BIICL Conference – Reform of Article 82 Antitrust Rules and the Role of the Community Courts Christian Ahlborn 24 February 2006

1 Overview –Antitrust goals and prior beliefs –Antitrust rules and evidential requirements –Discussion Paper: a uniform set of rules? –The role of the Community Courts

2 Antitrust Goals and Prior Beliefs (1) “ Antitrust policy cannot be made rational until we are able to give a firm answer to one question: What is the point of the law – what are its goals?” Bork, The Antitrust Paradox (1978), p.50

3 Antitrust Goals and Prior Beliefs (2) Values/objectives under Art 82 –Status quo: motherhood and apple pie approach –protection of competition –protection of market structure –fairness/equal opportunity –consumer welfare –Discussion Paper “protection of competition as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources” –Bayesian world: Prior beliefs Analysis Decision

4 Antitrust Goals and Prior Beliefs (3) Prior beliefs about efficiencies –do non-dominant firms frequently engage in the type of unilateral behaviour? –is there an economic reason to believe that these efficiencies become less important as firms acquire market power? Likelihood of Errors Errors Costs Prior beliefs about competitive harm –in what circumstances does a dominant firm have the ability and the incentive to exclude competitors Prior belief about costs of misdiagnosis –what is the cost of wrongly condemning pro-competitive practices? –what is the cost of wrongly permitting anti-competitive practices? 1) See David Evans and A. Jorge Padilla: Designing Anti-trust Rules for Assessing Unilateral Practices Expected Net Effect on Consumer Welfare

5 Antitrust Rules (1) Type of rule Definition of conduct Identification of harm Identification of efficiencies BalancingExample Per se prohibition XXX Pricing below AVC in AKZO Modified per se prohibition Proxy X Tying rule in Jefferson Parish Structured rule of reason (screen-based tests) Screen (X) Refusal to supply rule in IMS Health Unstructured rule of reason Tying rule in Microsoft

6 Antitrust Rules (2) per se permission unstructured rule of reason (authorities to demonstrate net harm) structured rule of reason unstructured rule of reason (defendant to demonstrate net benefit) modified per se prohibition per se prohibition Evidential burden on authorities regarding concrete effects for establishing a prohibition ∞ 0

7 Discussion Paper (1) Predation ● (rebuttable) per se prohibition if P < AVC ● unclear if AVC < P < ATC ● (rebuttable) per se permission if P > ATC Single branding/ rebates ● as predation (AVC < P < ATC) if rebates incremental/ unconditional ● unclear if rebates retroactive Refusal to supply ● screen-based test if refusal to supply ● (rebuttable) per se prohibition (?) if termination of supply General Framework ● unstructured rule of reason (defendant to demonstrate net benefit) Tying/bundling ● unstructured rule of reason (defendant to demonstrate net benefit)

8 Discussion Paper 2 Status Quo Evidential burden on authorities regarding concrete effects for establishing a prohibition ∞ 0 Discussion Paper Refusal to license IPRs (Magill, IMS) Refusal to commence supplies (Bronner) Termination of supply (Commercial solvents) Tying (Microsoft) Predation (AKZ0) Rebates (Michelin II, BA) Refusal to license IPRs Refusal to commence supplies Rebates Termination of existing supply Predation Tying

9 Role of the Court (1) Determining the appropriate anti-trust rule (and the resulting evidential burden –assessment of the likely effect of a particular type of unilateral behaviour –Examples –AG Jacobs in Bronner –Court of Appeal in Microsoft III

10 Role of the Court (2) Interpretation of the screen in light of its objectives –Example: the separate product test as a proxy for a net consumer welfare benefit (Microsoft III) “In the abstract, of course, there is always separate demand for products: assuming choice is available at zero cost, consumers will prefer it to no choice. Only when the efficiencies from bundling are dominated by the benefits to choice by enough consumers, however, will we actually observe consumers making independent purchases. In other words, perceptable separate demand is inversely proportional to net efficiencies.”

11 Role of the Court (3) –Impact of the Discussion Paper –consumer welfare framework of analysis –clarification of presumptions and burden of proof –Reaction of the Court –with respect to the framework –with respect to the burden of proof –AG Kokott in BA v European Commission

12 A