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During the 1990s substantial changes have taken place in the application of EC competition law, towards a greater reliance of economic analysis. In turn, these changes First, after fifteen years of discussions, in late 1989 Council Regulation 4069/89 introduced a mandatory control for mergers of Community dimensions in the EC. The introduction took place according to Article 308 of the Treaty (at the time Article 235) according to which the Council may introduce new legislation, which is essential for pursuing the objectives of the European Community. Recourse to this Article was therefore based on the fundamental role that competition law was considered to have on the achievement of the basic Community aims on the basis of Article 3(1) and Article 2 The introduction of merger control had important consequences on competition law at large because merger analysis is perspective and concerns the expected effects of the merger on competition in the market. Therefore it is mainly based on the analysis of the economic structure and conditions in the market, at a time in which attention to efficiencies had already been put at the centre of antitrust economic analysis. This in turn influenced the formalistic attitude in the analysis under Article 81 and 82 as well. Secondly, in the 1980s and early 1990s in a number of decisions concerning vertical restraints, the ECJ stated the need for evaluating prohibition under Article 81(1) in their which aminobutanol was an input. Therefore it terminated its supply agreement with Zoja. The Commission and the Court made an early application of the essential facility doctrine, and sanctioned the behaviour as refusal to deal. However ICI was substituting for Zoja, and there was no change in the competitive situation from the point of view of the consumer. In United Brands, the company tried to terminate and then boycott a distributor which had undertaken to distribute bananas also from a competitor. It is doubtful that the termination would have lead to a reduction of supply to the consumer: actually two different distributors of different brands would have competed more effectively. See Fox (1981). economic and legal context68. The issue raised by the ECJ was that, with the exception of hard-core restrictions concerning price fixing or market sharing, vertical and cooperative agreements could not in principle be considered as restrictive by object. They could well pursue a legitimate interest, and therefore would not need to be prohibited (and thus did not need an exemption under Article 81(3)). This analysis was later extended to horizontal cooperation agreements69. It may be relevant to clear that in these judgments the ECJ was not arguing for an application of Article 81(1) on the basis of the “rule of reason”: according to the Court, as later specified in Metropole,70 the balancing of pro and anti-competitive effects of agreements should take place within Article 81(3). Rather, the ECJ was arguing that with the exception of hard-core restrictions, agreements cannot be presumed to be restrictive and suggested that attention should be given to the economic context in Third, at the turn of the 1980s competition legislation was introduced in a number of countries (Ireland, Italy), or was modified in those which already had one (France, Spain). Usually these new laws were structured according to the provision of Article 81 and 82 of the EC Competition Law. However, the way they were applied was often less legalistic and more influenced by modern antitrust doctrine, giving more weight to the role of efficiency in the explanation of practices, and requiring analysis of their effects on consumer welfare. This gave more strength to the opinion of those who thought the application of EC Competition Law would move toward an economic-based approach, oriented by the developments in legal and economic analysis we have examined 68 L. C. Nungesser Kg E Kurt Eisele v. Commission of the European Communities, Case 258/78, (1982) ; Pronuptia de Paris v. Schillgallis, Case 161/84, (1986);De Limitis v. Henninger Bräu, Case C-234/89, (1991). 69 Court of First Instance in Case T-374/94, European Night Services v. Commission, (1998). 70 See Métropole Television SA and Others vs Commission C 75/84 (1996). 71 Among the early critics see Korah (1990); Pera-Todino (1996); Siragusa (1997). Finally, also as a result of the above, the Commission decided to move its attention from vertical to horizontal restraints, and in particular to cartel enforcement, channelling its b) Article 81 and vertical restraints The treatment of agreements was the area which was first affected by change. In particular, a first step was to question the way in which Article 81 was applied to vertical restraints. In the US, already in the 1970s the Sylvania doctrine had excluded a per se prohibition of exclusive agreements. The decisions of the ECJ, which we have referred to above, followed the same inspiration72. Therefore, it seemed appropriate to revise the EC approach as well. In the then existing framework of Reg. 17/62 the intent was reached through the enactment of a block exemption for vertical agreements which exempted agreements undertaken by concerns which had less than 30% of the market, and in the issuance of detailed guidelines which were based on a thorough economic analysis of the effects of the agreements73. The regulation extended an exemption to vertical agreements whereby the market share of the parties concerned were below 30%, unless they had as their object retail price maintenance or exclusive territorial restrictions, leaving however the possibility of a prohibition in case an agreement corresponding to a lower market share had a restrictive effect. The Guidelines, issued in 2000, went in detail to specify the criteria according to which the effects of the agreements would be evaluated. It is relevant that in the guidelines the relevance of vertical restraints to the end of achieving efficiency is clearly recognized, and the direct and indirect effect on consumers of agreements according to the criterion set in Article 81(3) becomes the standard according to which 72 While these decisions did not argue for the application of the rule of reason, they called for an economic analysis of practices. See Amato (1997). 73 Regulation on the application of Art.81 par. 3 to certain categories of vertical agreements and concerted practices, Reg 2790, 22.12, 1999 and the Guidelines on Vertical Restrictions O.J.E.C. C 291 of 13.10.2000. The same line of thought led the Commission to formulate three set of guidelines on horizontal cooperation (2000), according to which agreements aimed at cooperation in research and development, specialization and transfer of technologies would be automatically exempted under article 81(1), as long as the market shares of the participating enterprises was sufficiently low, and firms where independent in the phase Altogether, the new approach made less relevant the distinction between Article 81(1) and 81(3) as even agreements which would fall under Article 81(1) would be automatically exempt if they would be covered by the provisions of the guidelines. However, the introduction of an economic approach has had even more far-reaching consequences: it put in question the same way in which Reg. 17/62 governed the application of Article 81, and in particular the Article 81(3) authorization system. Therefore, even before the vertical regulation was enacted, the Commission issued a White Paper for the modernization of the application of EC competition law75. After three years of public discussion, this led to the adoption of a new Council Regulation, Reg. 1/2003, the Modernization Regulation, which completely overhauled the criteria The Modernization Regulation had many aims, among which the increase in the investigative power of the Commission, the introduction of new powers and types of decision and the possibility to open sector inquiries. Furthermore the regulation states the prevalence of EC competition provisions over national competition law, so that EC competition law becomes the one and only competition law for practices affecting the common market; and it dictates the criteria for a decentralized application of EC 74 Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements, 75 White Paper on modernization of the rules implementing Articles 85 and 86 of the EC Treaty, OJ C 76 See among the others Gerber-Cassinis (2006). However, to our goals, three aspects are really relevant. Firstly, the regulation completely overhauled the previous system of application of Article 81 based on notifications, introducing a “legal exception” system whereby agreements are evaluated ex post on the bases of the whole of Article 81. The legal exception system makes explicit that the criteria of application of the “rule of reason” based on economic analysis become the rule for the application of article 81. This may not appear particularly new: we have noted that in Metropole the ECJ, while arguing that Article 81(1) was not concerned with the rule of reason but with the inherent characteristics of the restrictions, remarked that the rule of reason analysis should be performed through the application of Article 81(3). However, at the time a widespread application of the rule of reason was prevented by the fact that exemptions could be obtained only through a notification to the Commission. Now, instead, this criterion becomes the rule for the Commission, the national authorities and the national judges. This wider recourse to the rule of reason obviously gives great importance to the system of legal and economic presumptions concerning the practices under examination. As for legal presumptions, Regulation 1/2003, following previous EC jurisprudence, specifies that the burden of proof of proving restrictions under Article 81(1) is on the plaintiff, be it the Commission, a national authority of a private party in front of a judge, while the burden of proof of the exception under Article 81(3) is on the defendant. Economic presumptions follow from economic analysis, which may provide an ex-ante evaluation of the expected effect of the conducts on competition, and may provide the economic criteria according to which the presumptions may be verified. These legal and economic criteria have been further explained by the Commission, in its 2004 notice on the application of Article 81(3), which gives ample consideration to the possibility that arrangements and practices may result in positive effects on consumer That consumer welfare has become the standard for evaluating the competitive harm is shown by the recent decision of the Court of First Instance (CFI) in the case Glaxo- 77 Guidelines on the application of Article 81(3) of the Treaty, O.J.E.C. C 101 of 17.4.2004. Smith Kline78. The case concerned an imposition by GSK to its distributors in Spain not to re-export its drugs, which were sold at an administered price set at a much lower level than in other European countries. The Commission had argued that GSK unilateral imposition was equivalent to an agreement. And pretended that the export ban hampered competition. The CFI, while refusing the first argument, argued that there was in fact no restriction of competition in the new markets, because the practice did not reduce consumer welfare: in fact, because drug prices in all the EU countries are administered by law, parallel exports did not lead to any improvement in consumer welfare and rather corresponded to a mere transfer of profits from producers to parallel In the field of Article 82, concerning the abuses of dominance, the role of economic analysis appears to have evolved more slowly. A stream of economic analysis according to which the structure of the market was particularly relevant has for a long time guided In particular, this approach is reflected in the treatment given to practices such refusal to deal and rebates by dominant companies. Since ICI, the Commission has sanctioned refusals to deal by a dominant company, and has elaborated a wide-ranging doctrine of access to essential facilities, which requires a dominant company to guarantee access to an input it controls every time that such an access is necessary to effectively compete in the market and the input cannot be reproduced economically. Such a provision extends to IP rights when the aim of IP rights is necessary to offer a new product. Despite this doctrine has been given economically reasonable interpretation, guided by economic considerations in Oscar Bronner79, it appears that in other cases, ranging from ICI to the recent IMS Health80, the Commission and the Court had been mainly 78 Glaxo Smith Kline Services v. Commission T 168/01 (2006). 79 See Bronner/Mediaprint, Case C-7/97, (1998).
The previous analysis shows that the process of change in the application of EC competition law has been mostly directed at improving legal decision through the application of economic analysis, along the lines suggested by the developments we discussed in Section I. In particular, the framework of assessment used by the Commission relies on economic analysis of the efficiency effects of the practices on competitors as well as on the consumers. However, one may wonder how much the introduction of economic analysis based on consumer welfare, or on more refined criteria of economic and legal evaluation, is in fact compatible with a paradigm in which the basic objective of competition law was the protection of the competitive process based on rivalry, according to the traditional ordoliberal interpretation. From this point of view, however, it is probably appropriate to distinguish between the ordoliberal legal vision and the ordoliberal economic analysis. Only the first one seems essential to the ordoliberal paradigm, and consists of the constitutional role of competition law in the legal order, and therefore of the role of the process of competition as a distinct objective of the law. However, it is far from clear that such a legal vision must be necessarily connected to the economic analysis which characterized the early ordoliberal thinkers and which was the consequence of both the historical experience of Germany in the 1920s and 1930s and of the inspiration by the structuralist paradigm. In particular, the development of the criteria for the application of EC competition law took place at a time in which structuralism was the dominant paradigm of analysis. As we have discussed, this paradigm suggested wide use of per se prohibitions of agreements aiming at limiting autonomous behaviour. In the US, the Schwinn doctrine about vertical agreements prevented exclusive distribution. Cooperative agreements were seen as potential instruments of collusion. And the maintenance of a certain structure of the market was seen as the guiding principle for evaluating unilateral conduct. This framework of analysis was dominant until the early 1970s. In this context, the approach to vertical agreements in the EC can certainly be considered overzealous, but the application of the EC law may be considered not incompatible with the then prevailing schemes of economic analysis. If structuralism is disentangled from the ordoliberal paradigm, the issue then becomes whether an approach based on the protection of the competitive process is compatible with the application of modern economic analysis. We have already argued at the end of Section I that an analysis based on the effects of the practices could well be compatible with such an approach, provided that efficiency effects are not considered to justify elimination of competition, or its reduction unrelated to the benefits to the consumers. One can further note that it is not the attention to the competitive process which led to the excessive formalism in the application of Article 81. As we have argued earlier, this appears in fact to depend on the way in which the Commission tended to interpret Article 81. This in turn depended on its preoccupation with the objective of market integration, and the risk that vertical agreements could lead to geographical A clear indication comes from comparing the practice of the Commission with the decisional practice of the ECJ in the field of agreements. Already in 1966, in Technique Minière86, in examining a case of exclusive distribution, the ECJ argued that once the practice does not have as an “object” the restriction of competition, i.e. the fixing of prices or the subdivision of the market, the prohibition in Article 81(1) should be evaluated on the basis of the legal and economic context in which the agreement took 86 See Sociètè La Technique Minière v Maschinenbau Ulm Gmbh C- 56/65 (1966) place. The Court therefore opened the way to an economic interpretation of the law, which could go beyond a formalistic prohibition. The fact that such path was not followed depended on the prevalence at the time of the preoccupation of market integration: in the Consten/Grundig decision, the Commission considered as forbidden by objective a clause of exclusive territorial restriction protecting Consten, which was the exclusive distributor of Grundig in France, despite the parties had argued that the clause aimed to protect its investment in the development of the business. The Court accepted this position 87. This decision, together with the way in which the Commission interpreted the two-step analysis in Article 81, opened the way to the formalistic approach we have described above. However, in the above-mentioned Article 81 decisions of the 1980s and 1990s, the ECJ again stated that with the exception of hard-core restrictions, agreements could not be presumed to be restrictive without an economic analysis. These assessments are important because they were reached by the ECJ within the context of the traditional analytical scheme inspired by the ordoliberal tradition. Therefore they implied that, even in that context, a meaningful economic analysis should be carried out before concluding that a restriction to the autonomy of the contracting parties would have “as an objective or as an effect” a restriction of competition, or rather it was just a way to achieve other legitimate objectives, like a better sharing of risks or the creation of appropriate incentives, without any negative In the field of unilateral exclusionary practices the evidence is less clear-cut. At various instances both the Commission and the EC Courts have argued that, even within the traditional paradigm of competition on the merits, the evaluation of the exclusionary effects of the practices should be made on the basis of economic analysis, in order not to hamper practices leading to increases in consumer welfare. However in practice even in this case the evaluation has tended to qualify as restrictive certain practices without further inquiry about their effects. However, it is doubtful that this conclusion derives 87 See Consten & Grundig vs. Commission C 64/556 (1964) from the use of the paradigm of competition on the merits, rather than from its actual application. Performance competition is in fact a vague concept, which must be filled with recourse to economic paradigm, which takes into account the significance and implications on the practice at hand, and in particular its effects on the market. If the practice is the result of a superior performance it may lead to the exclusion of a competitor, but also to an improvement of the supply conditions and to a better treatment of the consumer. We have seen that criteria can be devised to take into account the effects from the side of the consumer, as well as from the point of view of the excluded enterprise. However, most EC decisions in the field of unilateral practices do not appear to conform to these criteria. In fact, the EC approach, has continued to be guided by the idea that the working of the competitive process is related to a certain structure of the market. And this seems at the moment the most relevant problem with III. NEW OBJECTIVES OF EC COMPETITION LAW?
The change seems to have taken place with the arrival of Commissioner Monti, who soon put the emphasis on the role of competition law and policy in increasing consumer welfare.88 This orientation has soon become the official position of the Commission: this is the approach followed in the 2004 Commission notice on the application of 88 In one of his last speeches as Commissioner “Competition for Consumer’s Benefit”, at the 2004 Competiton Day in Amsterdam, Mr Monti recalled that “I said in my hearing before the European Parliament back in 1999(…)that I would give “central importance to the consumer”. Article 81/3, where it is specified that the objective of antitrust law “is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources”.89 In a number of speeches, the successor of Mr Monti, Commissioner Neelie Kroes, and Director General Philip Lowe stated even more clearly that “competition is not an objective itself, but is an instrument for achieving consumer welfare and efficiency.”90 In a recent speech, Lowe explicitly underlined the difference between the old and the new approach.91 He made direct reference to the old ordoliberal paradigm calling for protection of the competitive process, and argued that the Commission has now decided to follow a different paradigm, based on an economic interpretation of competition as an instrument for achieving consumer welfare and efficiency. It follows that practices will be examined on the basis of their effects on these objectives. The new attitude of the Commission has therefore be taken as a clear sign that, as a consequence of more attention to economic analysis and effects of the practices, application of EC competition law is now inspired by the same principles which appear to inspire US However, this new approach rises a number of issues. The first one is how effective the shift has been. While it is true that in some decisions the CFI and the ECJ have recognized the role of consumer welfare as a criterion for evaluating restrictiveness, as we have seen the ECJ in particular still seems to refer to the competitive process as the Second, while the Commission undoubtedly appears to be willing to base its decisions on an approach grounded on economic analysis, the general context in which this is taking place does not appear to be similar to the one in which the diffusion of the 89 See Guidelines on the application of Article 81(3) of the Treaty, above, par. 13. 90 See speech of Neelie Kroes at the London Competition Day, September 2005; in the same vein speech of Philip Lowe at the Cartel Conference held by the Bundeskartellamt in Munich, march 2007, “Consumer Welfare and Efficiency – New Guiding Principle for Competition Law”. efficiency-based approach has taken place in the US. There the establishment of the efficiency-based paradigm has taken place in connection with a vision of competition guided by incentives, characterized by the preoccupation of what we have called “type 1” errors, i.e. that enforcement of antitrust law may hamper efficient practices. In this context, an efficiency-based approach was seen as ensuring that the constraints to the creative force of competition were minimal. This approach seems hardly compatible with the current evolution in Europe. Here there seems to be less confidence about the ability of the incentives to lead to vigorous competition, and more confidence in the ability of antitrust law to achieve desirable results. And a vigorous application of antitrust is suggested in order to remove private obstacles to competition, which are considered to still pervasive93. Such an application, in fact, is guided by very activist intervention, at the basis of which it is possible to discover a preoccupation with the market structure and the appropriate behaviour of dominant firms. This approach appears to be at the bases of the most famous decision of the Monti era, i.e. Microsoft. In particular, the finding of abuse with respect to the joint provision of Microsoft Media Player and Microsoft Windows, which according to the Commission prevented the development of alternative suppliers, has raised a number of very controversial issues about the way in which innovation is developed and provided, as well as the benefits to the consumer from joint supply. 94Furthermore, the evaluation of the Commission appears to have been based not on actual effects on exclusion and consumer welfare, but on perspective long term effects on the possibility of choice of consumers, in turn related to the evolution of the market structure.95 93 Venit (2007), Padilla-Ahlborn (2007). 94 In particular, the products alternative to Media Player were often sold for free, the users tended to install more than one product (so that it was doubtful whether the practice gave rise to exclusion), and in any case the market share of Microsoft in the market for Media Players was relatively low (around 40 per cent). The Microsoft decisions by the Commission and the CFI have been scrutinized in a number of contributions. A number of them are in the issue 1, 2008, of Competition Policy International, including articles by J.Vickers; E.Fox; H.Pate, D.Beard; and K. Bacon.

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