GC backs broad Commission discretion not to pursue antitrust cases in absence of "Community interest"

In its Judgment of 13 September 2012 in case T‑119/09 Protégé International Ltd v European Commission and Pernod Ricard SA, the General Court has backed the Commission's decision not to pursue a complaint filed by Protégé International Ltd regarding a potential abuse of a dominant position by Pernod Ricard SA in the whisky market, in view of the absence of a sufficient "Community interest" [Decision C (2009) 505 (Case COMP/39414 - International Protégé / Pernod Ricard)].

The GC basically restates the prexisting case law of the CJEU on the Commission's discretion to pursue or drop cases in view of their "Community interest" and extends it to the post-Regulation 1/2003 enforcement scenario (as expressly mentioned in Recital 18 of that Regulation). Most importantly, the GC expressly shows certain judicial deference towards the Commission's assessment of the existence (or lack of) "Community interest", which review will be limited to check that the Commission's assessment guaranteees that the facts have been accurately stated and that there has been no manifest error or appraisal or misuse of power (on such "marginal review", see the key contribution by M Jaeger, "Standard of review in Competition Cases Involving Complex Economic Assessments: Towards the Margnialisation of the Marginal Review?" (2011) J of Eur Comp Law & Practice 2(4):295-314].

In more detail, in its Judgment (only available in French), the GC stressed that:

32 Il ressort d’une jurisprudence constante que l’article 7, paragraphe 2, du règlement n° 1/2003 ne confère pas à l’auteur d’une demande présentée en vertu dudit article le droit d’exiger de la Commission une décision définitive quant à l’existence ou non de l’infraction alléguée (voir, en ce sens, arrêts de la Cour du 18 octobre 1979, GEMA/Commission, 125/78, Rec. p. 3173, points 17 et 18, et du 4 mars 1999, Ufex e.a./Commission, C‑119/97 P, Rec. p. I‑1341, point 87 ; arrêt du Tribunal du 18 septembre 1992, Automec/Commission, T‑24/90, Rec. p. II‑2223, point 75).

33 En effet, la Commission, investie par l’article 85, paragraphe 1, CE, de la mission de veiller à l’application des principes fixés par les articles 81 CE et 82 CE, est appelée à définir et à mettre en œuvre l’orientation de la politique communautaire de la concurrence. Afin de s’acquitter efficacement de cette tâche, elle est en droit d’accorder des degrés de priorité différents aux plaintes dont elle est saisie et dispose à cet effet d’un pouvoir discrétionnaire (arrêt Ufex e.a./Commission, précité, point 88, et arrêt de la Cour du 17 mai 2001, IECC/Commission, C‑449/98 P, Rec. p. I‑3875, point 36).

34 La Commission est notamment en droit de se référer à l’intérêt communautaire pour déterminer le degré de priorité à accorder aux différentes plaintes dont elle est saisie (arrêt Automec/Commission, précité, point 85, et arrêt du Tribunal du 13 décembre 1999, Européenne automobile/Commission, T‑9/96 et T‑211/96, Rec. p. II‑3639, point 28). La possibilité pour la Commission de rejeter une plainte pour défaut d’intérêt communautaire est par ailleurs explicitement reconnue au considérant 18 du règlement n° 1/2003 (voir, en ce sens, arrêt du Tribunal du 16 janvier 2008, Scippacercola et Terezakis/Commission, T‑306/05, non publié au Recueil, point 93).

35 Le pouvoir discrétionnaire dont dispose la Commission à cet égard n’est cependant pas sans limites (arrêts Ufex e.a./Commission, précité, point 89, et Européenne automobile/Commission, précité, point 29).

36 En effet, d’une part, la Commission est tenue d’examiner attentivement l’ensemble des éléments de fait et de droit qui sont portés à sa connaissance par les plaignants (arrêts de la Cour du 11 octobre 1983, Schmidt/Commission, 210/81, Rec. p. 3045, point 19 ; du 28 mars 1985, CICCE/Commission, 298/83, Rec. p. 1105, point 18 ; du 17 novembre 1987, British American Tobacco et Reynolds Industries/Commission, 142/84 et 156/84, Rec. p. 4487, point 20).

37 D’autre part, la Commission est astreinte à une obligation de motivation lorsqu’elle refuse de poursuivre l’examen d’une plainte. La motivation devant être suffisamment précise et détaillée pour mettre le Tribunal en mesure d’exercer un contrôle effectif sur l’exercice par la Commission de son pouvoir discrétionnaire de définir des priorités, cette institution est tenue d’exposer les éléments de fait dont dépend la justification de la décision et les considérations juridiques qui l’ont amenée à prendre celle-ci (arrêts Ufex e.a./Commission, précité, points 90 et 91 ; Automec/Commission, précité, point 85, et Européenne automobile/Commission, précité, point 29).

38 De même, il importe de relever que le contrôle juridictionnel des décisions de rejet de plaintes ne doit pas conduire le Tribunal à substituer son appréciation de l’intérêt communautaire à celle de la Commission, mais vise à vérifier que la décision litigieuse ne repose pas sur des faits matériellement inexacts et qu’elle n’est entachée d’aucune erreur de droit ni d’aucune erreur manifeste d’appréciation ou de détournement de pouvoir (arrêt Automec/Commission, précité, point 80 ; arrêt du Tribunal du 18 septembre 1996, Asia Motor France e.a./Commission, T‑387/94, Rec. p. II‑961, point 46, et Européenne automobile/Commission, précité, point 29).

39 Par ailleurs, aux fins de l’appréciation de l’intérêt communautaire, il appartient à la Commission de mettre en balance l’importance de l’infraction prétendue pour le fonctionnement du marché commun, la probabilité de pouvoir établir son existence et l’étendue des mesures d’investigation nécessaires, en vue de remplir, dans les meilleures conditions, sa mission de surveillance du respect des articles 81 CE et 82 CE (voir, en ce sens, arrêt Automec/Commission, précité, point 86, et arrêt du Tribunal du 24 janvier 1995, Tremblay e.a./Commission, T‑5/93, Rec. p. II‑185, point 62).

40 En tout cas, l’évaluation de l’intérêt communautaire présenté par une plainte étant fonction des circonstances de chaque espèce, il ne convient ni de limiter le nombre de critères d’appréciation auxquels la Commission peut se référer ni de lui imposer le recours exclusif à certains critères (voir arrêt IECC/Commission, précité, point 46).

41 Enfin, la Commission n’est pas tenue de prendre position sur tous les arguments que les intéressés ont soumis à l’appui de leur plainte. Il suffit qu’elle expose les faits et les considérations juridiques revêtant une importance essentielle dans l’économie de la décision (voir, en ce sens, arrêt AEPI/Commission, précité, point 61, et la jurisprudence citée). (GC T-119/09,, at paras. 32-41, emphasis added).

In my view, this endorsement by the GC comes to strengthen the Commission's control over its own docket and case load, while still guaranteeing effective judicial review for aggrieved parties (ie complainants) in a sufficient degree.

La intervención del Gobierno en control de concentraciones: Se ha abierto la caja de Pandora(?)

En una dura e interesante columna de opinión en El País (http://tinyurl.com/9ou4wmx), el anterior Presidente de la Comisión Nacional de Competencia (CNC) critica la intervención del Gobierno en la concentración Antena 3 / La Sexta. En un ejercicio que no sólo es de defensa institucional de la CNC (admitámoslo, es principalmente o, cuanto menos, también un ataque político al PP), Berenguer critica el uso de la facultad de intervención del Gobierno por motivos de interés general distintos de la defensa de la competencia prevista en los arts 10 y 60 de la Ley 15/2007 de Defensa de la Competencia (LDC).

Conforme a estas reglas, y con la única excepción de las operaciones aprobadas sin condiciones por la CNC, el Ministro de Economía puede remitir al Consejo de Ministros una concentración empresarial para que revise la decisión adoptada por la CNC sobre la base de criterios de interés general distintos de la defensa de la competencia, tales como la defensa y seguridad nacional, la libre circulación de bienes y servicios dentro del territorio nacional, la protección del medio ambiente, o la garantía de un adecuado mantenimiento de los objetivos de la regulación sectorial.

Según Berenguer, esta posibilidad de intervención se concibió como una ‘cláusula durmiente’ en la redacción, tramitación y aprobación de la LDC; pese a la interposición de una enmienda expresa por la que el PP (y aquí está la base del ataque político, ciertamente) propuso su supresión por considerarla una puerta abierta al intervencionismo económico. En breve, se mantuvo la cláusula sobre la base de que nunca (o casi nunca) iba a ser utilizada (lo cual es, de por sí, muy criticable desde un punto de vista de calidad regulatoria) y de que, en su caso, las razones de interés general esgrimidas por el Gobierno serían claras (y suficientes).

Como Berenguer enfatiza en su columna, el punto de partida pretende ser el de dejar un resquicio por el que introducir en el sistema una salvaguardia frente al ‘imperialismo de la normativa de competencia’ en casos en que pueda existir un verdadero conflicto de intereses (públicos).

Es cierto que hay casos excepcionales en los que una decisión basada exclusivamente en competencia puede impedir objetivos de interés general distintos de los de la libre competencia, y es igualmente cierto que algunas legislaciones, pero no todas, tienen cláusulas que permiten la intervención del Gobierno. Esta intervención debe resultar en todo caso excepcional. Habría que preguntarse si existen en este caso las razones de interés general que se aducen por el Consejo de Ministros, que consisten en las necesidades del plan de liberación del dividendo digital y la defensa del pluralismo informativo. Difícilmente la respuesta puede ser positiva.

El problema es que esta valoración es necesariamente subjetiva y política y, en vista de la discrecionalidad que se otorga al Consejo de Ministros para la adopción de esas decisiones, ni siquiera podemos confiar en el control por el Tribunal Supremo como última defensa frente al intervencionismo político. Por tanto, el mantenimiento de la cláusula de intervención en los arts 10 y 60 LDC era, pese a las buenas intenciones del legislador (sic) una apuesta muy arriesgada.

Esa fue una opción de política legislativa que ya critiqué en fase de observaciones al Proyecto de Ley de Defensa de la Competencia, al considerar que la posible intervención del Gobierno se configuraba en términos excesivamente propicios a una intervención ‘estratégica’ (y difícilmente justificable en el verdadero interés público) [Sanchez Graells, “La reforma del sistema español de defensa de la competencia. La intervención del Gobierno en el control de concentraciones económicas” (Instituto Universitario de Estudios Europeos, CEU San Pablo, Serie Política de la Competencia, Documento de Trabajo Número 21 / 2006) http://tinyurl.com/8buo3rz].

en el nuevo sistema, el Consejo de Ministros podrá intervenir por motivos de interés general distintos de la defensa de la competencia, en una clara politización de un procedimiento de control de concentraciones que siempre ha sido criticado por la falta de independencia del Gobierno en la toma de determinadas decisiones […]

el sistema propuesto incrementa la discrecionalidad del Consejo de Ministros y dificulta la fiscalización de sus decisiones, a la vez que puede generar un comportamiento “extremo” de la CNC en la adopción de sus decisiones en casos particularmente delicados y que permite que se siga utilizando el procedimiento de control de concentraciones para regular sectores económicos – lo que excede claramente de sus objetivos y posibilidades […]

en contra de lo aparentemente pretendido por la reforma, la propuesta del Proyecto de LDC puede debilitar la independencia de la futura CNC en esta materia y, por tanto, su credibilidad frente a los operadores económicos. Por tanto, de lege ferenda, consideramos muy conveniente la supresión de la intervención del Gobierno –i.e. tanto del Ministro de Economía y Hacienda como del Consejo de Ministros- del procedimiento de control de operaciones de concentración económica

El tiempo, desgraciadamente, ha dado la razón a los que pensábamos que la intervención política en el procedimiento de control de concentraciones no es deseable por los riesgos de abuso. En cierto modo, creo que esta es una lección que debemos entender en su justa medida y tenerla en cuenta para la redacción de nuevas normas en materia de defensa de la competencia y, en general, en el ámbito de la regulación de la actividad económica. Porque el día menos pensado, se activarán ‘cláusulas durmientes’ como los arts 10 y 60 LDC (y hay muchas más esparcidas por una cada vez más compleja maraña regulatoria) y no habrá quien cierre la caja de Pandora.

La cuestión prejudicial no funciona así. Si el arancel de los procuradores es desproporcionado, declárelo, pero no quiera pasar la patata caliente al TJUE

En su Auto de 1 de marzo de 2012, la Audiencia Provincial de Barcelona (Secc. 15ª) se enfrentó a la peliaguda cuestión de si el arancel de los procuradores es desproporcionado. En el caso concreto, el procurador emitió una minuta de más de setecientos mil Euros, que difícilmente se podría justificar en función de la complejidad del caso y del trabajo realmente realizado (sobre este tipo de minutas, ya publiqué un desahogo aquí).

En el caso concreto, y como no podría ser de otra manera, la Audiencia Provincial parece tener muy claro que el arancel no se ajusta al marco legislativo comunitario aplicable (fundamentalmente, la Directiva de Servicios) y, sin embargo, intenta pasarle la patata caliente al Tribunal de Justicia con las siguientes consideraciones:

27. […] albergamos la duda de que el estado español haya cumplido adecuadamente con las obligaciones asumidas y que nuestra regulación sobre los aranceles de los procuradores cumpla con la normativa europea.

Es cierto que como tribunal nacional podríamos juzgar sobre ello, tal y como expresamente afirma la Sentencia recaída en el caso Cipolla, e inaplicar la normativa interna aplicando la legislación comunitaria. No obstante, creemos que, al menos tras la publicación de la Directiva de Servicios, los conceptos de necesidad y proporcionalidad han pasado a ser conceptos de carácter comunitario (sic), lo que hace aconsejable que tengan interpretación y aplicación en el ámbito de la justicia comunitaria, pues de otra forma no se podría evitar que los diversos tribunales nacionales hagan interpretaciones diversas y enfrentadas. Esa es la razón que nos lleva a solicitar al Tribunal de Justicia Europeo que se pronuncie sobre si considera que nuestra normativa interna respeta los referidos principios de necesidad y proporcionalidad al establecer un sistema de baremo vinculante para la determinación de los honorarios de unos profesionales liberales como son los procuradores de los tribunales […]

28. Adelantamos al Tribunal Europeo que tenemos serias dudas de que nuestra legislación en la materia respete esos principios. Aunque el procurador de los tribunales ostenta algunas atribuciones de carácter próximo a lo público, y resulta innegable que constituye un excelente colaborador en la gestión de los procesos que se sustancian en los tribunales, de ello no se deriva que exista necesidad alguna de someter su régimen retributivo a reglas imperativas cuando el sistema de elección de este profesional es enteramente libre, salvo en los supuestos en los que el ciudadano tiene reconocido el derecho a justicia gratuita.

29. Tampoco creemos que la necesidad de preservar la calidad del servicio que imparten exija someter su retribución a un sistema que no les permite competir en precios cuando esa finalidad se cumple de manera mucho más razonable a través de normas de acceso a la profesión, como creemos que de forma efectiva ocurre en nuestro ordenamiento jurídico. Por consiguiente, tampoco estimamos que concurra proporcionalidad.

Francamente, no sé cómo la Audiencia Provincial de Barcelona se pudo plantear la necesidad de formular esta cuestión prejudicial que no deja de ser una pregunta retórica (en esta misma línea parece ir el voto particular del Magistrado Forgas Folch). De haberse admitido a trámite la cuestión prejudicial (hasta donde he podido comprobar con el buscador del TJUE, no aparece entre los casos pendientes), la respuesta hubiera sido, como en el caso Cipolla, que es el órgano judicial nacional al que corresponde valorar los requisitos de necesidad y proporcionalidad establecidos por la normativa comunitaria (en el marco de una cuestión prejudicial el TJUE interpreta, pero no aplica). 

Por eso, creo que sería bueno que todos nuestros jueces y tribunales tengan un poco más claro que la cuestión prejudicial no está (y no debe servir) para tratar de quitarse una patata caliente de encima, sobre todo porque para cuando vuelva de Luxemburgo, estará más caliente…



This is not (well, yes) binding, but (maybe) you can disregard it. AG Kokott on soft law and EU competition policy

On 6 September 2012, AG Kokott issued her Opinion in case C‑226/11 Expedia Inc. The case is about the effects of soft law instruments adopted by the European Commission on other competition authorities and courts entrusted with the enforcement of EU Competition Law. Or, as the AG shortly puts it, the CJEU must decide if  the notices of the European Commission in the field of competition law are binding on the national competition authorities and the national courts.

The question has arisen in relation to the ‘de minimis notice’, in which the Commission sets out the circumstances under which it presumes that there is an appreciable restriction of competition within the meaning of Article 101 TFEU. Given the narrow scope of the question (ie whether the de minimis notice is binding), it is odd that the case has actually gone through, since the notice itself clearly indicates that "[a]lthough not binding on them, this notice also intends to give guidance to the courts and authorities of the Member States in their application of Article [101 TFEU]" (para. 4, emhasis added).

The answer should almost be automatic: "No, it is not binding". However, since most domestic EU rules (directly or indirectly, expressly or implicitly, willingly or reluctantly) incorporate the corpus of Commission's competition notices, the question becomes trickier than a mere literalist approach to the (originally) soft law instruments would suggest.

Therefore, as clearly indicated by the AG, given that the case affects the 'enforcement thresholds' for EU Competition rules, it can be seen as a matter involving the delineation of the scope of application of EU Competition Law: "The Court’s reply to the question referred will to a large extent determine the scope which the national competition authorities and courts will have in the future when applying Article 101 TFEU" (AG Kokott in C-226/11, at para 5).

However, the general framework in which the reference for a preliminary ruling by the French Cour de Cassation has been assessed by AG Kokott in Expedia relates to the broader topic of the legal nature and effects of soft law instruments in the area of EU Competition Law (and, more generally, on the topic of 'soft EU Law', although in most other policy areas it is much less used)--which oddly enough (and probably not unexpectedly), are in a fast and steep 'hardening' process that might as well end up equating them to full EU legislative instruments, at least in terms of their legal effects.

This topic is a personal favourite of mine, and one which is due to raise a myriad of cases in the decentralised system of (private) EU Competition Law enforcement (as discussed in Sánchez Graells, A., 'Soft Law and the Private Enforcement of the EU Competition Rules' in JL Velasco San Pedro (ed), Private Enforcement of Competition Law, Valladolid, Lex nova, 2011, p. 507-520,  http://ssrn.com/abstract=1639851).

Even if the wording of her opinion seems to adjust to the natural, automatic answer already hinted at:  "it must be concluded that the de minimis notice is not, of itself, intended to produce binding legal effects" (see AG Kokott in C-226/11, at paras. 26 to 34), actually, her position is almost the opposite. In my reading of her opinion, AG Kokott basically submits to the CJEU that Commission's notices are (somehow) binding on the national competition authorities and the national courts in that they must take them in due account when conducting competition analysis, but that authorities and courts can depart from the content of the notices as long as they prove in some way that the content of the notice is inadequate (in the case at hand)--which brings an onus of proof to the picture that seems to tilt the standard position to the Commission's soft law instruments indeed having (initial) binding effects.

This is a rather creative and flexible solution (which circumvents the standard position that soft law instruments cannot generate binding legal effects), for sure, but one that leaves many questions unanswered and that merits some further thought. In that regard, it is interesting to see how the AG reached her conclusion.

According to AG Kokott,

35. Although the de minimis notice has no binding legal effects, as I have just shown, it would be a mistake to regard it as of no importance at all in law for proceedings concerning cartels. Publications like the de minimis notice are in the nature of ‘soft law’ the relative importance (sic) of which in cartel proceedings, at the European and the national levels, should not be underestimated [...]

38. The Commission’s leading role, firmly anchored in the system of Regulation No 1/2003, in framing European competition policy would be undermined if the authorities and courts of the Member States simply ignored a competition policy notice issued by the Commission. It therefore follows from the duty of sincere cooperation which applies to all the Member States (Article 10 EC, now Article 4(3) TEU) that the national authorities and courts must take due account of the Commission’s competition policy notices, such as the de minimis notice, when exercising their powers under Regulation No 1/2003 [...]

39. [...] even though no binding requirements concerning the competition-law assessment of agreements between undertakings arise for national competition authorities and courts from the Commission’s de minimis notice, those authorities and courts must nevertheless consider the Commission’s assessment, as set out in the notice, of what constitutes an appreciable restriction of competition and must give reasons which can be judicially reviewed for any divergences (AG Kokott in C-226/11, at paras. 35-39, references omitted and emphasis added).

In my view, this is quite an amazing exercise of saying one thing and the opposite in the space of less than 10 paragraphs. Reading the conclusion suggested by AG Kokott, one is left scratching his head and thinking "so, no legal effects, huh?":

Consequently the national competition authorities and courts are free to proceed against agreements between undertakings below the thresholds of the de minimis notice, provided that they have taken due account of the Commission’s guidance in the notice and that, in the particular case, there is evidence, other than the market shares of the undertakings concerned, which suggests that the effect on competition is appreciable (AG Kokott in C-226/11, at para. 43, emphasis added).

I think that this is a very dangerous step that follows the rocky path of attaching (soft!) legal effects to soft law instruments, and I sincerely hope that the CJEU will only follow the position advanced by AG Kokott in paragraphs 26 to 34 of her Opinion in Expedia. More specifically, the preferable answer to the reference for a preliminary ruling by the French Cour de Cassation would be very short: "[a]s the Court has found in another connection, Commission notices in the area of EU competition law do not have binding legal effect for national authorities and courts. That is so also in the present case with regard to the de minimis notice" (AG Kokott in C-226/11, at para. 26). Any other answer will open a Pandora's box.

An interesting reminder on institutional culture and public service commitment: First speech by Clive Maxwell, new OFT's Chief Executive

The new Chief Executive of the Office of Fair Trading, Clive Maxwell, gave his first speech on 10 September 2012 at the RPI Annual Competition and Regulation Conference (http://www.oft.gov.uk/shared_oft/speeches/2012/0612.pdf). Even if he will only hold this post for about two years due to the already launched and significant reform of the UK's competition enforcement bodies (ie the establishment of the Competition and Markets Authority, which will take on the competition, markets and remaining consumer functions of the OFT plus all of those of the Competition Commission), I think that his speech is an interesting reminder of institutional culture and public service commitment that deserves praise and diffusion.

One of the keys to a strong delivery culture is to invest in people and their skills. Only then can we efficiently deliver high impact, outcomes across our portfolio. This is a critical issue not just for the OFT but for regulators more generally, and one that may get overlooked in the rush to discuss processes and procedures

I care about how we choose what we do, how we achieve change for the better in the real world most efficiently and effectively.

I led an ‘enforcement debate’ at the start of 2012 within the OFT, to identify what we at the OFT do well and less well, and the challenges we face in doing it even better. We also discussed these issues with similar bodies in the UK and abroad. I was especially struck that we need to look outside the competition and consumer community and more generally at the way in which other authorities – such as the FSA, the Serious Fraud Office and Her Majesty’s Revenue and Customs – tackle what are broadly similar challenges in addressing wrongdoing by businesses and individuals.

The conclusions to this work included three points:

• The importance of skills.

• The need for the right attitude –or culture– for successful enforcement work.

• The importance of intelligence.

What does this all show?For me, there are three important points to all of this.
The first is that while it is right that any agency needs to work hard at its processes and procedures, the skills and culture of the people in the organisation is at least as important. I believe that some of the potential for sharing such ideas between authorities remains to be exploited further. It is also the case that tackling this requires putting your money where your mouth is – skills development is an investment and it is important to recognise that this costs money. [...]
The second is that even where we are facing big organisational changes and uncertainty it is important to continue to invest time and effort doing things better. [...]
The third is that in running agencies such as the OFT it’s really important to continue to review how we do things, to experiment where needed, and to learn lessons from our own and others’ experiences. 

I hope that the observations I have made have some relevance to the challenges your organisations are facing. For me, delivery is about people and commitment, as well as processes, and we must not forget that our staff are the major driver of our organisations’ success

I think that this is a reflection of the instutional culture present in most market regulators (broadly understood) in the UK, and an important ingredient in the recipe for a smooth transition to the new institutional framework for competition law enforcement.

It seems to me too that there are many lessons to be learned by other competition authorities immersed in enforcement architecture redesign, such as the Spanish National Competition Commission–which remains in a state of shock since a reform similar to the UK's was hinted at in the last Spring.

Distinguishing 'lawyers' and 'legal advisors': The CJEU has its say: It all rests on independence

In its Judgment of 6 September 2012 in Joined Cases C‑422/11 P and C‑423/11 P - Prezes Urzędu Komunikacji Elektronicznej and Republic of Poland v European Commission, the Court of Justice of the EU (CJEU) has faced the tricky question of whether 'legal advisors' are qualified to represent clients before the EU Courts on equal footing with 'lawyers'.

In some Member States this discussion can be moot, since there is no distinction between 'legal advisors' and 'lawyers' (and all legal professionals must belong to the same bar, and are usually considered lawyers regardless of their actual role or of whether they ever appear in court). However, in countries where there is a distinction between both professions (such as in Poland or Denmark), or where there is a similar distinction under other names (such as the distinction between barristers and solicitors in the UK, although it is growing increasingly diffuminated), this issue may be highly relevant.

In the case at hand, a Polish entity was represented before the European General Court by its in-house legal advisors (not lawyers), which had an employment relationship with the entity. The GC considered that this fell short from the requirement in Article 19 of the Statute of the Court of Justice of the European Union of being represented by a 'lawyer' and, consequently, dismissed the action as inadmissible.

In view of the GC, it was irrelevant that the professionals where formally qualified as 'legal advisors' rather than 'lawyers', but the disqualifying circumstance for them to represent the entity lied in 'the existence of a subordinate relationship within the [entity] – even if only to its Director General – when their sole function is to assist [it], [which] implies a degree of independence less than that of a legal adviser or a lawyer practising in a firm that is external to their client.' (GC Order in case T-226/10 Prezes Urzędu Komunikacji Elektronicznej v Commission, at para. 21, emphasis added).

The CJEU has concurred with the GC and has insisted on the basic elements of the profession of a 'lawyer' under EU Law. In my opinion, it is worth highligting that

23. [...] the conception of the lawyer’s role in the legal order of the European Union, which is derived from the legal traditions common to the Member States, and on which Article 19 of the Statute of the Court of Justice is based, is that of collaborating in the administration of justice and of being required to provide, in full independence and in the overriding interests of that cause, such legal assistance as the client needs (see, to that effect, Case 155/79 AM & S Europe v Commission [1982] ECR 1575, paragraph 24; [Case C-550/07 P Akzo Nobel Chemicals and Akcros Chemicals v Commission and Others], paragraph 42; and [Joined Cases C-74/10 P and C-75/10 P EREF v Commission] , paragraph 52).

24. The requirement of independence of a lawyer implies that there must be no employment relationship between the lawyer and his client (see EREF v Commission, paragraph 53 and the case-law cited). As the General Court correctly held at paragraph 18 of the contested order, the concept of the independence of lawyers is determined not only positively, that is by reference to professional ethical obligations, but also negatively, that is to say, by the absence of an employment relationship (Akzo Nobel Chemicals and Akcros Chemicals v Commission, paragraph 45).

The CJEU also clarified that adopting this interpretation is not in breach of Member States' competences for the regulation of the legal professions--even if, indeed, in the absence of specific EU rules in the field, each Member State is free to regulate the exercise of the profession of lawyer in its territory and, therefore, the rules applicable to that profession may differ substantially from one Member State to another. The CJEU saved this obstacle by considering that

34. Although, as noted in paragraph 23 [...] the conception of the lawyer’s role in the legal order of the European Union derives from the legal traditions common to the Member States, in the context of disputes brought before the Courts of the European Union, that conception is implemented objectively and is necessarily independent from the national legal orders.

This generates a logic puzzle, since it is for Member States to determine who qualifies as a 'lawyer' under their national laws in the first instance, and generates a worrying pressure for potential reform in those Member States where some legal professionals face the difficulty of being qualified to represent clients under national law, but unable to appear before the EU Courts due to this additional independence requirement.

A different reading could be that, in view of the concept of 'lawyer' under EU Law, all legal professionals that do not meet the stated independence requirements should not be called 'lawyers' and, consequently, that all Member States may now face pressure to distinguish between 'lawyers' and 'legal advisors' in their domestic rules governing the legal professions.

Either way, in my view, the Judgment of the CJEU in Prezes Urzędu Komunikacji Elektronicznej can be seen as an uncomfortable reminder that the harmonisation of the rules governing the legal professions in the EU are still a pending item in the creation of a truly unified European Legal / Judicial Space, and that more efforts will be needed in this area in the coming years.

Public buyers will self-protect against bid rigging

Another of the interesting developments included in the compromise text that reflects the current status of negotiations for the modernisation of  EU public procurement rules (http://tinyurl.com/modernisationcompromise) is the inclusion of a new Article 54(3) that clarifies that tenderers affected by any grounds for exclusion can be disqualified by contracting authorities at any time:

Contracting authorities may at any moment during the procedure exclude an economic operator where it turns out that the economic operator in question is, in view of acts committed either before or during procedure, in one of the situations referred to in Article 55(1) to (3).

This is a relevant clarification that prevents a rigid interpretation that would have limited the possibility to exclude tenderers at the beginning of the procurement process (ie only at selection stage).

Notwithstanding the above, and maybe most interestingly, this provision is coupled with a new Article 55(3)(d) in virtue of which a tenderer can be excluded

where the contracting authority can demonstrate that the economic operator has entered into agreements with other economic operators aimed at distorting competition.

This is an important development in terms of reducing the impact of bid rigging on procurement, which stresses the need for contracting authorities to cooperate closely with competition watchdogs (both at regional and national levels, and with the European Commission's Directorate General for Competition) and that opens the door to potential difficulties in terms of due process (eg what is the burden of proof to be discharged by contracting authorities?) and an eventual conflict of enforcement competences (both by administrative bodies and in terms of judicial review, particularly where competition matters are assigned to specialised courts).

Therefore, when the time to transpose Articles 54 and 55 of the new Directive (if adopted in the terms of the compromise text) comes, it will be interesting to revisit the institutional architecture of procurement authorities to ensure the appropriate collaboration channels with antitrust authorities (on this, see A Sanchez Graells, Public Procurement and the EU Competition Rules [2011] Hart Publishing 381-389).

What is wrong with the principle of competition in procurement? Back to the non-discrimination rhetoric

Much to my disappointment, one of the changes included in the compromise text that reflects the current status of negotiations for the modernisation of  EU public procurement rules  is a change of wording in Article 15 of the proposal for a new Directive replacing 2004/18(http://tinyurl.com/modernisationcompromise).

According to the initial proposal, that provision dedicated to the 'Principles of procurement' read: "Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate way. The design of the procurement shall not be made with the objective of excluding it from the scope of this Directive or of artificially narrowing competition" (emphasis added). In my view, this was an excellent development of EU public procurement rules.

As I said some months ago (Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? A View on Proposals to Lower that Barrier and Spur Growth: http://ssrn.com/abstract=1986114), it seemed to be getting clearer and clearer that market integration in procurement must go hand in hand with promoting and protecting effective competition for public contracts, and the drafting of Article 15 of the proposal for a new Directive finally overcame some difficulties in the development of EU procurement rules--which still suffer the problem of being excessively focused on preventing discrimination based on nationality (which has overshadowed other discrimination problems, protectionist policies and competition restrictions and distortions in European public procurement; Public Procurement and the EU Competition Rules [2011] Hart Publishing 108-110 and 212-219)—although a broader objective of fostering competition on the basis of fair and open access to procurement (not only for bidders from different Member States) can be identified in Directive 2004/18 and is further reinforced in the proposed new procurement Directive.

Now, with the compromise text, we go back to square zero and the non-discrimination rhetoric, since the new drafting of Article 15 reads: "Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner that avoids or remedies conflicts of interest and prevents corrupt practices. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of unduly favouring or disadvantaging certain economic operators or certain works, supplies or services" (emphasis added).

In my view, this is a step back in the modernisation of the EU procurement system and I cannot see what would be wrong with the consolidation of the principle of competition in the text of the Directives, since it is a general principle of EU Law already explicitly recognised in the field of public procurement (The Principle of Competition Embedded in EC Public Procurement Directives, http://ssrn.com/abstract=1928724) and that provides a fantastic analytical framework on which to develop welfare-enhancing public procurement rules and practice.

Therefore I would personally like to see the text of the intial proposal reinstated in Article 15 of the new Directive. Otherwise, there will still be scope for (apparently) non-discriminatory restrictions of competition in public procurement, and that would only result in losses of economic welfare for EU citizens [Distortions of Competition Generated by the Public (Power) Buyer: A Perceived Gap in EC Competition Law and Proposals to Bridge It http://ssrn.com/abstract=1458949].

Goodbye to the European Procurement Passport: Hello false claims and/or criminalisation rules?

According to the UK Cabinet Office's latest Progress Update on the Modernisation of the EU Procurement Rules  (http://tinyurl.com/modernisationupdate), the creation of a new European Procurement Passport (EPP) that the Commission had included in the December 2011 proposal for the modernisation of Directive 2004/18 has been dropped from the compromise text (http://tinyurl.com/modernisationcompromise).

This should be seen as a welcome development, since it will finally not increase the red tape involved in public procurement procedures (as anticipated in my  Are the Procurement Rules a Barrier for Cross-Border Trade within the European Market? A View on Proposals to Lower that Barrier and Spur Growth: http://ssrn.com/abstract=1986114).

Indeed, as the Cabinet Office stresses, since the information to be included in the EPP is now largely going to be provided by self-declaration with only the winning bidder submitting the documentary evidence (in case the rules of art 57 in the compromise text hold the rest of the EU legislative process), it now seems an unnecessary administrative burden.

However, it should be stressed that self declarations still present some issues, due to the risk of strategic behaviour on the part of bidders. Failure to submit the supporting evidence regarding the information included in a self-declaration is configured exclusively as a (discretionary) exclusion ground under Article 55(3)(f) of the compromise text (which comes to replace the suppressed provisions in article 68 of the December 2011 proposal), in the following terms:

Contracting authorities may exclude or may be required by Member States to exclude from participation in a procurement procedure any economic operator in any of the following situations: [...] (f) where the economic operator has been guilty of serious misrepresentation in supplying the information required for the verification of the absence of grounds for exclusion or the fulfilment of the selection criteria, has withheld such information or [is] not able to submit the supporting documents required pursuant to Article 57;

This is in, my opinion, the proper treatment of this circumstance (and clearly better than its treatment as a 'mere' awarding impediment, as initially proposed by the Commission). However, I think that it is worth stressing that this rule still leaves excessive uncovered risks in case of strategic behaviour by non-compliant bidders that would require second or ulterior awards (with the corresponding difficulties regarding the need to ensure that other bidders keep their offers open, new award notices, etc). Even if the buying body can (self)protect its interests by excluding the tenderer [and, possibly, by pushing for an extended exclusion from all procurement procedures, depending on the national rules on debarment--which will need to be developed to implement art 57(4) of the compromise text] there is a risk of uncompensated damages and, implicilty, scope for criminal proceedings for fraud (or related) offences.

Therefore, I still think that it is necessary to strengthen the consequences of failing to produce supporting evidence for the self-declarations (and, more generally, of providing false information), which should not only be a ground for exclusion, but also be reinforced by rules that set it as a head of damage that allowed contracting authorities to recover any additional expenses derived from the need to proceed to a second-best, delayed award of the contract (without excluding the eventual enforcement of criminal law provisions regarding deceit or other types of fraud under applicable national laws). Also, rules on annulment of the awarded contract and other sanctions are needed for those instances where the discovery of the falsity of the documents occurs after contract award, when exclusion does not seem to be an apropriate remedy.

Technical neutrality in procurement, life cycle costs and environmental considerations: the acceptability of supplying reused or repared goods (in Spain)

In times of crisis, the opportunity to achieve (short-term) savings by procuring reused or repared goods (such as refilled ink and tonner cartridges for printers and photocopiers, for instance) may have a particular appeal to public buyers facing significant budgetary constraints.

At first look, such a procurement strategy may also seem to support environmental goals (as there could be some environmental savings implied in 'reusing'), but such a claim may require further scrutiny from a life cycle costing perspective (since refilling could be conducted in more polluting conditions than the manufacturing of new products, or 'refillers' may not recycle the used cartridges once they have been used up, whereas 'original producers' may have implemented an environmental quality control system that guaranteed full collection and recycling of used cartridges). The impact of the reused products on the maintenance cost or durability of equipment (if any) should also be taken into consideration.

Also, from the perspective of drafting the technical specifications, public buyers should be careful to respect the mandate of 'technical neutrality' in the current EU rules, which would prevent them to restrict the supply to either only new or only reused supplies (cartridges, in our example) on the exclusive basis of product performance (as long as there is no clearly identifiable performance-related difference between the two types of products).

Therefore, desigining a strategy to buy reused or repared goods deserves some careful consideration on the part of the responsible procurer. The same care should be exercised if, for some reason (hopefully not only lobby efforts by 'original producers'), the public buyer decides to resort to the supply of 'original' or 'new' products only.

In that regard, I find interesting (and worrying) the Spanish Central Administrative Tribunal of Contractual Appeals (Tribunal Administrativo Central de Recursos Contractuales, ‘SCATCA’) Resolution No. 83/2012 of 30 March 2012 in case Caro Informática, S.A. v FREMAP (Supply of IT consumables). In that case, the contracting authority had excluded in the tender specifications the possibility to be supplied reused or repared IT consumables (more specifically, refilled tonner cartridges). Caro Informática (a 'refiller') challenged the tender documents on the basis that they violated the mandate of technical neutrality and ran contrary to the requirements of competition laws (for which it found support in the Spanish National Competition Commission's 'Guide on Competition and Procurement'), and that they were at odds with stated public austerity goals.

Following a very formalistic reasoning (and expressly disregarding the recommendations of the NCC's Guide as 'irrelevant to decide on the merits of the case'), SCATCA found that the contracting entity had not abused its administrative discretion in determining that only 'original' or 'new' supplies (or equivalent, sic) could be offered. It did not scrutinise the reasons behind the decision, or whether technical, life cycle or environmental considerations supported it--but rather adopted an economic reasoning that sounds protectionist of 'original manufacturers' and, actually, restrictive of competition.

In this regard, it is worth emphasising the counterintuitive logic followed by SCATCA (which seems to put itself in the position of a court faced with unfair competition rather than public procurement claims):

[... accepting the supply of reused or repared goods where the tender documents do not expressly allow for them] "would be a contradiction to the basic principles of public procurement under free competition and non-discrimination, and would place some bidders at a disadvantage, since the use of used parts for the production of goods clearly influences the cost structure thereof, which allows [reusers] to submit lower offers. Accordingly, the acceptance of tenders for goods incorporating used parts must be expressly stated in the contract documents. (SCATCA Res. No. 83/2012 at para. 6).

In my opinion, this is a bad decision in an hot area where contracting authorities must adopt difficult decisions that may have a significant impact in the market and in the environment. Therefore, it would be desirable to depart from this type of formalistic (and protectionist) analysis and to encourage public buyers to make more in-depth impact assessments of the opportunity to acquire reused or repared supplies, since that would in many cases be appropriate, and could make an important contribution to reducing the impact of the economic crisis on the actual levels of public services and administrative activity--as well as contributing to the implementation of effective green procurement goals.

Back to work, but covered with email

I guess everybody will be in the same situation. New posts coming soon, right after cleaning the inbox and getting updated on summer developments ... Thank you for your patience!

Happy summer holidays

How to Crack a Nut will be back on 20 August 2012, hopefully with renewed energies for the last quarter of this intense year. In the meantime, happy holidays to everyone!

Any State aid implications in Ofcom's 4G auction?

Ofcom has unveiled its plans for 4G auction of the airwaves--which will be the largest ever auction of spectrum for mobile services in the UK--laying the path for next-generation 4G networks to be rolled out in 2013 and fully implemented by 2017 (see Ofcom's press release: http://tinyurl.com/Ofcom4Gauction).

The auction process seems well designed from the standpoint of a competition lawyer completely foreign to technical issues, particularly because Ofcom has reserved a lot for a relatively small player or new entrant in the UK mobile telephony market, so that consumers benefit from future competition between four credible service providers rather than the current three (see relevant documents for the planned 4G auction: http://tinyurl.com/Ofcom4Gauctdocs).

However, such a complicated regulatory scheme--whereby Ofcom is shaping future competition in the UK communications industry--must not only tackle the complex issue of the number of licenses tendered and the foreseeable sizes (and relative strengths) of tenderers, but also the matter of ensuring universal access (or a public service obligation) to the next mobile telephony networks. Ofcom has decided to do so by earmarking one of the lots (actually, a "double-sized lot", since there are four "regular" lots numbered 1 to 4 and the earmarked lot is "5 & 6") for the imposition of a coverage obligation.

In terms of the draft license for lot "5 & 6", the coverage obligation implies that the licensee shall by no later than 31 December 2017 provide, and thereafter maintain, an electronic communications network that is capable of providing, with 90% confidence, a mobile telecommunications service with a sustained downlink speed of not less than 2 megabits per second when that network is lightly loaded, to users at indoor locations in an area within which at least: a) 98% of the population of the United Kingdom lives, and b) 95% of the population of each of England, Wales, Scotland and Northern Ireland lives.

Given the undertaking of such coverage obligation by the awardee of lot "5 & 6", that licence is planned to be tendered at a significantly reduced reservation price of basically 55.56% of the reservation price for a "regular" licence (which has half the bandwith)--with an implicit "discount" of £200 million.

The relevant issue from the State aid perspective and, particularly, concerning compliance with Articles 106(2) and 107 TFEU is whether that difference in license reservation prices (rectius, of the prices finally paid by licensees as a result of the 4G auction) does not amount to an excessive compensation of the public service obligation (ie coverage obligation) attached to lot "5 & 6".

On the one hand, a formalistic approach to this issue could be simply accept that, in the absence of anomalies in the tendering process, the design of the 4G auction in open and competitive terms suffices to exclude any element of aid because the "pro-competitiveness" of the mechanism would warrant that the award reflects (competitive) market conditions (in an "inverse" reading of the fourth condition in the ECJ's Judgment in Altmark--on which see my critical considerations at http://ssrn.com/abstract=2071655).

On the other hand, a refined and materially-oriented approach would allow for the scrutiny of the difference in actual prices paid for a "regular" 4G license (double its price, actually) and the license with coverage obligation (lot "5 & 6")--to see whether it implied any potential excessive remuneration to the universal access provider. In that regard, it may be useful to take into account that Ofcom has commissioned and published a study on the "Methodologies used for the analysis of costs relating to a coverage obligation" (available at http://tinyurl.com/Ofcom4Gmethod). Nonetheless, this methodological study does not offer an aggregate total cost of the coverage obligation, which is dependent on the pre-existing infrastructure of the future licensee.

However, the study "Spectrum value of 800MHz, 1800MHz and 2.6GHz" by DotEcon and Aetha (also commissioned by Ofcom and available at http://tinyurl.com/Ofcom4Gmoneys) has estimated the impact of the coverage obligation in the (broad) bracket of between £100 to £400 million (although some operators submitted higher cost estimates). Even if the cost could be reduced by Ofcom if pre-auction mobile coverage was extended by means of additional public investments, and based on the information supplied by potential bidders in the auction, the DotEcon and Aetha study considers that:

There seems to be significant room (and difficulty) in determining the actual cost of the coverage obligation imposed upon the future licensee of lot "5 & 6" in the UK 4G auction. However, there is exacty the same room for potential overcompensation of such universal access / public service obligation--which would infringe Articles 106(2) and 107 TFEU.

Hence, special care seems to be needed on the part of Ofcom at the end of the auction and prior to the award of the licenses, whereby it may want to include a condition in the award procedure (or licence terms) that allows it to require additional payments by the initial awardee of lot "5 & 6" in case the price differential with (double) the cheapest (or more expensive, if a lenient approach is preferred, or average) "regular" 4G licence indicates that there is excessive compensation for the coverage obligation.

Be it as it may, it seems clear that there are potential State aid implications in the UK's 4G auction as designed by Ofcom, which will be an interesting case study once the final prices for "regular" and coverage obligation licenses are set.

A reasonable estimate of the cost of a 98% population coverage obligation should range from £100m to £400m as the cost estimate provided by Vodafone (and supported by O2) of £540m may not reflect the cost of meeting the coverage obligation by an operator with a well maintained, efficient network: John Cresswell of Arqiva estimated that the [98%] coverage obligation will cost around £200m to £230m, with Guy Laurence of Vodafone stating that a further £140 million in operating expenditure would be required to achieve 99% coverage (emphasis added; please note that £200 million is precisely the implicit discount in the reduced reservation price for lot "5 & 6").

Do unto others... The CJEU juggles with the presumption of control through ownership

In its Grand Chamber Judgment of 19 July 2012 in case C‑337/09 P Council v Zhejiang Xinan Chemical Industrial Group (Xinanchem), the CJEU has analysed the potential difference between 'State control' through ownership of an undertaking with corporate form and the exercise of 'significant State interference' in the economic decisions adopted by such undertaking. 

In Xinanchem, the CJEU has endorsed the antiformalistic approach taken by the GC in the appealed Judgment, and has rejected the assumption that by holding the largest number of shares and appointing the majority (actually, the entirety) of the members of the Board of Directors of a company China exercised 'significant State interference' in the market activities of that undertaking for the purposes of EU anti-dumping legislation. According to the CJEU:

State control, such as that observed in the present case [where the distribution of the shares allowed the State shareholders to control the undertaking], cannot be equated, as a matter of principle, to ‘significant State interference’ within the meaning of the first indent of Article 2(7)(c) of [Council Regulation (EC) No 384/96 of 22 December 1995 on protection against dumped imports from countries not members of the European Community, as amended by Council Regulation (EC) No 461/2004 of 8 March 2004] and cannot therefore relieve the Council and the Commission of the obligation to take into account the evidence, submitted by the producer concerned, of the real factual, legal and economic context in which it operates (Xinanchem at para. 78).

Although some parts of the (literal) reasoning of the CJEU in Xinanchem remain obscure or tautological and, therefore, open to criticism ["the use of the word ‘interference’ indicates that it is not sufficient that a State may have a certain amount of influence over those decisions, but implies actual interference (sic) in them" Xinanchem at para. 80]; the adoption of such antiformalistic criterion, which clearly advocates for a free(r) and holistic appraisal of all factors determining whether the company actually reacts to market signals or stimuli, must be welcome.

However, one is left scratching the back of his head when comparing this approach with the rather more formalistic presumptions of control through ownership existing in other areas of EU economic law, such as competition law (where parental liability is subjected to a much stricter and formal test, as reminded on the same date in Judgment in case C-628/10 P Alliance One International and Standard Commercial Tobacco v Commission at para. 46, regardless of the presumption being rebuttable) or public procurement (in the particular issue of the excpetion for so-called in-house provision, following the well-known Teckal criteria of its Judgment in case Case C-107/98, and its ulterior refinements). 

This seems to me rather as a (broad) area of EU economic law where further consistency is necessary because, according to the current state of the case law, we face a counterintuitive (and most likely unintended) situation where foreign undertakings controlled by foreign States may have more flexibility to demonstrate lack of effective control or influence (and hence, to gain liberty in their market activities) than domestic (ie European) undertakings. Not to sound protectionist, but this inconsistency in EU economic law seems difficult to stomach, particularly in this day and age.

How precisely must evaluation rules be described in procurement documents? According to the GC, not that precisely

In yet another public procurement case derived from a complaint by the Greek company Evropaïki Dynamiki, the General Court has analysed the issue of the degree of precision required in the description of evaluation methods for contract award purposes in its Judgment of 12 July 2012 in case T-476/07 Evropaïki Dynamiki v Frontex.

Regarding the degree of precision in the publication of the award criteria and the evaluation methods to be used by the contracting authority, the GC has adopted a lenient approach that seems questionable, since it may result in leaving excessive discretion in the hands of evaluation teams. It is worth stressing that the GC in Frontex considers that:

the fact that a precise scale of the calculation of the tenders with regard to that award criterion [multiplication of efficiency by effectiveness] was not given cannot constitute a breach of the tendering specifications consisting in the introduction, by the contracting authority, of a new award criterion. The calculation used to arrive at a well defined score does not constitute an evaluation criterion of the proposed hypothetical IT solution, but rather a consequence of that evaluation (case T-476/07, at para 106, emphasis added).

This seems to me as a highly controversial finding, which may run contrary to the case law of the Court of Justice of the EU, particularly in Lianakis (C-532/06 [2008] ECR I-251), where the CJEU clearly indicated that it is settled case law that: "potential tenderers should be aware of all the elements to be taken into account by the contracting authority in identifying the economically most advantageous offer, and their relative importance, when they prepare their tenders" and that "[p]otential tenderers must be in a position to ascertain the existence and scope of those elements when preparing their tenders" (paras 36 and 37, emphasis added). Even further, the CJEU stressed that "tenderers must be placed on an equal footing throughout the procedure, which means that the criteria and conditions governing each contract must be adequately publicised by the contracting authorities" (para 40, emphasis added).

If evaluation methods do not include the scales to be used by evaluation teams when they assess the tenders submitted by bidders, it is hard to see how all transparency requirements will be made operational and how applicants can effectively tailor their offers to the actual (preferred) requirements of the contracting authority or entity. 

Unless there is a good overriding reason to keep the evaluation methodologies and scales secret or undefined in contract notices and documents, it seems clearly desirable that evaluation methods AND scales are published and available to bidders when preparing their tenders. In the end, it is not very useful to know that your tender will be assessed under a criterion of 'efficiency' or 'effectiveness' if there is no indication whatsoever how such requirements will be operationalized by the evaluation team. 

Therefore, I think that the position of the GC in Frontex clashes with the more general case law highlighted by the CJEU in Lianakis, and that Frontex reflects a too lenient approach towards unjustified restrictions in the transparency of evaluation tools and procedures in public procurement. 

In this regard, it seems desirable that the current revision of the EU Directives further details the obligations of contracting authorities to specify evaluation methods and scales in contract notices (e.g. in article 66 of the proposal for a Directive replacing 2004/18).

Another step back in the definition of (public) undertakings for the purposes of EU competition law

Earlier this year, Advocate General  Jääskinen issued his opinion in case C‑138/11 Compass-Datenbank GmbH v Republik Österreich, and I criticised his approach here (in Spanish). The Court of Justice of the EU issued his final Judgment last 12 July 2012 and has substantially followed AG Jääskinen's approach in deciding that

[...] the activity of a public authority consisting in the storing, in a database, of data which undertakings are obliged to report on the basis of statutory obligations, in permitting interested persons to search for that data and/or in providing them with print-outs thereof does not constitute an economic activity, and that public authority is not, therefore, to be regarded, in the course of that activity, as an undertaking, within the meaning of Article 102 TFEU. The fact that those searches and/or that provision of print-outs are carried out in consideration for remuneration provided for by law and not determined, directly or indirectly, by the entity concerned, is not such as to alter the legal classification of that activity (Compass-Datenbank at para. 51).

In my view, the position of the CJEU in Compass-Datenbank is another step in the wrong direction when it comes to applying the concept of 'undertaking' for the purposes of competition law to public bodies developing (actual) economic activities--which follows the already criticised approach in FENIN (C-205/03 P, 11 July 2006) and Selex (C-113/07-P, 26 March 2009) [see http://ssrn.com/abstract=1458949].

Just like it did in FENIN and in Selex, in Compass-Datenbank the CJEU has adopted an economically unsound approach towards the definition of 'economic activity' by finding that:

In the light of the entirety of that case-law, it must be observed that a data collection activity in relation to undertakings, on the basis of a statutory obligation on those undertakings to disclose the data and powers of enforcement related thereto, falls within the exercise of public powers. As a result, such an activity is not an economic activity.

Equally, an activity consisting in the maintenance and making available to the public of the data thus collected, whether by a simple search or by means of the supply of print-outs, in accordance with the applicable national legislation, also does not constitute an economic activity, since the maintenance of a database containing such data and making that data available to the public are activities which cannot be separated from the activity of collection of the data. The collection of the data would be rendered largely useless in the absence of the maintenance of a database which stores the data for the purpose of consultation by the public (Compass-Datenbank at paras. 40 and 41, emphasis added).

In my view, this reasoning falls again in the deffect (or misleading argument) of pegging an activity that is clearly economic (ie maintenance and exploitation of the database) to a non-economic activity (creation of the database by mandatory disclosure and reporting) and considering them non-separable despite the fact that there is no technical or economic hurdle to do so. It is quite telling that the CJEU does not provide any reasons for the finding that the creation of the database and its ulterior economic exploitation 'are activities which cannot be separated'.

Reality seems to indicate otherwise, and there are several Member States (like Spain), where private companies successfully use the databases created by public authorities or chambers of commerce as a result of the mandatory disclosure and reporting of corporate statements and accounts--and there is no clear technical or economic barrier for this market not to flourish in Austria or any other country. Some additional facts or arguments on the non-separability of the activities would have been extremely desirable in order to understand the reasoning behind the CJEU's decision in Compass-Datenbank (which, in my opinion, results exclusively from the hands-off approach the CJEU has been keeping for too long in connection with the antitrust treatment of public undertakings).

The position of the CJEU is equally criticisable when it comes to disregarding the expliotation of IP rights by public entities as an instance of 'economic activity' for the purposes of EU competition law. In its very broad terms, the position in Compass-Datenbank equates to a blank exclusion of public IP-related activities from competition scrutiny, as the Court found that:

[...] a public entity which creates a database and which then relies on intellectual property rights, and in particular the abovementioned sui generis right, with the aim of protecting the data stored therein, does not act, by reason of that fact alone, as an undertaking. Such an entity is not obliged to authorise free use of the data which it collects and make available to the public. [...] a public authority may legitimately consider that it is necessary, or even mandatory in the light of provisions of its national law, to prohibit the re-utilisation of data appearing in a database such as that at issue in the main proceedings, so as to respect the interest which companies and other legal entities which make the disclosures required by law have in ensuring that no re-use of the information concerning them is possible beyond that database  (Compass-Datenbank at para. 47, emphasis added). 

Once again, this does not make any functional sense. If the whole purpose of collecting and disseminating the corporate information in the first place is to guarantee that third parties dealing with the undertakings concerned have reliable access under reasonable economic conditions to information that may be crucial for their dealings and market activities, identifying a public interest in keeping the use of such information limited is simply a non sequitur. Therefore, there does not seem to be a good justification for the exclusion of IP rights' exploitation as an economic activity as such either.

Finally, the CJEU enters into a circular reasoning when it comes to appraise whether the fact that the public body obtains revenues makes any difference in the analysis:

The fact that the making available of data from a database is remunerated does not have any bearing on whether a prohibition on the re-use of such data is or not economic in nature, provided that that remuneration is not itself of such a nature as to enable the activity concerned to be classified as economic [...]. To the extent that the remuneration for the making available of data is limited and regarded as inseparable from it, reliance on intellectual property rights in order to protect that data, and in particular to prevent its re-use, cannot be considered to be an economic activity. Such reliance is, accordingly, inseparable from the making available of that data (Compass-Datenbank at para. 49, emphasis added).

Some questions spring to mind as to how to determine at which point remuneration for any services alter their classification from a non-economic (ie free?) to an economic (ie profit-making) activity. Other than that, if the generation of revenue depends on its source for the purposes of determining whether the revenue-generating activity is economic or not, then it is not a separate criterion and this type of circular reasonings should be avoided to prevent unnecessary confusion in the CJEU's case law.

In short, in my opinion, the position of the CJEU in Compass-Datenbank  simply defies the economic rational underlying the functional approach towards the concept of undertaking in the previous case law--which defines it as any entity that carries out an 'economic activity', regardless of its legal nature and source of financing. If 'economic activities' are not properly identified (as in FENIN, Selex and, now, Compass-Datenbank), the concept of 'undertaking' becomes unjustifiedly narrow and leaves unscrutinised public (actually economic) activities that raise significant competition law concerns (in the Compass-Datenbank due to the existence of a legal monopoly that excludes the existence of competition in the market for company information services). One cannot avoid wondering whether the analysis of the situation under the 'essential facilities doctrine' in Microsoft (Case T-201/04, 17 September 2007) would offer the same results (ie whether similar actions by a private undertaking would qualify as 'economic activities' and, hence, trigger tough antitrust intervention).

In conclusion, simply, I consider the recent Judgment of the CJEU in Compass-Datenbank  another step back in the definition of (public) undertakings for the purposes of EU competition law.

A further step towards effective free movement of corporations

In its Judgement of 12 July 2012 in case C-378/10 VALE Építési Kft. (http://tinyurl.com/CJEUVale), the Court of Justice of the EU has extended its doctrine on the applicability (and limits) of the freedom of establishment (and movement) of corporations in cases of conversion (ie the changing of the seat of a company, together with the national law applicable to it). 

In my view, VALE goes further than the prior string of case law in Centros (Case C-212/97, 9 March 1999), Überseering (Case C-208/00, 5 November 2002), and Inspire Art (Case C-167/01; 30 September 2003) but follows the same logic of dismantling domestic corporate law systems based on connection points closely linked to the "real seat theory"; and pushes strongly in favour of mutual recognition of corporate forms (and, potentially, for harmonisation of the regulation of a true 'standard' EU corporation or partnership).

In VALE, the CJEU notes that, in the absence of a uniform definition of companies in EU law, companies exist only by virtue of the national legislation which determines their incorporation and functioning. Thus, in the context of cross-border company conversions, the host Member State may determine the national law applicable to such operations and apply the provisions of its national law on the conversion of national companies that govern the incorporation and functioning of companies. However, national legislation in this area cannot escape the principle of the freedom of establishment from the outset and, as a result, national provisions which prohibit companies from another Member State from converting, while authorising national companies to do so, must be examined in light of that principle (paras. 27 to 33).

In conducting that analysis, the CJEU has found that "in so far as the national legislation at issue in the case in the main proceedings provides only for conversion of companies which already have their seat in the Member State concerned, that legislation treats companies differently according to whether the conversion is domestic or of a cross‑border nature, which is likely to deter companies which have their seat in another Member State from exercising the freedom of establishment laid down by the Treaty and, therefore, amounts to a restriction with the meaning of Articles 49 TFEU and 54 TFEU" (para. 36, emphasis added). Moreover, "differences in treatment depending on whether a domestic or cross‑border conversion is at issue cannot be justified by the absence of rules laid down in secondary European Union law. Even though such rules are indeed useful for facilitating cross-border conversions, their existence cannot be made a precondition for the implementation of the freedom of establishment" (para. 38, emphasis added). 

Therefore, it seems cleat that the CJEU once again uses the principle of non-discrimination on the basis of nationality as a lever to push for new developments in EU company law (even in cases where there is limited cross-border effect because only one small company is concerned, and a matter of principle).

In the remainder of the VALE Judgment, the CJEU finds, firstly, that the application to the foreign converted company of the provisions of a national law on domestic conversions governing the incorporation and functioning of companies, such as the requirements to draw up lists of assets and liabilities and property inventories, cannot be called into question. Further than that, where a Member State requires, in the context of a domestic conversion, strict legal and economic continuity between the predecessor company which applied to be converted and the converted successor company, such a requirement may also be imposed in the context of a cross-border conversion (paras. 42 to 55).

However, the CJEU finds that EU law precludes the authorities of a Member State from refusing to record in its commercial register, in the case of cross-border conversions, the company of the Member State of origin as the predecessor in law of the converted company, if such a record is made of the predecessor company in the case of domestic conversions (paras. 55 and 56). And, finally, the CJEU finds that, when examining a company’s application for registration, the authorities of the host Member State are required to take due account of documents obtained from the authorities of the Member State of origin certifying that, when it ceased to operate, that company did in fact comply with the national legislation of that Member State (paras. 57 to 61). Therefore, the CJEU further pushes for mutual recognition of documents and mutual reliance on domestic laws concerning conversion of companies.

I think that, overall, VALE is an important Judgment in the general area of EU company law and goes further than the specifics of corporate conversion, as it seems clear that the Court remains strongly committed to spur change and harmonisation of domestic rules.

El rescate como maldición: las pérdidas de los inversores son inevitables, pero lo importante es que se distribuyan de forma sensata: reducciones de capital a cero lo primero

Después de leer con un poco de calma el “Memorándum para el rescate financiero” de España (Memorandum of Understanding on Financial-Sector Policy Conditionality, July 2012, http://tinyurl.com/memorescate), no me cabe ninguna duda de que los inversores en las entidades financieras españolas que participen (¿se beneficien?) del rescate deberán asumir significativas pérdidas.

Está absolutamente claro en algunas de las condiciones del Memorándum:

• The restructuring plans of viable banks requiring public support will detail the actions to minimise the cost on taxpayers. Banks receiving State aid will contribute to the cost of restructuring as much as possible with their own resources. Actions include the sale of participations and non-core assets, run off of non-core activities, bans on dividend payments, bans on the discretionary remuneration of hybrid capital instruments and bans on non-organic growth. Banks and their shareholders will take losses before State aid measures are granted and ensure loss absorption of equity and hybrid capital instruments to the full extent possible (15).
• Steps will be taken to minimise the cost to taxpayers of bank restructuring. After allocating losses to equity holders, the Spanish authorities will require burden sharing measures from hybrid capital holders and subordinated debt holders in banks receiving public capital, including by implementing both voluntary and, where necessary, mandatory Subordinated Liability Exercises (SLEs). Banks not in need of State aid will be outside the scope of any mandatory burden sharing exercise. The Banco de España, in liaison with the European Commission and the EBA, will monitor any operations converting hybrid and subordinated instruments into senior debt or equity (17).
• Legislation will be introduced by end-August 2012 to ensure the effectiveness of the SLEs. The Spanish authorities will adopt the necessary legislative amendments, to allow for mandatory SLEs if the required burden sharing is not achieved on a voluntary basis. These amendments should also include provisions allowing that holders of hybrid capital instruments and subordinated debt fully participate in the SLEs (18).
• Banks with capital shortfalls and needing State aid will conduct SLEs against the background of the revised legal framework and in accordance with State aid rules, by converting hybrid capital and subordinated debt into equity at the time of public capital injection or by buying it back at significant discounts (19).

El Memorándum está claramente orientado a garantizar los fondos y depósitos de los usuarios del sistema financiero español (hoy, y a medio plazo) y, al mismo tiempo, aspira a imponer a los inversores en el sistema las pérdidas derivadas de su mala gestión y de la evolución desfavorable (o catastrófica, en algunos casos) de las principales líneas de negocio que se venían desarrollando antes y durante la crisis. En el fondo, se trata de minimizar el coste del rescate para los contribuyentes.

En mi opinión, el problema más grave de esta aproximación (de libro, en términos abstractos) es que durante la crisis se han estado vendiendo productos de inversión como si lo fueran de depósito; y, en concreto, la colocación de participaciones preferentes y otros productos financieros híbridos a los clientes (generalmente, a los más vulnerables, pero esa es cuestión para otro post sobre responsabilidad penal y disciplinaria de los intermediarios financieros) ha borrado en buena medida la distinción entre usuario de la entidad e inversor / propietario de la misma.

Por tanto, en la práctica y según como se redacten las condiciones de los acuerdos de subordinación o de las operaciones de conversión de productos híbridos en capital, quienes acabarán sufriendo en realidad las consecuencias del rescate (además de todos, como contribuyentes) serán los clientes a los que se haya convertido en inversores de manera inadvertida o forzada. Habrá que estar especialmente atentos a las valoraciones de las operaciones de conversión y al respeto de los derechos de adquisición preferente de los titulares de activos que hayan perdido completamente su valor (en el caso de que les quede alguna intención y fondos que invertir en las entidades después de asumir las pérdidas). Este será un verano en el que el diseño y redacción de la legislación societaria y bancaria necesaria para instrumentar los planes del Memorándum estará, más que nunca, plagada de trampas redistributivas.

En resumen, y para no complicar el mensaje, si las pérdidas derivadas del escándalo bancario español de los últimos años se deben repartir de manera mínimamente sensata (no hablemos de justicia ni equidad), lo primero es reducir el capital (el “core”, el de verdad, el de los accionistas de control) de los bancos para absorber (todas) las pérdidas—a cero, si es necesario—y luego seguir con el resto de medidas contenidas en el Memorándum (y cualesquiera otras necesarias) para mantener el sistema financiero a flote. Pero reducciones de capital a cero, lo primero. Cualquier otra medida es simplemente una subversión (de lo poco que queda) de la distinción entre inversores, usuarios y contribuyentes y, en definitiva, una expropiación en beneficio de los de siempre.

On theatre and whisky: GC pushes further in the protection of reputed trademarks

In its Judgment of 6 July 2012 in Case T-60/10 Jackson International Trading Co. Kurt D. Brühl GbmH & Co. KG v OHIM - Royal Shakespeare, the General Court  (Royal Shakespeare), the General Court analyses to what extent the  reputation of the Royal Shakespeare Company in the organisation of theater productions in the United Kingdom granted a right to request the cancellation of the trade mark 'Royal Shakespeare' as a Community trade mark in respect of alcoholic beverages (including beer and Scotch Whisky) and non-alcoholic beverages (mineral water, fruit juices, etc).

In the Royal Shakespeare Judgment, the GC conducts a rather detailed analysis of the elements that are necessary for the prior repute of a trade mark to grant a cancellation request of a similar trade mark under articles 5(3) and 8(5) of Regulation No 207/2009. The GC structures the analysis around the delimitation of the relevant public for the analysis of the reputation of the earlier trade mark and the scope of that reputation, and finds that an 'exceptional' reputation in a specific type of services within one class of the Nice Agreement is sufficient to trigger protection, regardless of how different they are from the other products or services for which the similar mark is used (which analysis is reserved for the issue of the likelihood of unfair advantage in the use of the trade mark).

The GC also stresses and clarifies the requirements to be met in order to determine that there is a risk of undue advantage in the use of a trade mark similar or identical to that with ('exceptional') reputation:

47 [...] article 8(5) of Regulation No 207/2009 covers three separate and alternative types of risk, namely that the use without due cause of the mark applied for will take unfair advantage of the distinctive character or the repute of the earlier mark, or that it will be detrimental to the distinctive character of the earlier mark, or that it will be detrimental to the repute of the earlier mark.

48 The unfair advantage taken of the distinctive character or the repute of the earlier trade mark consists in the fact that the image of the mark with a reputation or the characteristics which it projects will be transferred to the goods covered by the mark applied for, with the result that the marketing of those goods can be made easier by that association with the earlier mark with a reputation.

49 It should, however, be emphasised that in none of those cases is it necessary that there be a likelihood of confusion between the marks at issue; it is only necessary that the relevant public is able to establish a link between them, without having necessarily to confuse them [...]

56 [...] The advantage arising from the use by a third party of a sign similar to a mark with a reputation is an advantage taken unfairly by that third party of the distinctive character or the repute of the mark where that party seeks by that use to ride on the coat-tails of the mark with a reputation in order to benefit from the power of attraction, the reputation and the prestige of that mark and to exploit, without paying any financial compensation, the marketing effort expended by the proprietor of the mark in order to create and maintain the mark’s image

Following this standard refresher of the applicable law, the GC conducts the analysis under the specific circumstances of the case, and finds that the possibility that the public establishes a relatively weak link between the concerned trade marks suffices to grant protection:

59 With regard to the goods and services in the present case, those of the applicant do not appear to be directly and immediately linked to the intervener’s theatre productions. However, despite the differences in the nature of those goods and services, there is, none the less, a certain proximity and link between them. In that regard, it has already been acknowledged in case-law that there is a certain similarity between entertainment services and beer due to their complementarity (see Judgment of 4 November 2008 in Case T‑161/07 Group Lottuss v OHIM – Ugly (Coyote Ugly), not published in the ECR, paragraphs 31 to 37). It is common practice, in theatres, for bar and catering services to be offered either side of and in the interval of a performance. (emphasis added)

60 Moreover, irrespective of the above, in view of the established reputation of the earlier trade mark, the relevant public, namely the public at large in the United Kingdom, would be able to make a link with the intervener when seeing a beer with the contested trade mark in a supermarket or in a bar.

61 In the present case, the applicant would benefit from the power of attraction, the reputation and the prestige of the earlier trade mark for its own goods, such as beer and other beverages, and for its services. In the beverages market, those goods would attract the consumer’s attention thanks to the association with the intervener and its earlier trade mark, which would give the applicant a commercial advantage over its competitors’ goods. That economic advantage would consist of exploiting the effort expended by the intervener in order to establish the reputation and the image of its earlier trade mark, without paying any compensation in exchange. That equates to an unfair advantage taken by the applicant of the repute of the earlier trade mark within the meaning of Article 8(5) of Regulation No 207/2009.

Therefore, the GC Judgment in the Royal Shakespeare case can be seen as a broadening of the scope of protection or (‘exceptionally’) reputed trade marks under EU law through a reduced standard of risk of association by consumers.

A software licence is a contract, isn't it? A bad transfer of analogic law to the digital environment by the CJEU

The CJEU has issued its Judgment of 3 July 2012 in case C-128/11 UsedSoft GmbH v Oracle International Corp, regarding the exhaustion of the exclusive right of distribution of a copy of a computer program by the author of the software in cases where it does not produce and distribute physical copies of the programs, but sells licences for the programs to be downloaded from a centralised server directly by the user.

The CJEU has found that "the principle of exhaustion of the distribution right applies not only where the copyright holder markets copies of his software on a material medium (CD-ROM or DVD) but also where he distributes them by means of downloads from his website. Where the copyright holder makes available to his customer a copy – tangible or intangible – and at the same time concludes, in return form payment of a fee, a licence agreement granting the customer the right to use that copy for an unlimited period, that rightholder sells the copy to the customer and thus exhausts his exclusive distribution right" (press release: http://tinyurl.com/UsedSoft).

In those general terms, the Judgment may be well received, since it represents the standard view in the analogical world and does not seem to depart from the expectations of the parties when they entered into the licence contract--particularly those of the software company.

However, the CJEU goes further and expressly indicates that "even if the licence agreement prohibits a further transfer, the rightholder can no longer oppose the resale of that copy [... since that] would allow the copyright holder to control the resale of copies downloaded from the internet and to demand further remuneration on the occasion of each new sale, even though the first sale of the copy had already enabled the rightholder to obtain appropriate remuneration" (C-128/11 at para 63, emphasis added).

Even if the CJEU later goes on to restrict the potential implications of this finding by preventing the division of multiple licence agreements to resell only a limited number of licences, and expressly requires that the reseller stops using the program downloaded upon the first purchase of the licence; the Judgment generates major implications and significant complications for the drafting of licence agreements, their monitoring and enforcement.

In my opinion, the CJEU has not taken due account of the fact that licences are priced ex ante by software companies, on the basis of the intended uses by the client. Where resale is expressly prohibited by the contract, that is something that the software company has surely taken into consideration in the setting of the price for the licence, particularly when the licence is for an unlimited time and includes improvements and new versions of the program.  Changing the potential uses ex post, particularly allowing for a contractually accepted resale prohibition, seems to clearly unbalance the economics of the bargain and to restrict the ability of software companies to price effectively their products. And all of this in a sector where exclusive rights and the ensuing revenues tend to compensate for R&D costs and where companies face significant risks and threats (such as counterfeiting and piracy).

Therefore, the finding of the CJEU in UsedSoft may have tremendous implications in the software sector and in the ability of software developers to continue raising revenues through the sale of licenses of already existing programs--for which an effective 'second hand' market has just been created by the CJEU, even in the digital environment, where companies had been very careful in limiting the resale of existing licences.

Probably it will be easy to negotiate around this finding, and to change licensing policies (e.g. from unlimited to time-limited licences) to prevent resale or minimise its effects. However, this will come at a significant cost for software companies and their clients alike, and may further complicate deals in this industry. In my view, this is a bad extension of analogic law to the digital environment by the CJEU.