it takes into account not only the effect of the conduct on the goal of preserving undistorted competition, but also the impact of the chosen rules on enforcement costs, legal certainty and allocation of risk. Moreover, Wils asserts, it is the approach best suited to preserve what Friedrich Hayek has identified as the discovery value of competition.89

at p. 414.

84 Ibid at p. 420. 85 Ibid at pp. 417-418. Wils also argues that that ‘…there is no room for the Court of Justice…when applying EU competition law…to make a different choice.’ Ibid at p. 417.

86 Ibid at p. 431. 87 Ibid at p. 415. 88 Brodley comes to the same conclusion. 89 F.A Hayek, ‘Competition as a Discovery Procedure’, New Studies in Philosophy, Politics, Economics and the History of Ideas, University of Chicago Press, 1978, 179-190.

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As I have argued in an earlier paper, co-authored with Patrick Rey,90 a system of presumptive per se enforcement that results in intervention under Article 102 without assessing the likely effects of both the conduct in question and the consequences of the intervention, is not the best way to protect undistorted competition. Simple, automatic rules may result in under or over-enforcement, both of which are likely to impede the competitive process. As concerns the specific issue of discounting by dominant firms, the risk is of excessive interference with price competition because unnecessarily restricting the ability of dominant firms to discount and compete on price may reduce, rather than enhance, legitimate and beneficial price competition.91 Where the effect of a given pricing conduct can either be pro- or anti-competitive, depending on the particular circumstances of the case at hand, intervention based on a careful analysis of the likely or actual effects of the pricing conduct concerned is better suited to preserve effective competition and thus better suited to serve the underlying goals of the EU Treaties. To be sure, where there exists a sound and widely accepted economic consensus concerning the effects of certain behavior (e.g., cartels), a presumptive per se approach is justified and can reduce enforcement costs. However, exclusivity rebates do not clearly fall within this category since they may have the effect of intensifying price competition and/or encouraging innovation. In such a case, application of a presumptive per se approach will chill and distort competition and thus undermine the Treaties’ goals.92 V. Conclusion With only very few exceptions, the approach to Article 102 reflects, as Judge Amato has recognized, a form of European exceptionalism that has resisted sound economic analysis.93 The philosophical foundation of this approach can be found ordoliberalism’s emphasis on the protection of individual economic freedom of action as a value in itself and to a mechanical adherence to ‘the shaping of competition policy into a rule of law rather than a mechanism of discretionary decisions’94 which conflates case-by- case decisions based on sound economic analysis with arbitrary rejection of the rule of law.95

90 Patrick Rey and James S. Venit, ‘An Effects-Based Approach to Article 102: A Response to Wouter Wils’, 38 World Competition 1, 3-30 (2015). 91 It is often said that EU competition law, and particularly Article 102, protects competitors rather than competition. In Intel, the Court’s concern that the AEC test would make it more difficult for the dominant firm’s rival to compete (see Intel, see above cited note 27, at paras. 149-153) may be a case in point. If in some circumstances the competitive pressure exerted by a less efficient competitor may indeed be welcome (e.g., if institutional barriers prevent any additional entry or efficiency gain), in many other circumstances it may induce competitors to exert less effort than they would have otherwise.

92 See Rey/Venit cited above note 89 at pp. 16-18. 93 See Amato, cited above note 66. 94 See Möschel, cited above note 27 at p. 142. 95 As Wils puts it in his rejection of the as efficient competitor test, allowing dominant firms ‘to exclude competitors from the market on the basis of a decision by competition authorities that those competitors are not sufficiently efficient’ is ‘like the Gosplan in the Soviet Union’ because ‘competition authorities thus decide which producers are deemed efficient enough to be allowed onto the market.’ Wils, cited above note 51 at p. 432.

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Defense of the traditional approach to Article 102 (and analyses contrasting it with Section 2 of the Sherman Act) have frequently been based on arguments that the EU treaties (or the philosophy underlying them) reject the enhancement of consumer welfare as a legitimate competition law goal.96 However, even those who most forcefully support the traditional approach to Article 102 accept that the Treaty provisions underlying application of Article 102 mandate the maintenance of a system of undistorted competition97 and that ultimately the interpretation of Article 102 lies with the ECJ. To the extent that they require preservation of undistorted competition, the EU Treaties do not support the alleged dichotomy between protecting competition and ensuring consumer welfare. Indeed, there is common ground between traditionalists and modernizers concerning the social and consumer benefits of undistorted competition and of the importance of preserving the competitive process.98 This also seems to be accepted by the EU courts. Thus, as the ECJ noted in Post Danmark, Article 102 ‘covers not only those practices that directly cause harm to consumers but also practices that cause consumers harm through their impact on competition.’99 Recognition of this common ground leads to the inevitable conclusion that the integrity of the competitive process can be better preserved not by the application of presumptive a priori form- based rules, but, rather, by the application of rules based on sound case-by-case economic analysis which identifies the impact of the conduct in question on competition. VI. Annex Re EU vs US merger control Research numbers that could be interpreted as suggesting the EU system is tougher A In Merger Control Procedure and Enforcement: An International Comparison, the author (Gavin Robert) reports the following findings, of particular relevance: (1) Percentage of notifications that result in a second-phase investigation (see page 531): • Second request rates in the US: 3.4 per cent. • Phase II referrals in the EU: 2.7 per cent. The author hypothesizes that the lower rate in the EU is explained by the availability of remedies at the end of Phase I (noting that whilst negotiation of remedies prior to

96 See, inter alia, Schweitzer, cited above note 31; Wils, cited above note 51; and Gerber, cited above note 31. 97 See Schweitzer, cited above note 31, and Wils, cited above note 51. 98 See Schweitzer, cited above note 31; Wils, cited above note 51, and Report of the EAGCP¸ cited above note 70. 99 Post Danmark, cited above note 25 at para. 20.

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370 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II James S. Venit

issuance of a second request in the US is theoretically possible, it is very uncommon) (see pages 531-532). By excluding simplified procedure cases from the total number of notifications the Commission receives, the author calculates a referral rate for the EU of 6.4 per cent. (see page 533). (2) Rates of enforcement (i.e.,intervention in the merger itself, whether it be remedies at Phase I or Phase II, or withdrawal from the merger post opening of Phase II (assumed to indicate prohibition or remedies unacceptable to the parties)) (see page 535): • 5.9 per cent. in the EU • 2.7 per cent. in the US N.B. the author calculates the above figures by dividing the number of cases resulting in enforcement by the total number of notifications. The author suggests that the availability of Phase I remedies in the EU may explain the higher EU percentage; parties may be willing to offer remedies (which they may have avoided had they fought all the way) to avoid a Phase II investigation (see page 535). By excluding simplified procedure cases from the total number of notifications the Commission receives, the author calculates a referral rate for the EU of just under 14 per cent. (see page 536). B In Merger Control in the European Union and the United States: Just the Facts, the authors (Mats A. Bergman, Malcolm B. Coate, Maria Jakobsson and Shawn W. Ulrick) report the following findings, of particular relevance: (1) Percentage of ‘inhibited’ cases (see page 26): • 3.6 per cent. in the EU • 2 per cent. in the US Inhibited cases are defined as those formally prohibited (EU) or challenged in court (US), those where the parties have offered commitments (EU) or settlements (US), and those withdrawn upon entering Phase II (EU) or entering Second Request (US) (see page 25). The authors note that the percentage figure for the EU rises to 8 per cent. if Phase I cases that ended in commitments are included in the calculation (see page 26). The authors are alert to the limits of such a comparison given differences in notification thresholds and review processes, and suggest that a better comparison is the fraction of cases that undergo an in-depth investigation and are subsequently inhibited. On this measure, the figures are (see pages 26-27):

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• 77 per cent. for Phase II cases and 88 per cent. for Phase II plus Phase I cases with commitments, respectively, in the EU • 58 per cent. average across the FTC and DOJ in the US The authors suggest that a reasonable percentage figure for the EU should lie somewhere in between the 77 per cent. and 88 per cent. figures as the former (looking only at Phase II cases) understates total enforcement activity whilst the latter figure overstates total enforcement activity given the methodology employed by the authors (they appear not to have easily been able to strip out Phase I cases that are ultimately cleared unconditionally) (see page 27).

(2) The authors compare enforcement activity (i.e., activity by the agencies which goes beyond the act of subjecting a merger to review) in the EU and US and report the following findings (see page 41): • 71 per cent. challenge rate for Phase II cases and 76 per cent. when pooling Phase I and Phase II matters in the EU • 66 per cent. in the US The authors also make comparisons whilst controlling for certain variables. For example, the authors carry out a comparison of the EU and US enforcement rates and make the finding that for low market shares, the EU is more aggressive, whilst the US is more aggressive for higher market shares (see page 48). Throughout the paper, the authors draw the reader’s attention to the pitfalls of reading too much into the figures calculated, given that the inputs to the calculations are not as informed of the structural information about each merger as they would ideally be.

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372 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II ‘Oh illustrious Caesar! If it is sufficient to deny, what hereafter will become of the guilty?’1 On the presumption of innocence, the burden of proof, and the standard of proof in EU competition law

Denis Waelbroeck and Mathieu Vancaillie*

The presumption of innocence is to be found in every code of law which has reason, and religion, and humanity, for a foundation. It is a maxim that ought to be inscribed in indelible characters in the heart of every judge and juryman.2

* For some of our own writings on the present subject, see: D. Waelbroeck and D. Fosselard, ‘Should the Decision Making Power in EC antitrust procedures be left to an independent judge: the impact on the European Convention of Human Rights’, Yearbook of European Law 1994, pp. 111 et seq.; D. Waelbroeck, ‘The enforcement system for Articles 81 and 82 EC. Time for a redefinition of decision-making in EC competition law?’ inConcurrences , 2009; D. Waelbroeck and C. Smits, ‘Le droit de la concurrence et les droits fondamentaux’ in Les droits de l’homme dans les politiques de l’Union européenne, Larcier, 2006, p. 135 et seq.; D. Waelbroeck, D. Slater and S. Thomas, ‘Competition law proceedings before the European Commission and the right to a fair trial. No need for reforms? in European Competition Journal 2009,p. 97 et seq.; D. Waelbroeck and others, ‘The Decisional and Enforcement Structure in Antitrust Cases and the Commission’s Fining System’, in Towards an Optimal enforcement of competition cases, Bruylant, 2010, p. 199 et seq.; D. Waelbroeck and C. Smits, ‘When the judge prosecutes, power prevails over law’ in Trade and Competition Law in the EU and Beyond, Liber Amicorum Jacques Bourgeois, 2011, Edward Elgar p. 446 et seq.; and D. Waelbroeck and S. Frisch, ‘Après l’arrêt Menarini : L’impact de la Convention européenne de sauvegarder des droits de l’Homme et des libertés fondamentales sur les procédures en droit de la concurrence’, in Liber Amicorum P. Demaret, P.I.E. Peter Lang, 2013, p. 663 et seq. 1 Ammianus Marcellinus relates in his Rerum Gestarum how Numerius stood on trial before Emperor Julian. His prosecutor, Delphidius, ‘a passionate man’, seeing that there was not sufficient proof against the accused, exclaimed vehemently ‘Ecquis, florentissime Ceasar, nocens esse poterit usquam si negare sufficient?’ (‘Oh, illustrious Caesar! If it is sufficient to deny what hereafter will become of the guilty?’) to which the Emperor replied ‘Ecquis, ait innocens esse poterit si accusasse sufficiet?’ (‘If it is sufficient to accuse, what will become of the innocent?’). 2 Lord Gilbert McKinley (1817), 33 St. Tr. 275, 506.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 373 ‘Oh illustrious Caesar! If it is sufficient to deny, what hereafter will become of the guilty?’ On the presumption of innocence, the burden of proof, and the standard of proof in EU competition law I. Introduction Few persons have as much experience as Ian Forrester in arguing competition cases before the EU Court of Justice (‘ECJ’) and the EU General Court (or the previous EC Court of First Instance - for simplicity both are to be referred to hereafter as the ‘GC’). His deep knowledge of and familiarity with the case law and practice of competition law has led him to take a keen interest in many related issues and in particular in the delicate question of standard of review by the EU Courts of EU decisions in competition cases.3 As is well-known, the EU Courts’ review of these decisions is limited by their doctrine of ‘deference’ in matters involving complex economic or technical analyses, a doctrine which normally applies to the review of the regulatory or legislative activity of EU institutions and which is derived from the principle of separation of powers. However, as I. Forrester has compellingly shown, any concept of ‘marginal review’ can only be misplaced when it concerns the judicial control of Commission decisions in competition cases imposing fines in application of Articles 101 and 102 TFEU. Such fines are indeed criminal law sanctions. As a result, their imposition requires abidance by a number of basic rules, among which: • the ‘in dubio pro reo’ principle: when criminal law applies, this requires not only that the burden of proof is on the accuser, but more fundamentally that any doubt benefits the accused - in other words the presumption of innocence must apply fully;4 • the ‘nulla poena sine lege certa’ principle: unless behaviour is unambiguously prohibited, it should be allowed - prohibition, particularly when combined with criminal sanctions should be interpreted restrictively and be reserved for the most clear-cut cases; • the ‘nemo judex in causa sua’ principle: which implies that criminal sanctions should be imposed by an independent judge and not by a prosecutor involved in the case. More than 2000 years ago, Publilius Syrus wisely expressed the idea that ‘where the accuser is also judging, violence, not law is operative’ (‘ubi judicat, qui accusat, vis, non lex, valet’); and • the principle that even if very exceptionally the power to judge may be given to the prosecutor, this can be acceptable only to the extent the decision taken by the

3 I. Forrester, ‘A Challenge for Europe’s Judges: The Review of Fines in Competition Cases’, European Law Review 2011, 185-207; I. Forrester, ‘A Bush in Need of Pruning: the Luxuriant growth of ‘Light Judicial Review’, in C.D. Ehlerman and M. Marquis (eds.), European Competition Law Annual 2009: Evaluation of Evidence and its Judicial Review in Competition Cases, (Oxford: Hart Publishing, 2011); I. Forrester, ‘Due process in EC competition cases: a distinguished institution with flawed procedures’, European Law Review 2009, 817-843. 4 To translate it into competition law terms, this requires that in proving his case, the accuser must establish to the full satisfaction of the judge that the defendant has actually committed the alleged behaviour, that that behaviour has an anticompetitive object or effect, and that trade between Member States is capable of being affected. (Judgment of 27 September 2006, GlaxoSmithKline Services Unlimited v Commission of the European Communities, T-168/01, ECR, EU:T:2006:265, para. 55 and cited case law.) As to the law, it is as it is and although separate interpretations may exist, it is not possible to assign the burden of proving an interpretation of the law to one party or to decide on the standard of that proof. All parties put forward arguments to support their interpretation of the law and ultimately the judge or court in question will decide on what interpretation it will follow.

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374 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Denis Waelbroeck and Mathieu Vancaillie

prosecutor is followed by ‘full jurisdictional review’ and the case is therefore entirely re-heard by an independent judge. The present short contribution is meant to show the importance of these basic principles in the context of competition law cases.

Furthermore, and beyond the need to comply with these basic principles inherent in the Rule of law, our concern is also broader. In our view, the added value of applying a proper burden and standard of proof and truly contradictory procedures cannot be underestimated in an area of law such as competition law which is so easily wrongly applied, which is furthermore politically prone to interference and in which mistakes, both false positives and false negatives, are expensive not only for the undertaking(s) involved but for society as a whole. Thus, maybe even more than in most other areas of the law, competition rules should be clear as water in guiding companies and their advisers, as well competition authorities and judges across the EU. There is in other words a need for clear and high-quality precedents which – we believe - can only be obtained if there is proper regard for due process. As stated by Confucius, law should be ‘brighter than the sun on a clear day, or like the full moon at midnight’.

II. As to the criminal law nature of Articles 101 and 102 TFEU As is well-known, questions of burden and standard of proof are intrinsically linked to the nature of the law concerned. If competition law is to be considered as criminal in nature, the standard of proof will necessarily be more demanding than otherwise. It is therefore essential to start hereafter with an analysis of the nature of competition law. This is to be done in light of the case law both of the European Court of Human Rights (‘ECtHR’) and of the EU Courts.

1. As to the case law of the ECtHR In order to determine objectively whether proceedings involve the determination of a criminal charge in the sense of article 6 ECHR, the ECtHR relies traditionally on (i) the classification of the offence under domestic law, (ii) the nature of the offence, and (iii) the nature and severity of the penalty.5 These criteria are not cumulative and do not all carry the same weight, yet they can all be taken into account where the analysis of each separate criterion does not lead to a clear conclusion as to the existence of a

5 Judgment of the ECtHR of 8 June 1976, Engel and others v. The Netherlands, App. n° 5100/71, 5101/71, 5102/71, 5354/72 and 5370/72, para. 82.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 375 ‘Oh illustrious Caesar! If it is sufficient to deny, what hereafter will become of the guilty?’ On the presumption of innocence, the burden of proof, and the standard of proof in EU competition law

criminal charge.6 The classification under domestic law provides no more than a starting point but carries less weight than the other criteria which are more objective.7

Under this analysis, the ECtHR has repeatedly come to the conclusion - and most recently in the Menarini judgment - that sanctions imposed under competition law are of a criminal nature.8

Some questions have however arisen as to whether competition law belongs to the ‘hard-core’ of criminal law or not. The discussion has originated in a distinction the ECtHR had introduced in its Jussila judgment between so-called ‘hard-core’ or ‘non-hard-core’ types of criminal offences, considering that the requirements of criminal law did not apply with the same stringency to those offences that were not ‘hard-core’9. However, one of the most interesting aspects of the ECtHR’s ruling in Menarini is that – despite the numerous claims which had been made by some, even at the EU Courts, that competition law was not ‘hard-core’ criminal law10 – the ECtHR took no account of this distinction and ruled, without any reservation, that sanctions in competition law are criminal charges in the sense of Article 6 ECHR11 and that competition decisions in this area should accordingly be subject to full jurisdictional review and not to a mere ‘marginal review’.12

As stated by Judge Pinto De Albuquerque at paragraph 9 of his Dissenting Opinion in the Menarini case (supporting on this point the judgment of the Court)13, the very acceptance of so-called ‘non-hard-core’ criminal law – particularly in such a sensitive area as competition law - would infringe the separation of powers which ‘at best befits a police state but not a democratic society.’

6 Judgment of the ECtHR of 23 November 2006, Jussila v Finland, App. n° 73053/01, para. 31 and cited case law. 7 Otherwise it would be too easy to avoid the stringent requirements of the ECHR, by merely claiming that the offence is not ‘criminal’; D. Slater, S. Thomas and D. Waelbroeck, ‘Competition law proceedings before the European Commission and the right to a fair trial: no need for reform?’ GCLC Working Paper 2008, 6. 8 See most recently the judgment of the ECtHR of 27 September 2011, Menarini Diagnostics S.R.L c. Italy, App.n° 43509/08. 9 Judgment of the ECtHR of 23 November 2006, Jussila v Finland, App. n° 73053/01, para. 43 and cited case law. 10 See the GC in its Judgment of 13 July 2011, Schindler Holding Ltd and Others v European Commission, T-138/07, ECR, EU:T:2011:362, para. 52; Advocate General Sharpston in KME Germany AG, KME France SAS and KME Italy SpA v European Commission, C-272/09 P, EU:C:2011:63, para. 67; Advocate General Kokott in Schindler Holding Ltd and Others v European Commission, C-501/11 P, EU:C:2013:248, paras. 25-26. See the opposite position taken by the EFTA Court in its Judgment in Posten Norge AS v EFTA Surveillance Authority, E-15/10, EFTA Ct. Rep [2012] p. 246, para. 89. 11 Judgment of the ECtHR of 27 September 2011, Menarini Diagnostics S.R.L c. Italy, App. n° 43509/08, paras. 40-42; See also the dissenting opinion of Judge Pinto De Albuquerque at paragraph 2 who, at first, agreed with the Judgment, stressing that the criminal nature of the sanctions is ‘évidente’. 12 Judgment of the ECtHR of 27 September 2011, Menarini Diagnostics S.R.L c. Italy, App. n° 43509/08, paragraph 59 and cited case law. 13 Judge Pinto De Albuquerque’s dissent only concerned the judgment’s assessment of the ‘full jurisdiction’ of the Italian administrative court in question, whereby he argued that such ‘full jurisdiction’ implies the possibility for the court in question to substitute its own appraisal to that of the administration instead of merely being able to annul the administration’s decision.

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The consequences of such a criminal law qualification for the application of competition law and, in particular, for the application of the concepts of burden of proof and standard of proof are important. Article 6(2) ECHR enunciates in this respect the basic principle of the presumption of innocence (‘Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law’). As a result, the ECtHR stressed that ‘the burden of proof is on the prosecution, and any doubt should benefit the accused.’14 Whilst the ECtHR has so far mainly looked at competition regimes applying in EU Member States and not in the EU itself, there is little doubt that its conclusions can be applied mutatis mutandis to the EU competition law regime.

The ECtHR has in particular made clear in Menarini that since the rules of competition law – leading to fines imposed on undertakings – are criminal law, the applicable standard of proof is a stringent one, and that if it is at all acceptable in such matters that the prosecutor should be the first judge in a case, then this requires at the very least a full re-hearing of the case thereafter by an independent judge. In other words, full jurisdictional review is then required.

And since the EU Courts have consistently indicated that they would be guided by the precedents of the ECtHR, these findings of the ECtHR are de facto binding on the EU.15 Moreover, if the EU does not comply with the requirements, it cannot be excluded that the ECtHR will interfere.16

14 Judgment of the ECtHR of 23 July 2001, Janosevic v Sweden, App. n° 34619/97, para. 79. 15 ‘(…) [T]he Court has consistently held [that] fundamental rights form an integral part of the general principles of law, the observance of which it ensures. (…) The European Convention on Human Rights has special significance in that respect’; Judgment in Elliniki Radiophonia Tiléorassi AE and Panellinia Omospondia Syllogon Prossopikou v Dimotiki Etairia Pliroforissis and Sotirios Kouvelas and Nicolaos Avdellas and others, C-260/89, EU:C:1991:254, para. 41; See also Judgment of 20 April 1999, Limburgse Vinyl Maatschappij NV, Elf Atochem SA, BASF AG, Shell International Chemical Company Ltd, DSM NV, DSM Kunststoffen BV, Wacker-Chemie GmbH, Hoechst AG, Société artésienne de vinyle, Montedison SpA, Imperial Chemical Industries plc, Hüls AG and Enichem SpA v Commission of the European Communities, Joined cases T-305/94, T-306/94, T-307/94, T-313/94 to T-316/94, T-318/94, T-325/94, T-328/94, T-329/94 and T-335/94, ECR, EU:T:1999:80, para. 120; Judgment in Aalborg Portland A/S, Irish Cement Ltd, Ciments français SA, Italcementi - Fabbriche Riunite Cemento SpA, Buzzi Unicem SpA and Cementir - Cementerie del Tirreno SpA v Commission of the European Communities, Joined Cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P, EU:C:2004:6, para. 64. 16 Although the EU is still not a party to the ECHR and can therefore not itself be brought before the ECtHR, the EU Member States are all subject to the jurisdiction of the ECtHR, also in so far as they sign among themselves international treaties, such as the EU Treaty. This is so even if the ECtHR has so far exercised some self-restraint in applying the ECHR to the EU, arguing that there was no need for interference on its part ‘as long as’ the EU respected an equivalent protection of Human Rights as the ECtHR. (Judgment of the ECtHR of 30 June 2005, Bosphorus v. Ireland, App. n° 45036/98, para. 156). As is well known, in the recent Opinion 2/2013, the ECJ unexpectedly considered that the agreement on the accession of the European Union to the ECHR was incompatible with Article 6(2) TEU and with Protocol (No 8) relating to Article 6(2) of the Treaty on European Union on the accession of the ECHR. This prompted the President of the ECtHR in the annual report of 2014 to write that: (…) The end of the year was also marked by the delivery on 18 December 2014 of the Court of Justice of the European Union’s (CJEU) eagerly awaited opinion on the draft agreement on the accession of the European Union to the European Convention on Human Rights. Bearing in mind that negotiations on European Union accession have been under way for more than thirty years, that accession is an obligation under the Lisbon Treaty and that all the member States along with the European institutions had already stated that they considered the draft agreement compatible with the Treaties on European Union and the Functioning of the European Union, the CJEU’s unfavou- rable opinion is a great disappointment. Let us not forget, however, that the principal victims will be those citizens whom this opinion (no. 2/13) deprives of the right to have acts of the European Union subjected to the same external

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 377 ‘Oh illustrious Caesar! If it is sufficient to deny, what hereafter will become of the guilty?’ On the presumption of innocence, the burden of proof, and the standard of proof in EU competition law

2. As to case law of the EU Courts Contrary to the ECtHR, the EU Courts have never so far unambiguously recognised the criminal law characterisation of competition decisions.17 Nevertheless, they have at times ascribed characteristics to EU competition law mirroring those used by the ECtHR to conclude the penalties in competition law constitute criminal charges. Most recently in CISAC, the GC stated that:

It is necessary to take into account the principle of the presumption of innocence resulting in particular from Article 6(2) of the European Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950, which is one of the fundamental rights which, according to the case law of the Court of Justice, constitute general principles of the Union’s legal order. Given the nature of the infringements in question and the nature and degree of severity of the penalties which may ensue, the principle of the presumption of innocence applies, inter alia, to the procedures relating to infringements of the competition rules applicable to undertakings that may result in the imposition of fines or periodic penalty payments.18 The EU Courts have thus accepted – in this judgment and others19 - that certain principles apply to EU competition law which are inherent to criminal procedures, such as the presumption of innocence within the meaning of Article 48 of the Charter of Fundamental Rights of the European Union (‘EU Charter’). They did so irrespective even of whether the decision finding an infringement is accompanied by the imposition of a fine or not. According to the GC, the principle of the presumption of innocence,

scrutiny as regards respect for human rights as that which applies to each member State. More than ever, therefore, the onus will be on the Strasbourg Court to do what it can in cases before it to protect citizens from the negative effects of this situation’ - Annual report 2014 ECtHR, http://www.echr.coe.int/Documents/Annual_Report_2014_ ENG.pdf, 6, emphasis added. 17 According to Article 23(5) Regulation 1/2003, fines imposed on undertakings for breaching EU competition law or for hindering the Commission’s investigation are not of a criminal law nature. This article reflects more a reluctance by the Member States to recognise any competence to the Commission in criminal law matters than anything else. The ECJ has refused in some cases to characterise competition law fines as criminal charges, arguing – as did Delphidius in front of Emperor Julian (see fn. 1 above) - that doing so would ‘infringe seriously on the effectiveness of [EU] competition law’ (Judgment in Volkswagen AG v Commission of the European Communities, C-338/00 P, EU:C:2003:473, para. 97; Judgment of 1 July 2008, Compagnie maritime belge SA v Commission of the European Communities, T-276/04, EU:T:2008:237, para. 66). On several other occasions, clear indications have however been given to the contrary: see Opinion of Judge Vesterdorf in Rhône-Poulenc SA v Commission of the European Communities, T-1/89, EU:T:1991:56, p. 885; see the position taken by the ECJ in Judgment Chalkor AE Epexergasias Metallon v European Commission, C-386/10 P, EU:C:2011:815, para. 67; Judgment in KME Germany AG, KME France SAS and KME Italy SpA v European Commission, C-389/10 P, EU:C:2011:816, para. 133; Judgment in Telefónica SA and Telefónica de España SAU v European Commission, C-295/12 P, EU:C:2014:2062, paras. 39 to 60 as against Opinion of AG Wathelet in Telefónica SA and Telefónica de España SAU v European Commission, C-295/12 P, EU:C:2013:619; See in this regard for instance Th. Bombois, La protection des droits fondamentaux des entreprises en droit européen répressif de la concurrence, Bruxelles, Larcier, 2012, pp. 31 to 57, paras. 30 to 57; D. Slater, S. Thomas and D. Waelbroeck, ‘Competition law proceedings before the European Commission and the right to a fair trial: no need for reform?’ GCLC Working Paper 2008, 25. 18 See Judgment of 12 April 2013, International Confederation of Societies of Authors and Composers (CISAC) v. European Commission, T-442/08, ECR, EU:T:2013:188, paras. 93-95 and cited case law, emphasis added. 19 See for example Judgment in Hüls AG v Commission of the European Communities, C-199/92, EU:C:1999:358, paras. 149-150; see also Judgment of 27 September 2006, Dresdner Bank AG and Others v Commission of the European Communities, T-44/02, ECR, EU:T:2006:271, para. 61; Judgment of 29 March 2012, Telefónica, SA and Telefónica de España, SA v European Commission, T-336/07, ECR, EU:T:2012:172, para. 73; Judgment of 12 June 2014, Intel Corp. v European Commission, T-286/09, ECR, EU:T:2014:547, para. 63.

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‘developed in cases where the Commission had imposed a fine, is also applicable where, as in the present case, the decision finding an infringement is ultimately not accompanied by the imposition of a fine, [as] account must be taken of the non-negligible stigma attached to a finding of involvement in an infringement of the competition rules for a natural or legal person.’20

This presumption of innocence obviously has repercussions both on the burden and on the standard of proof, as it fundamentally implies that any doubt benefits the accused. Or to put it in the GC’s words: ‘[t]he Court cannot […] conclude that the Commission has established the infringement […] to the requisite legal standard if it still entertains any doubts on that point, in particular in proceedings for annulment of a decision imposing a fine.’21

Hereafter, we will first discuss the implications this has as regards the burden of proof (Section III) and then the implications it has as regards the standard of proof (Section IV).

III. Burden of proof As regards the burden of proof, a fundamental distinction should be made between proving the existence of the restrictive behaviour – a question on which the burden of proof rests on the accuser (see Section 1 hereafter) – and deciding when the burden of proof shifts on the defendant to show that the prohibited behaviour should nevertheless be exempted (see Section 2 hereafter).

1. Proving the restrictive behaviour – to what extent can a ‘presumption of guilt’ be applied?

Under Article 2 of Regulation 1/2003:

In any national or [EU] proceedings for the application of Articles [101] and [102 TFEU], the burden of proving an infringement of Article [101(1) and 102 TFEU] shall rest on the party or the authority alleging the infringement. The same burden of proof applies to every constituent element of the infringement.22 This goes both for Article 101 TFEU and for Article 102 TFEU.

20 Judgment in International Confederation of Societies of Authors and Composers (CICAC) v. European Commission, fn. 18 above, EU:T2013:188, paras. 94-95 and cited case law. 21 Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 62 and cited case law; see also Judgment in International Confederation of Societies of Authors and Composers (CISAC) v European Commission, fn. 18 above, EU:T:2013:188, para. 92 and cited case law. 22 Judgment of 16 November 2006, Peróxidos Orgánicos, SA v Commission of the European Communities, T-120/04, EU:T:2006:350, para. 52.

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(a) As to Article 101 TFEU

(i) The need to show ‘precise and consistent evidence’ of the infringement

The EU Courts have repeatedly stated that, ‘as regards the production of evidence of an infringement of Article 101(1) TFEU, the Commission must prove the infringements which it has found.(…) Thus, the Commission must show precise and consistent evidence in order to establish the existence of the infringement.’23 The EU Courts have also rightly recognised that any doubt should benefit the accused.24 A similar requirement applies also for cases concerning Article 102 TFEU.25

Still, in some cases there have been some discussions as to the level of evidence required to prove the existence of anticompetitive behaviour.26 In particular, where alleged cartels were at stake, and where it was shown that the established facts could not be explained normally other than by the existence of anticompetitive behaviour, the Court found that there could be a rebuttable presumption that the behaviour was anticompetitive, therefore shifting the burden of proof to the accused.27 The EU Courts justified this based on the reasoning that cartels are known to be prohibited and are as a result agreed in secret.28 The Courts also accepted that the undertaking(s) involved can always rebut this presumption by providing proof that the facts on which the accuser has based its presumption can be explained differently. They are required to prove that their

23 Judgment in Dresdner Bank AG and Others v Commission of the European Communities, fn. 19 above, EU:T:2006:271, paras. 59 and 62, emphasis added, and cited case law. 24 See case law quoted in fn. 21 here above. 25 Judgment of 1 July 2010, AstraZeneca AB and AstraZeneca plc v European Commission, T-321/05, ECR, EU:T:2010:266, para. 476; Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 64. It is in this respect settled case law that it is sufficient if ‘the body of evidence relied on by the institution, viewed as a whole, meets that requirement, as held by the case law concerning the implementation of Article [101 TFEU] (…). That principle applies also in cases concerning the implementation of Article [102 TFEU] (…)’; Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 64; see also Judgment in Limburgse Vinyl Maatschappij NV (LVM), DSM NV and DSM Kunststoffen BV, Montedison SpA, Elf Atochem SA, Degussa AG, Enichem SpA, Wacker-Chemie GmbH and Hoechst AG and Imperial Chemical Industries plc (ICI) v Commission of the European Communities, C-238/99 P, C-244/99 P, C-245/99 P, C-247/99 P, C-250/99 P, C-251/99 P, C-252/99 P, C-254/99 P, EU:C:2002:582, paras. 513 and 523; Judgment in Dresdner Bank AG and Others v Commission of the European Communities, fn. 19 above, EU:T:2006:271, para. 63 and cited case law; Judgment of 16 September 2013, Keramag Keramische Werke AG and Others and Sanitec Europe Oy v European Commission, joined cases T-379/10 and T-381/10, ECR, EU:T:2013:457, paras. 102-103. 26 Judgment in Peróxidos Orgánicos, SA v Commission of the European Communities, fn. 22 above, EU:T:2006:350, paras. 53 and 71; Judgment in Lafarge SA v European Commission, C-413/08, EU:C:2010:346, paras. 29-30; Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 67. 27 See for example Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, paras. 66-67; A. Scordamaglia, ‘Cartel Proof, Imputation and Sanctioning in European Competition Law: Reconciling effective enforcement and adequate protection of procedural guarantees’, Competition Law Review, Vol. 7, Issue 1, 25. 28 Judgment in Dresdner Bank AG and Others v Commission of the European Communities, fn. 19 above, EU:T:2006:271, paras. 66-67 and cited case law; See also Judgment in Sumitomo Metal Industries Ltd and Nippon Steel Corp. v Commission of the European Communities, Joined Cases C-403/04 P, C-405/04 P, EU:C:2007:52, paras. 51-52; Judgment in International Confederation of Societies of Authors and Composers (CISAC) v European Commission, fn. 18 above, EU:T:2013:188, para. 98 and cited case law; Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 66; Judgment in Keramag Keramische Werke AG and Others and Sanitec Europe Oy v European Commission, fn. 25 above, EU:T:2013:457, para. 98.

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alternative explanation of the facts calls in question the probative value relied on by the Commission.29

For similar reasons, when the accuser manages to prove the existence of cartel meetings where anti-competitive agreements were discussed, the EU Courts normally presume that every undertaking present in that meeting which did not distance itself expressly from the discussions has participated in the anti-competitive behaviour.30 However, here also it remains in theory possible for the undertaking(s) involved to provide sufficient proof of an alternative explanation.31

Other rebuttable presumptions are used by the EU Courts, e.g., as to parental liability.32 The question is then always whether such presumptions are at all reconcilable with the burden and standard of proof requirements applicable in criminal law cases. Although the ECtHR does not prohibit presumptions as such, even in criminal law matters, it requires them to be applied restrictively, due account being taken of all the circumstances of the case and of the right of defence of the incriminated parties.33

In EU competition law, the main presumption probably concerns the anticompetitive effect of restrictions. Normally a restriction of competition is proved by its actual or potential effect on the consumer.34 The accuser must look at the counterfactual and provide a credible theory of harm. However, when there is overwhelming evidence and experience that a given behaviour is almost always ‘bad’ (e.g., cartels), such anticompetitive effect may in exceptional cases be presumed. In such cases, the restriction will be called ‘by object’, an EU equivalent to US ‘per se’ restrictions, and an anticompetitive effect will not have to be shown given its importance as regards the issue of burden of proof. This concept will be discussed hereafter in more detail:

29 Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, paras. 66-67. 30 Judgment in Sumitomo Metal Industries Ltd and Nippon Steel Corp. v Commission of the European Communities, EU:C:2007:52, para. 47 and cited case law; See also A. Scordamaglia, ‘Cartel Proof, Imputation and Sanctioning in European Competition Law: Reconciling effective enforcement and adequate protection of procedural guarantees’, Competition Law Review, Vol. 7, Issue 1, 25. 31 ‘The Court observes that the requirement that an undertaking publically distance itself, is part of a legal principle according to which, where an undertaking attends meetings involving illegality, it may be exonerated where the evidence shows that it formally distanced itself from the content of those meetings. It is for the undertaking in question to adduce evidence to show that it participated in the meetings without anti-competitive intention by showing that it indicated to its competitors that it was participating in them in a spirit which was different from theirs. It follows that the concept of an undertaking’s publically distancing itself, it being a means of avoiding liability, must be interpreted narrowly’ (emphasis added); Judgment of 11 December 2003, Adriatica di Navigazione SpA v Commission of the European Communities, T-61/99, ECR, EU:T:2003:335, para. 135. 32 See for example Judgment in Akzo Nobel NV and Others v Commission of the European Communities, C-97/08 P, EU:C:2009:536, para. 60 and cited case law; Judgment in EI du Pont de Nemours and Company v European Commission, C-172/12 p, EU:C:2013:601, para. 45 and cited case law. 33 Judgment of the ECtHR of 7 October 1998, Salabiaku v. France, App. n° 10519/83, para. 28. 34 See for example Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above, EU:T:2006:265, para. 112.

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(ii) The concept of ‘by object restrictions’. Obviously, establishing a restriction by object requires a more limited evidential burden for the accuser than is normally the case – it is sufficient to show that the behaviour has taken place and that it falls under the ‘by object’ category. Even in the complete absence of an anticompetitive effect, the establishment of an anticompetitive object suffices for the behaviour to infringe Article 101(1) TFEU.35 Establishing on the contrary an anticompetitive effect requires a detailed analysis of the legal and economic context of the agreement or concerted practice and its possible negative impact on consumers.

It is thus critical to define precisely the limits of the concept of restriction by object. Too broad an approach would sit oddly with the criminal law characterisation of competition rules which gives the accused the benefit of the doubt.36 In line with the above-quoted Salabiaku case law of the ECtHR, the category of ‘by object restrictions’ should always be and remain a narrow one, reserved for the most clear-cut infringements.

There is a ‘by object restriction’ according to the EU Courts when a given behaviour ‘reveal[s] a sufficient degree of harm to competition that it may be found that there is no need to examine their effect’ or in other words where such behaviour ‘may be considered so likely to have negative effects, in particular on the price, quantity or quality of the goods and services, that it may be considered redundant to prove that they have actual effects on the market.’37 Restrictions of competition ‘by object’ are indeed ‘those that by their very nature have the potential to restrict competition. These are restrictions which in the light of the objectives pursued by the Union competition rules have such a high potential for negative effects on competition that it is unnecessary for the purposes of applying Article 101(1) TFEU to demonstrate any actual or likely anti-competitive effects on the market. This is due to the serious nature of the restriction and experience showing that such restrictions are likely to produce negative effects on the market and to jeopardise the objectives pursued by the EU competition rules.’38

True, when a by object restriction is involved, some marginal regard must still ‘be had to the content of the clause, the objectives it seeks to attain and the economic and legal context of which it forms a part.’39 The contextual analysis should however remain

35 Judgment in Sumitomo Metal Industries Ltd and Nippon Steel Corp. v Commission of the European Communities, EU:C:2007:52, paras. 43-46 and cited case law. 36 D. Waelbroeck and D. Slater, ‘The scope of object vs. effect under article 101 TFEU’, in D. Waelbroeck and J.H.J. Bourgeois (eds.), Ten years of effects-based approach in EU competition law: state of play and perspectives, GCLC Annual Conference Series 2013, 131-157, 131 and 137. 37 Judgment in Groupement des cartes bancaires (CB) v European Commission, C-67/13, EU:C:2014:2204, para. 51. 38 Guidance on restrictions of competition ‘by object’ for the purpose of defining which agreements may benefit from the De Minimis Notice, C(2014) 4136 final, http://ec.europa.eu/competition/antitrust/legislation/de_minimis_ notice_annex.pdf, 3, emphasis added. See D. Waelbroeck and D. Slater, ‘The scope of object v. effect under Article 101 TFEU’ in ‘Ten years of Effect-based Approach in EU Competition Law’, Bruylant, 2013, p 131 et seq. 39 Judgment in Pierre Fabre Dermo-Cosmétique SAS v. Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi, C-439/09, EU:C:2011:649, para. 35 and cited case law.

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very basic. It may allow for instance to declare that a restriction ‘by object’ is not prohibited because it is obviously de minimis.40

According to the EU Commission, as far as horizontal agreements are concerned, the ‘by object category’ should normally concern only true ‘cartels’, where prices are fixed, markets are shared or volumes are limited to the detriment of the consumers.41

Occasionally, e.g., in the Allianz Hungaria case, the ECJ defined the concept more broadly:

(…) those agreements would also amount to a restriction of competition by object in the event that the referring court found that it is likely that, having regard to the economic context, competition on that market would be eliminated or seriously weakened following the conclusion of those agreements. In order to determine the likelihood of such a result, that court should in particular take into consideration the structure of that market, the existence of alternative distribution channels and their respective importance and the market power of the companies concerned.42 It is respectfully submitted that in so doing, and in ultimately equating object restrictions to those where anticompetitive effects are likely in the economic context of the case, the ECJ confused the notions of restriction by object and restriction by effect. The prohibition to mingle by object and by effect43 should however go both ways. Otherwise, when such a superficial effects-analysis causes the behaviour to be qualified as a by object restriction, the undertaking can no longer rebut by showing its behaviour had no anticompetitive effect whatsoever.

Also in other cases, and despite the general view that the concept of ‘by object restrictions’ should be reserved for the most obvious restrictions, the EU Courts have unfortunately increasingly shown a tendency to take a rather broad definition of such restrictions.44

40 See Judgment in Franz Völk v S.P.R.L. Ets J. Vervaecke, C-5/69, EU:C:1969:35, para. 5/7 but see Judgment in Expedia Inc. v Autorité de la concurrence and Others, C-226/11, EU:C:2012:795, paras. 37-38, which seems inexplicably to indicate the opposite. 41 Guidance on restrictions of competition ‘by object’ for the purpose of defining which agreements may benefit from the De Minimis Notice, C(2014) 4136 final, http://ec.europa.eu/competition/antitrust/legislation/de_minimis_ notice_annex.pdf, 5. 42 Judgment in Allianz Hungária Biztosító Zrt. and Others v. Gazdasági Versenyhivatal, C-32/11, EU:C:2013:160, para. 48, emphasis added. In T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v. Raad van bestuur van de Nederlandse Mededingingsautoriteit, C-8/08, EU:C:2009:343, we find the same confusion between object and effect. 43 See in this respect Opinion of Advocate General Kokott in T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v Raad van bestuur van de Nederlandse Mededingingsautoriteit, C-8/08, EU:C:2009:110, para. 45. 44 See for example the judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities and Commission of the European Communities v GlaxoSmithKline Services Unlimited and European Association of Euro Pharmaceutical Companies (EAEPC) v Commission of the European Communities and Asociación de exportadores españoles de productos farmacéuticos (Aseprofar) v Commission of the European Communities,

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In the recent Cartes Bancaires case, the ECJ in our view more rightly rejected the GC’s claim that the concept of restriction by object should not be interpreted restrictively, stating that ‘(…) the Commission would be exempted from the obligation to prove the actual effects on the market of agreements which are in no way established to be, by their very nature, harmful to the proper functioning of normal competition.’45

The Court concluded:

Such behaviour must be considered so likely to have negative effects, in particular on the price, quantity or quality of the goods and services, that it may be considered redundant, for the purposes of applying Article [101(1) TFEU], to prove that they have actual effects on the market. Experience should show that such behaviour leads to falls in production and price increases, resulting in poor allocation of resources to the detriment, in particular, of consumers.46 The reference in the Cartes Bancaires case to ‘experience’ suggests that, for a restriction by object to be proven, an established decisional practice in relation to such behaviour should exist. In other words, considering by object restrictions require well-established experience showing their unequivocal harmful nature, the existence of by object restrictions should always be easy to identify, i.e.,should be obvious47, and should never come as a genuine surprise to the undertakings involved.

In conclusion on this point, it is submitted that the concept of restriction by object can only be interpreted narrowly and applied in exceptional circumstances (as are mutatis mutandis the per se prohibitions in US law). Where there is doubt, a presumption of guilt will be unwarranted and the restriction has to be appraised by reference to its effects.48 It should be shown that behaviour considered to be ‘by object’ restrictive of competition is, almost in any context, anticompetitive.

C-501/06 P, C-513/06 P, C-515/06 P, C-519/06 P, EU:C:2009:610, para. 63 where the ECJ overruled the GC, finding that the dual pricing practice at stake was a by object restriction; the judgment in Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd, C-209/07, EU:C:2008:643, para. 23 considering ‘crisis cartels’ as restriction by object; the judgment in T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v Raad van bestuur van de Nederlandse Mededingingsautoriteit, EU:C:2009:343, para. 31 considering exchanges of statistical information as restrictions by object, etc. 45 Judgment in Groupement des cartes bancaires (CB) v European Commission, EU:C:2014:2204, para. 58, emphasis added. 46 Judgment in Groupement des cartes bancaires (CB) v European Commission, EU:C:2014:2204, paras. 49-51, emphasis added. 47 Judgment of 15 September 1998, European Night Services Ltd (ENS), Eurostar (UK) Ltd, formerly European Passenger Services Ltd (EPS), Union internationale des chemins de fer (UIC), NV Nederlandse Spoorwegen (NS) and Société nationale des chemins de fer français (SNCF) v Commission of the European Communities, T-374/94, ECR, EU:T:1998:198, para. 136; contrary to A. Italianer, ‘Competitor agreements under EU competition law’, 40th annual Conference on International Antitrust Law & Policy, New York 26 September 2013, Fordham Competition Law Institute, http://ec.europa.eu/competition/speeches/text/sp2013_07_en.pdf, 5. 48 D. Waelbroeck and D. Slater, ‘The scope of object vs. effect under article 101 TFEU’, in D. Waelbroeck and J.H.J. Bourgeois (eds.), Ten years of effects-based approach in EU competition law: state of play and perspectives, GCLC Annual Conference Series 2013, 131-157, 149.

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(iii) Proving a ‘by effect restriction’ – how strict is the requirement and when does the burden of proof shift? If, however, the behaviour does not concern a by object restriction (i.e.,in reality in most cases), the Commission should prove it has an actual or potential anticompetitive effect.49 The actual or potential (or rather, likely50) effect should be ‘sufficiently appreciable.’51 Today, and despite some initial hesitations52, it is settled case law of the Courts that ‘not every agreement which restricts the freedom of action of the participating undertakings, or one of them, necessarily falls within the prohibition of Article [101 TFEU]’53.

More specifically, the effect of the agreement, concerted practice or decision of association of undertakings, should be assessed in light of the objective assigned to Article 101(1) TFEU which ‘is to prevent undertakings, by restricting competition between themselves or with third parties, from reducing the welfare of the final consumer of the products in question.’54

In assessing whether a given behaviour has an anticompetitive effect, ‘account should be taken of the actual conditions in which an agreement, a decision by an association of undertakings or a concerted practice produce their effects, in particular the economic and legal context in which the undertakings concerned operate, the nature of the products or services concerned, as well as the real operating conditions and the structure of the market concerned.’55

49 See for example Judgment of 24 May 212, MasterCard, Inc. and Others v European Commission, T-111/08, ECR, EU:T:2012:260, para. 139; Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above, EU:T:2006:265, para. 112. 50 Judgment in Ordem dos Técnicos Oficiais de Contas v Autoridade da Concorrência, C-1/12, EU:C:2013:127, para. 72; see also Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 27 April 2004, para. 24 and Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, OJ C 11 14 January 2011, paras. 27-28. 51 Judgment of 27 October 1994, John Deere Ltd v Commission of the European Communities, T-35/92, ECR, EU:T:1994:259, para. 61; Judgment in MasterCard, Inc. and Others v European Commission, fn. 49 above, EU:T:2012:260, para. 139. 52 Judgment in Société de Vente de Ciments et Bétons de l’Est SA v Kerpen & Kerpen GmbH und Co. KG., C-319/82, EU:C:1983:374, para. 6; Judgment in Hasselblad (GB) Limited v Commission of the European Communities, C-86/82, EU:C:1984:65, para. 46. 53 Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above,, EU:T:2006:265, para. 171; see also Judgment in J. C. J. Wouters, J. W. Savelbergh and Price Waterhouse Belas- tingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten, intervener: Raad van de Balies van de Europese Gemeenschap, C-309/99, EU:C:2002:98, para. 97 and Judgment of 18 September 2001 in Métropole télévision (M6), Suez-Lyonnaise des eaux, France Télécom and Télévision française 1 SA (TF1) v Commission of the European Communities, T-112/99, ECR, EU:T:2001:215, para. 76. 54 Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above, EU:T:2006:265, para. 118 and cited case law. On appeal, the ECJ corrected this finding by adding as an alternative a possible effect on the ‘structure of competition’. This is an odd proposition, as the very purpose of competition is to acquire higher market shares. Thus, fighting for a higher market share can by definition not be anticompetitive as it would amount to a prohibition of competition. Under such a test only cartels would be allowed! 55 Judgment in MasterCard, Inc. and Others v European Commission, fn. 49 above, EU:T:2012:260, para. 87 and cited case law.

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In this regard, a realistic56 counterfactual should be applied which allows a comparison to be made between the competitive situation with and without the alleged anticompetitive behaviour:

(…) if an agreement, a decision of an association of undertakings or a concerted practice that is in dispute is to be considered to be prohibited by reason of the distortion of competition which is its effect, the competition in question should be assessed within the actual context in which it would occur in the absence of the agreement, decision of an association of undertakings or concerted practice at issue.57 Only when the counterfactual establishes a sufficiently high degree of market distortion to the detriment of the consumer does the behaviour constitute an infringement of Article 101(1) TFEU.58

In the Métropole télévision (M6) judgment, the GC however ruled that there can be no room within Article 101(1) TFEU for applying such counterfactuals and thus for balancing pro- and anti-competitive effects of an agreement or, in other words, for a ‘rule of reason’59.

Interestingly, the Métropole télévision (M6) judgment itself however recognises that the case law is all but clear in this regard. Indeed, the Court took its position after recognising that ‘it is true that in a number of judgments the Court of Justice and the Court of First Instance have favoured a more flexible interpretation of the prohibition laid down in Article [101](1) of the Treaty’.60

Still, whether the GC’s rejection of a balancing exercise is acceptable under a proper effects-based approach - and whether it is at all compatible with the basic requirement that the burden of proof is on the accuser - is another question.

56 See for example Judgment in European Night Services Ltd (ENS), Eurostar (UK) Ltd, formerly European Passenger Services Ltd (EPS), Union internationale des chemins de fer (UIC), NV Nederlandse Spoorwegen (NS) and Société nationale des chemins de fer français (SNCF) v Commission of the European Communities, fn. 46 above, EU:T:1998:198, paras. 142-145. 57 Judgment in MasterCard, Inc. and Others v European Commission, fn. 49 above, EU:T:2012:260, paras. 98 and 128 and cited case law. 58 Judgment of 23 October 2003, Van den Bergh Foods Ltd v Commission of the European Communities, T-65/98, ECR, EU:T:2003:281, para. 80 and cited case law. The fact that such a counterfactual is necessarily based on an economic analysis may be an important reason in our view not to ‘criminalise’ the application of Article 101(1) TFEU by imposing fines or other sanctions to such effect restrictions. Penalties should be reserved for the obvious restrictions, i.e.,essentially to by object restrictions, also in view of the ‘nulla poena sine lege certa’ principle – see below; D. Waelbroeck and D. Slater, ‘The scope of object vs. effect under article 101 TFEU’, in D. Waelbroeck and J.H.J. Bourgeois (eds.), Ten years of effects-based approach in EU competition law : state of play and perspectives, GCLC Annual Conference Series 2013, 131-157, 154. 59 Judgment in Métropole télévision (M6), Suez-Lyonnaise des eaux, France Télécom and Télévision française 1 SA (TF1) v Commission of the European Communities, fn. 53 above, EU:T:2001:215, para. 72. 60 Ibid, at para. 75. In reality the overwhelming majority of judgments – we would claim - apply a flexible reading of Article 101(1) TFEU and not the more rigid approach advocated in Métropole télévision (M6).

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The Court’s fairly formalistic and automatic finding of a restriction of competition in Métroplole television (M6) is in our view in particular difficult to reconcile with the strict test that is advocated by the ECtHR for any reversal of the burden of proof.

In many other judgments, and notably in some of the more recent ones, the EU Courts have fortunately been less prone to accept an early reversal of the burden of proof as easily. In Wouters, for example, the ECJ ruled, after confirming the anti-competitive effect of the Bar Regulations prohibiting interdisciplinary practices between lawyers and auditors61, that ‘it does not appear that the effects restrictive of competition such as those resulting for members of the Bar practising in the Netherlands from a regulation such as the 1993 Regulation go beyond what is necessary in order to ensure the proper practice of the legal profession. (…) [T]he 1993 Regulation (…) does not infringe Article [101(1) TFEU], since that body could reasonable have considered that that regulation, despite the effects restrictive of competition that are inherent in it, is necessary for the proper practice of the legal profession, as organised in the Member State concerned’62. The use of the word ‘necessary’ could at first sight indicate that the ECJ found the restriction to be an ancillary restraint; however, as the Court had itself confirmed63, the goal of the Bar Regulations could be guaranteed by less extreme measures. Moreover, the ECH recognised that other Member States did not have similar restrictions. As a result, the Bar Regulations were not a genuine ancillary restraint. The ECJ rather balanced the negative effects (loss of ‘one stop shop’ for the client, loss of economics of scale and scope, etc.) with the advantage of the rule, and found the latter to prevail. We can only conclude that this is very similar to a US-style rule of reason approach.

More fundamentally still, a proper analysis of the effective overall anticompetitive harm to the consumer is in our view inherent in the ‘effects based analysis’ which is advocated in the ‘modernisation’ and more ‘economic’ approach proposed by the Commission since the turn of the millennium. Under this approach, a restriction of certain parameters of competition but which is overall to the advantage of the consumer or the community should not be viewed as a prohibited restriction of competition: there is indeed no ‘anticompetitive effect’.

Although an effect-based approach seems thus to require a global view of the potential harm on the consumer, the case law shows abundantly the hesitations of the EU Court in this regard. In Van den Bergh Foods, the Court thus first repeated the Métropole Télévision (M6) finding that there is no ‘rule of reason’ in EU law64 but then took great

61 Judgment in J. C. J. Wouters, J. W. Savelbergh and Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten, intervener: Raad van de Balies van de Europese Gemeenschap, EU:C:2002:98, para. 94. 62 Ibid., paras. 109-110. 63 Ibid., para. 94. 64 Judgment of 23 October 2003, Van den Bergh Foods Ltd v. Commission of the European Communities, fn. 58 above, EU:T:2003:281, para. 106.

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pains to demonstrate over several paragraphs of its judgment that the ‘economic and practical advantages’ of the disputed practice were ‘counterbalanced by its negative effects on competition.’65

Similarly, in O2 Germany, the Court confirmed the rejection in principle of a rule of reason but argued simultaneously that ‘(…) to submit, as the applicant does, that the Commission failed to carry out a full analysis by not examining what the competitive situation would have been in the absence of the agreement does not mean that an assessment of the positive and negative effects of the agreement from the point of view of competition must be carried out at the stage of Article [101 TFEU]. Contrary to the defendant’s interpretation of the applicant’s arguments, the applicant relies only on the method of analysis required by settled case law’66.

The Court then assessed the pro-competitive and anti-competitive aspects of the behaviour within Article 101(1) TFEU arguing that ‘that particular context, [i.e.,the roaming agreement concluded between O2 and T-Mobile was capable of enabling, in certain circumstances, the smallest operator to compete with the major players or even dominant operators,] resulting from the specific characteristics of the relevant emerging market, was not taken into account in the assessment of whether the agreement was compatible with the common market under Article [101 TFEU] (…). By contrast, when, under the provisions of Article [101(3) TFEU] (…), the Commission, considering that the agreement was necessary and that, without it, O2 would not have been able to gain access to the market efficiently, decided to grant an exemption, it took account of that particular context.’67 The Court concluded that ‘it is therefore apparent from the examination carried out under Article [101(3) TFEU] (…) that, in the light of the specific characteristics of the relevant emerging market, O2’s competitive situation on the 3G market would probably not have been secure without the agreement, and it might even have been jeopardised. Those assessments confirm that the Commission’s presuppositions in its examination under Article [101(1) TFEU] (…) have not been established’68.

Consequently, the Commission, in assessing whether or not there is a ‘restriction of competition’ within the meaning of Article 101(1) TFEU, must prove that the agreement, in its entirety and within the actual context it exists, has an anticompetitive effect, i.e.,that it causes anticompetitive harm as a whole to the consumer.

At the end of the day, although one may be playing on words, we would submit that the EU Courts’ case law is not so far from the US ‘rule of reason’ approach. Indeed,

65 Ibid., para. 115. 66 Judgment of 2 May 2006, O2 (Germany) GmbH & Co. OHG v Commission of the European Communities, T-328/03, EU:T:2006:116, para. 70, emphasis added. 67 Ibid., paras. 109-111. 68 Ibid., para. 114, emphasis added.

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all legal systems in the end tend to turn - sometimes with different terminologies – to the same basic concepts imposed by logic.69 Article 101(3) TFEU will only come into play in those cases where a presumption of guilt can be imposed on the defendant, i.e.,for ‘by object restrictions’ (see below).

(b) As to Article 102 TFEU As to Article 102 TFEU, it should be noted that the rules are the same as those applicable for Article 101 TFEU. The burden of proving the dominance of an undertaking lies with the accuser70, as well as the burden of proving that certain behaviour of a dominant undertaking constitutes an abuse.71

Dominance is not an infringement in itself72; there is no presumption of guilt inherent in dominance73. A dominant undertaking should be able to compete on the merits74. Also here, the Commission should prove to the requisite legal standard, i.e.in the words of the EU Courts ‘beyond any reasonable doubt’, that the undertaking involved has abused its dominance75.

69 See in this regard D. Waelbroeck and C. Smits, ‘La règle de raison en droit communautaire de la concurrence: entre exclusion officielle et existence officieuse’,RCB/TBM 2007, p. 20 et seq.; D. Waelbroeck and D. Salter, ‘The scope of object v. effect under Article 101 TFEU’, in Ten Years of Effect-based Approach in EU Competition Law, Bruylant, 2013, p. 131 et seq. 70 Although – according to certain older judgments – the accuser could rely on certain presumptions based on market shares. The moment an undertaking has a market share of at least 50%, the ECJ found in AKZO that it is presumed to be dominant. However, that presumption can be rebutted and other elements such as the threat of expansion of existing competitors or entry of potential competitors and the presence of countervailing power should be taken into account before the Commission has lifted its burden of proof. In its Guidance Paper, the Commission rejected the use of those presumptions; Judgment in AKZO Chemie BV v Commission of the European Communities, C-62/86, EU:C:1991:286, para. 60; Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24 February 2009; D. Bailey, ‘Presumptions in EU competition law’, European Competition Law Review 2010, 362-369, 366. 71 This would normally imply the proof of actual or potential anticompetitive effect: ‘The concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition’; Judgment in Hoffmann-La Roche & Co. AG v Commission of the European Communities, C-85/76, EU:C:1979:36, para. 91, emphasis added; see also Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24 February 2009, para. 19. However, many practices, once their existence is proven, have been automatically considered by the Courts as an abuse. In other words, the concept of by object restrictions has slipped into the application of Article 102 TFEU, thereby significantly simplifying the task of the enforcer. This has repeatedly, and in our view rightly, been criticized. 72 Judgment in Van den Bergh Foods Ltd v Commission of the European Communities, fn. 58 above, EU:T:2003:281, para. 21 and cited case law. 73 Judgment in Telefónica, SA and Telefónica de España, SA v European Commission, fn. 19 above, EU:T:2012:172, paras. 72 and cited case law; see also Judgment in Microsoft Corp. v Commission of the European Communities, T-201/04, ECR, EU:T:2007:289, para. 688. 74 Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24 February 2009, para. 1. 75 Judgment in Telefónica, SA and Telefónica de España, SA v European Commission, fn. 19 above, EU:T:2012:172, para. 72.

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The EU Courts have repeatedly defined the concept of abuse of dominance as one ‘which is such as to influence the structure of a market’ and which ‘has the effect of hindering the maintenance of the degree of competition still existing on the market or the growth of that competition’76.

In other words, contrary to Article 101 TFEU, it would seem to follow from this definition that Article 102 TFEU does in principle not provide for ‘by object restrictions’. As a matter of fact, contrary to Article 101 TFEU, Article 102 TFEU does not even use the words ‘object or effect’, any abuse being defined in principle by reference to its anticompetitive effect. The Commission should thus each time prove that the behaviour of the dominant undertaking has an anticompetitive effect, i.e.,has an adverse impact on consumer welfare.77 Indeed, as admitted by the ECJ in its Post Danmark judgment, ‘not every exclusionary effect is necessarily detrimental to competition (…). Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation.’78 The ECJ concluded that ‘Article [102 TFEU] applies, in particular, to the conduct of a dominant undertaking that, through recourse to methods different from those governing normal competition on the basis of the performance of commercial operators, has the effect, to the detriment of consumers, of hindering the maintenance of the degree of competition existing in the market or the growth of that competition.’79

Despite these sound findings, EU Courts tend in practice to have a much less clear position. Indeed, although - as indicated - abuses are in theory defined by reference to their effect, and although this implies that there are in principle no ‘restrictions by object’ in Article 102 TFEU, the EU Courts tend to accept nevertheless very systematically the existence of such ‘restrictions by object’ or ‘per se restrictions’ which are presumed to have an anticompetitive effect. In so doing, they are effectively creating an unrebuttable presumption of abuse: ‘If it is shown that the object pursued by the conduct of an undertaking in a dominant position is to restrict competition, that conduct will also be liable to have such an effect.’80 In this regard, it is striking that the ECJ for

76 Judgment in Hoffmann-La Roche & Co. AG v Commission of the European Communities, EU:C:1979:36, para. 91; Judgment of 9 September 2010, Tomra Systems ASA and Others v European Commission, T-155/06, ECR, EU:T:2010:370, para. 206; Judgment in Telefónica, SA and Telefónica de España, SA v European Commission, fn. 19 above, EU:T:2012:172, para. 267, emphasis added. 77 Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24 February 2009, para. 19. 78 Judgment in Post Danmark A/S v Konkurrencerådet, C-209/10, EU:C:2012:172, para. 22, emphasis added. 79 Ibid., para. 24, emphasis added. 80 Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 186 and cited case law; see also Judgment of 30 September 2003, Manufacture française des pneumatiques Michelin v Commission of the European Communities, T-203/01, ECR, EU:T:2003:250, para. 241.

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instance considers any sale at a loss81, tying82, exclusive supply and assimilated practices such as fidelity rebates83 or target rebates84, or pricing practices such as margin squeeze85 as in reality per se abusive independently from any effects analysis.86 It seems to us that this general approach by the EU Courts is difficult to reconcile with the above definition of an ‘abuse’ in Hoffmann-La Roche as deriving from its anticompetitive effect, or with the ECJ’s more recent judgment in Post Danmark or with the policy advocated by the EU Commission per se in its Guidance Paper, or even with sound economics or policies followed elsewhere in major jurisdictions throughout the world. It results in an absolute prohibition of behaviour which may well in most cases be pro-competitive, and thus harm the EU economy rather than the reverse. The result is moreover that once the Commission has proved an ‘abuse by object’, the undertaking can no longer rebut this finding by proving the absence of an actual anticompetitive effect.87 We struggle to reconcile this approach with the above quoted Sulabiaku case law of the ECtHR.

For instance in Michelin II, the Court noted that ‘in the contested decision, the Commission did not examine the specific effects of the abusive practices nor was it required to do so’88. According to the Court, ‘establishing the anticompetitive object and the anticompetitive effect are one and the same thing.’89 Whilst the Court accepts that ‘the aim of any competition on price and any discount system is to encourage the customers to purchase more from the same supplier’ (and is thus indeed – we would claim -- the very essence of competition), it finds that this is anticompetitive if the accused cannot show that the rebate ‘rewards an economy of scale made by [it] because

81 Judgment in Tetra Pak v. Commission, C-333/94 P, EU:C:1996:5951, para. 44; Judgment of 30 January 2007, France Télécom SA v Commission of the European Communities, T-340/03, ECR, EU:T:2007:22, para. 227, both making clear that there is no ‘effect test’ (‘recoupment test’) for predatory pricing. 82 See for example Judgment of 12 December 1991, Hilti AG v Commission of the European Communities, T-30/89, ECR, EU:T:1991:70, para. 100; Judgment of 6 October 1994, Tetra Pak International SA v Commission of the European Communities, T-83/91, ECR, EU:T:1994:246, para. 135. 83 Judgment in Tomra Systems ASA and Others v European Commission, fn. 77 above, EU:T:2010:370, para. 210 and Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 77. 84 Judgment in Manufacture française des pneumatiques Michelin v Commission of the European Communities, fn. 81 above, EU:T:2003:250, para. 57 and D. Waelbroeck, ‘Michelin II: A per se rule against rebates by dominant companies?’ Journal of Competition Law and Economics (2005), vol. 1, nr 1, p. 149 et seq.; See also Judgment in Tomra Systems ASA and Others v European Commission, para. 31 above, fn. 77 above, EU:T:2010:370, para. 211. 85 Judgment in Telefónica, SA and Telefónica de España, SA v European Commission, fn. 19 above, EU:T:2012:172, para. 187. 86 ‘(…) for the purposes of applying Article [102 TFEU], showing an anti-competitive object and an anti-competitive effect may, in some cases, be one and the same thing. If it is shown that the object pursued by the conduct of an undertaking in a dominant position is to restrict competition, that conduct will also be liable to have such an effect.’; Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 203; see also D. Bailey, ‘Presumption in EU competition law’, E.C.L.R. 2010, p 365. 87 ‘Where an undertaking in a dominant position actually puts into operation practices which are capable of restricting competition, the fact that that capability does not produce actual effects cannot suffice to prevent the application of Article [102 TFEU]’; Judgment in Intel Corp. v European Commission, fn. 19 above, EU:T:2014:547, para. 186). 88 Judgment of 30 September 2003, Manufacture française des pneumatiques Michelin v. Commission of the European Communities, fn. 81 above, EU:T:2003:250, para. 258. 89 Ibid., para. 241.

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of orders of large quantities’90. The burden of proof is thus reversed and a (de facto impossible) burden of proof is put on the defendant. As to the fact that Michelin’s ‘market shares and prices fell during the period in question’, the Court finds that it is irrelevant as ‘it is very probable that the fall in the [accused] market shares and in its sales prices would have been greater if the practices criticised in that contested decision had not been applied….’91

Similar findings can be found in a large number – if not the majority - of judgments of the EU Courts.

2. Proving the defence

(a) As to Article 101 TFEU Whilst it is for the enforcer to prove the application of Article 101(1) TFEU, it is for the defendant to show that the behaviour is exempted under Article 101(3) TFEU. As stated in Article 2 of Regulation 1/2003, ‘the undertaking or association of undertakings claiming the benefit of Article [101(3) TFEU] shall bear the burden of proving that the conditions of that paragraph are fulfilled.’ For this, the undertaking concerned should provide sufficient proof, i.e., by putting forward convincing arguments and evidence92 that the agreement, concerted practice or decision of an association of undertakings contributes to improving the production or distribution of goods or to promoting technical or economic progress, allows consumers a fair share of the resulting benefit, does not impose unnecessary restrictions and does not afford the undertakings concerned the possibility to eliminate competition completely.

For these strict conditions of Article 101(3) TFEU to apply, the party invoking its application must prove convincingly93 that the four cumulative conditions provided by this Article are met.94 However, it should be emphasised that the EU Courts also found that the Commission has the obligation to ‘play its part’ and must answer any argument put forward by the accused.’95

90 Ibid., paras. 96 and 98. 91 Ibid., para. 245. 92 Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above, EU:T:2006:265, para. 235 and cited case law. 93 Judgment in Protimonopolný úrad Slovenskej republiky v Slovenská sporiteľňa a.s., C-68/12, EU:C:2013:71, para. 32; Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above, EU:T:2006:265, para. 235 and cited case law. 94 Judgment in Protimonopolný úrad Slovenskej republiky v Slovenská sporiteľňa a.s., EU:C:2013:71, para. 36. 95 Judgment in Aalborg Portland A/S, Irish Cement Ltd, Ciments français SA, Italcementi - Fabbriche Riunite Cemento SpA, Buzzi Unicem SpA and Cementir - Cementerie del Tirreno SpA v Commission of the European Communities, EU:C:2004:6, para. 79; Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Commu- nities, fn. 4 above, EU:T:2006:265, para. 236.

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The moment an undertaking provides factual evidence which ‘may be of such a kind as to require the other party to provide an explanation or justification,failing which it is permissible to conclude that the burden of proof has been discharged’96, the EU Courts thus consider that the burden of proof shifts back to the accuser. In other words, the accuser cannot simply reject a defence under Article 101(3) TFEU without good cause. If the accuser is an enforcer, such as the Commission, it ‘may not confine itself to requiring from undertakings proof of the fulfilment of the requirements for the grant of the exemption but must, as a matter of good administration, play its part, using the means available to it, in ascertaining the relevant facts and circumstances.’97

In this regard, it should be stressed that contrary to some statements made by the Commission98, Article 101(3) TFEU does apply to ‘by object restrictions’ and not only to ‘effect restrictions.’99 As a matter of fact, if a proper effect analysis implies, as indicated above, that an overall negative impact on consumers needs to be established, it is essentially for by object restrictions - i.e.,those for which a company can be presumed to have infringed the law independently from the effective effect of the measure – that the provision of Article 101(3) TFEU should apply. Or as stated by the (then) Court of First Instance in the ENS case:

[I]t must be borne in mind that in assessing an agreement under Article [101(1) TFEU], account should be taken of the actual conditions in which it functions, in particular the economic context in which the undertakings operate, the products or services covered by the agreement and the actual structure of the market concerned, unless it is an agreement containing obvious restrictions of competition such as price-fixing, market-sharing or the control of outlets. In the latter case [i.e., for object restrictions], such restrictions may be weighed against their claimed pro-competitive effects only in the context of Article [101(3) TFEU], with a view to granting an exemption from the prohibition in Article 101(1) TFEU.100 Article 101 (3) TFEU with its reversal of the burden of proof and its particularly stringent conditions (notably as regards the strict ‘indispensability’ test) should in our opinion be reserved for these cases only.

96 Ibid., para. 79, emphasis added; Ibid., para. 236. 97 Judgment in Établissements Consten S.à.R.L. and Grundig-Verkaufs-GmbH v Commission of the European Economic Community, Joined Cases C-56/64, C-58/64, EU:C:1966:41, p 347. 98 Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 27 April 2004, para. 46. 99 See for instance, Judgment in Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd, EU:C:2008:643, para. 39; Judgment of 15 July 1994, Matra Hachette SA v Commission of the European Communities, T-17/93, ECR, EU:T:1994:89, para. 85; Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above, EU:T:2006:265, para. 233 and cited case law. 100 Judgment in European Night Services Ltd (ENS), Eurostar (UK) Ltd, formerly European Passenger Services Ltd (EPS), Union internationale des chemins de fer (UIC), NV Nederlandse Spoorwegen (NS) and Société nationale des chemins de fer français (SNCF) v Commission of the European Communities, fn. 46 above, EU:T:1998:198, para. 136. Emphasis added.

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(b) As to Article 102 TFEU The same division of tasks as in Article 101 TFEU applies for a company invoking a possible efficiency defence under Article 102 TFEU.

Once it is proved that the behaviour constitutes an abuse of dominant position, the EU Courts accepted that the undertaking concerned can still provide proof which justifies its behaviour.101 In Post Danmark, the ECJ has thus decided to introduce indirectly an equivalent to Article 101(3) TFEU in the context of Article 102 TFEU. It is then ‘for the dominant undertaking to show that the efficiency gains likely to result from the conduct under consideration counteract any likely negative effects on competition and consumer welfare in the affected markets, that those gains have been, or are likely to be, brought about as a result of that conduct, that such conduct is necessary for the achievement of those gains in efficiency and that it does not eliminate effective competition, by removing all or most existing sources of actual or potential competition.’102 These are effectively the four conditions contained in Article 101(3) TFEU. In our view, the very possibility of such an ‘efficiency defence’ sits, however, oddly:

• with the text of Article 2 of Regulation 1/2003 which provides that the burden of proving the application of Article 102 TFEU, in its entirety, lies with the accuser; • with the fact that ‘efficiencies’ are part of the definition of the abuse and not a defence;103 • with the very wording of Article 102 TFEU, which does not contain the words ‘object or effect’ – or in other words the concept of ‘by object’ abuse; • with the structure of Article 102 TFEU, which does not contain any paragraph 3; and • with the fact that the conditions of Article 101(3) are in any event not well-suited to an Article 102 TFEU analysis.104

101 Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24 February 2009, para. 28. 102 Judgment in Post Danmark A/S v Konkurrencerådet, EU:C:2012:172, para. 42; see also Guidance on the Commis- sion’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24 February 2009, para. 30. 103 See the ‘as efficient competitor test’; Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24 February 2009, para. 23. In Hoffmann-La Roche, the Court thus defined the abuse as a behaviour affecting competition negatively and that is not justified by the merits (Judgment inHoffmann-La Roche & Co A v. Commission of the European Communities, C-84/76, EU:C:1979:36, para. 91) - in other words, the accuser has to prove the abuse of the dominant undertaking taking into account both the pro- and anticompetitive effects of the behaviour concerned. 104 D. Waelbroeck, ‘Les gains d’efficacité dans l’article 102 TFUE – Conditions de l’abus ou défense? inIn honorem Bernard van de Walle de Ghelcke, RBC/TBM 2011, p. 109 et seq. and D. Waelbroeck, ‘The assessment of efficiencies under Article 82 EC and the Commission’s Guidance Paper’ in Competition Law and the Enforcement of Article 102, Oxford University Press, 2010, p. 115 et seq.

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One may therefore legitimately question when an ‘efficiency defence’ will come into play and when the burden of proof will then shift on the defendant. This should arguably be limited to cases of the most obvious prima facie abuses.

Where this is the case, ‘it then falls to the Commission, where it proposes to make a finding of an abuse of a dominant position, to show that the arguments and evidence relied on by the undertaking cannot prevail and, accordingly, that the justification put forward cannot be accepted.’105 In conclusion, whilst the criminal law nature of competition law implies that the burden of proof should essentially lie on the accuser, and that any doubt should benefit the defendant, current case law of the EU Courts tends to shift this burden in a number of circumstances – sometimes in our view rather too readily – on the defendant.

IV. Standard of proof

1. The standard of proof in light of the presumption of innocence

The standard of proof relates to the ‘level of convincingness’ which the Commission must satisfy in proving a competition law infringement.106 In other words, the standard of proof depends on how convinced the judges can be of the guilt of a party.107 At the same time, here again, the standard of proof is intrinsically linked with more fundamental values such as the presumption of innocence. A low standard of proof will indeed be causing the burden of proof to rapidly shift to the accused undertaking. Behaviour that was hitherto regarded as legitimate may as a result retroactively become prohibited. Whilst the questions of burden of proof can – as just discussed – sometimes be rather uncertain, those relating to the standard of proof are even more so. Unlike the burden of proof which is dealt with by Article 2 of Regulation 1/2003, no EU text establishes in competition cases a clear standard of proof, methods of admissible evidence, or a hierarchy between types of evidence.108

As mentioned, the Courts have accepted that the Commission must prove to the requisite legal standard the existence of the facts constituting an infringement beyond any

105 Judgment of 17 September 2007, Microsoft Corp. v Commission of the European Communities, fn. 74 above, EU:T:2007:289, para. 688.

106 I. Forrester, ‘A Bush in Need of Pruning: the Luxuriant growth of “Light Judicial Review”‘, in C.D. Ehlerman and M. Marquis (eds.), European Competition Law Annual 2009: Evaluation of Evidence and its Judicial Review in Competition Cases, (Oxford: Hart Publishing, 2011), 7. 107 In French, the ‘intime conviction’. 108 J. Buhart, R. Maulin, ‘Proof in Cartels: State of Play and Perspectives’, Concurrences 2011, N° 4, pp. 51-64, http:// awa2012.concurrences.com/academic/article/proof-in-cartels-state-of-play-and.

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reasonable doubt.109 It must produce ‘sufficiently precise and consistent evidence to support the firm conviction that the alleged infringement took place.’110

Also here, the basic assumption is that undertakings are presumed innocent until proven otherwise and that any doubt benefits the accused. And also here, the standard of proof is intrinsically linked to the standard of review by the Courts. Still, the EU Courts have demonstrated in the majority of cases a reluctance to review complex economic and technical assessments undertaken by the Commission.111 As stated for instance by the GC:

(…) although as a general rule the EU judicature undertakes a comprehensive review of the question whether the conditions for applying the competition provisions are or are not met, its review of complex economic appraisals made by the Commission is necessarily limited to verifying whether the relevant rules on procedure and on the statement of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of assessment or misuse of powers. Likewise, in so far as the Commission’s decision is the result of complex technical appraisals, those appraisals are in principle subject to only limited judicial review, which means that the EU judicature cannot substitute its own assessment of matters of fact for the Commis- sion’s. (…) However, while the EU judicature recognises that the Commission has a margin of discretion in economic matters, that does not mean that it must decline to review the Commission’s interpretation of economic data. The EU judicature must not only establish whether the evidence put forward is factually accurate, reliable and consistent but must also determine whether that evidence contains all the relevant data that must be taken into consideration in appraising a complex situation and whether it is capable of substantiating the conclusions drawn from it.112 True, the EU Courts have – in some recent judgments -- occasionally acknowledged the need for ‘full jurisdictional review’ in competition cases involving sanctions on undertakings (presumably mainly because they were prompted to do so by the case law of the ECtHR). Still, the reality is that they at best can be said to have paid ‘lip

109 Judgment in Dresdner Bank AG and Others v Commission of the European Communities, fn. 19 above, EU:T:2006:271, paras. 59-60 and cited case law; See also judgment in Telefónica, SA and Telefónica de España, SA v European Commission, fn. 19 above, EU:T:2012:172, para. 72. 110 Judgment in Compagnie Royale Asturienne des Mines SA and Rheinzink GmbH v Commission of the European Communities, C-29/83, C-30/83, EU:C:1984:130, para. 20, and Judgment of 6 July 2000, Volkswagen AG v Commission of the European Communities, T‑62/98, ECR, EU:T:2000:180, paras. 43 and 72. 111 I. Forrester, ‘A Bush in Need of Pruning: the Luxuriant growth of “Light Judicial Review”’, in C.D. Ehlerman and M. Marquis (eds.), European Competition Law Annual 2009: Evaluation of Evidence and its Judicial Review in Competition Cases, Hart Publishing, 16. 112 Judgment in Telefónica, SA and Telefónica de España, SA v European Commission, fn. 19 above, EU:T:2012:172, paras. 69-71, emphasis added; see also Judgment in Chalkor AE Epexergasias Metallon v European Commission, EU:C:2011:815, para. 54; Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above, EU:T:2006:265, paras. 241-242; Judgment in Dresdner Bank AG and Others v Commission of the European Communities, fn. 19 above, EU:T:2006:271, para. 67 and cited case law; Judgment in Microsoft Corp. v Commission of the European Communities, fn. 74 above, EU:T:2007:289, paras. 87-89.

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service’ to this requirement and that they have in practice never really departed from their limited (or marginal) review policy.113 The results can often be rather perplexing. To give just one example, in Wanadoo, the GC argued first that it was ‘economically too complicated’ for itself to assess whether a method of calculation of costs and amortisation used by the Commission to establish alleged sales at a loss and predation was correct. As a result, rather than recognising that - in view of the complexity and uncertainty of the issue (i.e., over how many years, etc., should investments in high speed internet cables be amortised) - the question was whether the undertaking’s method of amortisation was manifestly incorrect, it took the view that it was for the undertaking to rebut the validity of the method used by the Commission by providing proof of a manifest error of assessment by the latter. Thus as to the proper amortisation period and method, the GC stated that: […] even though [Wanadoo] were to prove that the method which it advocates is appropriate […], this would be insufficient to prove that the method used by the Commission in the present case is unlawful. It is for the applicant to prove that unlawfulness. However, the foregoing assessment has shown that the Commission did not commit a manifest error of assessment in choosing that method…..114 At the same time, the GC took the view that the question of amortisation involved a complex economic assessment by the Commission which it could not control:115 The application of the method determining rather of recovery of cash […] entails a complex economic assessment on the Commission in which it must be afforded a broad discretion.116 The fact that all competitors of Wanadoo apparently applied amortisation methods similar to Wanadoo (indeed it was not disputed that the latter was in reality only aligning its prices with those of its competitors) was not sufficient either. Although the legality of ‘meeting competition’ was in dispute (or in other words the legality of ‘the right of an operator to align its prices on those previously charged by a competitor’, the GC found that Wanadoo could not rely in the present case on this defence as its prices were said to be ‘below costs’ (which they were only if the amortisation methods used by the Commission and disputed by Wanadoo were applied…).117

113 See also Judgment in Schindler Holding Ltd and Others v European Commission, fn. 10 above, EU:T:2011:362, paras. 56-57 and para. 197 in which the GC first argued that it must provide full jurisdictional review in light of the case law of the ECtHR, then refused to look into the testimonies before the Commission and ultimately repeated that the Commission has a broad discretion as regards the calculation of the fines; see also the Judgment of 6 May 2009, KME Germany AG, KME France SAS and KME Italy SpA v Commission of the European Communities, T-127/04, ECR, EU:T:2009:142, paras. 36 and 121. 114 Judgment in France Télécom SA v Commission of the European Communities, fn. 82 above, EU:T:2007:22, para. 153. 115 Ibid., para. 129. 116 Ibid., para. 163. 117 Ibid., para. 176 et seq.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 397 ‘Oh illustrious Caesar! If it is sufficient to deny, what hereafter will become of the guilty?’ On the presumption of innocence, the burden of proof, and the standard of proof in EU competition law

As a result, the GC gave the Commission the ‘benefit of the doubt’ and confirmed the fines imposed on Wanadoo: As regards the scope of judicial review, it is necessary to draw attention to the essential difference between factual matters and findings, on the one hand, which may be found to be inaccurate by the Court in the light of the arguments and evidence before it, and, on the other hand, economic appraisals.118 This unorthodox approach was endorsed by the ECJ on appeal.119 Similarly, also in the context of Article 101(3) TFEU, the case law – in our opinion -- takes the rather controversial view that the Commission has a margin of discretion when making economic assessments:

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 [101(3) TFEU] 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 [EU] level.120 The very large margin of discretion thus granted to the Commission in applying Article 101(3) TFEU is —we would submit -- also difficult to understand. As already mentioned, the EU Courts should provide a full review when Articles 101 and 102 TFEU are at stake and this means they should also provide a full review of the non-application of Article 101(3) TFEU which is inextricably linked to the analysis of a possible infringement of competition rules. Moreover, given the fact that undertakings are required to assess themselves whether a certain behaviour falls under the scope of Article 101(3) TFEU or not, the idea must be that the law is clear and easy to apply. If this were not to be the case, the Commission and the Courts ought in our view, in light of the principle ‘nulla poena sine lege certa’, to ‘de-criminalise’ an infringement of Article 101 TFEU, i.e.,impose no penalties, as soon as the undertaking concerned could reasonably expect Article 101(3) TFEU to be applicable.121

118 Judgment in Dresdner Bank AG and Others v Commission of the European Communities, fn. 19 above, EU:T:2006:271, para. 66 and cited case law. 119 Judgment of 2 April 2004, France Télécom SA v. Commission of the European Communities, C-202/07 P, ECR, EU:C:2009:2369. True, this ‘hands-off approach’ is not systematic and there have been, exceptionally, cases where the EU Courts did provide a more intense jurisdictional review (see e.g., Judgment in A. Ahlström Osakeyhtiö and others v Commission of the European Communities, Joined cases C-89/85, C-104/85, C-114/85, C-116/85, C-117/85 and C-125/85 to C-129/85, EU:C:1993:120; Judgment in International Confederation of Societies of Authors and Composers (CISAC) v European Commission, fn. 18 above, EU:T:2013:188; see also, in a case concerning a merger – i.e.,an area of competition law that is not ‘criminal’ for instance - Judgment of 25 October 2002, Tetra Laval BV v Commission of the European Communities, T-5/02, ECR, EU:T:2002:264). 120 Judgment in GlaxoSmithKline Services Unlimited v Commission of the European Communities, fn. 4 above, EU:T:2006:265, para. 244. 121 See mutatis mutandis the view taken by the Swiss Supreme Administrative Court in Swisscom as mentioned below.

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In any event, if competition law is of a criminal nature, it is essential that EU Courts control fully the assessment of the Commission instead of merely intervening when they consider the assessment of the Commission to be ‘manifestly wrong’,122 as made clear in Menarini.

2. The standard of proof in light of the ‘nulla poena sine lege certa’ principle In addition to the requirements following from the ‘in dubio pro reo’ principle, limits are imposed by the equally important principle of ‘nulla poena sine lege certa’123. Indeed, the question is - in reality – whether an undertaking can reasonably be expected to make a ‘complex economic assessment’ to comply with a law that is ‘clear and predictable’ enough so as to avoid fines when the EU Courts themselves find them to be ‘too complex’ to review. Winston Churchill notoriously said that ‘in England, everything is permitted except what is forbidden. In Germany everything is forbidden except what is permitted. In France everything is allowed even what is prohibited. In the USSR, everything is prohibited, even what is permitted’. Obviously, it is the ‘English model’ in this description which should guide the EU. However, it is not clear that it does so. In Microsoft III, the GC for instance candidly admitted that the law was often not clear as regards the application of Article 102 TFEU (in this case to define ‘FRAND conditions’) but simply stated that ‘the use of imprecise legal concepts within a provision does not prevent liability being established as against a person who contravenes it. As the Commission points out, if it were otherwise, an infringement of Article 101 or 102 TFEU — which are themselves drawn up using imprecise legal concepts, such as distortion of competition or “abuse” of a dominant position — could not give rise to a fine without the prior adoption of a decision establishing the infringement.’124 In our opinion, it should however be clear that imposing fines should not be a policy goal in itself and that the ‘desire to impose fines’ is certainly not an acceptable reason, if there is any, for breaching fundamental rights. To this must be added that the ECJ, in appeal, exerts an even more limited control on the GC whereby it will only question the GC’s assessment of the evidence in case it

122 See in this respect Judgment of the EFTA Court in Posten Norge AS v EFTA Surveillance Authority, E-15/10, EFTA Ct. Rep [2012] p. 246, paras. 100-102. 123 Under Article 7 ECHR ‘[n]o one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed’. And Article 49 of the EU Charter provides in similar terms that ‘no one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national law or international law at the time when it was committed.’ 124 Judgment of 27 June 2012, Microsoft Corp. v European Commission, T-167/08, ECR, EU:T:2012:323, para. 91. It is worth recalling that this Judgment led to a penalty for Microsoft of not less than EUR 850 million.

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has been distorted, as well as any error of law.125 And although it considers the principles of the presumption of innocence and the rules in relation to the burden of proof to be general principles of law subject to the control of the ECJ,126 it has so far kept short of requiring a more extensive jurisdictional control from the GC. In many jurisdictions, and notably in the USA, it is precisely because the law is too uncertain to be clear that no penalties are normally imposed in application of the equivalent of Article 102 TFEU, i.e.,Section 2 of the Sherman Act.127 And the Swiss Administrative Supreme Court in the Swisscom case analysed the Swiss rule prohibiting abuses of dominant position, similarly to Article 102 TFEU, and concluded – arguably more wisely than the GC in Microsoft III - that it lacked the predictability necessary for the imposition of penalties.128 In other words, if the law is ‘too complex’ – as is the guiding principle justifying limited jurisdictional review by EU Courts - the logical conclusion can only be that no penalty may be imposed on its basis as the law will also be ‘too complex’ to be clear for the companies concerned and their advisors (in Microsoft III no less than 13 letters had been sent to the Commission to understand what FRAND terms were supposed to be – but to no avail – to then discover ex post facto that – in the Commission’s opinion - a fee of 0.7% of related revenues was ‘excessive’, but one of 0.4% was not so…).

3. The meaning of ‘full jurisdictional control’ The marginal or limited review generally exercised by the EU Courts thus creates in practice a presumption that the Commission’s economic analysis is correct. This is however all the more problematic since everything in competition law is economic – be it the definition of the market, the SSNIP test, cross-elasticities, the dynamics of the

125 Judgment in Hilti AG v Commission of the European Communities, C-53/92, EU:C:1994:77, paras. 42-43; Judgment in Sumitomo Metal Industries Ltd and Nippon Steel Corp. v Commission of the European Communities, EU:C:2007:52, paras. 38 and cited case law; Judgment in Quinn Barlo Ltd and Others v European Commission, C-70/12, EU:C:2013:351, para. 25 and cited case law. 126 Judgment in Quinn Barlo Ltd and Others v European Commission, EU:C:2013:351, paras. 36-37 and cited case law; See also judgment in Sumitomo Metal Industries Ltd and Nippon Steel Corp. v Commission of the European Communities, EU:C:2007:52, para. 39 and cited case law. 127 Title 15 USC Section 2: ‘Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.’ 128 ‘(…) Denn Art. 7 Abs. )1 KG enthält, wenn vom konkretisierenden Tatbestandskatalog in dessen Abs. 2 abgesehen wird, keinerlei Konturen, die zumindest generalklauselhaft die Kriterien für « unzulässiges Verhalten » beziehungs- weise « den Miss-brauch einer Stellung » erkennbar und damit vorhersehbar machen würden. (…) Dieser Befund wiegt umso schwerer, als bereits der Bundesrat in seiner Botschaft auf das Problem der Doppelgesichtigkeit von Verhaltensweisen hinweist, das darin besteht, dass ein bestimmtes Verhalten « a priori sowohl Ausdruck erwünschten Wettbewerbs als auch einer missbräuchlichen Behinderungs- oder Ausbeutungsstrategie sein kann » – Bei der Beurteilung dieser Fragen kommt sodann – insbesondere angesichts der wachsenden Bedeutung des sogennanten “more economic approach“ - erschwerend hinzu, dass anerkanntermassen eine Vielfalt wirtschaftstheoretischer Erklärungsmodelle zur Verfügung stehen, die Lehrmeinungen zufolge beinahe jedes Ergebnis einer Kartellgeset- zanwendung einer ökonomischen Rechtfertigung zugänglich machen und deshalb den Rechtsanwender vor erhebliche methodische Probleme stellen. Damit wird deutlich, dass die Generalklausel von Art. 7 Abs. 1 KG an-gesichts ihrer inhaltlichen Offenheit für sich alleine betrachtet nicht den rechtsstaatlichen Minimalanforderungen des in Art. 7 Abs. 1 erster Satz EMRK verankerten Legalitätsprinzips zu entsprechen vermag’; Judgment of 24 February 2010 of the administrative Supreme Court of Switzerland, Swisscom (Schweiz) AG gegen Wettbewerbskommission, B–2050/2007, para. 4.5.1, emphasis added.

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market, whether it operates under the Bertrand model or the Cournot model, the concentration of the market, the assessment of market power, of barriers to entry or growth, of possible restrictions of competition, or of abuses, of externalities, of network effects, of countervailing powers, of cumulative effects, etc. In other words, by giving the Commission the ‘benefit of the doubt’, it effectively reverses the roles and expects the accused undertaking to prove that the Commission’s economic analysis amounts to a manifest error of assessment and that the defendant is as a result innocent. In light of the case law of the ECtHR, it is difficult to see how this limited review by the EU Courts can be regarded as sufficient under Article 6 ECHR.129 Since, as is clear from Menarini, the EU Courts should provide a full jurisdictional review of both the legal and factual elements, it may be useful hereafter to briefly repeat what this implies: • first, full jurisdictional review implies a full re-examination of all evidence provided by the Commission be it – if necessary - by cross-examining witnesses, appointing experts or otherwise; • second, beyond examining whether the undertakings concerned have actually committed the behaviour(s) on which the case is built, there also needs to be a complete control on both the economic and the technical assessments by the Commission; • third, there is no reason why jurisdictional review should not extend to the political elements inherent in EU competition law. Indeed, competition law often entails difficult political choices. For instance, is an environmental agreement prohibiting polluting but cheaper products good or bad? Or in other words, should competition law favour clean or cheap products?130 If the law is supposed to be ‘clear’ then these elements should also be clear as otherwise, no fine can be imposed if companies make a different judgment than the Commission on issues such as these; • lastly, a proper full jurisdictional review normally should allow EU Courts not only to annul the decisions of the Commission but to reform them altogether.

4. A need for a revision of the treaties to allow the EU Courts to exercise full jurisdictional review? Given the above, there is one further question which deserves a brief mention in the present context. Often, it is claimed that the need to conduct full jurisdictional review requires a revision of the TFEU. In our view, this is not so. First of all, it should be remembered that, on the basis of Article 261 TFEU, Article 31 of Regulation 1/2003 states that ‘the Court of Justice shall have unlimited jurisdiction

129 M. Bronckers and A. Vallery, ‘Fair and Effective Competition Policy in the EU: Which Role for Authorities and which Role for the Courts after Menarini?’, European Competition Journal, Vol. 8 No 2, http://www.vvgb-law. com/wp-content/uploads/2013/02/PDF-ECJ-on-Menarini.pdf, 290. 130 Case No COMP/36718 – CECED, paras. 55-57.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 401 ‘Oh illustrious Caesar! If it is sufficient to deny, what hereafter will become of the guilty?’ On the presumption of innocence, the burden of proof, and the standard of proof in EU competition law

to review decisions whereby the Commission has fixed a fine or periodic penalty payment. It may cancel, reduce or increase the fine or periodic penalty payment imposed.’131 This wording can be read as allowing a full review of the decision itself and not only of the penalty. But even if this were not to be the case, then Article 103(d) TFEU provides in our view an obvious legal base to remedy this by allowing the adoption of Regulations in which the respective functions of the Commission and of the Court of Justice of the European Union are defined in accordance with the requirements of Article 6 ECHR.

V. Conclusion The presumption of innocence is an old and basic rule of law which can be traced back to Deuteronomy and the law of Sparta and Athens.

The Justinian Code expressed it as follows:

Let all accusers understand that they are not to prefer charges unless they can be proven by proper witnesses or by conclusive documents, or by circumstantial proof and is clearer than day.132 After the fall of the Roman Empire, Europe returned to tribal rules that presumed guilt. The accused could prove his innocence by having, for instance, twelve persons swear that he could not have done what he was accused of.133 It was only as a result of a slow process that the presumption of innocence was progressively reintroduced, together with the basic principles of the rule of law. With the 1789 Declaration of the Rights of Man and of the Citizen (Article 9), or with the Universal Declaration of Human Rights (Article 11), the presumption of innocence is seen again today as one of the main pillars of the rule of law and as a fundamental right.

Also in competition law, in line with the presumption of innocence and given the criminal law nature of this law, the burden of proof lies with the accuser.

As we have shown, we find however the EU Courts’ approach with regard to competition law decisions in many ways irreconcilable with this principle, in particular as regards:

131 Emphasis added. This is the view taken by Judge Pinto de Albuquerque’s dissenting opinion in the Menarini cae quoted above. 132 Justinian Code, Book IV, Vol. XX, 1, 1.25; emphasis added. 133 http://www.thefinertimes.com/Middle-Ages/law-in-the-middle-ages.html

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• the overly broad definition of ‘by object restrictions’; • the often excessively automatic finding of ‘anticompetitive effect’; • the numerous and often unduly wide ‘presumptions of guilt’ created by the case law; • the low standard of proof generally applied; and • the light touch judicial review mostly exercised by the Courts. In the light of the Menarini case law, it is doubtful whether the case law of the EU Courts in this regard would today pass a genuine control by the ECtHR. Indeed, to quote Emperor Julian, the feeling is often that - excessively preoccupied maybe with ‘what will become of the guilty’ -, the EU Courts take a rather light view on ‘what will become of the innocent’134…

More fundamentally still, we are inclined to believe that the approach taken in the case law on economic questions and the ‘benefit of the doubt’ too readily given to the Commission is the main reason for the frequently inconsistent findings which characterise the current rules imposed on undertakings by the EU Courts in the context of Articles 101 and 102 TFEU. We share therefore I. Forrester’s view that there is a need for rethinking the system of judicial review in line with the requirements imposed by the ECtHR. Maybe then will come a day where rules in this area will indeed become the ‘light’ which we expect them to be, intelligently guiding the path of companies and their advisors, as well as of authorities and judges across the EU, in the interest of the community as a whole.

134 See here above fn. 1.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 403 The current role of the Hearing Officer: another step change

Karen Williams*

I. Introduction Competition lawyers dealing with cases involving the European Commission’s antitrust proceedings pursuant to Articles 101 and 1021 and the Merger Regulation2 are already familiar with the Hearing Officer of the Commission. For others the meaning of the term may not be so obvious. The Hearing Officer is the guardian of the parties’ procedural rights in competition proceedings, an independent person designated as such by the Commission in order to contribute to the fairness, objectivity and impartiality of its proceedings.

* I am grateful to Manuel Kellerbauer for his comments on earlier drafts of this contribution. All views expressed in this contribution are strictly personal and should not be construed as reflecting the opinion of the European Commission. 1 Procedures to examine infringements of Art.s 101, 102 TFEU (hereafter ‘antitrust proceedings’) follow the rules of Council Regulation 1/2003 on the implementation of the rules on competition laid down in Art.s 81 and 82 of the Treaty [2003] OJ L1/1 (hereafter ‘Regulation 1/2003’). The rules are further regulated by Commission Regulation (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Arts. 81 and 82 of the EC Treaty [2004] OJ L 123/18, last amended by Commission Regulation (EC) No 662/2008 of 30 June 2008 [2008} OJ L 171/3 (hereafter ‘Antitrust Implementing Regulation’). 2 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24, 29.1.2004 (hereafter ‘Merger Regulation’). The rules are further regulated by Commission Regulation (EC) No 802/2004 of 21 April 2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations [2004] OJ L 133/1 last amended by Commission (EC) Regulation No 1033/2008 of 20 October 2008 [2008] OJ L 279/3 (hereafter ‘Merger Implementing Regulation’).

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 405 The current role of the Hearing Officer: another step change

There has been a plethora of literature written by lawyers and academics over the years regarding the role the Hearing Officer should play in order to ensure the fairness of the antitrust and merger proceedings in which the Commission acts as an investigator, prosecutor and first instance decision-maker. The present article does not intend to reopen this debate, but to recall recent noteworthy developments and to discuss some legal questions arising out of the Hearing Officer’s current functions. II. The development of the Hearing Officer’s role: independent review in response to concentrated powers The development of the Hearing Officer’s role may be seen as part of the broader debate on the compliance of the Commission’s competition enforcement system with its obligations under the Charter for Fundamental Human Rights and the European Convention of Human Rights.3 As a longstanding eminent legal practitioner whose experience includes a number of high profile cases before both the Commission and the EU Courts, Ian Forrester QC has also participated in this debate. Whilst he is generally respectful of officials responsible for implementing the Commission’s competition procedures, he has been an ardent critic of the enforcement procedures themselves, arguing that ‘the Commission’s decision-making processes, which were adopted in 1962 and which have not fundamentally changed in the interim, are completely inadequate to discharge the huge responsibilities assigned to the Commission in the EC Treaty’.4 For its part, the Commission has consistently affirmed that its role as investigator and first instance decision-maker, coupled with the judicial review exercised by the EU Courts, is fully compliant both with the Charter of Fundamental Rights and the provisions of the European Convention of Human Rights.5 More generally, the system for enforcing the competition rules is an administrative rather than a judicial one. The procedural framework established under this system reflects a balance between, on the

3 The increasing level of fines in competition cases in recent years has further fuelled the debate; see D. Waelbroeck and D. Fosselard, ‘Should the Decision-Making Power in EC Antitrust Procedures be left to an Independent Judge? – The Impact of the European Convention of Human Rights on EC Antitrust Procedures’, in A. Barav and D.A. Wyatt (eds.) 1994 Yearbook of European Law (Clarendon 1995); see also A. Burnside, ‘Mario Monti should not be judge and jury’, Financial Times, 21 October 2002, p. 17 and A. Winckler, ‘Some Comments on Procedure and Remedies under EC Merger Control Rules: Something Rotten in the Kingdom of the EC Merger Control?’ (2003) 26 World Competition 219, at 231-232.

4 I. Forrester, ‘Due process in EC competition cases: A distinguished institution with flawed procedures’,The European Law Review (2009) 817. 5 See, for example, views of Commission officials to the House of Lords Select Committee on the European Communities, Strengthening the role of the Hearing Officer in EC Competition Cases, Session 1999-2000 (hereafter ‘2000 Report’). The Commission successfully defended this view before the EU Courts; Judgment in Schindler v Commission, C-501/11 P, EUC:2013:522 paragraphs 33-38; Judgment in Kone Oyj and other v Commission, C-510/11 P, EU:C:2013:696, paragraphs 23-25; Judgment of 12 June 2014, Intel v Commission, T-286/09, EU:T:2014:547, paragraphs 1611, 1612 (Appeal before the ECJ, Case C-413/14P). See also W. Wils, ‘The compatibility with fundamental rights of the EU antitrust enforcement system in which the European Commission acts both as investigator and first instance decision maker’,World Competition: Vol.37, Issue 1, March 2014.

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406 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Karen Williams

one hand, safeguarding the parties’ procedural rights and, on the other hand, procedural effectiveness. At the same time, the Commission has not been unresponsive to criticisms made as to the fairness of its system as well as to procedural weaknesses, which led the then Community Courts in the past to annul Commission decisions either partially or fully.6 On the contrary, many improvements have been made over the years,7 the most important of which may have been the establishment and subsequent development of the function of Hearing Officer. Created in 1982, the post was initially focused on the oral hearing,8 hence the name.9 In 1994 the Hearing Officer was also granted autonomous interlocutory decision-making powers to resolve access to file and confidentiality issues, and the terms of reference were formally extended to merger proceedings.10 The independence and effectiveness of the role was further reinforced in 2001, in particular by requiring the Hearing Officer publicly to report on the respect of parties’ right to be heard and removing the post of Hearing Officer from the Directorate General for Competition (DG COMP).11 These developments came when circumstances, events and debates combined to create a momentum that the Commission found difficult to resist.12 The Select Committee of the House of Lords in the United Kingdom also played an influential role during this period, examining Commission competition proceedings on three occasions and seeing a number of its recommendations taken up by the Commission.13 Renewed calls for a further review and strengthening of the Hearing Officer’s terms of reference followed a public consultation of the (then) Commission Best Practices

6 In particular, four judgments in which the then Community Courts partially or fully annulled Commission decisions due to breaches of parties’ procedural rights need to be highlighted, namely (i) Cimenteries (Joined Cases T-25/95 etc. 2000 EU:T:2000:77) (ii) Compagnie maritime belge (Joined Cases C-395/96 and C-396/96, EU:C:2000:132); (iii) Schneider/Legrand (Case T-310/01, EU:T:2002:254 and (iv) Atlantic Container Line (Joined Cases T-191/98 and T-212/98 to T-214/98, EU:T:2003:245). Regarding the criticism in academia, see, for instance Möschel, ‘Fines in European competition law’, [2011] ECLR, page 369.

7 Commission Notice on the rules for access to the Commission in cases pursuant to Art.s 81 and 82 of the EC Treaty, Arts. 53, 54 and 57 of the EEA Agreement and Council Regulation (EC) No 139/2004 OJ LC 325/7, of 22.12.2005, DG Competition Best Practices on the conduct of EC merger control proceedings in mergers. Commission Notice on best practices for the conduct of proceedings concerning Art.s 101 and 102 TFEU OJ C 308/6 of 20.10.2011 (hereafter ‘‘Best Practices on antitrust proceedings’’).

8 See the Hearing Officer’s first Terms of Reference, created with effect from 1 September 1982; Notice on procedures for applying the competition rules of the EEC and ECSC Treaties (Art.s 85 and 86 of the EEC Treaty and 65 and 66 of the ECSC Treaty), OJ C 251, 25.9.1982. It was replaced by a Commission Decision of 23 November 1990 on the implementation of hearings in connection with the procedures for the application of Art.s 85 and 86 of the EEC Treaty and Art.s 65 and 66 of the ECSC Treaty, Annex to XXth Report on Competition Policy (1990) p. 312. In the same year the Hearing Officer role was extended to apply to merger cases.

9 Cf. the title in French of Conseiller/Auditeur. 10 Commission Decision of 12 December 1994 on the terms of reference of hearing officers in competition procedures before the Commission, OJ L 330 21.12.1994 p. 67.

11 Commission Decision of 23 May 2001 on the terms of reference of hearing officers in certain competition proceedings OJ L162 16.06. 2001 p. 21.

12 A historical analysis of the development of the Hearing Officer role has been chronicled by former colleagues in the hearing office – M. Albers and J. Jourdan, ‘The Role of Hearing Officers in EU Competition Proceedings: A Historical and Practical Perspective’, Journal of European Competition Law & Practice 2011, p. 186 et seq. 13 8th Report of the Select Committee of the House of Lords on the European Communities, 23 February 1982 (hereafter ‘1982 House of Lords Report’), First Report of the Select Committee of the House of Lords, Enforcement of Community Competition rules (hereafter ‘1993 House of Lords Report’) and 2000 House of Lords Report supra n. 5.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 407 The current role of the Hearing Officer: another step change

on antitrust proceedings and the Hearing Officers’ Guidance Paper.14 Thereafter an internal review was carried out by the Commission, leading to the adoption of the Decision of the President of the Commission of 13 October 2011 on the function and terms of reference of the Hearing Officer in certain competition proceedings (hereafter ‘2011 Terms of Reference’).15 The Best Practices on antitrust proceedings were adopted by the Commission later the same month.16 Heralded as a decision clarifying and further strengthening the Hearing Officer’s role,17 the latest terms of reference represent, as did their predecessors, another step change. The main strengthening of the role lies in the extension of the Hearing Officer’s decisional powers to safeguard procedural rights during the early investigative stage of an antitrust procedure.18 This can be interpreted as a response to the EU Courts’ rulings that the rights of defence must be respected throughout the administrative procedure and therefore must be prevented from being impaired, potentially irreme- diably, during the early stages of the investigation.19 Specific provisions are also introduced for commitments and settlements procedures which came into existence after the 2001 Terms of Reference.20 The new Terms of Reference also incorporate a number of the principles and practices established by the Hearing Officer in their decision-making practice.21 Descriptions of tasks and powers incorporated into the 2011 Terms of Reference are cautiously drafted, more precise and detailed than in those that preceded. Whilst procedural matters are the main focus of the Hearing Officer’s tasks and powers in the Terms of Reference,22 they also give the Hearing Officer powers to consider matters of substance. The Hearing Officer’s main functions are discussed in the following sections.23

14 The Guidance Paper was drafted by the Hearing Officers in order to provide greater transparency on certain principles and practices established by them in applying their mandate.

15 Decision 2011/695/EU of the President of the European Commission of 13 October 2011 on the function and terms of reference of the hearing officer in certain competition proceedings, OJ L 275, 20.10.2011, p. 29.

16 Commission Notice on best practices for the conduct of proceedings concerning Arts. 101 and 102 TFEU [2011] OJ C308/6, para 96.

17 See Commission press release of 17 October 2011, IP/11/1201 and Recital 4 of the 2011 Terms of Reference. 18 Art. 4. 19 Judgment of 8 July 2008, AC Treuhand v Commission, T-99/04, EU:T:2008:256 para. 51. 20 Art. 15. 21 Some aspects of the Guidance Note (now obsolete) were incorporated into the Best Practices on antitrust proceedings. 22 According to Art. 1(2), the Hearing Officer’s role is stated in the Terms of Reference as being to ‘safeguard the effective exercise of procedural rights throughout the competition proceedings before the Commission for the implementation of competition proceedings.’

23 For a full description of the 2011 Terms of Reference see W. Wils ‘The Role of Hearing Officer in competition Proceedings before the European Commission.’ World Competition Law and Economics Review, Vol. 35. No. 3. September 2012, pp.431-456. Insofar as the functions have not changed since 2001, see also Albers/Jourdan supra n. 12.

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III. Safeguarding effective procedural rights in the investigation phase24 The antitrust procedure can be divided into a preliminary investigation stage and an inter partes stage. The preliminary investigation starts when the Commission, exercising its investigative powers, takes measures to examine whether an infringement has been committed. The inter partes stage covers the period after the statement of objections or the preliminary assessment has been issued.25 Prior to the 2011 Terms of Reference, the Hearing Officer’s function formally came into play for parties subject to a competition procedure only after the statement of objections was issued, at which point the right to be heard would be triggered in view of a potential decision by the Commission adversely affecting their legal position. The 2011 Terms of Reference reflect the Commission’s commitment also to safeguard the exercise of the parties’ procedural rights arising during the preceding, preliminary investigative stage of the procedure. This new task is limited, however, to antitrust investigations and merger investigations which could result in the imposition of fines.26 Presumably, the reason for excluding other merger proceedings lies in the tight merger deadlines and also in the fact that competition proceedings that may result in the imposition of fines have a greater impact on parties’ rights. Four non-exhaustive situations are identified where the Hearing Officer may be called upon by the parties in the early stages of the procedure. In all cases, parties must first attempt to resolve the procedural issue with DG COMP.27 (i) Where the parties consider that documents required by the Commission in the context of specific investigative powers include information covered by legal privilege within the meaning of the case law of the Court of Justice and which are, accordingly, withheld from the Commission. If the parties agree to reveal the relevant documents to the Hearing Officer, the latter may review them, and thereafter provide a preliminary view to DG COMP, and to the parties concerned, without revealing the potentially privileged content of the information. The Hearing Officer may also act as mediator to bring about a settlement between the Commission and the parties in question. If the matter is not resolved, the Hearing Officer may submit a reasoned recommendation to the Member of the Commission responsible for competition policy (hereafter ‘Compe- tition Commissioner’) on the issue, again without revealing the potentially privileged

24 Art. 4. 25 Judgment in Nederlandse Federatieve Vereniging voor de Groothandel op ElektrotechnischGebied v Commission, C 105/04P, EU:C:2006:592, para 38; Judgment in Limburgse Vinyl Maatschappij and Others v Commission [2002], Joined Cases C 238/99P, C-244/99 P, C-245/99P, C 247/99P, C 250/99P to C-252/99 P and C 254/99P, EU:C:2002:582, para 181-183; Judgment in AC Treuhand v Commission, footnote 19 above, EU:T:2008:256, paras. 47-48. 26 Art. 4(1). 27 Art. 4(2) 1st sentence in conjunction with Art. 3(7).

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content of the information. A copy of the recommendation is also provided to the parties concerned.28 The issue of legal privilege under the Commission’s competition rules is a thorny one. The case law protects from Commission investigations only certain communications with external lawyers concerning legal advice.29 It has often been argued that this is a situation where an independent person such as the Hearing Officer is perfectly placed to form an independent view. Under the settled case law of the Court, the Commission itself should not view the information in question.30 By giving permission to the Hearing Officer to view the information, the parties do not waive their right to legal professional privilege and retain the right to refer the matter to the Court. Nor do they authorise the Hearing Officer to disclose the information to the Commission services in charge of the investigation. The Hearing Officer is merely tasked with attempting to promote a mutually acceptable resolution. This role as a mediator is intended to be fully in line with the case-law requirements whilst rendering it more likely that needless litigation on questions of legal professional privilege may be avoided. (ii) Where an addressee of a request for information sent by the Commission refuses to answer the request, invoking the right against self-incrimination, the addressee may refer the matter to the Hearing Officer in certain circumstances. The Hearing Officer may make a reasoned recommendation as to whether the privilege against self-incrimination applies and inform DG COMP of the conclusions to be drawn, which should be taken into account in case of any subsequent request for information by decision. Interestingly, the latter, more far-reaching investigative power, pursuant to Article 18(3) of Regulation 1/2003, which effectively obliges addressees to provide information to the Commission, is not covered by the Hearing Officer’s recommendation. It can be argued that information requests by decision will usually be preceded by simple requests for information and that the Commission will immediately revert to Article 18(3) of Regulation 1/2003 only in particular circumstances, such as cases of particular urgency. A copy of the recommendation is provided on request to the addressee concerned.31 (iii) Where the addressee of a request for information by a decision of the Commission considers that the deadline to reply is too short, the addressee may refer the matter to the Hearing Officer, who can decide whether or not to grant an extension.32 (iv) Where an undertaking or association of undertakings considers it has not been properly informed of its procedural status in an investigation, it may refer the matter

28 Art. 4(2)(a). 29 Judgment in AM & S Europe v Commission,C-155/79, EU:C:1982:157, paras. 18 to 27; Judgment in Hoechst v Commission, C-46/87 and 227/88, EU:C:1989:337, para. 16; Judgment of 27 September 2012, Koninklijke Wegenbouw Stevin v Commission, T-357/06, EU:T:2012:488 , paras. 228 et seq. 30 Judgment of 17 September 2007, Akzo Nobel Chemicals and Akros Chemicals v Commission, Joined Cases T-125/03 and T-253/03, EU:T:2007:287 paras. 86-88.

31 Art. 4(2)(b). 32 Art. 4(2)(c).

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to the Hearing Officer for resolution. In this case the Hearing Officer will decide if DG COMP should provide the relevant information. The undertaking or association of undertakings concerned is provided with a copy of this decision.33 The formal extension of the Hearing Officer’s role into the investigatory phase featured in the response to the public consultation to the Guidance Paper and the (then) Best Practices on antitrust procedures.34 It is undoubtedly a welcome development, although the scope of some powers specifically conferred is narrowly defined. There is, as yet, no published final report of the Hearing Officer referring to a formal invocation of these new powers. This does not preclude them from already having had some deterrent effect. More time is needed, however, before a proper assessment can be made of this extension of the Hearing Officer’s role.

IV. Safeguarding the right to be heard and confidentiality during the inter partes stages of the procedure During the inter partes stage of the proceeding, companies under investigation must be allowed to make known their views on the truth and relevance of the legal arguments and the facts alleged. Granting access to the file puts them in a position to form their opinion on the documents used by the Commission to support its claim that there has been an infringement of the competition rules. Usually, the statement of objections allows the parties sufficient knowledge of the allegations that stand against them. However, this document can serve its purpose only if parties are granted access to the Commission’s file and sufficient opportunity to comment in writing and orally. The Hearing Officer plays a key role in safeguarding these procedural guarantees. These tasks are, in turn, intrinsically linked to the Hearing Officer’s duty to ensure the confidentiality of information acquired during competition proceedings.

1. Access to file and confidentiality – dispute resolution: the Hearing Officer as an independent arbiter In practice, one of the most sensitive and contentious issues in a competition procedure is in dealing with the rights of parties in relation to information gathered in the course of an investigation and placed in the Commission case-file. This information is often very voluminous and much is also provided to the Commission subject to confidential treatment.

33 Art. 4(2)(d). 34 See M. Albers and J. Jourdan, supra n.12.

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It follows from the right to be heard, which is protected as a general principle of EU law, that evidence that was not made accessible to addressees of a statement of objections during the administrative proceeding must in principle be disregarded for the purposes of a future Commission decision.35 However, the Commission must also respect the legitimate interests of parties in the protection of their business secrets.36 The Commission must not reveal information considered confidential without first giving the information provider the opportunity to object, including, if necessary, the opportunity to seek judicial review. The implementation of this so called ‘Akzo procedure’37 was entrusted to the Hearing Officer in the 1994 Terms of Reference. It was coupled with the right to decide on claims by parties for disclosure of documents believed to be in the Commission’s possession that they consider necessary for the proper exercise of their rights to be heard, which is normally the catalyst for any potential Akzo procedure.38 In practice these issues are an important part of the Hearing Officer’s work. It is, in the first place, for DG COMP to determine issues of confidentiality and access to the file when preparing and issuing a statement of objections. Parties wanting to take issue with these assessments should first address them to the Directorate-General. This principle, a longstanding practice established by the Hearing Officers, is now specifically included in the new Terms of Reference. It is only where the issue cannot be resolved that it may be referred to the Hearing Officer for independent review.39 If the matter is referred to the Hearing Officer, he or she can sometimes resolve it without having to issue a formal decision, for instance, by providing explanations of the rights involved or by suggesting solutions that are acceptable to all. It is worth mentioning that increasingly, two new procedures of granting access to potentially confidential information are being used, which can spare the work of producing non-confidential versions of the many thousands of documents usually contained in the Commission’s investigation file.40 Both allow the Commission to leave open whether the confidentiality claims for the individual pieces of information concerned are well- founded. First, the so-called data room procedure grants access at the Commission’s premises only to the parties’ external counsels, who sign a confidentiality commitment

35 See Judgment in AEG v Commission, C-107/82, EU:C:1983:293, paras 22–5; Judgment of 2 February 2012, Denki Kagaku Kogyo Kabushiki Kaisha, Denka Chemicals v Commission, T-83/08, EU:T:2012:48, para 84. (see also http://curia.europa.eu/jcms/jcms/P_125997/).

36 See Art. 339 TFEU and Art. 28 Reg. 1/2003. 37 Set out by the Court in Judgement Akzo Chemie v Commission, C-53/85, EU:C:1986:256, para. 29. 38 Art. 5. See now Arts. 7 and 8 of the 2011 Terms of Reference. The Akzo procedure is also potentially applicable to the disclosure of information by publication in the Official Journal. Accordingly, the Hearing Officer is also entrusted with dealing with the confidentiality disputes in relation to the publication of Commission decisions, Art. 8(3).

39 Art. 3(7). This principle applies in principle to the effective exercise of all procedural rights in the Terms of Reference.

40 Art. 8(4) of the 2011 Terms of Reference refers to these methods as ‘access in a restricted manner’.

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not to transmit the contents to their clients.41 It has proved most useful for potentially confidential data required for conducting economic analyses. Second, the so-called negotiated disclosure procedure leaves it to the parties and the information providers to agree on the modalities under which access to potentially confidential information is granted, provided that both sides declare vis-à-vis the Commission that, in doing so, their right to access to file and their right to confidentiality are respected.42 Whilst this procedure is suitable for all types of information, it requires all the companies concerned to come to an agreement.43 The limits of these new procedures of granting access to file have not yet been tested in case-law, which might be an indication of their general acceptance on the part of both information providers and addressees of statements of objections. Obviously, the data room and the negotiated disclosure procedure are only two possible forms of reconciling the conflicting interests at stake. Absent an agreement on the part of all parties concerned, the Hearing Officer must decide in each individual case which modalities are required to strike the right balance.44 Some commentators consider the time may have come for further evolution in this regard, and propose a modification of the access rules to establish a mandatory access scheme that would be analogous to so-called protective orders employed in the US.45 Whether or not this is the future direction for EU competition law remains to be seen, and there would need to be a debate on which legislative changes are required to implement such proposals in the EU legal order.46 Another new issue that may also be worthy of consideration for a future role for the Hearing Officer has been raised recently before the Hearing Officer. The question arose as to whether the Hearing Officer should be called upon with requests to order the Commission to obtain fresh evidence that the parties considered to be exculpatory. Whilst acquiring information not in the Commission’s possession does not pertain to the Hearing Officer’s existing powers to grant access to file,47 it is worthwhile questioning whether this issue relating to a fair and even-handed procedure should in

41 The possibility of allowing for the inspection of confidential documents only at the Commission’s premises was already presented as suitable balance between the right to confidentiality and the right to access to file in the Judgement of 29 June 1995, ICI v Commission, T-36/91, EU:T:1995:118, para 99. It is now explicitly included in the Commission Notice on best practices for the conduct of proceedings concerning Arts. 101 and 102 TFEU [2011] OJ C308/6, para 97.

42 See Best Practices on antitrust proceedings, para 96. 43 Where such an agreement fails due to the lack of cooperation on the part of an information provider or an addressee of a statement of objections, the Hearing Officers, pursuant to Arts. 7 and Art. 8 of their Terms of Reference, can overrule the opposition. However, this requires an assessment of the individual piece of information for which confidentiality has been claimed and may imply conducting the so called ‘Akzo procedure’.

44 This is rightly highlighted in Art. 8(4) of the Hearing Officer’s Terms of Reference and in the Best Practices on antitrust proceedings, para 98.

45 See J. Venit, ‘The Intel Judgment, File Access, and Confidentiality in EU Competition Cases: Has the Time Come for Reform?’, Journal of European Competition Law and Practice (Advanced Access published 15 October 2014). See also M. Albers and J. Jourdan, supra n.12. 46 The right to confidentiality is enshrined in Art. 339 TFEU. Unless a Treaty change is contemplated, changes in the rules on safeguarding confidentiality must remain within the limits of the case-law based on this Treaty Art..

47 See Judgment in Intel v Commission, footnote 5 above, EU:T:2014:547 paragraphs 349-354 (Appeal before the ECJ, Case C-413/14P).

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the future involve a formal role for the Hearing Officer. However, as with any power implying a more substantive role for the Hearing Officer, such suggestions would require careful reflection on the part of the Commission.

2. The oral hearing The post of Hearing Officer was created specifically to contribute to the objectivity of the oral hearing and of any subsequent decision.48 A number of powers were accorded to the Hearing Officer from the outset in 1982 to ensure the proper preparation of the hearing, particularly the clarification of questions of fact: the Hearing Officer could send a list of questions to the parties on which he wanted them to explain their point of view, and could hold a preparatory meeting with the parties, and/or with the Commission staff. Parties could also be requested to give prior notification of the essential content of their presentations. The Hearing Officer organised the hearing and was fully responsible for conducting it, including which third parties would be admitted, as well as the admission of fresh documents.49 Another development thereafter was the right for all parties to ask questions, under the supervision of the Hearing Officer, which was introduced in the revised Commission Implementing Regulations in 2004.50 This is now transposed into the 2011 Terms of Reference,51 which also clarify that the Hearing Officer conducts the oral hearing in full independence.52 In essence, the 2011 Terms of Reference retain the status quo with regard to the preparation, organisation and conduct of the oral hearing. For those who may have been seeking a more significant role for the oral hearing, and/or potentially for the Hearing Officer at this stage of the Commission’s procedure, this will be a disappointment, though probably not a surprise. The Terms of Reference reaffirm that the essential purpose of the oral hearing is to allow the parties to whom a statement of objections has been addressed (and other involved parties) to further exercise their right to be heard by developing their arguments orally before the Commission. It should also allow the parties to present their arguments as to the matters that may be of importance for the possible imposition of a fine.53 Suggestions made in response to the public consultation on the Commission’s (then) Best Practices on antitrust proceedings and the Hearing Officers’ Guidance Paper to the effect that the oral hearing should become closer to a judicial hearing, with the right of the Hearing Officer to summon witnesses formally, and/or to adjudicate over full cross-examinations,54 have not been taken up. Their implementation would have required far-reaching legislative

48 See Art. 2 of the 1982 Terms of Reference, supra n. 8. 49 Arts. 3 and 4 of the 1982 Terms of Reference (ibid) and Arts. 3 and 4 of the 1994 Terms of Reference, supra n. 10. 50 Art. 14(7) Antitrust Implementing Regulation and Art. 15(7) Merger Implementing Regulation. 51 Art. 12(3). 52 Art. 10. 53 Recital 19. 54 M. Albers and J. Jourdan, supra n.12. See also I. Forrester, supra n.4, who suggested that the oral hearing should become an obligatory part of the procedure, rather than optional as is currently the case, with an independent person such as the Hearing Officer playing a more substantive role than present.

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changes, in particular given that the competition rules currently do not provide for legal bases formally to summon witnesses or to sanction their absence or untruthful statements made at a hearing. The oral hearing, nevertheless, provides a specific opportunity for those present to participate actively in the procedure. Parties are heard by the Commission, which includes all representatives from DG COMP, the other competent services of the Commission, and of course the Hearing Officer. Representatives of the Member States’ competition authorities are also present. The fact that addressees of the statement of objections, complainants and other interested third parties may all be present renders such occasions rather unique experiences. Debates between company representatives and/or the Commission are not infrequent, and questions are asked and the participants mostly give responses on a voluntary basis. The hearing is also a visible manifestation of the inter partes stage of the Commission’s procedure. Perceptions are not to be underestimated. In this respect, the importance of having senior officials from DG COMP and representatives of the Commission’s Legal Service present at the hearing has been emphasized.55 In addition, and significantly, the scope of the Commission’s objections has been modified in a number of cases following the written submissions and oral hearing, and it is not unknown for some to be withdrawn completely.56 V. Reporting and making observations As noted earlier, the Hearing Officer is nowadays empowered to adopt decisions that can help ensure the respect of all participants’ procedural rights. In addition, the Hearing Officer’s Terms of Reference provide for specific reporting duties as further ‘soft law’ instruments that ensure fairness in each competition proceeding. Following the oral hearing, the Hearing Officer reports to the Competition Commis- sioner on the hearing and the conclusions he or she has drawn with respect to the effective exercise of procedural rights.57 This interim ‘health check’ report covers the disclosure of documents and access to the file, time-limits granted to reply to the statement of objections, the observance of the right to be heard, and the proper conduct of the oral hearing. In this manner the Competition Commissioner is provided with an independent report on procedural issues that have been raised in the proceedings up to that point, and is directly informed of the state of play of the case from a procedural perspective. A copy of the interim report is provided to DG COMP and to the other competent services of the Commission.

55 According to paragraph 108 of the Best Practices on antitrust procedures, it is the practice of DG COMP to ensure the continuous presence of senior management of DG COMP (Director or Deputy Director-General), together with the case team of Commission officials responsible for the investigation.

56 For a general statistical overview of cases between 2011 and 2013 See W. Wils, supra n.5. See also W. Wils, ‘The Oral Hearing in Competition Proceedings before the European Commission’ World Competition, Vol.35, No.3, September 2012.

57 Art. 14(1).

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In addition, the Hearing Officer may submit observations to the Competition Commis- sioner on the further progress and impartiality of the proceedings. These observations are now separate from the interim report as such.58 They may relate to, inter alia, the need for further information, the withdrawal of certain objections, the formulation of further objections, or suggestions for further investigative measures.59 They illustrate that the Hearing Officer’s role is not limited to the procedural aspects of a case. As the relevant paragraph of the Terms of Reference itself explains, ‘In so doing, the hearing officer shall seek to ensure in particular that, in the preparation of draft Commission decisions, due account is taken of all the relevant facts, whether favourable or unfavou- rable to the parties concerned, including the factual elements relevant to the gravity and duration of any infringement.’ In the first place, it is for DG COMP itself, having analysed the parties’ written and oral submissions, to report to the Competition Commissioner on the future progress of the case. The Commissioner may have various sources within the DG to draw upon for advice, separately and/or collectively, including inter alia, senior management and those directly responsible for the case, the Chief Economist, and in some cases, a peer review team. Nevertheless, in circumstances where the Hearing Officer, as an experienced competition official mandated specifically to contribute to the fairness of the proceedings and any future decision, considers that his or her observations are called for, this advice is an additional safety net for the Commissioner and the companies concerned. The extent to which Hearing Officers make observations on substance is a matter of individual discretion for the Hearing Officer and depends on the facts and circumstances in each case. Whilst the Hearing Officer’s report and observations following the hearing will usually be afforded particular attention, his or her opportunity to submit observations is not limited to this stage of the procedure. On the contrary, he or she may present observations on any matter arising out of any competition proceeding to the Competition Commissioner, without any limitation.60 Indeed, since the Hearing Officer is required to submit a final report on the basis of a draft decision, as described below, there may be circumstances in which the Hearing Officer might wish to advise on an issue that could give rise to a negative comment in that report. Given that DG COMP is also fully aware that a final report will be written, it may try to avoid any potential negative comments in the final report. In practice there can be a number of developments in a case subsequent to the oral hearing, including, inter alia, new submissions, possible commitments, even a supplementary statement of objections triggering the right to a new oral hearing, or at least new evidence that the Commission intends to rely on or should take into consideration.

58 It was the formerly general practice to include substantive observations, if any, in the interim report. The 2000 House of Lords Report also notes that it was at that time standard practice to include a section on substance in the Hearing Officer’s report after the hearing.

59 Art. 14(2). 60 Art. 3(5).

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The Hearing Officer may be directly involved in these developments and may in any event need to pay them particular attention when analysing the draft decision for the purpose of the final report. The final report of the Hearing Officer, drawn up on the basis of the draft decision of the Commission, relates to the effective exercise of procedural rights throughout the procedure. It also considers whether the draft decision deals only with objections in respect of which the parties have had the opportunity of making known their views.61 On the latter, the Hearing Officer acts on his or her own initiative, since the parties do not see the draft decision at that point. Here again, therefore, the draft decision requires close analysis. The final report is submitted to the Competition Commissioner, DG COMP and the competent services of the Commission and communicated to the Advisory Committee.62 It is presented to the College together with the draft decision, communicated to the parties with the decision, and published thereafter.63 The requirements to inform the College of the Hearing Officer’s final report to the College in all cases before the decision is taken and its communication to the parties (and publication) after the decision, both measures introduced by the Commission in the 2001 Terms of Reference,64 have undoubtedly reinforced the position of the Hearing Officer since that time. No further measures in this regard were considered to be necessary in the 2011 Terms of Reference. In particular, calls for the Hearing Officer’s interim report to be published, or more far-reaching suggestions for the Hearing Officer to take a more prominent role in the procedure following the oral hearing were not taken up.65 In this respect, the discussion of the scope of the Hearing Officer’s role is likely to continue. VI. The Hearing Officer’s independence Independence lies at the heart of the role of the Hearing Officer. The term ‘independent person’ was taken up by the Commission in the first Terms of Reference and has been retained subsequently. In consequence, the 2011 Terms of Reference refer to the need for ‘an independent person experienced in competition matters who has the integrity necessary to contribute to the objectivity, transparency and efficiency of those proceedings’.66

61 Art. 16(1). 62 Art. 16(2). 63 Art. 17. 64 The Select Committee of the House of Lords had made specific recommendations to this effect in its 2000 House of Lords Report.

65 See M. Albers and J. Jourdan, supra n.12. See also I. Forrester, supra n. 4, who suggested that independent person(s) such as the Hearing Officer could be entrusted with deciding on the facts of the case, in order to more clearly separate prosecution from decision-making.

66 Recital 3.

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From the outset, according to the 1982 Terms of Reference, the Hearing Officer was required to be independent: ‘To ensure his independence in the performance of his duties, he has the right of direct access to the Member of the Commission with special responsibility for competition policy; if he considers it appropriate he may refer to the Member his comments on the draft decision’.67 In practice, the independence of the Hearing Officer has been a relative concept which, like the functions and tasks attributed to him or her, has developed over time. There are also clear boundaries to such independence. Any structural separation of the Hearing Officer from the Commission itself has not been on the agenda. The independence of the Hearing Officer therefore is clearly ‘in-house’, that is, within the Commission. Consequently, whatever the scope of independence conferred on the Hearing Officer, he or she is accountable to the College of Commissioners as a whole. This is the flipside of the coin of the Hearing Officer’s decisional powers that he or she enjoys during competition proceedings. Those powers result from empowerments by the Commission College and require that the addressee be accountable to the College68. This in-house nature of the role can be beneficial in facilitating the services’ trust of the Hearing Officer, thus increasing the scope for positive intervention by the latter. This cannot happen where there is a structural separation of the roles. At the same time, however, it is also important to minimise the scope for influence by the services upon the Hearing Officer. In 2001, it was accepted that, in order to underline the Hearing Officer’s independence from DG COMP, the Hearing Officer should be wholly removed from the DG, and instead the post was attached, for administrative purposes only, to the Competition Commissioner.69 The Commission maintained the separation between the Hearing Officer and DG COMP in the 2011 Terms of Reference,70 and confirmed the functional independence of the Hearing Officer.71 However, it resisted arguments that the link with the Competition Commissioner should also be removed, with the Hearing Officer being attached instead to the President (like the Legal Service) or to the Secretariat General72 (like the Data Protection Officer). Similarly, the terms for appointing the Hearing Officer have remained the same in the 2011 Terms of Reference. The Hearing Officer is a member of the Commission staff, though it is possible for an external as well as internal appointment to be made. To date, no candidates from outside the Commission have been appointed, but one

67 Art. 1 second subparagraph together with Art. 6. 68 OJ L 275 of 20.10.2011. The measures delegated to the Hearing Officer are also described in DG COMP’s manual of procedures, which is available on its website.

69 Art. 2(2) of the 2001 Terms of Reference. Following this separation, the Hearing Officer’s office was relocated to premises separate from the DG. Internally, the Hearing Officer established the right to participate in the regular meetings of the DG with the Competition Commissioner at which cases were discussed (the Legal Service and Chief Economist also participate in these meetings) and to receive the necessary preparatory documents for these meetings. Bilateral meetings also took place between the Hearing Officers and the Competition Commissioner. In terms of perception, therefore, the removal of the Hearing Officer from the DG had an impact internally as well as for external stakeholders. 70 Recital 5 and Art. 2(2). 71 Art. 3(1). 72 See M. Albers and J. Jourdan, supra n.12.

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appointment has been made from outside DG COMP. The Hearing Officer is appointed by the College and the appointment must be rendered transparent by publication in the Official Journal. There is no reference to seniority of appointment, to a specific term of office, or to any specific protection against termination or dismissal. However, any interruption, termination or transfer of the Hearing Officer requires a reasoned decision by the Commission, and any such decision must also be published in the Official Journal.73 Transparency in this respect can also be seen as a safeguard relevant for independence. One addition to the 2011 Terms of Reference is a reference that the Commission should provide for the supporting staff of the Hearing Officer.74 This is an important recognition that independence must be accompanied by the means to exercise it effectively. The lack of staff resources had been an issue in the earlier years for the Hearing Officers after 2001. Staff resources are made available from the DG COMP staff allocation. The staff themselves are selected by the Hearing Officer. It is worth mentioning that the role of the Hearing Officer falls within a spectrum of ‘independent’ functions within the Commission. This includes, for example, the Investigation and Discipline Office of the Commission (IDOC), whose Director and investigators are required to act independently when carrying out administrative inquiries into potential disciplinary issues in the Commission.75 At the other end of the spectrum is OLAF, formally a Directorate-General of the Commission, but mandated by Regulation of the Council and European Parliament to carry out investigations into potential corruption, fraud and other illegal activities affecting the financial interests of the European Union on behalf of all the European institutions and bodies, acting in full independence, under the supervision of a completely separate Supervisory Committee.76 A form of advisory independence is enjoyed by the Commission Legal Service, which is attached to the President and advises the College rather than the Commissioner responsible for a particular matter.77 Another independent role is that of the Data Protection Officer (DPO), established under the Data Protection legislation to ensure, ‘in house’, that is, within each European institution, ‘in an independent

73 Art. 2(1). 74 Recital 7. 75 Commission Decision. General implementing provisions on the conduct of administrative inquiries and disciplinary procedures C(f2004) 1588 final/4 28.04.2004.

76 Regulation (EU, Euratom) No 883/2013 of the European parliament and Council of 11 September 2013 concerning investigations conducted by the European Anti-Fraud Office (OLAF) and repealing Regulation (EC) No 1073/1999 of the European Parliament and of the Council Regulation (Euratom) No 1074/1999, OJ L 248/1 of 18.09.2013.

77 In Judgment of 23 November 2004, Turco v Council, T-84/03, EU:T:2004:339, the (then) Court of First Instance considered at paragraph 79 that ‘it is important to point out that the Council is justified in considering that the independence of the opinions of its legal service, drawn up at the request of other services of that institution or at least intended for them, can constitute an interest to be protected’. The Court of Justice on appeal did not challenge this assertion but rather the ruling that such independence would be undermined by the disclosure of Council Legal Service opinions; see Judgment in Sweden and Turco v Council, Joined Cases C‑39/05 P and C‑52/05 P, EU:C:2008:374 at paragraph 64.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 419 The current role of the Hearing Officer: another step change

manner’ the correct internal application of the data protection Regulation and the protection of the rights and freedoms of data subjects.78 These independent functions, whilst not directly comparable to the Hearing Officer,79 demonstrate how the Commission is able to deal with varying levels and specificities of independence within the institution. They also provide useful examples of criteria that guarantee or otherwise support independence.

VII. Conclusions The role of Hearing Officer continues to evolve and the 2011 Terms of Reference are, as were their predecessors, a further step change confirming and strengthening the Hearing Officer as a firmly established part of the architecture in the Commission’s competition procedures. The extension of the role into the investigative stage of the procedure is a significant development in providing the Hearing Officer with all the means to ensure fairness throughout the proceedings. It is true that the functions added through the years have tended to privilege procedural matters rather than granting powers to decide on the substance of a case. As to the latter, it may be argued that Hearing Officers do not need decisional powers in order to be effective where they comment on the need to conduct further investigative steps or to withdraw objections raised against the parties. The Commission has every interest in following advice that helps avoiding legal mistakes. Therefore, the Hearing Officer’s impact on the outcome of a proceeding depends on the strength of the arguments put forward in internal submissions to the Commission services and the Competition Commissioner. Legal practitioners, who have supported the strengthening of the Hearing Officer’s role, will undoubtedly maintain their close scrutiny over the function as well as the decisions of the Hearing Officers in the performance of their tasks. They will also continue to refer challenging issues to the Hearing Officer, some of which may stretch the boundaries of the current mandate. Time will tell but, based on historical developments to date, the 2011 Terms of Reference are unlikely to be the last for the Hearing Officer.

78 Regulation (EC) No. 45/2001, Art. 24(1)(c) and (e). See also recital 49 to Directive 95/46: ‘whereas such a data protection official, whether or not an employee of the controller, must be in a position to exercise his functions in complete independence’. The difference between internal independence, such as that of the DPO, and external independence, such as that of an independent data protection authority, can be seen in Judgment Commission v Austria, C-614/10, EU:C:2012:631 at paragraphs 42 and 43. 79 The terms of reference for the Hearing Officer for Trade are more directly modelled on that of the Competition Hearing Officer. See Decision of the President of the European Commission of 29 February 2012 on the function and terms of reference of the hearing officer in certain trade proceedings. OJ L107/5 of 19.04.2012.

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420 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Contributors’ Bios

Peter Alexiadis Helmut Brokelmann Partner at Gibson, Dunn & Crutcher and Partner at Martínez Lage, Allendesalazar Visiting Professor at King’s College in & Brokelmann. Regular lecturer in EU London. Formerly a Visiting Professor at and competition law at various Spanish Strathclyde University (2003-2010) and Universities. Visiting Professor at the Annual ULB Brussels EU Summer School Seminar. He is a guest Sir David Edward lecturer on competition policy at the UK’s Professor Emeritus of the University of CMA and at Japan’s JFTC. Edinburgh. Judge of the European Court of Jean-Yves Art First instance (1989-92) and of the Court of Assistant General Counsel at Microsoft, in Justice (1992-2004). He practised as an charge of antitrust matters in the EMEA advocate in Scotland and was Ian Forrester’s region. Visiting professor i.a. at the College ‘devil-master’ (pupil-master). of Europe (Bruges) and at Sciences Po Paris. Eleanor M. Fox Carl Baudenbacher Walter J. Derenberg Professor, New York President of the EFTA Court. Professor at the University School of Law. Formerly, partner, University of St. Gallen and Chairman of the Simpson Thacher & Bartlett. Author of US St. Gallen International Competition Law Forum competition law and EU law casebooks and ICF, Former Permanent Visiting Professor at the adviser on competition law and policy to University of Texas at Austin, Member of the developing and emerging economies. Board of the University of Texas School of Law Center of Global Energy, International Ayşe Gizem Yaşar Arbitration and Environmental, Law. Associate at ELIG, Attorneys-at-Law. Holds an LL.M. from Panthéon-Assas University, Jean-François Bellis Paris Institute of Comparative Law. Qualified Partner at Van Bael & Bellis, Brussels. in Istanbul. Professor, Institute of European Studies and Faculty of Law, Université Libre de Bruxelles Rosa Greaves (ULB). Professor of EU Commercial Law at the Kent Bernard University of Glasgow and Professor at the Adjunct Professor at Fordham University Law Scandinavian Institute of Maritime Law, School since 2008. Former Vice President & University of Oslo. Visiting Professor at the Assistant General Counsel of Pfizer, Former Catholic University of Portugal (Lisbon). Deputy Managing Partner of the Pfizer Legal Formerly Head of School of Law, University Division. of Glasgow.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 421 Ayşe Güner Santiago Martínez Lage Senior Associate at ELIG, Attorneys-at-Law. Managing partner at Martínez Lage, Allende- Holds a Juris Doctorate from the Southern salazar & Brokelmann. A former diplomat, he Methodist University Dedman School of Law assisted the Spanish delegation during the and an LL.M. from Maastricht University, the negotiations for accession to the European Netherlands. Qualified in California. Communities. Founder and editor for more than 28 years of Gaceta Jurídica de la UE y Gönenç Gürkaynak de la Competencia. Managing Partner at ELIG, Attorneys-at-Law. Member of Faculty at Bilkent University Law Valérie Meunier School and at Istanbul Bilgi University Law Dr Valérie Meunier is a Vice President with School. Holds an LLM from Harvard Law Compass Lexecon in Paris. Prior to joining School. Qualified in Istanbul, New York, Compass Lexecon, she was Assistant Professor Brussels (B list) and England & Wales in Economics at Aarhus University. She then (currently a non-practicing Solicitor). joined the French competition authority where she was Deputy Chief Economist. Barry E. Hawk Director, Fordham Competition Law Institute Jorge Padilla and Senior Counsel at LMS Studio Legale Dr Jorge Padilla is Senior Managing Director Labruna e Associati. Former partner at and Head of Compass Lexecon Europe. He is Skadden Arps LLP. Former Professor of Law a Research Fellow at the Centro de Estudios at Fordham Law School. Monetarios y Financieros (CEMFI, Madrid) and teaches competition economics at the Nicholas Khan Barcelona Graduate School of Economics Member of the Bar of England and Wales and (BGSE). He is co-author of The Law and Legal Adviser at the Legal Service of the Economics of Article 102 TFEU, 2nd edition, European Commission, currently dealing with Hart Publishing, 2013. competition law. Author of the 6th Edition of Mark Powell Kerse and Khan, EU Anti-Trust Procedure. Mark Powell is currently Executive Partner of James Killick the Brussels office and Head of Competition Partner and former head of the Global Pharma- for the EMEA region with White & Case LLP. ceutical Industry Group at White & Case LLP. Mark has been working with Ian from his early Lectures and writes extensively about compe- days as a baby lawyer in Brussels in the late tition law in the pharmaceutical sector. 80’s. He was an associate and then a partner at Forrester Norall & Sutton prior to the Assimakis P. Komninos merger in 1998 with White & Case. He has Partner at White & Case LLP. Visiting fellow spent the last seventeen years enjoying the of University College London and Senior great atmosphere in the Brussels office that Associate Fellow of the Institute for European Ian fostered. Studies at the Vrije Universiteit Brussels. Former Commissioner-Member of the Board Francesco Setti of the Hellenic Competition Commission. Managing partner of Avvocati Associati Franzosi Dal Negro Setti and head of the Life Jacquelyn MacLennan Sciences practice since 1993. From 1978 to Partner at White & Case LLP. Honorary 1993 he worked for Ciba Geigy group (now Fellow, Europa Institute, University of merged with Sandoz group) as internal Edinburgh. counsel. He is registered at the Milan Bar.

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422 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II Luís Silva Morais Matthieu Vancaillie Founding Partner of Luís Silva Morais/Sérgio Lawyer at Ashurst LLP. Gonçalves do Cabo. Professor of EU law, competition law and regulation and Jean James S. Venit Monnet Chair (2009) at the University of Partner at Skadden, Arps, Slate, Meagher & Lisbon Law School (FDL). Chairman of Flom LLP. CIRSF – Research Centre on the Financial Sector (www.cirsf.eu). Denis Waelbroeck Partner at Ashurst LLP. Professor in EU Jacques Steenbergen competition law at the Université Libre de President of the Belgian Competition Authority. Bruxelles and the College of Europe (Bruges). Emeritus professor of competition law at the Law Faculty of the University of Leuven, former Karen Williams partner at Allen & Overy and former member of Official of the European Commission, the Bar Council. Former legal secretary to the currently Director of the Investigation and President of the Court of Justice. Disciplinary Office of the Commission Pablo Trevisán (IDOC). Former Hearing Officer for compe- Partner and Member of the Board at Estudio tition proceedings (2001-2010). Former Trevisán Abogados. Former General Counsel at official at the Directorate General for Compe- BACS Banco de Crédito y Securitización S.A. tition (now DG COMP) (1985-2001).

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 423 Concurrences Review Concurrences is a print and online quarterly peer reviewed journal dedicated to EU and national competitions laws. It has been launched in 2004 as the flagship of the Institute of Competition Law in order to provide a forum for academics, practitioners and enforcers. The Institute’s influence and expertise has garnered interviews with such figures as Christine Lagarde, Bill Kovacic, François Hollande and Margarethe Vestager.

CONTENTS BOARDS More than 15,000 articles, print and/or online. The Scientific Committee is headed by Laurence Quarterly issues provide current coverage with Idot, Professor at Panthéon Assas University. contributions from the EU or national or foreign The International Committee is headed by countries thanks to more than 1,200 authors in Frederic Jenny, OECD Competition Comitteee Europe and abroad. Approximately 25 % of the Chairman. Boards members include Bruno contributions are published in English, 75 % in Lasserre, Mario Monti, Howard Shelanski, French, as the official language of the General Richard Whish, Wouter Wils, etc. Court of justice of the EU; all contributions have English abstracts. ONLINE VERSION Concurrences website provides all articles FORMAT published since its inception, in addition to In order to balance academic contributions with selected articles published online only in the opinions or legal practice notes, Concurrences electronic supplement. provides its insight and analysis in a number of formats: - Forewords: Opinions by leading academics WRITE FOR or enforcers - Interviews: Interviews of antitrust experts CONCURRENCES - On-Topics: 4 to 6 short papers on hot issues Concurrences welcome spontaneous contributions. - Law & Economics: Short papers written Except in rare circumstances, the journal accepts by economists for a legal audience only unpublished articles, whatever the form and - Articles: Long academic papers nature of the contribution. The Editorial Board - Case Summaries: Case commentary checks the form of the proposals, and then on EU and French case law submits these to the Scientific Committee. - Legal Practice: Short papers for in-house Selection of the papers is conditional to a peer counsels review by at least two members of the Committee. - International: Medium size papers Within a month, the Committee assesses whether on international policies the draft article can be published and notifies the - Books Review: Summaries of recent author. antitrust books - Articles Review: Summaries of leading articles published in 45 antitrust journals

GO TO TABLE OF CONTENTS 424 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II e-Competitions Bulletin CASE LAW DATABASE PRESTIGIOUS BOARDS e-Competitions is the only online resource that e-Competitions draws upon highly distinguished provides consistent coverage of antitrust cases editors, all leading experts in national or from 55 jurisdictions, organized into a international antitrust. Advisory Board Members searchable database structure. e-Competitions include: Sir Christopher Bellamy, Ioanis Lianos concentrates on cases summaries taking into (UCL), Eleanor Fox (NYU), Damien Géradin account that in the context of a continuing (Tilburg University), Barry Hawk (Fordham growing number of sources there is a need for University) Fred Jenny (OECD), Jacqueline factual information, i.e., case law. Riffault-Silk (Cour de cassation), Wouter Wils (DG COMP), etc. - 12,000 case summaries - 2,600 authors - 55 countries covered - 24,000 subscribers LEADING PARTNERS - Association of European Competition Law Judges: The AECLJ is a forum for judges of SOPHISTICATED national Courts specializing in antitrust case law. Members timely feed e-Competitions with EDITORIAL AND IT just released cases. ENRICHMENT - Academics partners: Antitrust research centres from leading universities write regularly in e-Competitions is structured as a database. The e-Competitions: University College London, editors make a sophisticated technical and legal King’s College London, Queen Mary work on all articles by tagging these with key University, etc. words, drafting abstracts and writing html code to increase Google ranking. There is a team of - Law firms: Global law firms and antitrust niche antitrust lawyers – PhD and judges clerks - and firms write detailed cases summaries specifically a team of IT experts. e-Competitions makes for e-Competitions: Allen & Overy, DLA Piper, comparative law possible. Thanks to this expert Jones Day, Norton Rose Fulbright, Skadden editorial work, it is possible to search and Arps, White & Case, etc. compare cases.

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Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II 425 The Institute of Competition Law The Institute of Competition Law is a publishing company, founded in 2004 by Dr. Nicolas Charbit, based in Paris and New-York. The Institute cultivates scholarship and discussion about antitrust issues though publications and conferences. Each publication and event is supervised by editorial boards and scientific or steering committees to ensure independence, objectivity, and academic rigor. Thanks to this management, the Institute has become one of the few think tanks in Europe to have significant influence on antitrust policies.

AIM EVENTS The Institute focuses government, business and More than 250 events since 2004 in Brussels, academic attention on a broad range of subjects London, New York, Paris, Singapour and which concern competition laws, regulations Washington, DC. and related economics. ONLINE VERSION BOARDS Concurrences website provides all articles To maintain its unique focus, the Institute relies published since its inception. upon highly distinguished editors, all leading experts in national or international antitrust: Bill Kovacic, Mario Monti, Eleanor Fox, Barry PUBLICATIONS Hawk, Laurence Idot, Fred Jenny, etc. The Institute publishes Concurrences Journal, a print and online quarterly peer-reviewed journal dedicated to EU and national competitions AUTHORS laws. e-Competitions is a bi-monthly antitrust 3,800 authors, from 55 jurisdictions. news bulletin covering 55 countries. The e-Competitions database contains over 12,000 case summaries from 2,600 authors. PARTNERS - Universities: University College London, King’s College London, Queen Mary University, Paris Sorbonne Panthéon-Assas, etc. - Law firms: Allen & Overy, Cleary Gottlieb Steen & Hamilton, DLA Piper, Hogan Lovells, Jones Day, Norton Rose Fulbright, Skadden Arps, White & Case, etc.

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426 Ian S. Forrester | A Scot without Borders - Liber Amicorum - Volume II