22 Nov, 2016

Neutrality Everywhere? A Brief Look at the Chillin’Competition Conference 2016

For the second year in a row Chillin’Competition conference drew practitioners, scholars and regulators from across Europe with a promise of an unparalleled array of distinguished speakers focusing on the topic of the neutrality principle and its role in competition law.

And it certainly delivered!

Alfonso Lamadrid, one of the founders of Chillin’Competition blog (seen giving the opening remarks above), started the conference by stressing the importance of discussing the concept of substantive neutrality, its meaning and scope of application in different fields of competition law.

Keynote Address – Margrethe Vestager

Keynote speaker Margrethe Vestager, EC Commissioner for Competition, delivered a speech which, within several hours, started being characterized as one of the most important recent speeches on exploitative pricing by dominant undertakings.  The Commissioner stressed that the Commission is eager to continue intervening whenever consumer welfare is undermined by exploitative pricing, while keeping in mind instances where certain concessions need to be made in order to incentivize innovation.  Three main examples provided were Gazprom’s restrictions of free flow of natural gas, overpricing medication by the pharmaceuticals industry and abuses by holders of essential patents.  Reflecting on the topic of neutrality from a regulator’s point of view, the Commissioner emphasized the importance of ensuring there is no discrimination in treatment of businesses.  On the other hand, she gave a clear message that competition enforcement cannot function outside of the wider political context.  This was to say that actions against excessive pricing might not always be neutral, but influenced by the public interest considerations.

Neutrality Everywhere? Legal and Economic Perspectives

The 1st panel, “Neutrality everywhere? Legal and economic perspectives”, moderated by the Chillin’Competition’s founder Pablo Ibáñez Colomo (LSE Law), included the following panelists: Antonio Bavasso (Allen & Overy), Sir Christopher Bellamy QC (Linklaters), Cristina Caffarra (CRA) and Assimakis Komninos (White & Case).

Sir Christopher Bellamy QC began the discussion by sharing thoughts on potential implications of Brexit to regulation and enforcement of competition law in the UK.  Issues like increased criminal prosecution of antitrust infringements, abandonment of EU state aid regulatory approach were some of the concerns mentioned.  The discussion that followed gave panelists ample opportunity to share their views of what neutrality means in competition.  A number of participants generally agreed that competition regulation and enforcement should be focused on the key values of preserving efficiencies that benefit consumers and not overextend its reach to tackling issues like inequality, concluding that neutrality or non-discrimination should not be taken as the core of competition law.  However, views were put that, although competition law is based on a certain set of values, it should operate within a wider context of public interest.  Nevertheless, even then, competition authorities often resort to addressing issues through direct intervention rather than remedying relevant market failures.

Neutrality and Product Design

The 2nd panel, “Neutrality and product design”, moderated by Marcos Araujo (Garrigues), included the following panelists: Benoît Durand (RBB), Thomas Graf (Cleary Gottlieb), Kristina Nordlander (Sidley Austin) and Sven Völcker (Latham & Watkins).

The main theme of the discussion was the relationship between certain primary and secondary product markets.  It was put that the majority of available case law discussing the concept of neutrality and non-discrimination revolves around essential facilities doctrine and refusal to supply allegations.  Several trends in regulation of these issues, resulting in a questionable approach to intervention, have been noted.  For instance, the increasing tendency of narrowing the definition of relevant market in recent case law resulted in so called brand specific markets, making it easier for the regulator to establish dominance.  Moreover, what was mentioned as often neglected is existence of competition on the primary market, which could give consumers significant freedom of choice and question the existence and reach of the alleged abuses on the secondary market.  Neutrality was recognized as particularly applicable to search engines, while it was questioned to which extent it would be applicable to platforms – due to users’ freedom to switch between platforms.  Some panelists insisted on the importance of intervention to prevent abuses or foreclosure, but concluded that these motivations in turn provide borders to the scope of intervention which should be observed.

Neutrality and Regulation

After a well-deserved lunch, the 3rd panel, “Neutrality and regulation” commenced, moderated by Niamh Dunne (LSE Law), and it included the following panelists: Jose Luis Buendía (Garrigues), John Fingleton (Fingleton Associates), Felipe Florez Duncan (Oxera) and Scott McInnes (Bird & Bird).

The main topic was exploring pros and cons of ex ante regulation as opposed to ex post intervention under the framework of competition law.  Overregulation, resulting in de facto barriers to entry, especially in cases of sector specific regulatory frameworks, was mentioned as a good example of failure to achieve regulatory neutrality to detriment of consumers.  The importance of considering the trade-offs when devising rules for specific sectors was put forward.  The core of this approach is to, given the ongoing technological revolution, take into account not only traditional economic considerations of competition law but freedom of speech, efficient access to information etc., all important prerequisites to a democratic and open society.  Not all sectors and practices are better of with just competition law protection, but require ex ante regulation, as was argued in a presentation addressing credit card interchange fees.

Neutrality and Licensing

The 4th panel, “Neutrality and licensing”, moderated by Paul Lugard (Baker Botts), included the following panelists: James Aitken (Freshfields), Mark English (Shearman & Sterling) and Stephen Wisking (Herbert Smith Freehills).

Panelists exchanged ideas and views mainly regarding the concept of standardization and use of Fair, Reasonable and Non-Discriminatory licensing terms (FRAND) in regulating access to standard essential patents.  The nature of FRAND, as private but legally binding instruments was discussed in terms of securing access to standard essential patents on a non-discriminatory basis.  However, the panelists examined the role of the mechanism as a remedy/compensatory measure in merger control and antitrust enforcement.  The commitments recently agreed to by ISDA and Markit (39745 CDS) were thoroughly discussed in this context.  The panelists did not hesitate to tackle controversial issues, like the role of non-practicing entities (“patent trolls”), in competition law actions relating to standard essential patents.

Neutrality and Distribution

The final panel, “Neutrality and distribution”, moderated by Kevin Coates (Covington & Burling), included the following panelists: Bill Batchelor (Baker & McKenzie), Jorge Padilla (Compass Lexecon) and David Wood (Gibson Dunn).

Despite the often skeptical views towards neutrality expressed during the preceding debates, the session started with several positive attitudes towards neutrality as a guiding principle in competition law intervention in distribution arrangements.  The discussion reiterated several points discussed previously, such is limiting intervention to where consumer interests are jeopardized as well as the fact that competition law is increasingly viewed as a tool with growing importance in preserving the Single Market.  In contrast, Jorge Padilla focused on the benefits of diverging from the neutrality principle in distribution structures, and provided economic explanation of benefits of a producer discriminating between different distributors by using a “simple” economic model to show that neutrality is not a preferred solution in any hypothetical situation.  The final panel was closed in a discussion of important questions that are rarely asked, or in fact never, highlighting several cases and economic studies that further built on  the notion that there are certainly some benefits in cases where a producer discriminates between different distributors.

Keynote Address – Ian Forrester QC

Ian Forrester QC, Judge of the General Court of the EU, delivered the closing keynote speech.  He shared his experiences of working in judiciary as opposed to private practice.  Turning to recent trends in competition law enforcement, he expressed concerns regarding the trend of decreasing judiciary review of competition cases (excluding state aid) due to an increased number of companies agreeing to settle before DG COMP.  In terms of neutrality, Judge elaborated on the discussions, the Magill (Joined Cases C-241/91 P and C-242/91 P), and the distinction between discrimination and justified distinction.

Final Thoughts

The synthesis of the often opposed views and arguments, be it between economists and legal professionals or regulators and private practitioners, allowed the audience to gain a holistic understanding of the issues surrounding application of neutrality principle in competition law.  What started as a potentially vague topic was given substance and color through multidisciplinary analysis of case law, current and historic regulatory solutions and current political trends.  For the second time, the Chillin’Competition conference succeeded in facilitating eye-opening discussion on a challenging topic that will remain at the center of competition law debates for many years to come.

We would like to take this opportunity to thank the organizers, distinguished speakers, sponsors and all participants for the inspiring experience and, true to the blog’s mantra, an opportunity to relax while doing Competition Law.

[A more in-depth review and analysis of the conference will be available soon on our website and Chillin’Competition blog.]

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