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George Mason Law Review Symposium

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After 45 years of enforcement, case law is clear high predictability ... Inherent potential of conduct to foreclose. Market coverage ... – PowerPoint PPT presentation

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Title: George Mason Law Review Symposium


1
George Mason Law Review Symposium
  • Emil Paulis
  • Director, Policy Strategic Support
  • DG Competition, European Commission
  • Washington, 20 September 2005

2
  • U.S.
  • After more than 100 years of enforcement no
    agreement on the standard to apply Section 2
    State of unpredictability
  • E.U.
  • After 45 years of enforcement, case law is clear
    high predictability
  • Focus on conduct as such, effects are presumed
    risk of false positives and false negatives

3
EU Policy Review of Art. 82
  • Nothing prevents case law from evolving and
    nothing prevents case law from moving from
    presumed effects to an analysis of likely/actual
    effects
  • The Emperor is not naked but we want to give the
    emperor better clothes

4
Areas of broad consensusin the EU
  • Overall objective of Art. 82
  • Consumer welfare standard
  • Protection of competition and consumers, not
    protection of competitors against competition
  • Equal right of dominant firms and of residual
    competitors to compete on the merits

5
  • Likely and actual foreclosure effects
  • Short-term and longer-term negative effects
  • Direct and indirect negative effects

6
Areas of soul searching
  • Level of market power to establish dominance?
  • Art. 81(1) test some degree of market power
  • Merger control test SIEC test
  • Art. 82 test dominance substantial market
    power power to behave to a large extent
    independently of competitors and consumers
  • Dominance requires full market analysis

7
  • Test for illegal unilateral conduct?
  • Definition of abuse in Hoffmann La Roche
  • 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
    and which, through recourse to methods different
    from those which condition normal competition in
    products or services on basis of the transaction
    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

8
  • Concept of competition on the merits
  • Need to prove effect on the market
  • Need to prove hindrance to maintenance of
    residual competition in the market or hindrance
    to growth of residual competition

9
  • Link with maintenance or increase of market power
    of dominant firm (influence on structure of the
    market)
  • Causal link required between conduct and market
    power? Effects-based analysis normally implies
    link between conduct and maintenance/increase of
    market power

10
What is, or is not, competitionon the merits?
  • Different tests advanced for different abuses
    (profit sacrifice test, as efficient competitor
    test, etc.)
  • Illegal conduct does not result from elimination
    of competitors as such (can be the result of
    competition)
  • Illegal conduct requires something more related
    to the means of elimination of competition

11
  • Role of intent? Both illegal exclusion and legal
    exclusion are intended need to look at
    foreclosing effect but proof of improper intent
    can be an important element
  • Test based on efficiencies (Elhauge)
  • Foreclosure resulting from enhanced own
    efficiency v. foreclosure based on impairing
    efficiencies of rivals (i.e. foreclosure not
    necessary to increase own efficiency)

12
3 categories of conduct
  • Conduct the sole effect of which is to raise
    efficiency of dominant firm
  • Conduct the sole effect of which is to raise
    barriers for competitors
  • Conduct with dual effect efficiency enhancing
    and foreclosure of rivals

13
  • Only protection of efficient competitors to
    avoid protection of inefficient competitors?
    (efficiency would be measured against some cost
    benchmark of dominant firm)
  • Or a more dynamic approach to also include
    potentially efficient firms? (i.e. new
    entrants, still expanding firms, economies of
    scale, learning curve, incumbent advantages, etc.)

14
How much foreclosure is required to violate Art.
82?
  • 82 requires pre-existing dominance, i.e. high
    level of power over price does not cover
    conduct attempting to acquire dominance
  • Likelihood and significance of foreclosure
    depends on
  • Pre-existing market power/barriers to entry
  • Inherent potential of conduct to foreclose
  • Market coverage
  • Importance of customers or competitors in case of
    selective foreclosure

15
  • Sliding scale based on above 4 variables
  • Ultimate test likelihood to impact negatively on
  • Price
  • Output
  • Quality
  • Innovation

16
  • Specific types of abuses
  • Predation
  • AKZO rule
  • Below AVC/AAC rebuttable presumption of abuse
  • Between AVC ATC need to prove strategy of
    foreclosure
  • Other cost benchmarks used in markets with high
    fixed and low variable costs (e.g. LAIC)
  • No requirement to prove recoupment

17
  • In addition to AKZO rule, need to prove likely
    foreclosure effect on the market?
  • Recoupment is an essential element of a credible
    predation story
  • Separate requirement under Section 2
  • Where dominance exists already, normally
    possibility of recoupment is built in, but there
    may be specific cases in which recoupment needs
    to be checked

18
  • Rebates
  • Pure quantity rebates offered to all potential
    buyers on a non-discriminatory basis are
    unproblematic (benefit consumers in general
    output expansion)
  • Problem areas
  • Rebates linked to a share of total purchases of
    the buyer
  • Rebates over all past sales
  • Bundling rebates

19
  • These rebates can have both a potential of
    exclusion/foreclosure a potential of
    efficiencies
  • Debate about whether to apply a cost standard or
    some other more dynamic standard
  • Predation standard has attractions and
    deficiencies some above cost rebate schemes
    could exclude even efficient competitors
  • Ultimate question could efficient rivals match
    the rebate of the dominant firm?

20
  • Refusals to deal
  • Some degree of convergence between EU-US
  • Courts have never admitted that an IPR holder can
    always refuse to deal, but conditions are
    different
  • Competition authorities are very cautious and
    only rarely impose an obligation to deal, even
    more exceptionally in the field of IPR

21
  • EU IMS decision sets out 3 criteria for IPR
    cases
  • Indispensability of access to the right
  • Risk of elimination of all competition
  • Prevention of emergence of new products or
    services for which there is a potential consumer
    demand
  • Need to carefully examine impact of compulsory
    supply on incentives to innovate and invest on
    original and follow-on markets

22
  • Scope of efficiency defence?
  • Already objective justification if conduct is
    necessary and proportionate
  • Efficiency defence available with other
    instruments
  • Compatible with Article 82? (compare Article
    81(3))
  • Article 81 for restrictive agreements
  • Merger control rules

23
  • The higher market power, the stricter the
    conditions for efficiency defence
  • In the long run it is safer to rely on
    competition than to count on pass-on of
    efficiencies there is a level where
    efficiencies can no longer prevail
  • At the other end, the lower the level of
    dominance, the greater the need to take account
    of efficiencies
  • What types of efficiencies? conduct specific
    efficiencies

24
  • If efficiencies become a defence, then need to
    balance efficiencies against the negative effects
    on competition
  • Efficiencies cannot automatically prevail over
    the negative effects on competition
  • Burden of proof of efficiencies has to lie with
    the dominant company

25
  • What type of enforcement rules?
  • Need to have enforcement rules which remain
    workable while reducing to the minimum false
    positives and false negatives
  • Need to strike the right balance between general
    rules and effects analysis on a case by case basis

26
  • Need certain safe harbours/bright lines (e.g.
    pure quantity rebates offered on a
    non-discriminatory basis to all potential buyers,
    pricing above certain cost benchmarks, others?)
  • No form based rules of prohibition but depending
    on market power not always an efficiency defence
    available
  • Need to carefully design burden of proof,
    efficiency defence, rebuttable presumptions

27
  • Need to achieve rapid decisions to be able to
    influence market developments (e.g. interim
    injunctions)
  • Will we get guidelines and when will they come?
  • Ask my Director General
  • END
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