New paper: Competition Infringements and Procurement Blacklisting

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I have uploaded my last working paper of 2016 on SSRN. It is entitled "Competition Infringements and Procurement Blacklisting" and will appear in the Competition Law Journal next year. Its abstract is as follows:

In this article I explore the rules for the blacklisting of competition infringers under relevant EU and UK public procurement law, including their interpretation by the European Court of Justice. I also consider the practical difficulties for their enforcement by procurement professionals in the UK and suggest additional roles that the Competition and Markets Authority (CMA) and Crown Commercial Service (CCS) could have in order to facilitate their effectiveness. Finally, I also stress the existence of a trade-off between a more active enforcement of procurement blacklisting rules and the attractiveness of the CMA’s leniency policy. By way of concluding remarks, I set out a blueprint for targeted policy reform. I submit that this should include the development of mechanisms for the provision of CMA support to procurement professionals that identify indicia of bid rigging, the development of a policy on the imposition of procurement blacklisting as a sanction for competition law infringers, and the creation of a UK-wide blacklisting register operated by CCS.

The full reference for the paper is: Sanchez-Graells, Albert, Competition Infringements and Procurement Blacklisting (December 14, 2016). Forthcoming in the Competition Law Journal.. Available at SSRN: https://ssrn.com/abstract=2885278.

CJEU rejected AG Wathelet's proposal for vicarious liability for agent's behaviour in competition law: a more stringent test, but how stringent? (C-542/14)

In its Judgment of 21 July 2016 in VM Remonts and Others, C-542/14, EU:C:2016:578, the Court of Justice of the European Union (CJEU) issued an important clarification of the rules applicable to the attribution of (vicarious) liability for infringements of EU competition law, thus expanding its case law on the subjective elements (ie mens rea-like requirements) of the prohibition of anticompetitive behaviour in Art 101(1) TFEU.

In doing so, the CJEU rejected the proposal for stringent vicarious liability formulated by AG Wathelet (see my criticism here) and formulated a more stringent test for the attribution of anticompetitive behaviour of an independent agent. The test formulated by the CJEU raises some interpretative issues, though, and it deserves some comment.

It is worth reminding that the case addressed issues concerning the imputability of anticompetitive practices in which a third party services provider is engaged to the 'client' undertaking that hired those services (ie how to make the 'client' undertaking liable for the anticompetitive behaviour of one of its services providers). 

The case was quite convoluted because it concerned the imputability of a bid rigging offence to a supplying company that engaged a consultant to help it formulate a bid in a tender for a public contract. After the fact, it became apparent that the consultant engaged in collusion with other tenderers in the same bid. The question was, thus, to what extent the bidder should be liable for the collusion that resulted from the allegedly independent activity of the consultant (third party services supplier) and, in any case, what level of proof of anticompetitive intent would be necessary to impose liability on the 'client' undertaking.

In addressing this issue, the CJEU rejected a parallelism between the rules applicable to an undertaking's employees to its agents, and determined that 'where a service provider offers, in return for payment, services on a given market on an independent basis, that provider must be regarded, for the purpose of applying rules aimed at penalising anti-competitive conduct, as a separate undertaking from those to which it provides services and the acts of such a provider cannot automatically be attributed to one of those undertakings' (C-542/14, para 25, emphasis added).

However, the CJEU stressed that this different treatment is based on the independence of market activity of the service provider and, consequently, it would not be justified where the client undertaking exerted significant control over the apparently independent service provider. To that effect, the CJEU determined that

Article 101(1) TFEU must be interpreted as meaning that an undertaking may, in principle, be held liable for a concerted practice on account of the acts of an independent service provider supplying it with services only if one of the following conditions is met:
–  the service provider was in fact acting under the direction or control of the undertaking concerned, or
– that undertaking was aware of the anti-competitive objectives pursued by its competitors and the service provider and intended to contribute to them by its own conduct, or
–  that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which they entailed
(C-542/14, para 33, emphasis added).

Of particular relevance in the field of public procurement, the CJEU also provided some clarification regarding the unauthorised disclosure of commercially sensitive information by the agent, by stressing that

Whilst it is true that [an undertaking is liable for a competition infringement] when that undertaking intended, through the intermediary of its service provider, to disclose commercially sensitive information to its competitors, or when it expressly or tacitly consented to the provider sharing that commercially sensitive information with them ... the condition is not met when that service provider has, without informing the undertaking using its services, used the undertaking’s commercially sensitive information to complete those competitors’ tenders (C-542/14, para 32, emphasis added).

In my view, the VM Remonts Judgment should be welcome for what it does not do. That is, for its rejection of AG Wathelet's proposal for a reversal of the burden of proof, to the effect that the 'client' undertaking would have been considered liable unless it could adduce sufficiently convincing evidence (i) relating to the fact that the agent (services provider) had acted outside the scope of the functions that had been entrusted to it, (ii) regarding the precautionary measures taken by the ‘client’ undertaking at the time of designation of the agent and during the monitoring of the implementation of the functions in question, and (iii) regarding the ‘client’ undertaking's conduct upon becoming aware of prohibited behaviour--so as to demand a public distancing and positive reporting, under the analogous rules of Dansk Rørindustri and Others v Commission, C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P, EU:C:2005:408.

However, regarding the positive test that it sets for the assessment of whether anti-competitive activity by an agent can be imputed to the client undertaking, the VM Remonts Judgment seems less satisfactory, in particular due to the last condition of the test in its paragraph [33], whereby 'an undertaking may, in principle, be held liable for a concerted practice on account of the acts of an independent service provider supplying it with services ... if  ... that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which they entailed' (emphasis added).

This seems to be an adaptation of the test developed in Commission v Anic Partecipazioni, C-49/92 P, EU:C:1999:356, paragraph [87], to which the CJEU refers in VM Remonts to stress that 'an undertaking may be held liable for agreements or concerted practices having an anti-competitive object when it intended to contribute by its own conduct to the common objectives pursued by all the participants and was aware of the actual conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and was prepared to accept the risk' (C-542/14, para 29, emphasis added).

The adaptation of this test to cases of anticompetitive behaviour by an agent seems problematic because it stretches its last part concerning the acceptance of a risk of occurrence of anticompetitive behaviour by third parties (in that case, co-conspirators). In Anic, the undertaking concerned had been attending meetings with other undertakings that formed part of a cartel. Therefore, the assessment of whether the undertaking could reasonably foresee specific types of anti-competitive conduct by its co-conspirators (formally, third parties) derives from its own participation in meetings--that is, derives from its own observation of the behaviour of other entities that participate in the anti-competitive practice.

This cannot be the case in a scenario such as that presented by VM Remonts, where the client undertaking does not participate in any meetings and where it has no (proven) knowledge of the activity of the agent. In these cases, it would seem that the first two prongs of the VM Remonts test would suffice: ie the client undertaking is liable for the anticompetitive behaviour of the agent if (a) it controls the agent or (b) is aware of the anti-competitive behaviour between the agent and third parties, and aims to contribute to it. Introducing the third condition, according to which the client undertaking can also be liable if (c) it could have reasonably foreseen anticompetitive behaviour between its agent and third parties and was prepared to accept the risk which they entailed, seems to far fetched. 

Whereas in an Anic-like scenario the reasonable prediction of anticompetitive behaviour by co-conspirators derives from information directly acquired in the meetings in which the undertaking participates--that is, can be presumed under logical rules--in a VM Remonts-like scenario, any claim as to the undertaking's duty to foresee anticompetitive behaviour would be pure speculation.

If the client undertaking has no positive knowledge of the anticompetitive behaviour in which the agent [otherwise, the prong (b) of the test would apply], how is it ever going to be possible to determine that it ought to have foreseen it? If this is on the basis of its relationship with the agent, this dangerously reopens the door to a test like the one developed by AG Wathelet or, worse, creates a sort of culpa in eligendo of its agent that is equally troublesome.

If (factual) speculation is to be avoided and the imposition of vicarious liability is rejected by the CJEU in VM Remonts (para 26, although see para 27, which makes it less clear-cut), the only reasonable interpretation of the prong (c) of the test developed in paragraph [33] of VM Remonts is that it can simply never be applied. In which case, one can be forgiven for wondering if the CJEU did not pay sufficient consideration to the adaptation of the Anic test to a situation involving an independent service provider.

CJEU's new formulation of legal test to distinguish between anticompetitive agreements by object and by effect (C-345/14)

In its Judgment of 26 November 2015 in Maxima Latvija, C-345/14, EU:C:2015:784, the Court of Justice of the European Union (CJEU) has returned to the debate on the distinction between anticompetitive agreements by object and by effect for the purposes of the application of Art 101(1) TFEU [for background commentary of the case, see here].

This is a field of EU competition law of notable and growing complexity, fundamentally due to the lack of clear demarcating lines between both types of anticompetitive conduct [see S King, Agreements that restrict competition by object under Article 101(1) TFEU: past, present and future (2015) PhD Thesis, London School of Economics]. 

Some of the consequences of the distinction remain obscure or highly theoretical, not least because Art 101(1) TFEU covers both types of anticompetitive practices, which should therefore be subjected to similar sanctions (moderated only by the magnitude of the effects, where they exist). Two main areas of debate have emerged, though, around the (practical) boundaries where the categorisation carries legal weight: on the one hand, the possibility to exempt de minimis "by object" infringements; and, on the other hand, the standard of proof applicable to "by object" anticompetitive conduct.

Regarding the possibility to exempt de minimis "by object" infringements, the debate focuses on the implications of the CJEU Judgment of 13 December 2012 in Expedia (C-226/11, EU:C:2012:795), as well as the guidelines issued by the Commission in trying to clarify the state of the law [see the Guidance on restrictions of competition "by object" for the purpose of defining which agreements may benefit from the De Minimis Notice]. For the purposes of this discussion, it is worth stressing para 36, where the CJEU clarified that "the distinction between ‘infringements by object’ and ‘infringements by effect’ arises from the fact that certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition" (emphasis added).

Regarding the standard of proof applicable to cases concerning "by object" anticompetitive conduct, the discussion revolves around the Judgment of 11 September 2014 in CB v Commission ('Cartes bancaires'; C-67/13 P, EU:C:2014:2204) [for discussion from a legal perspective, see here; and for an economic perspective, see here]. The significance of the Cartes bancaires Judgment is commonly seen as resting in the recasting of the case law in para 51, where the CJEU ruled that "it is established that certain collusive behaviour, such as that leading to horizontal price-fixing by cartels, may be considered so likely to have negative effects, in particular on the price, quantity or quality of the goods and services, that it may be considered redundant, for the purposes of applying Article [101(1) TFEU], to prove that they have actual effects on the market" (emphasis added).

In its Judgment in Maxima Latvija, the CJEU has followed the same general approach to the delineation between anticompetitive practices by object and by effect, and has consolidated the Cartes bancaires test. More specifically, the CJEU has ruled that
18 ... the concept of restriction of competition ‘by object’ ... must be interpreted restrictively and can be applied only to certain types of coordination between undertakings which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects ... That case-law arises from the fact that certain types of coordination between undertakings can be regarded, by their very nature, as being harmful to the proper functioning of normal competition ...
19 ... certain collusive behaviour, such as that leading to horizontal price-fixing by cartels, may be considered by their nature as likely to have negative effects, in particular on the price, quantity or quality of the goods and services, so that it may be considered redundant, for the purposes of applying Article 101(1) TFEU, to prove that they have actual effects on the market ... Experience shows that such behaviour leads to falls in production and price increases, resulting in poor allocation of resources to the detriment, in particular, of consumers.
20 ... the essential legal criterion for ascertaining whether an agreement involves a restriction of competition ‘by object’ is ... the finding that such an agreement reveals in itself a sufficient degree of harm to competition for it to be considered that it is not appropriate to assess its effects (C-345/14, paras 18-20, references omitted and emphasis added).
In my view, the formulation of this test is conceptually appealing. However, it is equally problematic because it relies on a test of 'balance of economic probabilities' that actually requires, in most cases, at least a quick look at the effects the anticompetitive practice has (or could have) generated. In terms of alleviating the burden of proof, this is less than clear cut. These complications are self-evident in the Maxima Latvija Judgment itself, where the CJEU applies this newly (re)formulated test as follows:
21 ... Maxima Latvija [an operator of large shops and hypermarkets] is not in a competitive situation with the shopping centres with which it has concluded the [lease] agreements at issue in the main proceedings. Although ... a fact of that nature in no way precludes an agreement from containing a restriction of competition ‘by object’ ... it must, however, be stated that the agreements at issue in the main proceedings are not among the agreements which it is accepted may be considered, by their very nature, to be harmful to the proper functioning of competition ...
22 Even if the clause at issue in the main proceedings could potentially have the effect of restricting the access of Maxima Latvija’s competitors to some shopping centres in which that company operates a large shop or hypermarket, such a fact, if established, does not imply clearly that the agreements containing that clause prevent, restrict or distort, by the very nature of the latter, competition on the relevant market, namely the local market for the retail food trade.
23 Taking account of the economic context in which agreements ... are to be applied, the analysis of the content of those agreements would not ... show, clearly, a degree of harm with regard to competition sufficient for those agreements to be considered to constitute a restriction of competition ‘by object’ within the meaning of Article 101(1) TFEU (C-345/14, paras 21-23, references omitted and emphasis added).
Looking at the application of the test in the Maxima Latvija case, two difficulties emerge. Firstly, there is no existing list of anticompetitive agreements by object (neither an open, closed or indicative list). This creates a significant complication and legal uncertainty, not least because of the potentially moving target of what constitutes "agreements which it is accepted may be considered, by their very nature, to be harmful to the proper functioning of competition".

Secondly, there is no clear indication as to what "degree of harm" (ie presumed anticompetitive effects) suffices to allow for an agreement to be categorised as "by object" rather than by effect. The need to consider the anticompetitive agreements in the "the economic context in which [those] agreements ... are to be applied" is a puzzling requirement from a legal perspective. If (one of) the main point(s) concerning the distinction between anticompetitive agreements "by object" and "by effect" is to clarify the burden of proof required for each of them (implicitly, in order to reduce the requirements for a finding of an anticompetitive agreement "by object"), then this requirement does not really help and ends up resulting in a slippery slope of relaxation of requirements depending on the general consensus (?) that some agreements are by their nature harmful.

Given the ongoing uncertainty, the test for the distinction between anticompetitive agreements by object and by effect is not likely to reduce litigation at all. Overall, then, this seems to be a never-ending discussion. In terms of legal simplicity, it could be preferable to return to a state of the law where it was clear that Art 101(1) TFEU covers both types of anticompetitive practices and triggers an enforcement procedure that needs to comply with the same requirements, regardless of whether ex post and in a specific case, it may look like some of the probatory efforts could have been spared. 

The classical justification for per se prohibitions and not rule of reason approaches is fundamentally based on enforcement costs--and that is, at least in part, why they are progressively abandoned in the US (see here). It seems clear to me that trying to create that distinction in this area is, unfortunately, not leading to any savings and, in that case, it may be worth avoiding a shaky per se rule...

An EU Competition Law Primer for Public Procurement Students

My friend and colleague Dr Carina Risvig Hamer asked me to contribute a chapter on EU competition law to her forthcoming handbook on EU public procurement she is about to publish with Djøf Forlag. She is writing it in Danish to support her teaching at the University of Southern Denmark. Thus, the book is unlikely to reach a wider English-speaking audience. This is why I decided to post the chapter on SSRN, in case there are some non-Danish procurement students interested in a first introduction to EU competition law issues.

As the abstract indicates, this chapter aims to identify the key areas where EU competition law is relevant from a public procurement perspective: that is, mainly, the prevention and sanctioning of procurement manipulation by suppliers (bid rigging) and the granting of distortive State aid that advantages some of them over others. It also focuses on potential abuses of market power by undertakings holding a dominant position, but it assesses this potential distortion of competition to a more limited extent. Once these areas are identified, the chapter describes the basic EU competition rules that apply in each of these different cases, as well as their interpretation in the case law of the CJEU. The main goal of this chapter is to provide public procurement students with an overall view and basic understanding of the EU competition rules more directly relevant to procurement practice.

The paper's full reference is: A Sanchez-Graells, 'An EU Competition Law Primer for Public Procurement Students' (October 18, 2015). Available at SSRN: http://ssrn.com/abstract=2675787.

New SSRN short paper on Art 18(1) Dir 2014/24 and other competition and procurement issues

I have been invited by the e-Competitions Bulletin to write the third edition of my foreword to their special issue on public procurement. I have uploaded the draft on SSRN and the paper is now downloadable as A Sanchez Graells, 'Public Procurement: A 2015 Updated Overview of EU and National Case Law' (June 1, 2015), available at http://ssrn.com/abstract=2613076.

Some thoughts on a paper on the Concessions Directive and competition law [Farley-Pourbaix, (2015) JECLAP 6(1): 15-25]

Martin Farley and Nicolas Pourbaix have recently published a paper on the interaction between competition and public procurement law in light of the rules of new Directive 2014/23 on concession contracts. The paper is 'The EU Concessions Directive: Building (Toll) Bridges between Competition Law and Public Procurement?' (2015) 6(1) Journal of European Competition Law & Practice  15-25. 

The paper is extremely thinly researched in an area that is generating a significant amount of scholarly commentary and, as such, it is rather disappointing because the authors seem to be (re)discovering powder by emphasising the interaction between procurement and competition law rules. However, some of the main points the authors make in relation to the pre-existing case law of the CJEU are worth considering.

Firstly, they stress the practical complications that the open-ended definition of concession creates, particularly in terms of the difficulty of assessing when the transfer of risks to the concessionaire suffices to be covered by Directive 2014/23 instead of Directive 2014/24 or Directive 2014/25 [for discussion, see C Risvig Hansen, Contracts not covered or not fully covered by the Public Sector Directive (Copenhagen, DJOF, 2012)76-102; A Sanchez-Graells, 'What Need and Logic for a New Directive on Concessions, Particularly Regarding the Issue of their Economic Balance?' (2012) 2 European Public Private Partnership Law Review 94-104; and R Craven, 'The EU's 2014 Concessions Directive’ (2014) 23 Public Procurement Law Review 188-200].

Secondly, they explore the applicability of Art 101 TFEU to bidders that opt to team up or bid jointly for concession contracts. Their remarks are interesting and topical, as the recent publication of the 'Consortium Bidding' guidelines by the Irish Competition and Consumer Protection Commission evidences. I found their warning on the need to limit the exchanges of information between consortium partners particularly relevant (pp. 19-20), as joint participation in selected procurement projects could be the conduit for cartelising behaviour and this is an issue that requires careful consideration.

Thirdly, they revisit the never-ending discussion on the exclusion of contracting authorities from the concept of undertaking for the purposes of the application of (EU) competition law on the basis of the FENIN-SELEX line of case law [FENIN v Commission, C-205/03, EU:C:2006:453; and Selex v Commission, C-113/07, EU:C:2009:191] [for discussion, see A Sanchez-Graells, 'Distortions of Competition Generated by the Public (Power) Buyer: A Perceived Gap in EC Competition Law and Proposals to Bridge It' (2009) University of Oxford, Center for Competition Law and Policy, CCLP (L). 23]. 

On this point, it is interesting to see how Farley and Pourbaix stress that utilities concessions may trigger the application of competition law because, almost by definition, the contracting entity will be engaged in 'downstream' economic activities. Their discussion of the Luton Airport case is certainly informative [Arriva the Shires Ltd v London Luton Airport Operations Ltd [2014] EWHC 64 (Ch)].

This may be a point to take into consideration in the future to (possibly) limit the FENIN-SELEX exemption in case contracting authorities outside the utilities sector engage in (partial) downstream economic activity, which is likely to be the case of some in-house or public-public cooperation arrangements, which can now offer up to 20% of their supplies or services in the 'private market' under the rules of Directive 2014/24. This would be particularly easy on the basis of the 'severability' of activities for the purposes of competition law [Aéroports de Paris v Commission, C82/01, EU:C:2002:617], which in my view would be a most welcome development of this area of the law.

Finally, Farley and Pourbaix focus on specific competition law aspects of the new EU Concessions Directive. Of the issues they mention (other than the duration of the concession contract), the most interesting are the possibility to exclude infringers of competition law (on which see the recent case law of the CJEU here), and the interaction between State aid rules and the modification of concession contracts [for discussion, see A Sanchez-Graells, 'Public Procurement and State Aid: Reopening the Debate?' (2012) 21(6) Public Procurement Law Review 205-212]. 

On the issue of exclusion, the paper stresses burden of proof difficulties and advocates for a careful enforcement of the power to exclude undertakings suspected of competition violations, and points (without mentioning) at corporate human rights such as the presumption of innocence, which would have deserved more detailed consideration [for general discussion, see A Sanchez-Graells and F Marcos, '"Human Rights" Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?' (2014) University of Leicester School of Law Research Paper No. 14-04]. 

On the issue of State aid being (implicitly) granted as a result of a modification of a contract during its term, the paper emphasises that the increased flexibility in the choice of procedures and the possibility to modify the contract (potentially without value limit, despite the stress on 50% that Farley and Pourbaix wrongly put in p. 24-25) in a relatively generous array of cases restricts the 'Altmark' presumption and requires a substantive assessment of the conditions of the contract [something already advocated for in A Sanchez-Graells, Public procurement and the EU competition rules (Oxford, Hart, 2011) 118-121 and, in more detail, in ibid, 'The Commission’s Modernization Agenda for Procurement and SGEI', in E Szyszczak & J van de Gronden (eds) Financing SGEIs: State Aid. Reform and Modernisation, Legal Issues of Services of General Interest Series (The Hague, TMC Asser Press / Springer, 2012) 161-181].

A point of contention, though, refers to the treatment of concession contracts as conduits for State aid. Farley and Pourbaix consider that:
Contracting Authorities may be able to take a certain amount of comfort from the fact that many concessions may not qualify as State aid in any event, on the basis that the remuneration was not granted through State resources. This will at least be the case in those situations where the concessionaire is remunerated entirely by third parties. Following the CJEU’s ruling in PreussenElektra [PreussenElektra, C-379/98, ECLI:EU:C:2001:160] this will still be the case even if the State sets the price that third parties need to pay for the relevant goods or services. (P. 24).
Even if they indicate that mixed arrangements which include some sort of subsidy could erode this possibility to duck State aid rules, I think that they present the situation in a way that excessively narrows down their application. Indeed, on that point, it may worth stressing that the CJEU has relatively recently adopted a less formalistic approach and considered that certain aspects of public control over third party revenue (which are common to concession contracts) may trigger the dis-application of the PreussenElektra exception (see comment here). 

In particular, in Vent De Colère and Others, C-262/12, EU:C:2013:851, the CJEU found that:
Article 107(1) TFEU must be interpreted as meaning that a mechanism for offsetting in full the additional costs imposed on undertakings [...] that is financed by all final consumers [...] constitutes an intervention through State resources (C-262/12, para 37).
Hence, even decisions concerning authorizations to raise user fees (without offering any additional public support or implying any extension of the length of the concession) may trigger State aid application, which is a case most concession contracts usually contemplate. Hence, the interaction between the prohibition of State aid in Art 107(1) TFEU and the rules on modification of concession contracts in Directive 2014/23 is more intense than Farley and Pourbaix's paper presents.


Overall, then, the paper is not groundbreaking and, if the existing literature had been researched, it would probably have been of a higher academic interest (as it is published, though, it certainly is oriented to practitioners) and could possibly have reached a deeper level of analysis. In any case, given the novelty of Directive 2014/23, Farley and Pourbaix's paper can certainly raise awareness of the important issues they mention.

A first reaction to AG Kokott's KONE Opinion (C-557/12)

AG Kokott's Opinion of 30 January 2014 in case C-557/12 KONE is generating significant debate (see the very interesting criticism in EUTopia) as it deals with a very complicated and controversial issue that could either spur or restrict the scope of damages actions following on from cartel violations (and, more generally, competition law infringements).
 
The case is concerned with the possibility to claim so called "umbrella damages"--that is, as per the description provided by the referring Austrian Supreme Court, whether "any person may claim from members of a cartel damages also for the loss which he has been caused by a person not party to the cartel who, benefiting from the protection of the increased market prices, raises his own prices for his products more than he would have done without the cartel (umbrella pricing)". In my view, the Opinion of AG Kokott deserves some criticism in its support for such claims.
 
As a preliminary point, I think that it is interesting to see how AG Kokott redrafted the issue, and considered that the case concerns "umbrella pricing [which takes place] when undertakings that are not themselves party to a cartel, benefiting from the protection of the cartel’s practices (operating ‘under the cartel’s umbrella’, so to speak), knowingly or unknowingly set their own prices higher than they would otherwise have been able to under competitive conditions. Does European Union law require that customers of undertakings not party to the cartel should be able to claim compensation for the inflated prices charged by those undertakings from the members of the cartel before the national courts? Or, conversely, may such an obligation to award compensation be excluded in national civil law on the ground that the loss suffered is indirect and too remote?" (emphasis added).
 
Already at this stage, I would submit that the framework for analysis is flawed. If the "outsider" to the cartel is fully innocent (i.e. is not aware of the existence of the cartel), its behaviour is indeed reflective of competitive conditions (distorted, but still competitive) and therefore that specific increase in prices should not be taken into account for the purposes of the design of competition law rules and their enforcement.
 
On the contrary, if the "outsider" is not innocent (i.e. knows about the cartel), then the increase in prices makes it guilty of at least a (unilateral?) concerted practice by adhering to the cartelised mechanics of the market and, consequently, the damages derived from the raise in prices should be borne by such "outsider" as the infringer of competition rules--and only by the "insiders" in the cartel if they then incorporate the "outsider's" behaviour as part of the distorted market mechanism.
 
In my view, any extension of this general framework would probably be too remote in terms of causality and the allowance for "umbrella damages" claims would create a system of excessive private antitrust enforcement which net contribution to aggregate welfare would be doubtful [more generally, on the doubtful desirability of an overgrowth of damages claims based on indirect or disperse competition damages, see Marcos and Sánchez Graells, "Towards a European Tort Law? Damages Actions for Breach of the EC Antitrust Rules: Harmonising Tort Law Through the Back Door?": http://ssrn.com/abstract=1028963].
 
For these reasons, I generally disagree with her Opinion on its substance. However, more detailed criticism will require some further thoughts.

New Paper: A critical assessment of the new health care procurement rules in the UK

The recently adopted UK National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 include an interesting (and somehow unsettling) provision authorising anti-competitive behaviour in the commissioning of health care services by the National Health Service (NHS), if that is in the (best) interest of health care users.
As briefly discussed here, generally, it seems that under the new public procurement and competition rules applicable to the NHS, whatever is considered in the “interest of patients” could trump pro-competitive requirements and allow the commissioning entity to engage in distortions of competition (either directly, or by facilitating anti-competitive behaviour by tenderers and service providers)—as long as a sort of qualitative cost-benefit analysis shows that net advantages derived from the anti-competitive procurement activity. The apparent oddity of such general “authorisation” for public buyers to engage in anti-competitive procurement of health care services deserves some careful analysis, which this new paper carries out.

The
paper assesses Regulation 10 of the NHS Procurement, Patient Choice and Competition Regulations 2013 and the substantive guidance published by the UK's health care sector regulator (Monitor) from the perspective of EU economic law (and, more specifically, in connection to public procurement and competition rules). The paper claims that there is a prima facie potential incompatibility between Regulation 10 of the 2013 NHS Procurement, Patient Choice and Competition Regulations and both EU competition law and public procurement law—which are, in principle, opposed to any anti-competitive or competition restrictive behaviour in the conduct of public procurement activities. Consequently, there is a need for an EU law compliant, restrictive interpretation and enforcement of the provision—at least where there is a cross border effect on competition and/or a cross border interest in tendering for the health care contracts, which triggers the application of both EU competition law and public procurement law.
 
Sánchez Graells, Albert, New Rules For Health Care Procurement in the UK. A Critical Assessment from the Perspective of EU Economic Law (February 2, 2014). University of Leicester School of Law Research Paper No. 14-03. Available at SSRN: http://ssrn.com/abstract=2389719.

AG Cruz Villalon on access to leniency applications: A stringent test. Really? (C-365/12)

In his Opinion of 3 October 2013 in case C-365/12 EnBW Energie, Advocate General Cruz Villalon has proposed a holistic interpretation of the regulatory schemes relating to access to documents of the institutions and, more specifically, of access to the European Commission's files in the context of its leniency programme. In my view, the holistic approach advocated for still leaves some important issues unresolved and, consequently, the Judgment of the CJEU in this case will be highly relevant.
 
According to AG Cruz Villalon, when access to the file in cartel investigations is concerned,
63. In short, the presumption [that access should be refused] must operate in relation to documents the disclosure of which is either ruled out or – in the case of Regulation No 1/2003, as compared with Regulation No 1049/2001– possible only on certain conditions. In other words, the presumption should be fully effective vis-à-vis parties who, in accordance with Regulation No 1/2003 and Regulation No 773/2004, have no right, in principle, to access the documents in cartel proceedings, as in the case of EnBW here; and this must also be the case vis-à-vis parties who have only a limited right of access or a right which is recognised solely for the purposes of safeguarding the right of defence.
64. That conclusion must carry a qualification, however. The abovementioned presumption ‘does not exclude the possibility of demonstrating that a given document, of which disclosure is sought, is not covered by that presumption or that there is a higher public interest justifying the disclosure of that document under Article 4(2) of Regulation No 1049/2001 (Commission v Technische Glaswerke Ilmenau, paragraph 62)’. Consequently, the fact that Regulation No 1/2003 does not provide for access by persons who are not parties to the proceedings means only that, in the event that such persons request access, their requests must be dealt with in accordance with Regulation No 1049/2001 (as the general legislation in the area of transparency), interpreted in the light of the general presumption that disclosure of the documents may undermine the purpose of the proceedings under Regulation No 1/2003. This presumption does not in any way rule out access pursuant to Regulation No 1049/2001: it merely imposes more stringent conditions on the access granted under that regulation (emphasis added).
In his Opinion, AG Cruz Villalon takes a very different approach, but basically supports a stringent test that would lead to the same restrictive outcome supported by AG Jaaskinen some months ago in C-536/11 Donau Chemie and others, where he considered that: 
in my opinion a legislative rule would be more appropriate that provided absolute protection for the participants in a leniency programme, but which required the interests of other participants to a restrictive practice to be balanced against the interests of the alleged victims. [...] Furthermore, in my view and except for undertakings benefiting from leniency (sic!), participation in and of itself in an unlawful restriction on competition does not constitute a business secret that merits protection by EU law (para 64, emphasis added).
It is worth stressing that such a radical approach (which I criticised) was rejected by the CJEU in the final Donau Chemie Judgment:
as regards the public interest of having effective leniency programmes [...] it should be observed that, given the importance of actions for damages brought before national courts in ensuring the maintenance of effective competition in the European Union (see Courage and Crehan, paragraph 27), the argument that there is a risk that access to evidence contained in a file in competition proceedings which is necessary as a basis for those actions may undermine the effectiveness of a leniency programme in which those documents were disclosed to the competent competition authority cannot justify a refusal to grant access to that evidence (para 46, emphasis added).
AG Cruz Villalon is aware of the position of the CJEU in Donau Chemie and, consequently (but implicilty), seeks to clarify his proposal for a stringent test on access to the file (and, more specifically, to leniency applications) by stressing that:
the effectiveness of leniency programmes can be safeguarded only (sic!) if it is guaranteed that, as a general rule, the documentation provided will be used by the Commission alone. This would, of course, be the ultimate safeguard. However, other safeguards should also be considered that are less extensive but still attractive for those wanting to take advantage of those programmes. In the final analysis, the rationale underlying leniency programmes is a calculation as to the extent of the harm that might arise from an infringement of competition law. Considered in those terms, to guarantee that the information provided to the Commission can be passed on to third parties only if they can adequately prove that they need it in order to bring an action for damages could constitute a sufficient safeguard, particularly considering that the alternative might be a penalty higher than that which might ensue were the action for damages to be successful. Admittedly, it is possible that a safeguard of that kind might result in fewer parties deciding to take advantage of leniency programmes. However, the objective of maximum effectiveness for that mechanism should not be regarded as justification for a complete sacrifice of the rights of those concerned to be compensated and, more generally, for an impairment of their rights to an effective remedy under Article 47 of the Charter of Fundamental Rights of the European Union (para 78, emphasis added).
In my opinion, the carve out that AG Cruz Villalon creates against his own proposal for a general presumption of non-disclosure (which waiver should be subjected to a stringent test) is not terribly consistent in logical terms, but seeks to accomodate the Donau Chemie Judgment. Nonetheless, the safeguard/test is not clearly presented and the AG's Opinion in EnBW Energie does not really clarify this (increasingly?) grey area of EU competition law. In fact, in view of his concern with the protection of the commercial interests of leniency applicants, it seems that he is actually de facto advocating for the strongest (absolute) safeguard presented above (which, in those terms, would basically amount to the absolute protection advocated for by Jaaskinen and rejected by the CJEU in Donau Chemie).
 
Indeed, AG Cruz Villalon weakly criticises the finding of the GC in paras 147-148 of the appealed EnBW Energie Judgment (‘the interests of the undertakings that had participated in the cartel … in non-disclosure of the documents requested cannot be regarded as commercial interests in the true sense of those words. Indeed, [...] the interest which those companies might have in non-disclosure of the documents requested seems to reside not in a concern to maintain their competitive position on the [...] market [...] but, instead, in a desire to avoid actions for damages being brought against them before the national courts’. In any event, that would not constitute ‘an interest deserving of protection, having regard, in particular, to the fact that any individual has the right to claim damages for loss caused to him by conduct which is liable to restrict or distort competition’), by indicating that, in his opinion, 
the possibility that disclosure of the information provided by the undertakings in question might objectively undermine their commercial interests cannot be ruled out. The fact that the information was provided voluntarily and with a view to avoiding or minimising a penalty is, in my opinion, no basis for regarding the commercial interests involved as unworthy of protection. Otherwise, undertakings that have cooperated with the Commission would suffer a further penalty, in addition to whatever penalty is ultimately considered appropriate, in the form of the damage caused to their commercial interests (para 93).
Therefore, in my view, AG Cruz Villalon's EnBW Energie Opinion (because of its different technical approach) does put some pressure on the CJEU to finally and explicitly take a position on the compatibility with EU law of the protection of leniency applications that the European Commission and the National Competition Authorities within the European Competition Network are pursuing (see Resolution of 23 May 2012 on the protection of leniency material in the context of civil damages actions)--beyond the general remarks made in Donau Chemie.
 
Indeed, the CJEU failed to close that door in Donau Chemie by indicating that:
47 By contrast, the fact that such a refusal is liable to prevent those actions from being brought, by giving the undertakings concerned, who may have already benefited from immunity, at the very least partial, from pecuniary penalties, an opportunity also to circumvent their obligation to compensate for the harm resulting from the infringement of Article 101 TFEU, to the detriment of the injured parties, requires that refusal to be based on overriding reasons relating to the protection of the interest relied on and applicable to each document to which access is refused.
48 It is only if there is a risk that a given document may actually undermine the public interest relating to the effectiveness of the national leniency programme that non-disclosure of that document may be justified.
Hence, the debate is alive and kicking (on the CJEU's door) and a more definite answer is needed. Personally, I would support a very clear indication by the CJEU that leniency applications do not merit special treatment and, consequently, need to be disclosed to (credible) potential damages claimants and always under the supervision and within the context of judicial procedures. Otherwise, the leniency policy will kill damages actions and, even if it is very hard to trade-off the advantages and disadvantages of both policies, it seems clear that allowing for private redress and effective compensation is a requirement under EU law (as the CJEU has been so keen to consistently emphasise since Courage).
 
In the end, I would submit that the CJEU should bring his reasoning a step beyond and determine that "giving the undertakings concerned, who may have already benefited from immunity, at the very least partial, from pecuniary penalties, an opportunity also to circumvent their obligation to compensate for the harm resulting from the infringement of Article 101 TFEU, to the detriment of the injured parties" goes beyond the scope of the leniency programme--which advantages need to be contained within the sphere of the administrative effects (or, put otherwise, within the sphere of public enforcement).
 
Otherwise, the Commission and the NCAs will continue in their schizophrenic quest against cartels, where they try to have their cake (numerous leniency applications leading to resounding fines for the rest of the cartelists) and eat it too [by fostering a system for effective (collective) private reddress that, simply, cannot coexist peacefully with (or at least, cannot blossom under) full-blown leniency protection].

CJEU gives blow to competition lawyers: Your (legal) opinion is worthless (C-681/11)

In its Judgment of 18 June 2013 in case C-681/11 Schenker and Others, the Court of Justice of the European Union has settled the difficult issue of whether an error with regard to the lawfulness of market conduct is unobjectionable in the case where the undertaking acts in accordance with advice given by a legal adviser experienced in matters of competition law and the erroneous nature of the advice was neither obvious nor capable of being identified through the scrutiny which the undertaking could be expected to exercise.

The CJEU has gone beyond the very strict test proposed by Advocate General Kokott (see comments here) and has very bluntly determined that
38 […] the fact that the undertaking concerned has characterised wrongly in law its conduct upon which the finding of the infringement is based cannot have the effect of exempting it from imposition of a fine in so far as it could not be unaware of the anti-competitive nature of that conduct. 
40 […] the national competition authorities may exceptionally decide not to impose a fine although an undertaking has infringed Article 101 TFEU intentionally or negligently. That may in particular be the case where a general principle of European Union law, such as the principle of the protection of legitimate expectations, precludes imposition of a fine. 
41 However, a person may not plead breach of the principle of the protection of legitimate expectations unless he has been given precise assurances by the competent authority (see Case C‑221/09 AJD Tuna [2011] ECR I‑1655, paragraph 72, and Case C‑545/11 Agrargenossenschaft Neuzelle [2013] ECR I‑0000, paragraph 25). It follows that legal advice given by a lawyer cannot, in any event, form the basis of a legitimate expectation on the part of an undertaking that its conduct does not infringe Article 101 TFEU or will not give rise to the imposition of a fine
43 Consequently, the answer to the first question is that Article 101 TFEU must be interpreted as meaning that an undertaking which has infringed that provision may not escape imposition of a fine where the infringement has resulted from that undertaking erring as to the lawfulness of its conduct on account of the terms of legal advice given by a lawyer or of the terms of a decision of a national competition authority (C-681/11at paras 38 to 43, emphasis added).
As I said already, but particularly as a result of the very blunt approach to this matter by the CJUE, in my view, in practice, this approach may generate the result that (very expensive, specialised) legal advice in EU Competition law matters is not worth the paper it is written on--and, consequently, undertakings may not even bother seeking (and paying for) it. 
 
Moreover, the level of pressure under which competition specialists will now operate may make it impossible for them to effectively cover (ie insure) their potential liability at reasonable costs--thereby having a negative effect on the availability and affordability of good quality legal advice in this field.

I suggested that the CJEU should depart from the Opinion of AG Kokott by adopting a more flexible approach and setting a less demanding standard for this defence (and,consequently, creating some room for an effective 'serious legal advice' defence).

In my view, that would have been preferable because resort to 'sound legal advice' can be coupled with the requirements connected with the implementation of effective competition compliance programs for the purposes of giving undertakings a chance of ever succeeding in proving lack of intention or unobjectionable conduct. In that regard, there seems to be some need for further consistent developments of the rules applicable in the 'self-assessment' paradigm created by Regulation 1/2003. 

However, today's Judgment provides anything but consistency in that regard and gives a strong blow to everyone involved in legal advice in competition law matters. It seems unclear to me that the net outcome will be more (investment in) compliance with EU Competition Law.

A strong defense of the 'welfare standard' in #antitrust #enforcement (#welfare trumps #choice): end of the debate?

The April 2013 Fordham Law Review [Vol 81 Iss 5] publishes the proceedings of a recent symposium on the (never-ending) debate concerning the goals of antitrust law. It might be surprising that antitrust scholars are still discussing the goals of the discipline, but it remains true that, as the recently parted Robert H Bork emphasised 20 years ago: "Antitrust policy cannot be made rational until we are able to give a firm answer to one question: What is the point of the law--what are its goals? [...] Only when the issue of goals has been settled is it possible to frame a coherent body of substantive rules" [The Antitrust Paradox, New York: The Free Press, 1993) p. 50].

Of all the contributions to the symposium, I find that Joshua D Wright and Douglas H Ginsburg's, 'The Goals of Antitrust: Welfare Trumps Choice' is particularly worth reading. As the authors stress
The promotion of economic welfare as the lodestar of antitrust law -- to the exclusion of social, political, and protectionist goals -- transformed and gave intellectual coherence to a body of law Robert Bork had famously described as paradoxical. Welfare-based standards have benefitted consumers and the economy and have led to greater predictability in judicial and agency decision making. In the latest of numerous challenges to the welfarist understanding of antitrust, Neil Averitt and Robert Lande propose their "consumer choice" standard as an alternative they claim takes better account of the nonprice dimensions of the competitive process. Adoption of the consumer choice framework would have seriously detrimental consequences for consumers, however. Both economic theory and empirical evidence are replete with examples of business conduct that simultaneously reduces choice and increases consumer welfare through lower prices, increased innovation, or higher quality products and services. Moreover, the welfarist approach already incorporates the tradeoffs between price and quality that consumers face. The flaw of the choice standard is that it altogether rejects the economic approach to dealing with those tradeoffs and instead imposes a structural presumption that the number of firms or brands in competition is directly correlated with consumer welfare. Shifting to defendants the burden of justifying any reduction in consumer choice would be merely a revival of the long ago repudiated inhospitality tradition in antitrust that should and likely will be rejected by the enforcement agencies and the courts.
My own personal take on the issue of the goals of competition law is that
there has been substantial debate as regards the objectives or goals of competition law. Notwithstanding that debate, a consensus has been reached as regards the restriction of the goal of competition law to economic considerations and, there is a majority view which considers that competition law should protect competition as a process, in order to maximise social welfare. Inasmuch as the pursuit of alternative or secondary goals (of a social or industrial nature) conflicts with the main economic goals—which will be the case in most circumstances—competition law should disregard such ‘secondary’ considerations and be guided exclusively by economic criteria. In the EU, market integration considerations have been historically important, but have lost momentum as the evolution of the internal market reached maturity. Therefore, in my view, as a part of EU economic law, competition law should be guided by economic efficiency considerations and have as its goal the protection of competition as a process, in order to maximise social welfare—even if the specific contours of this criterion (ie, total or consumer welfare) remain relatively undefined. In my opinion, and in the light of the position of most economists, the proper goal should be specified as the maximisation of total social welfare [Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 97].
I am convinced that the debate is unlikely to end soon. As  Martin cleverly put it, the evolution of this debate is ‘phoenix-like’, recurring, and one where ‘in each cycle participants exhibit no memory of the debate’s previous incarnations’ [Martin, Stephen Martin, 'The Goals of Antitrust and Competition Policy', in 1 Issues in Competition Law and Policy (Chicago, ABA, 2008) 79-84]. Therefore, we will probably remain engaged in this intellectual and academic exercise for a while. 

However, maybe we have not realized that the debate is about a different issue altogether. As Eleanor Fox claims in her contribution to the Fordham Law Review special issue, 
The core debate is how to design and apply antitrust principles so that robust markets are likely to result or be preserved, not what are the goals of antitrust [...] The exercise of debating goals of U.S. antitrust, while provocative and interesting, obscures the two data points that actually drive the debate on most applications of antitrust law—perspective and assumptions. It may be more productive to state the goals or essence of American antitrust at a level of generality, as did the Antitrust Modernization Commission in its 2007 Report—antitrust is for competition and consumers—and to proceed to examine particular categories of conduct and to debate what the rules and standards should be.
We might as well follow her lead and ditch the goals debate altogether. Or maybe we won't... 

If you fine me, I have the right to appeal ~ even if someone else foots the bill (C-652/11)

In its Judgment of 11 April 2013 in case C-652/11 Mindo, the Court of Justice of the EU (CJEU) has reversed a prior Judgment of the General Court (GC) whereby it denied active standing to appeal a competition fine to an undertaking that was jointly and severally liable for its payment, on the basis that the other jointly liable party had already paid the fine in full and had not seeked recovery of any amounts for a period of 5 years.

The CJEU Judgment is interesting because it comes to set the general principle that, as long as there is a possibility of being made to pay the amount of the fine (fundamentally, because the claim is not time-barred and there are no specific indemnity agreements between the jointly liable parties), there is always a residual benefit for the undertaking to appeal the fine.

I think that the Mindo Judgment must be welcome and the CJEU has rightly quashed the prior GC ruling, which was basically relying on a set of 'factual' assumptions that were too far fetched. As the CJEU clearly emphasises, the GC erred in law in assuming that, by simply waiting to claim, Mindo's co-debtor had waived its right to seek reimbursement of the fine (particularly in a scenario where there was a pending appeal and, on top of that, Mindo had filed for bankruptcy and was under administration in accordance with Italian law--which justify the 'wait and see' strategy adopted).

However, I think that the CJEU could have even gone one step further and set the broader principle that the addressee of a fine is always entitled to appeal it if there are sufficient legal grounds, regardless of who ends up paying the fine. Otherwise, in cases where there is a dissociation between the fined undertaking and the payee of the fine (not necessarily due to their joint liability), it could be that no one has standing to appeal. 

The CJEU ducked this issue by not addressing the second ground of appeal, submitted in the alternative, where it was alleged that denial of active standing to appeal would infringement Mindo’s right to a fair trial. The fact that the CJEU did not address this issue derives probably only from the fact that it was presented in the alternative. However, given that the CJEU made no reference to the right of a fair trial, this can also be read as an exercise of certain self-restraint on the part of the Court, and as an attempt to open that Pandora's box only when necessary (since, indeed, the extension of fair trial rights to companies in the setting of EU competition law is not without problems, as I have discussed in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?). Be it as it may, in general terms, the referral of the case back to the GC should be welcome.

Not worth the paper it is written on? ~ AG on the expectations created by legal advice in #competition (C-681/11) #EULaw

In her Opinion in case C-681/11 Schenker and Others, Advocate General Kokott has addressed a very relevant question regarding the possibility to avoid competition sanctions on the basis of the (legitimate) expectations created by professional legal advice. In her Opinion, she expressly addresses the question 'Is an error with regard to the lawfulness of conduct unobjectionable in the case where the undertaking acts in accordance with advice given by a legal adviser experienced in matters of competition law and the erroneous nature of the advice was neither obvious nor capable of being identified through the scrutiny which the undertaking could be expected to exercise?'. In my view, as clearly emphasised by the AG, this is of major relevance in the 'self-assessment' paradigm created by Regulation 1/2003.

According to the AG, the framework for the analysis must be the following:
Apparently, the members of the [cartel] wrongly considered that they had stayed ‘on the safe side’, as far as European Union law was concerned, by restricting the geographical scope of their cartel to Austria alone. In the light of the case-law of the European Union courts and the administrative practice of the European Commission, there is no doubt that that legal opinion was objectively incorrect. However, it is unclear whether the infringement of the prohibition of cartels under EU law can also be attributed subjectively to the undertakings concerned. In other words, it must be examined whether the undertakings participating in the [cartel] culpably infringed the prohibition of cartels under EU law (Opinion in C-681/11, at para 36, emphasis in the original, footnotes omitted).
In that regard, and after clearly indicating that the principle of nulla poena sine culpa applies in the field of EU Competition law as an implicit requirement of Articles 6(2) of the European Convention on Human Rights and 48(1) of the European Charter of Fundamental Rights [for general discussion on human rights in this area, see A Sanchez Graells, 'The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?', in Kosta, Skoutaris & Tzevelekos (eds), The Accession of the EU to the ECHR (Hart Publishing, 2014), available at http://ssrn.com/abstract=2156904], AG Kokott goes on to explain that:
44. According to the principle of nulla poena sine culpa, an undertaking may be held responsible for a cartel offence which it has committed on a purely objective basis only where that offence can also be attributed to it subjectively. If, on the other hand, the undertaking commits an error of law precluding liability, an infringement cannot be found against it nor can it form the basis for the imposition of penalties such as fines.
45. It should be stressed that not every error of law is capable of precluding completely the liability of the undertaking participating in the cartel and thus the existence of a punishable infringement. Only where the error committed by the undertaking regarding the lawfulness of its market behaviour was unavoidable – sometimes also called an excusable error or an unobjectionable error – has the undertaking acted without fault and it cannot be held liable for the cartel offence in question.
46. Such an unavoidable error of law would appear to occur only very rarely. It can be taken to exist only where the undertaking concerned took all possible and reasonable steps to avoid its alleged infringement of EU antitrust law.
47. If the undertaking concerned could have avoided its error regarding the lawfulness of its market behaviour – as is often the case – by taking adequate precautions, it cannot escape any penalty for the cartel offence committed by it. Rather it will be liable at least for a negligent infringement, which, depending on the seriousness of the questions of competition law involved, may (but not must) lead to a reduced fine.
48. It is necessary to assess whether the error of law committed by an undertaking participating in a cartel was avoidable or unavoidable (objectionable or non-objectionable) on the basis of uniform criteria laid down in EU law, so that uniform conditions in respect of EU substantive competition law apply to all undertakings operating in the internal market (‘level playing field’) (Opinion in C-681/11, at paras 44 to 48, bold emphasis in the original,  underlined added, footnotes omitted).
After briefly referring to the old Miller case law on the suitability of the (legitimate) expectations created by legal advise as a competition defence, the AG enters an interesting revision of this issue in the new paradigm created by Regulation 1/2003 and she considers that
57. [...] obtaining expert legal advice has a completely different importance in the system under Regulation No 1/2003 than was the case in the system under Regulation No 17. Consulting a legal adviser is now often the only way for undertakings to obtain detailed information about the legal situation under antitrust law.
58. It is not acceptable, on the one hand, to encourage undertakings to obtain expert legal advice but, on the other, to attach absolutely no importance to that advice in assessing their fault in respect of an infringement of EU antitrust law. If an undertaking relies, in good faith, on – ultimately incorrect – advice provided by its legal adviser, this must have a bearing in cartel proceedings for the imposition of fines.
59. In particular, the purely civil liability of a lawyer for incorrect legal advice given by him does not, contrary to the view taken by the European Commission, constitute adequate compensation in itself. Civil recourse by a client against his lawyer is generally subject to considerable uncertainty and, moreover, cannot dispel the condemnation (‘stigma’) associated with the imposition of cartel – i.e. quasi-criminal – penalties against the undertaking.
60. Of course, obtaining legal advice cannot exempt an undertaking from all individual responsibility for its market behaviour and for any infringements of European competition law. The opinion of a lawyer can never give carte blanche. Otherwise, this would open the way to the production of opinions tailored to the interests of the undertaking and the power to give official negative clearance abolished by Regulation No 1/2003 would be transferred de facto to private legal advisers, who do not have any legitimacy in that regard.
61. In accordance with the fundamental objective of the effective enforcement of European competition rules, any expectations on the part of an undertaking created by legal advice may be recognised as the basis for an error of law precluding liability only where, in obtaining that legal advice, certain minimum requirements were complied with, which I will describe briefly below.
Minimum requirements in obtaining legal advice
62. The basic condition for taking into consideration the legal advice obtained by an undertaking is that the undertaking relied in good faith on that advice. Protection of legitimate expectations and good faith are closely related. If the facts justify the assumption that the undertaking relied on a legal opinion against its better judgment or that the report was tailored to the interests of the undertaking, the legal advice given is irrelevant from the very outset in assessing fault for an infringement of the rules of European competition law.
63. Furthermore, the following minimum requirements apply to obtaining legal advice, in respect of which the undertaking concerned itself bears the risk and responsibility for compliance.
64. First of all, the advice must always be obtained from an independent external lawyer. [...]
65. Second, the advice must be given by a specialist lawyer, which means that the lawyer must be specialised in competition law, including European antitrust law, and must also regularly work for clients in this field of law.
66. Third, the legal advice must have been provided on the basis of a full and accurate description of the facts by the undertaking concerned. If an undertaking has given only incomplete or even false information to the lawyer consulted by it regarding circumstances which originate from the area of responsibility of the undertaking, the opinion of that lawyer cannot have an exculpating effect in cartel proceedings in relation to any error of law.
67. Fourth, the opinion of the consulted lawyer must deal comprehensively with the European Commission’s administrative and decision-making practice and with the case-law of the European Union courts and give detailed comments on all legally relevant aspects of the case at issue. An element which is not expressly the subject-matter of the legal advice but may possibly be inferred implicitly from it cannot form the basis for recognition of an error of law precluding liability.
68. Fifth, the legal advice given may not be manifestly incorrect. No undertaking may rely blindly on legal advice. Rather, any undertaking which consults a lawyer must at least review the plausibility of the information provided by him.
69. Of course, the diligence expected of an undertaking in this regard depends on its size and its experience in competition matters. The larger the undertaking and the more experience it has with competition law, the more it is required to review the substance of the legal advice obtained, especially if it has its own legal department with relevant expertise.
70. In any event, every undertaking must be aware that certain anti-competitive practices are, by their nature, prohibited, and in particular that no one is permitted to participate in ‘hardcore restrictions’, for example in price agreements or in agreements or measures to share or partition markets. Furthermore, large, experienced undertakings can be expected to have taken note of the relevant statements made by the European Commission in its notices and guidelines in the field of competition law.
71. Sixth, the undertaking concerned acts at its own risk if the legal opinion obtained by it shows that the legal situation is unclear. In that case, the undertaking is at least negligent in accepting that by its market behaviour it infringes the rules of European competition law.
72. Admittedly, in the light of the minimum requirements I have just proposed, the value of legal opinions given by lawyers is slightly diminished for the undertakings concerned. However, this is inherent in the system created by Regulation No 1/2003 and is also no different in conventional criminal law; in the final analysis, any undertaking is itself responsible for its market behaviour and bears the risk for infringements of the law it commits. Absolute legal certainty cannot be secured by obtaining legal advice from a lawyer. However, if all the abovementioned minimum requirements are satisfied, an error of law precluding liability can be taken to exist where the undertaking concerned has relied in good faith on an opinion from its legal adviser.
73. It should be added that a lawyer who, by delivering opinions tailored to the interests of an undertaking, becomes an accomplice in the undertaking’s anti‑competitive practices will have to contend with not only consequences under the rules of civil law and of professional conduct, but may possibly also himself be subject to penalties imposed in cartel proceedings (Opinion in C-681/11, at paras 57 to 73, underlined added, footnotes omitted).
In my view, the very high minimum requirements suggested by AG Kokott may seem desirable from a theoretical perspective but, in practice, may generate the result that (very expensive, specialised) legal advice in EU Competition law matters is not worth the paper it is written on--and, consequently, undertakings may not even bother seeking (and paying for) it. 

Moreover, the level of pressure under which competition specialists would operate may make it impossible for them to effectively cover (ie insure) their potential liability at reasonable costs--thereby having a negative effect on the availability and affordability of good quality legal advice in this field. 

On the other hand, building a strong in-house competition team may even be self-defeating, as it comes to raise the threshold of diligence applicable to the undertaking. Therefore, companies may even consider whether they are better off simply omitting competition legal advice.

Given the complexity of the assessments required in certain cases, as well as the standard practice of introducing caveats and limitations in legal opinions (not only in this field of legal practice), coupled with the (not-so) residual duty of the requesting undertakings to double-check the accuracy of the legal advise obtained; successfully relying in a defence based on the legitimate expectations created by the advice of the legal expert seems very hard to achieve.

In that regard, I think that the CJEU should depart from the Opinion of AG Kokott in one of two possible ways: a) either the CJEU avoids endorsing her analysis and confirms the full applicability of Miller in the post- Regulation 1/2003 paradigm (which would generate simplicity and avoid litigation), or b) it adopts a more flexible approach and sets a less demanding standard for this defence (and,consequently, creates some room for an effective  'serious legal advice' defence). 

In my view, route b) would be preferable because resort to 'sound legal advice' can be coupled with the requirements connected with the implementation of effective competition compliance programs for the purposes of giving undertakings a chance of ever succeeding in proving lack of intention or unobjectionable conduct. In that regard, there seems to be some need for further consistent developments of the rules applicable in the 'self-assessment' paradigm created by Regulation 1/2003.

Confidentiality and understandability of EU Courts' Judgments: An impossible balance? (T-135/09)

Today's Judgment of the General Court in case T-135/09 Nexans v European Commission offers an example of a case where protection of confidential information makes it very difficult (if not completely impossible) to understand the reasoning followed by the GC to (partially) quash the appealed Decision by the European Commission (in this case, ordering an inspection in a competition law matter).

One of the grounds for appeal was that the European Commission did not have reasonable suspicions of an infringement of the competition rules on the part of the applicants  concerning certain of the products covered by the inspection decision; and, consequently, the decision ordering the inspection was faulty due to lack of a proper motivation. 

The General Court addresses this issue at paras 60 to 94 of the T-135/09 Judgement. However, the substantial suppression of confidential information in some parts of the case (for instance, paras 82 and 86 to 88 are suppressed almost entirely) makes it almost impossible to follow the GC's line of argument and leaves the readers scratching their heads and trying to make some sense out of the context provided by the rest of the Judgment--which may lead to improper conclusions, unfortunately.

In these cases, maybe it would be useful to obtain a less limited confidential version if at all possible, or at least a summary of the (general) reasons for the decision reached by the GC--which help practitioners and scholars make some sense of the case and be able to use it in the future, at least as a matter of principle. Otherwise, such important Judgments (which deal with important matters of due process rights, as in the case at hand) will remain impossible to understand and will not contribute to the development of sound practice and fair adjudication in competition law matters. Nonetheless, proper protection of confidential information and ensuring the understandability of case law may not always be attainable simultaneously...

EU's accession to the ECHR and due process rights: Nothing new under the sun?

I have just posted a new paper on SSRN about the potential implications of the EU's accession to the European Convention on Human Rights (ECHR), particularly in terms of the scope and intensity of judicial review of enforcement decisions in competition law cases.

In light of the ongoing discussion on the potential need for reform of the enforcement system of EU competition law to make it compliant with Article 6(1) ECHR, the aim of the paper is to contribute to the debate in a threefold manner by: i) sketching the peculiarities of the enforcement of competition law (in general, but with a focus on EU competition law), which basically derive from the complex and data intensive economic assessments required in most cases; ii) critically appraising the requirements of Article 6(1) ECHR in the field of EU competition law in view of those peculiarities; and, finally, iii) assessing the impact of those requirements in terms of the potentially necessary amendments to the EU competition law enforcement system upon the EU’s accession to the ECHR.

The basic contention of the paper is that, given the specific architecture of the EU competition law enforcement system under Regulation 1/2003 (and the domestic competition laws of Member States) — which have crystallized in a network of highly specialised and independent administrative agencies that, generally, offer procedural guarantees equivalent (or superior) to those of most tribunals in other areas of the law — and as long as an effective (soft or marginal) judicial review mechanism is available to the undertakings affected by sanctions due to EU competition law infringements, no significant changes are required in order to make the system comply with Article 6(1) ECHR. This position is further supported by the express normative assumption that undertakings (or companies) deserve a relatively more limited protection than individuals under the ECHR and, more specifically, under Article 6(1) ECHR — at least as regards non-core due process guarantees, such as the applicable standard of review (and as opposed to ‘core’ due process guarantees such as the presumption of innocence, the principle of equality of arms, the right to have full access to the evidence, or the right not to suffer undue delays).

The full paper is available here: http://ssrn.com/abstract=2156904. 

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.