1. Current trends in EU single firm conduct policy and case law
Microsoft and beyond
Current trends in EU single firm conduct policy and case law
Michel Debroux
Hogan & Hartson / ACCE Seminar, London, 13 May 2008
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2. Reading Microsoft (again) Tying : When is it illegal in EU law ?
Summary
Reading Microsoft (again)
Tying : When is it illegal in EU law ?
Pricing : some recent case-law on recurrent issues (margin squeeze, predation, rebates & discounts)
EU-US Divergences/Convergences
A few words about politics
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3. Reading Microsoft (again)
Specific context of the Microsoft judgment
The US Netscape precedent
A case of “super-dominance”
Rather aggressive handling of the case
De facto standard setting role of Microsoft
Interoperability : refusal to grant a license = a refusal to deal, abusive only in “exceptional” circumstances
When is a refusal abusive ? (3 IMS criteria: indispensability, foreclosure effect, new product for which there is a demand)?
IMS Health test - more flexibly applied in Microsoft? (in particular, the foreclosure effect on “all competition”)
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4. Reading Microsoft (again)
Windows Media Player (Tying)
Dominance on the Tying market (easy to show in Microsoft, owing to MS’ “superdominance” on the PC operating system market)
Need to identify two separate products, not “intrinsically” linked – this test is driven by consumer demand … but it can evolve very quickly, especially in fast-evolving technologies
Foreclosure effect?
Customers are “foreclosed”, i.e. have no other choice (CFI : irrelevant that products competing with the tied product (WMP) were downloadable free of charge
Market as a whole is foreclosed, i.e. competitors have not much room left to compete (“obvious” or “likely” foreclosure (CFI) ?)
And by the way, what about efficiencies ?
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5. Reading Microsoft (again)
Is Microsoft too specific to be replicated ?
MS “superdominance”
Perception of a systematic business model
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6. Reading Microsoft (again)
US – EU Divergences: widening the gap again?
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“We are concerned that the standard applied to unilateral conduct (…) may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition”
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“In the US, the antitrust laws are enforced to protect consumers by protecting competition, not competitors ..”
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7. Tying : when is it illegal ?
Dominance on the tying market
Two distinct products (“tying” and “tied”)
Focus on the demand of the tied product : is it separate ?
Foreclosure effect
Impact on the consumers (how are they “tied” : price-wise, contractually, can they easily switch to a competing tied product?)
Impact on the market : “likely” or “obvious” foreclosure effect
High standard of proof for objective justification and/or efficiencies :
it is not enough to show that consumers want the combination of both tying and tied product, it should be clear that they ask for THIS combination involving both products from the same (dominant) player.
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8. Pricing : recent case-law on some issues
Margin Squeeze (Deutsche Telekom, CFI, 10 April 2008)
Facts
Difference between DT’s wholesale prices to competitors and retail prices to end-consumers too thin to allow an “as efficient competitor” to obtain a reasonable margin
Findings
Possibility of “dual” regulation (both ex ante and ex post) if the dominant player retains “some” room to set its prices, in spite of the price regulation mechanism
Importance of the criterion of an “as efficient competitor
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9. Pricing : recent case-law on some issues
Fidelity Rebates & Discounts (British Airways, ECJ, 15/03/2007)
Facts
Result-conditioned bonuses to travel agencies generating over £500,000 in annual sales of BA tickets
Incentives to increase sales of BA tickets
Discrimination between travel agencies
Findings
Competing airlines did not have pockets deep enough to offer a comparable bonus system
Foreclosure effect
Direct adverse effect on the consumer not shown
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10. Pricing : recent case-law on some issues
Predation (Wanadoo, CFI, 30 January 2007)
Facts
Broadband internet market, quickly evolving
Wanadoo’s retail prices lower than its average full costs
Foreclosure effect
Findings
CFI confirms that the Commission does not need to prove that the dominant player will not be able to recoup its losses on the long run
Forward-looking analysis of costs (5-years amortization of initial sunk costs)
Possibility to have a dominant position even on dynamic and emerging new markets
When are dominant players allowed to “align” on competitors’ prices ?
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11. EU – US Divergences / Convergences
There are a few “technical” divergences, such as the ability to recoup losses in the predation test (needed in the US, not in the EU), but the true divergences go beyond technicalities :
“Dual” regulation (antitrust + sector regulator) is possible in the EU, less so in the US (Trinko)
Both regulators claim to have an “effect-based approach ; but EU enforcers insist on foreclosure ; US enforcers care more about efficiencies
“Protecting competitors or competition” ? … EU enforcers believe that these two approaches are two flips of the same coin, while US regulators are more reluctant to intervene on market structures, unless a clear consumer harm is proved.
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12. A few words about politics
The EC Commission has a policy ; how far is it influenced by “politics” ?
Commissioners do have national and political backgrounds, but the Commission as such is supposed not to. Really ?
Politics play a greater role when the Commission acts as a law-maker (see for instance the unbundling issue in the energy sector).
Increased complexity when nationalities are taken into account.
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13. For Further Information Please Contact…
MICHEL DEBROUX
Partner, Paris
(tel) (fax)
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