In a recent blog post, Pablo Ibanez Colomo responded to the observations I had made on his reaction to the issuance of a Statement of Objections in the Apple music streaming case. In this post, I would like to briefly react to Pablo’s response, but also raise additional questions over the application of the so-called effects-based analysis in cases involving leveraging strategies by digital platforms.
As a first observation, I should say that I am glad Pablo agrees with me that there is nothing reckless in the Commission testing the outer boundaries of the law and I like his observations that “an authority that dares take risks when enforcing the law is one of the treasures of the EU competition law system (just compare and contrast with the systemic underenforcement of antitrust provisions in the US).” Like Pablo, I am also irritated by the sensationalist headlines (using terms such as blow, disaster, etc.) that are found in the press every time the Commission loses a case in Luxembourg. The only authorities that win all their cases are those that lack ambition. It is through wins and losses that competition law can progress.
Pablo’s response is also helpful in advancing the debate over the notion of effects in competition cases as it clarifies his reading of the case-law (although I had read his earlier work on the subject), but here I am not sure we entirely agree for the following reasons.
First, citing Post Danmark I, Pablo argues that losing customers to a dominant undertaking is not in itself evidence of anticompetitive effects. According to Pablo, the effects inquiry should revolve around “the actual or potential impact of the practice on rivals’ ability and incentive to compete: so long as they are likely to remain willing and able to compete on the merits (and thus place pressure on the dominant firm), the practice will fail to have effects.” However, I did not state that losing customers to a dominant undertaking is in and of itself evidence of anticompetitive effects (after all, if a dominant undertaking has a better product or provides a better service, competition on the merits will very likely lead to customers switching away from its rivals). Rather, I noted “I do not find any support for the view that losing customers to the dominant undertaking as a result of the latter’s conduct cannot be an effect for the purposes of Article 102 TFEU.” It is obviously one thing for a dominant undertaking to grow its market share because of its superiority, and a different thing for that undertaking to grow its market share thanks to a conduct capable of excluding as efficient competitors (the distinction can be found in Post Danmark I and Intel).
I also have some trouble with Pablo’s suggestion that, “so long as they [rivals] are likely to remain willing and able to compete on the merits (and thus place pressure on the dominant firm), the practice will fail to have effects.” That seems an extreme proposition to me, which I do not think is supported by the law (and, even if it were, the case law should evolve in a different direction) as it would mean that it would be acceptable for a dominant firm to harm smaller rivals, as long as the latter remained capable of exercising some competitive constraint. Assume for instance that a smaller rival with a superior product (e.g., a new entrant) could in the long run displace the dominant firm through competition on the merits and become the market leader. Assume also that the dominant firm, to protect its position, engages in various exclusionary tactics to raise barriers to expansion, to the effect that the smaller rival stays small, but does not exit the market (say it stays at a market share of 10-20% while the dominant undertaking has a share of 60-70%). As in that case the rival would still be able to exercise some competitive constraint on the dominant undertaking, one would have to accept that the dominant undertaking’s conduct had no anticompetitive effects. But is that so? It seems to me that such an approach would reward anticompetitive conduct – conduct aimed at shielding the firm’s dominant position from competition (and which may be particularly harmful to consumers, as it does not allow a superior rival to displace the incumbent). This would be unacceptable.
Second, Pablo cites Generics, arguing that in that case, “the Court ruled that an anticompetitive effects [sic] involve harm to competition that goes beyond harm to individual rivals (para 172). In other words: the mere fact that a particular firm no longer has (or will likely no longer have) the ability and incentive to compete is insufficient to trigger Article 102 TFEU.” I do not necessarily disagree with Pablo – after all in my post I did not refer to Generics to argue that harm to individual rivals is in and of itself sufficient to show harm to competition. For instance, if the dominant firm’s conduct affects only a tiny part of the market, it would be reasonable to argue that in such case Article 102 TFEU should not be engaged, even if an individual rival is harmed (even though the General Court’s judgment on Intel – not overturned on this point by the CJEU – could be relied upon to argue that there is no de minimis threshold under Article 102 TFEU).
I am nevertheless sceptical about Pablo’s reading of Generics as laying down a general proposition that for recognizing an anticompetitive effect under Article 102 TFEU, it is necessary to show harm to competition that goes beyond harm to individual rivals. Generics is very specific, in that it considered a contract-oriented strategy of a dominant firm (namely a strategy of concluding various pay-for-delay agreements), which the CMA had qualified as a single abuse. In those circumstances, the Court held that for Article 102 TFEU to engage (on top of Article 101 TFEU), it was necessary to show that the contract-oriented strategy had exclusionary effects going beyond the specific anticompetitive effects of each of the agreements that were part of that strategy (see paragraph 172). It is thus not at all clear that it laid down a general principle that can be transposed to other cases.
Third, on business models and competition law, Pablo discusses what he perceives as the changing attitude of the Commission “from reluctance, absent exceptional circumstances, to challenge business models to the relatively frequent enforcement of Article 102 TFEU in relation to them.” He agrees that Microsoft is an example “in which a business model was changed,” but argues that “[t]he threshold for intervention in Microsoft is consistent with the exceptionality of cases challenging business models under traditional competition law [as] after all a variation on the Magill/IMS Health condition was applied in the case (requiring evidence, in particular, of indispensability within the meaning of Magill).” While Pablo may have a point, there is no principled reason why the notion of “exceptional circumstances” should be cabined to intellectual property cases. I could very well see its extension to digital gatekeepers, which are protected by insurmountable barriers to entry (large economies of scale and scope, strong network effects, etc.) and act as the unavoidable gateway between business users and their customers.
While some may deplore that times are changing, this might not necessarily be for the worse. The Guidance Paper represented an important and necessary evolution in the face of the formalistic case-law of the CJEU (such as Hoffman-La Roche), but when the Guidance Paper was adopted, the large digital platforms we now know were nascent or did not exist yet. These platforms may represent significant challenges for the effects-based analysis that has since then prevailed (e.g., due to the information asymmetries between the platform and the competition authorities) and certain adjustments may be needed.
Although this is a bit of a side point, one should also not forget that when some of these platforms were nascent, they used competition law to be able to compete against the then incumbents. Many may have forgotten this, but Google was one of the most vociferous complainants in the 2009 Microsoft (Internet Explorer) case, in which it argued against the tie of Internet Explorer with Windows (to then engage in tying themselves a few years later with Android and be condemned for it). The irony should not be lost.
Disclosure: as noted in my previous post, I am the outside antitrust counsel of the Coalition for App Fairness (“CAF”) and various app developers. The above post represents my views only, and not those of the CAF or its members.