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Philip Lowe lecture 24 June 2005

This entry was added to http://www.reckon.co.uk/headlines-franckblog on 27 June 2005.

"EU Competition Policy: the new challenges"

Some notes and comments on a lecture given on 24 June 2005 at King's College London by Philip Lowe, the Director General of Competition at the European Commission.

The lecture was wide-ranging, reviewing recent and foreseeable developments in DG Competition's implementation of EC competition law; but the main interest was clearly in the "review" of Article 82 and potential Article 82 guidelines.

These notes are organised by topic rather than in the order of Philip Lowe's speech.

Political context

He started by claiming that there had been a major shift in European political attitudes towards competition.

He characterised the "old way" as policies that sought to protect what was seen as national economic interests by seeking to maintain stable and profitable industries, particularly in the "commanding heights" of the economy. In that context, cartels would be seen as legitimate responses to "crises", and competition from disruptive new entrants (especially foreign ones) was frowned upon. Concerns about monopoly power were focused on a wish to protect weak businesses from competition by more powerful ones.

By contrast, he thought that the focus was now on competition in the interests of citizens and consumers (he repeated that last phrase several times — do I detect an Ofcom influence?). Unfair competition was now characterised in opposition to "competition on the merits", rather than as "excessive" competition.

He suggested that the rationale for this new focus on competition was the "Lisbon strategy" i.e. the stated productivity and economic growth agenda of the EU's governments. In his view, open and competitive markets work to encourage business activity and innovation, leading to the best choice of quality and prices for consumers. Protecting those benefits was the "ultimate aim" of competition policy.

He claimed that DG Competition had been asked to go beyond enforcing competition law in specific cases and to provide some form of policy advice, although he did not really go into the details of what that exactly entailed.

(My comment: I am sceptical about the suitability of competition authorities to provide wide-ranging policy advice. Enforcing competition law in all its complexities is hard enough for one institution, and there is a risk that boundaries between political choices and administrative and legal decisions become inappropriately blurred if this is combined with wider policy advice. Would you ask the Navy for advice on the appropriate objectives of diplomacy, or would you limit your inquiries to the availability and practicality of the gunboats you need to support diplomacy driven from elsewhere?)

Antitrust: cartels, modernisation, leniency and private enforcement

Uncovering cartels remained the main focus of competition law enforcement.

He reviewed the operation of Council Regulation 1/2003, particularly issues relating to co-ordination between authorities for leniency applications. There was as yet no specific proposal on the table on that issue.

He argued for the introduction of arrangements that would enable DG Competition and firms that have infringed competition law to come to a direct settlement on fines rather than almost invariably bring a case to the CFI.

He suggested that a "middle way" was needed between the current European arrangements (where private enforcement is rare) and the current US arrangements (where it is frequent and fuelled by the "triple damages" rule), and referred to the report published by DG Competition on the topic. A Green Paper is expected by the end of 2005.

A new notice on merger remedies was also in the works, and consideration was being given to producing guidelines on non-horizontal mergers.

State aid reform

The State aid regime was the first priority for changes, and he referred to the recently published "State aid action plan". He criticised the current arrangements as leading to a system that only a small caste of lawyers understand, leading others to assume that the whole system was based on mere political bullying and power politics.

Processing of State aid cases was slow and he placed much of the blame for that on national Governments not being interested in a speedy resolution although he did not explain why there would be such a tendency — I thought that State aid was subject to prior authorisation?

He also blamed Governments for failing to comply with State aid law, with only half of illegal State aids being in fact repaid.

He also noted the reliance on court decisions rather than policy objectives as the source of State aid law, and appeared to imply that this was somehow a bad thing (is it?).

There was a lot of work to be done in reviewing the system, restructuring the block exemptions and so on, and a more "economic approach" would be developed. He noted that there was no established equivalent in France for the idea of "market failure", and that the debate there tended to be couched in terms of "legitimate policy objectives" instead.

(Warning: rant partly driven by offended national sensibility follows. I perceived a slight sneer against my native France in this part of the speech (and also in a later reference to Poujadism), but whilst I would normally be more than happy to join in the sneering, in this case it strikes me that, if his characterisation was correct, then the French have got it dead right: there is no such thing as an objective failure of a market, merely a failure to meet specified legitimate objectives. The "market failure" concept relies on the idea of an objective purpose of markets, which Mr Lowe presumably thought was something like the promotion of economic growth and/or the interests of citizens and consumers; in my experience with such concepts they tend to crumble away when one tries to apply them to actual competition issues. See also Pareto improvements and Kaldor-Hicks efficiency criterion. End of rant.)

Sector inquiries

He discussed the sector inquiries recently initiated into financial services, electricity and gas, and also mentioned the work on the professions. He said that the sector inquiries were expected to produce results by end 2006, and in his view the fact that excessive delay would not be allowed meant that they were not "fishing expeditions".

He did not address the potential risk that the breath of the scope of these inquiries might nevertheless make them "fishing expeditions" into the businesses of the companies concerned.

Article 82 guidelines

He explained the process of review currently under way within the Commission to produce guidelines on Article 82.

This was primarily seen as a continuation of work on notices and guidelines in other areas of competition law. The putative Article 82 guidelines would cover the notion of dominance, based on a clarification of the significance of market definition, and identify practices that were most likely to be abusive.

He thought that an abuse-by-abuse approach would be best, with a section of predatory pricing (on which he did not expect much trouble — he thought he could solve the question of "recoupment" and even agree with the US authorities on it); a section on tying and bundling; and so on. He highlighted fidelity rebates as one area where there were likely to be difficulties.

The aim was to enhance the economic analysis whilst ensuring that the resulting rules are workable — i.e. have bright enough lines between conduct that will be challenged and conduct that is considered legal.

A lot of discussion and debate has already taken place within the Commission. A consultation with national competition authorities was just starting, and was to reach its climax in the autumn. There will also be a public consultation in the autumn.

He was not yet sure whether it would be feasible to produce any guidelines. This would be reviewed in late 2005. If it can be done, then draft guidelines would be produced in March 2006.

Asked about intellectual property rights in the Q&A session, he claimed that competition law was sometimes invoked in IPR cases purely to make bad patent law work. His view was that the IMS Health case should not have happened because the relevant material "should not have been patented" (sic). (I thought that IMS Health was a copyright dispute and did not involve patents.)

He denied that there was a significant IPR element in the server component of Microsoft: the EC abuse of dominance case, because the issue was, he thought, to do with business secrets, which he did not consider as intellectual property. He also could not resist a dig at the US Microsoft case, characterising the settlement as an "industrial decision" devoid of rigour, and joking about Netscape's disappearance from the browser market (he did not make any mention of Firefox's existence and success).

He also commented (unprompted) on the proposal for a directive on software patenting, claiming that the directive was essential and that its opponents were well-meaning but totally wrong about innovation and competition. (I did not understand why he thought the directive was essential.)

In response to another question, he said that the analysis under Article 82 shoulds seek to make the same balance as Article 81(3), and that the concept of "elimination" of competition in Article 81(3) might be closer to some idea of super-dominance than to ordinary dominance. He did not however explain how this might work.

(My comment: I am sceptical that the Article 81(3) rule — which provide a justification for anti-competitive agreements insofar as they are necessary as part of a re-organisation of a production sector that does not eliminate competition and operates in the interest of that sector's customers — can be translated into an approach for Article 82. I think that it would give absurd results for exploitative abuses, and even in exclusionary cases I find it hard to map the "prohibition-justification" framework of Article 81(1)-(3) into the "special obligation" framework of Article 82. Maybe an "extremist" approach of looking for a justification for every unilateral business conduct that restricts competition would work in theory? Even so, would it work in practice? I await with interest to see whether the autumn consultation or the March draft guidelines will prove this scepticism to be misplaced.)

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Entry added by Franck Latrémolière on 27 June 2005

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Last changed by Franck at 8:11 AM on Sunday 8 October 2006.

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