Source: https://www.howtocrackanut.com/blog/tag/special+and+exclusive+rights
Timestamp: 2019-09-20 11:12:11
Document Index: 121189166

Matched Legal Cases: ['CJEU ', 'CJEU ', 'Arts 102', 'CJEU ', 'CJEU ', 'Art 102', 'art 106']

In its Judgment in Club Hotel Loutraki and Others v Commission, T-58/13, EU:T:2015:1, the General Court (GC) has confirmed the previous Decision of the European Commission and considered that Greece had not granted illegal State aid to Organismos Prognostikon Agonon Podosfairou AE (OPAP) through the simultaneous extension of its existing exclusive right to operate certain games of chance and the granting of a new exclusive right to exploit 35,000 Video Lottery Terminals (‘VLTs’) for a period of 10 years in Greece.
The key to the analysis conducted by the Commission and now upheld by the GC is that by overpaying for the extension of the existing exclusive right, OPAP has been able to secure a much larger exclusive right to operate VLTs in Greece. As the GC summarises:
10 As regards, first, the Addendum [which extended the existing exclusive rights for the period 2020-2030], the Commission observed that the study provided by the Greek authorities was based on sales projections elaborated by an independent company specialised in the gambling sector. The net present value of the Addendum was calculated on the basis of those projections, which were considered by the Commission to be reliable.
11 Following that calculation, the Commission found that the amount paid by OPAP in exchange for the Addendum, including the levy imposed by the Greek State corresponding to 5% of the gross gaming revenues generated by the games concerned for the period from 13 October 2020 to 12 October 2030 (see paragraph 4 above), was higher than the net present value of the Addendum.
12 As regards, secondly, the VLT Agreement, the Commission also calculated its net present value on the basis of the study commissioned by the Greek authorities.
13 On the basis of that calculation, the Commission stated that the net present value of the VLT Agreement was significantly higher than the amount of EUR 560 million provided for in the VLT Agreement, which would economically advantage OPAP.
14 However, the Commission stated that it was logical for the conformity of the VLT Agreement and the Addendum with Article 107(1) TFEU to be assessed jointly. In that way, the overpayment by OPAP for the Addendum was taken into account in order to assess the conformity of the VLT Agreement with that article. The Commission stated that the overpayment reduced the gap between the net present value of the VLT Agreement and the amount of EUR 560 million owed by OPAP [...] (T-58/13, paras 10-14, emphasis added).
Even if it is true that the Commission managed to impose an additional payment on VLT revenues to further close the economic gap as an amendment to the State aid scheme, the crucial point remains:
17 [...] Referring to the amendment introduced by the Greek authorities, and taking account of the overpayment for the Addendum, the Commission found, on average, OPAP would pay more than the value of the VLT Agreement.
18 In other words, the Commission took the view that, following the amendments to the initial notification, OPAP would pay the Greek State a higher amount than the cumulated values of the exclusive rights granted by the VLT Agreement and the Addendum (including a reasonable return for OPAP) (T-58/13, paras 17-18, emphasis added).
Hence, as mentioned, the crucial point for the legality of the (conflated) scheme is still the fact that the overpayment for the extension of an existing exclusive right is used to secure the approval of the underpayment in the granting of a new exclusive right. Moreover, the final finding of the European Commission simply makes no sense, as no market agent would pay a higher price for those exclusive rights than their accumulated value, as this would not be a rational investment decision. Consequently, there are many issues that would require some deeper scrutiny.
More importantly, in my view, the general acceptance of the 'cross-overpayment' amounts to allowing dominant undertakings with exclusive rights to buy their way into an extended monopoly (in a rather evident economic leverage) and, consequently, the case should be criticised--and quashed by the Court of Justice upon appeal (if it gets further appealed). Not least because it follows an emerging trend of improper assessment of two-part State aid measures (in favour of former State companies) that I find worrying and potentially dangerous for a credible and effective State aid control regime (see a previous instance here). The reasoning followed by the Commission and the GC, then, deserves some analysis.
Some of the arguments presented by the applicants have (willfully?) not been properly understood, nor analysed by the GC. Amongst other important arguments, the applicants clearly referred to the problem of the extension of the existing exclusive rights by cross-subsidisation in the following terms (in the words of the GC):
79 The applicants claim first of all that the Commission recognised, in paragraph 37 of the contested decision, that the Addendum and the VLT Agreement refer to distinct markets. Nevertheless, the Commission assessed them jointly. The applicants submit that the existence of an advantage for the purpose of Article 107(1) TFEU must be assessed for each market and not on the basis of joint consideration of similar measures concerning different markets, even though the measures examined concern the same recipient. If it were otherwise, the protection of competition would be incomplete because measures constituting an anti-competitive advantage for the purpose of Article 107(1) TFEU in a given market might escape the prohibition laid down in that provision on the basis of a joint assessment. Conversely, measures which grant no economic advantage in a given market might nevertheless be covered by that provision on the basis of a joint assessment with a measure affecting another market. [...]
81 The applicants claim that the VLT and slot machine market cannot be assessed jointly with the 13 games of chance covered by the Addendum since they have no relation to the market of the 13 games of chance on which OPAP has an absolute legal monopoly. By virtue of that monopoly, OPAP could carry out cross-subsidisation practices allowing OPAP to undercut the applicants’ prices on the VLT and slot machine market, by financing that operation by a price increase on the market for the 13 games of chance. However, the joint assessment of the notified measures does not take into account the possibility of such practices (T-58/13, paras 79 and 81, emphasis added).
To be fair, if the arguments were presented in this way (but this seems open to debate), it takes some digging to see that there are two layers of potential cross-subsidy. The first one, which is the one criticised above, is that the overpayment in one leg of the measure (extension of monopoly) secures State aid compatibility of the other leg of the measure (creation of an additional monopoly over VLTs). The second one concerns the operation of the rights in case they had been assigned to different operators, as it would concern a situation in which both OPAP and third parties had been granted licences for the operation of VLTs. The second argument is, in my view, moot or improperly addressed, as it refers to a hypothetical, counterfactual scenario. However, the first argument should have been enough to quash the Commission's Decision. Nonetheless, the GC decided differently.
In its analysis of the fourth plea submitted by the appellants of the Commission's Decision (the other three are basically procedural, so I am skipping them for now), the GC found that:
94 As regards [...] the applicants’ argument relating to subsidisation practices made possible by OPAP’s monopoly over the 13 games of chance covered by the Addendum, it should be noted, first, that it is based on the assumption that OPAP is free to increase prices at will on those 13 games in order to compensate for lower prices on the VLT market. The applicants accordingly submit that OPAP will not sustain competitive pressures in its pricing policy. That argument is not, however, substantiated. In fact, the applicants do not support or demonstrate that the 13 games in question are not subject to competition from other games of chance.
95 Next, the applicants do not explain why the alleged practices of cross-subsidies between the lower prices on the VLT market and the higher prices on the market of the 13 games covered by the Addendum preclude the two notified measures being jointly assessed. Indeed, if such practices were to exist, they would create a link between the VLTs and the 13 games of chance, which instead supports the two measures being jointly assessed.
96 It follows from all the foregoing that the applicants have not demonstrated the existence of an error of law when the Commission carried out a joint assessment of the VLT Agreement and of the Addendum (T-58/13, paras 94-96, emphasis added).
This is troubling because the GC inverts the order of the arguments on cross-subsidisation and dismisses them in the wrong way. Firstly, it is hard to see how the GC can rely on a theoretical competitive pressure on OPAP when the situation is that it holds basically exclusive rights on all relevant games of chance in Greece. Secondly, it is unacceptable that the GC buys a justification for the joint analysis of the measures precisely because OPAP engages in cross-subsidisation. If this is not a clear deductive fallacy, there is none. Overall, then, the arguments of the GC are disappointingly thin, or simply incongruous. Consequently, for all the above, I hope the CJEU will receive better economic advice and will reverse the Hotel Loutraki Judgment. Otherwise, the game will be over for the analysis of two-part or leveraged instances of clear State aid.
Tags Greece, Hotel Loutraki, VLTs, cross-subsidy, economic advantage, general court, lottery, special and exclusive rights, state aid, virtual lottery terminals
In its Judgment in Commission v DEI, C-553/12 P, EU:C:2014:2083, the CJEU has (further) clarified the threshold of competitive distortion required in the application of Arts 102 and 106(1) TFEU to State measures concerned with public undertakings or undertakings with special or exclusive rights.
This Judgment goes beyond the precedent in MOTOE, C-49/07, EU:C:2008:376 (and others cited therein) in the trend of lowering the threshold of competitive distortion required in the declaration of incompatibility of State regulation with EU competition rules. The step forward fundamentally consists in decoupling the issue of "unequal conditions of competition" from the push of the State towards abuse of a dominant position through regulation, and in recognising (not as an obiter dictum) that the creation of "unequal conditions of competition" in favour of public undertakings or undertakings with special or exclusive rights suffices to find an infringement of Articles 106(1) and 102 TFEU [provided, of course, that the "public mission exception" of Article 106(2) TFEU is not applicable, which was not considered in the case].
Such decoupling is particularly clear in the plea submitted by the Commission (which the CJEU will accept, bit by bit, in its Judgment), whereby it argued that
35 [...] when Article [102 TFEU] is applied in conjunction with Article [106(1) TFEU] to situations where there is inequality of opportunity between economic operators, and thus distorted competition which stems from a State measure, that State measure in itself constitutes an infringement [...] It is therefore sufficient to prove that the measure indeed created inequality of opportunity by favouring the privileged public undertaking and thereby affected the structure of the market by allowing that undertaking to maintain, strengthen or extend its dominant position to another, neighbouring or downstream market, for example by preventing new competitors from entering that market (C-553/12 P, at para 35).
There are some passages in the Commission v DEI Judgment that are worth highlighting:
46 [...] infringement of Article [106(1) TFEU] in conjunction with Article [102 TFEU] may be established irrespective of whether any abuse actually exists. All that is necessary is for the Commission to identify a potential or actual anti‑competitive consequence liable to result from the State measure at issue. Such an infringement may thus be established where the State measures at issue affect the structure of the market by creating unequal conditions of competition between companies, by allowing the public undertaking or the undertaking which was granted special or exclusive rights to maintain (for example by hindering new entrants to the market), strengthen or extend its dominant position over another market, thereby restricting competition, without it being necessary to prove the existence of actual abuse.
47 In those circumstances, it follows that [...] it is sufficient to show that that potential or actual anti-competitive consequence is liable to result from the State measure at issue; it is not necessary to identify an abuse other than that which results from the situation brought about by the State measure at issue (C-553/12 P, at paras 46-47, emphasis added).
These very clear statements of the sufficiency of identifying the creation (or perpetuation) of "unequal conditions of competition" are further developed later in the Judgment:
57 [...] if inequality of opportunity between economic operators, and thus distorted competition, is the result of a State measure, such a measure, be it legislative, regulatory or administrative, constitutes an infringement of Article [106(1) TFEU] read in combination with Article [102 TFEU] (C-553/12 P, at para 57, emphasis added).
In my view, by switching from a language concerned with potential abuses of a dominant position by the public undertaking or undertaking with special or exclusive rights, to a more clearly-spelled (and simple) focus on "unequal conditions of competition", the CJEU has fuelled the enforcement of these provisions against State action that perpetuates the dominant position of former monopolies and/or twarts the effectiveness of liberalisation measures. Hence, it should be welcome. In my view, this case can trigger much stronger enforcement in areas such as public procurement, where the continued award of contracts to a former monopoly on the basis of pre-existing rights surely ressembles the factual background of Commission v DEI.
Tags Art 102 TFEU, CJEU, art 106 TFEU, potential abuse of a dominant position, public undertakings, special and exclusive rights, unequal conditions of competition
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