Where now for Article 82? Amelia Fletcher Chief Economist Office of Fair Trading

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Where now for Article 82?Amelia FletcherChief
EconomistOffice of Fair Trading

• BIICL Transatlantic Dialogue
• 15 May 2008
• (The views expressed here are my own and not
  necessarily those of the OFT)

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Background

• Few Ch2/Art82 cases at OFT
• No sign of long-awaited EC guidelines
• Few s2 cases in the US and no imminent promise of
  guidelines
• Is this.

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.a death knell for Art 82?
ARTICLE 82
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No! The DGComp caseload.
Alcan
Intel
Rambus
Electrabel
Microsoft II
EDF
ENI
Boehringer
Qualcomm
RWE
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No! UK High Court judgments

• Attheraces v BHRB (Feb 07)
• EWS v E.ON (Mar 07)
• AAH v Pfizer (Mar 07)
• Chester City Council v Arriva (June 07)
• Software Cellular Network v T-Mobile (Jul 07)
• Virgin Media v BSkyB (case pending)

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So why no EC guidelines?

• Do the current DGComp cases provide a clue?

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EDF Long-term exclusive supply agreements
Electrabel Long-term exclusive supply agreements
ENI Capacity hoarding Strategic under-investment
RWE High access prices Artificially inflated costs, Capacity hoarding Artificial network fragmentation
Microsoft II Refusal to supply Tying
Qualcomm Non-FRAND licence terms within standard
Rambus Patent ambush Unreasonable royalties
Intel Loyalty rebates Below AVC predationPayments to OEMs to delay competitor launches
Alcan Tying
Boehringer Misuse of the patent system
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So why no EC guidelines?

• Do the current DGComp cases provide a clue?
• Might guidelines restrict the types of abuse that
  could be examined?
• Or is conflict with past precedent the greater
  worry?

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Do we care?

• Art 82 Business pretty brisk
• DGComp - and others - broadly taking a more
  economic approach
• DGComp not losing Art 82 cases

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Yes!

• The Commissions more economic approach needs
  Court buy-in
• Guidelines needed for this (prioritisation
  guidelines would be a start but not enough)
• Guidelines also important for ensuring
  consistency across EU
• So what can be done?

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Non-horizontal mergers a parable

• Cast your mind back 2 years
• Some high profile losses for DGComp
• Basic problem no clear story of harm and no
  clear empirical testing of logic
• Recognised need for change/guidelines
• Guidelines very principles-based not tools/rules
• Working well - eg TomTom/Tele Atlas

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Parallels with Article 82?

• Much behaviour categorised as potentially abusive
  could equally be pro-competitive
• Low pricing and discounting
• Offering a second product cheap (or free) with a
  first
• Choosing the right business partner
• Potential for exclusion depends critically on
  market circumstances
• A clear story of harm would examine ability,
  incentive, likely effect and efficiency benefits

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Refusal to Supply by Microsoft The Commissions
Key Findings
Ability to foreclose Interoperability necessary for server OS vendors to be effective competitors. There are no substitutes.
Incentive to foreclose The one monopoly profit argument fails on the facts
Likely impact on effective competition is substantial All competitors refused interoperability Microsofts share in server market rising fast and indeed now dominant
Efficiency benefits do not outweigh harm Risk of harm to innovation from abuse outweighs potential harm to innovation incentives from intervention
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An approach for Art 82 guidelines?

• Principles instead of detailed rules
• Harm to competition (and consumers) is crucial
• Four elements of a clear story of harm
• Ability to foreclose
• Incentive to foreclose
• Likely impact on effective competition
• Efficiency benefits
• Plus Dynamic trumps static

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Where now for Article 82?Amelia FletcherChief
EconomistOffice of Fair Trading

• BIICL Transatlantic Dialogue
• 15 May 2008
• (The views expressed here are my own and not
  necessarily those of the OFT)