Between the needs of public health and free markets: the Scottish Minimum Alcohol pricing saga nears the end… what now?

Hazardous consumption of alcohol is a true “Scottish disease” and the Scottish Government’s legislation imposing minimum prices for the retail sale of alcoholic beverages represented a controversial attempt to tackle the problem. Four years on, the Alcohol (Minimum Pricing) (Scotland) Act 2012 (the 2012 Act) is still mired in legal controversy: however, evidence coming from the experience of a number of Canadian provinces shows that minimum unit pricing may well be the most effective tool to address the health-related and social ills arising from alcohol consumption.
Alcohol abuse represents a significant health, economic and social problem in Scotland: according to the NHS in 2014/15 there were just over 35,000 hospital stays owing to alcohol related conditions and individuals living in poorer zones being three times more likely to be admitted to a general hospital than those living in more affluent areas. Reversing erstwhile negative trends, alcohol demand in Scotland is again on the rise: recent data, published by NHS Scotland, shows that sales’ figures for 2015 were 20% higher than in England and Wales, compared with the previous year; furthermore, about 74% of the alcohol consumed is drunk off-the-premises. It was estimated that last year each adult in Scotland purchased the equivalent of 114 bottles of wine or 41 bottles of vodka. As with any other commodity, a combination of falling prices—linked significantly to in-store promotions, offered by the main supermarkets—and of easy availability of supply have been identified as among the causes for this outcome.
The magnitude of this “Scottish malaise” makes the case for policy intervention extremely compelling. Speaking on 25 May 2016, Scottish Health Minister Maureen Watt renewed the new Government’s committee to a comprehensive Alcohol Framework, encompassing more than 40 measures, some of which related to price, aimed at reducing such demand. However the Scottish Government’s legislation imposing minimum prices for the retail sale of alcoholic beverages, which represents perhaps the boldest, yet at the same time most controversial attempt to tackle the problem, is still not applicable. Four years since its approval, the Alcohol (Minimum Pricing) (Scotland) Act 2012 (the 2012 Act) is mired in legal controversy: a challenge brought by the Scotch Whisky Association led to the Act being the subject of two judgments before the Court of Session in Edinburgh as well as to the scrutiny of the Court of Justice of the European Union in Luxembourg. Following the ruling of the EU Court, handed down at the end of 2015, the minimum unit pricing rules are once again before the Scottish Courts. The Court of Session is about to give its decision on whether or not placing such limitations on the freedom to trade for liquor suppliers in Scotland, being a prima facie restriction on imports within the Union, as such prohibited by Article 34 of the Treaty on the Functioning of the European Union (TFEU), can be justified as a means of protecting “the health and the life of humans”, in light of Article 36 TFEU.
The SWA case thereforepits the demands of free, competitive and efficient markets against the protection of high levels of public health in light of the needs of Scotland’s population. How can these two apparently competing interests be made to “fit” within the broader principles ensuring genuine competition and free trade, enshrined in the TFEU? And, perhaps more importantly, are minimum pricing rules the most effective instrument to reduce public health harm among the poorer sections of Scottish society?
Minimum pricing rules, while being controversial, are not new: evidence coming from the experience of a number of Canadian provinces shows that these restrictions on the freedom to trade have been deployed in order to address the health-related and social ills arising from alcohol consumption, albeit in the context of a wider normative and economic framework where free competition and genuinely open markets are seen as worthy of protection.
Canadian experiments… and possible answers for Scotland?
Liquor control as a “provincial issue” within a federal competition enforcement structure—relying on competence rules as a means of preserving local regulation powers
This study examined the application of minimum alcohol pricing rules, as part of an all-encompassing framework for the regulation of alcohol trade, in a number of Canadian provinces including British Columbia, Ontario and Saskatchewan. It was found that in Canada striking a balance between public policy demands concerning public health and safety protection and the need to secure effective competition across the whole Federal jurisdiction was possible through the application of overarching legal principles governing the distribution of competence among authorities acting at different levels of the Canadian federal structure.
The Canadian Constitution lays out very clear rules governing the division of competences between, respectively, the Federal Parliament and the provincial assemblies: thus, while the former is competent to take action in order to ensure, inter alia, the smooth flow of commerce throughout the territory of Canada through effective competition, the latter retain the power to discipline “purely provincial matters” such as, among other issues, liquor control. On a careful reading of these principles, the Canadian courts have recognised that effective competition enforcement can only be ensured at a federal level. Nonetheless, they have taken the firm view that the application of the rules contained in the Competition Act could not prejudice the power of the provincial assemblies to regulate specific sector of the economy in the public interest. Therefore, if prima facie anti-competitive conduct is required by binding rules governing a specific economic activity in furtherance of its statutory remit and for the purpose of fulfilling a legitimate objective in the public interest, it will not attract liability under the Canadian antitrust rules, on the grounds of being “necessarily incidental to the industry (or profession)”. As a result, practices stemming from the observance of minimum prices set by means of provincial liquor control legislation are unlikely to attract antitrust liability: being designed to regulate a specific economic sector and have a genuine public interest objective, they represent a genuine expression of the legislative power, conferred to provincial legislative assemblies, to regulate specific industries.
Higher taxes or a “floor price”—what works?
Canada’s long-standing practice of imposing minimum prices as one of the regulatory tools applicable to alcohol sales can also provide an indication of the effectiveness of these measures in reducing the adverse impact of liquor consumption on public health, especially among “heavier” drinkers. Research has shown that because they tend to switch more willingly to cheaper and more alcoholic options individuals drinking harmful levels of alcohol are less likely to be responsive to generalised price hikes, such as those arising from the use of the “fiscal lever”. Minimum pricing policies can target more accurately and thus erode this type of demand on the grounds that they “exclude” from the market the cheapest options that are consumed by the more assiduous drinkers.
Evidence concerning alcohol consumption in British Columbia between 1989 and 2009, for instance, showed that a 10% increase in the floor price of a single type of liquor could lead to a cut in demand by between 14.6% and 16.1%; if the same increase was applied across the whole range of alcoholic drinks, the study indicated a loss in demand by 3.4%. Similarly, in Saskatchewan it was found that in response to the introduction of higher minimum prices (by 10%) for liquor, occurred in 2010, consumption of beer had fallen by 5.87%, demand for wine by 4.58% and for all liquor types by nearly 8.5%. Heavier drinkers were more likely to be affected by minimum pricing as the “cheapest options”, which, due to the income limits that contributed to their purchasing decisions, they tended to “switch to” in response to a price increase for their drink of choice became unavailable: thus, an increase by 10% in the minimum price for higher-strength lager was found to have led to a reduction in demand by 22%.

Relying on minimum pricing has also been shown to have direct effects on alcohol-related mortality: in British Columbia, in the years between 2002 and 2009, a generalised increase in the minimum price by 1% was estimated to lead to an immediate, substantial and significant reduction in “wholly alcohol-attributable” deaths–i.e. deaths that find their “underlying cause” in the alcohol consumption–of 3%. It was also shown that an increase by 10% on the price of spirits had led to an immediate reduction of mortality of 35.25% overall an increase by 10% on the price of spirits and a lagged reduction in years 1 and 2 following the same increase in the price for cider and coolers (i.e. mixed drinks).

Back to Scotland—what now for the Alcohol (minimum pricing) (Scotland) Act 2012?

The enactment, in Scotland, of rules setting minimum prices for alcohol sales represents a courageous and radical attempt at addressing the social and health ills arising from high levels of alcohol demand in a nation where this phenomenon is clearly on the rise. Yet, at the same time it raises important questions as to whether the concern for protecting open and “efficient” markets, where price competition is especially prized, prevail in all cases, even when the member states have exercised their right to regulate in areas belonging to their competence and in respect of which the EU has a very limited role, for genuine reasons of public interest and on the basis of sound scientific evidence. The Canadian experience of similar measures points to the effectiveness of floor prices as a means of reducing “harmful alcohol demand”, compared with a generalised tax increase. It is now up to the Scottish Court of Session to be “courageous” and consider whether this is the time to move away from the “safety” of fiscal measures to embrace the “brave new world” of price controls as tools of “genuine” public interest regulation.

This blog post is a summary of a study conducted by Dr Arianna Andreangeli on the following theme:
Making markets work in the interest of public health: the case of the Alcohol (Minimum Pricing) (Scotland) Act 2012.
The study benefitted from a small research grant awarded by the Royal Society of Edinburgh (RSE) in December 2015, as part of the RSE Arts and Humanities Funding programme.
The principal investigator is grateful to the Royal Society of Edinburgh for its financial support; she would also like to thank the Faculty of Law of the University of Toronto, Ontario, Canada, for providing a stimulating environment where this research could be fruitfully carried out.

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Roam Like at Home–an idea yesterday, today almost a reality!

The weather is still quite cold, yet the time is coming when many start planning the next summer getaway.  In addition to booking a hotel, arranging for a flight or train ticket and perhaps booking a transfer, thinking about how much it will cost to keep in touch with friends and family via ‘phone, text and social media is now an item high on every traveller’s agenda.  Although consumers have become incerasingly savvy in the way in which they manage their mobile ‘phone bills at home–whether they rely on a contract deal or just on a pay-as-you-go SIM card–the thought of having to shoulder sometimes significant roaming charges once abroad still creates concerns to many of us.  It is not just about the actual amount of charges, but more generally about an issue of transparency–in other words, what seems perhaps more worrying to many users is not knowing how high or how low these charges will be and therefore being potentially exposed to the risk of receiving a very hefty phone bill.  Especially among those users that rely on contract deals, many “horror stories” have emerged of telecommunication companies being able to charge thousands of pounds for roaming charges to clients who, perhaps unadvisedly, may have relied a bit too much on their mobile phones, whether for conversations or for data services, while on holiday (see for instance the telltale of a Vodafone customer… http://www.thetimes.co.uk/tto/money/consumeraffairs/article4700404.ece).

It is true that over the past few years mobile phone companies have been increasingly attuned to the demands of travellers and therefore sought to adapt their business models in order to be better able to internalise roaming costs in clearer, leaner and perhaps on-off charges so that their users would not be unduly “penalised”: however, not all customers were best served by these deals. Paying £2 as a one-off roaming charge on top of normal user rates for, say, a week’s worth of data services used abroad may sound quite a good deal if one relies on a smartphone for daily internet access.  If, by contrast, the same charge was levied for a 2 minute phone-call just to alert Mum of one’s safe arrival, a customer could be forgiven for feeling aggrieved! (for a very interesting report, see: http://www.theguardian.com/money/2014/jun/28/roaming-charges-how-avoid-smartphone-bill-shock-post-holiday)

Worry no more, or at least far less though: roaming fees are set to end, and very soon.  Following the vote of the European Parliament in October 2015, the proposal made by the Commission and adopted by the Council in July of the same year is going to lead to a drastic reduction of existing caps on charges effective as for 30 April 2016, to lead to the outright abolition of roaming fees on 30 June 2017.  These measures are part of a wider masterplan, orchestrated b the EU Commissioners and formally laid out in a document published in May 2015, aimed at the creation of a Digital Single Market for the EU, namely an area without internal borders where both consumers and suppliers can, respectively, “buy like at home” and “sell like at home” digital goods and services.  The strategy encompasses three pillars: the abolition of existing barriers to the free movement of these goods and services; greater investment in infrastructure, so that the latter can fully support and boost growth in this key area of the European economy; and supporting the digital economy more specifically, by boosting, among others, the free flow of data, the standardisation of protocols for the supply of digital services across Europe and the promotion of interoperability and encouraging new entrepreneurs to “make a go” of digital services in the EU (see: https://ec.europa.eu/digital-single-market/en/digital-single-market).

In this context, the EU Commission has seen roaming charges as an increasingly problematic barrier to the free flow of digital services, not just limited to telecommunications, across the EU: its Connected Continent communication saw “phasing out the difference in charges paid for domestic, roaming and intra-EU calls” as an indispensable plank of this strategy.  Relying on the market forces through a carrot and stick approach, the Commission has therefore acted to eliminate gradually these charges: thus, on July 1 2014 operators lost the right to levy a fee for receiving calls when their customer used his or her ‘phone in another member states; as to making calls, they were faced with the choice of either implementing the ‘roam like at home’ policy and thereby allow their customers to use their devices anywhere in the EU at domestic rates, in exchange for being free from a number of regulatory burdens, including the ability for the customer to opt out of roaming services offered by his or her own operator while abroad. Or they could continue to charge, but at a cost: their clients could in fact seek out competing roaming charges in another member state for the time that they spent abroad.

The 2015/2212 Roaming Regulation was enacted to implement the pathway toward liberalisation of mobile phone services: at its core was the realisation that, despite the relative success in take up of roam like at home, significant disparities remained as to the quality of service throughout the EU, levels of roaming fees being charged, standards of customer service, and especially of fee transparency–all of which could have a real impact on the ability of EU citizens to enjoy their freedom of movement of services.  The regulation set up price caps for roaming services; it subjected their application to a “fair use policy”, according to which customers could not rely on capped tariffs and thereby de facto “abusing” the service, for instance by downloading “anomalous” quantities of data; it further stated that telecom operators could petition the regulator to obtain permission to reinstate higher charges if the impact of the capped tariff was to detabilise their existing service tariffs’ structure, in light of objective criteria (see: https://ec.europa.eu/digital-single-market/en/connected-continent-legislative-package).

A review of the roaming services market, which concluded in February 2016, showed significant support for the realisation of this important aspect of the Digital Single Market, thus not only confirming the EU in its commitment to ending the charges but also spurring mobile phone operators toward providing cheaper, more innovative and more efficient services for consumers (see: https://ec.europa.eu/digital-single-market/en/news/public-consultation-review-national-wholesale-roaming-markets-fair-use-policy-and).  30 April 2016 will see yet another plunge in the level of remaining fees, and eventually next summer we will all be able to go on holiday and use our mobile devices without the fear of being hit by huge bills and while being safe in the knowledge that our “at home” prices will apply regardless of whether we are sitting in the sunshine of Tenerife or we are trying to shield ourselves from the wind on Balmedie Beach in Aberdeenshire.

In the words of Andrus Ansip, vice-president of the Commission and lead on the DSM, “this is not only about money: this is about bringing down barriers in the Digital Single Market” and in particular it is the first milestone toward a Telecoms Single Market.  Gunther Ottinger, EU Commissioner for the Digital Economy and Society, echoed these views and added: “Roaming charges will soon be memories (…)” and along with the introduction of net neutrality obligations “every European [will] have the right to access the content of their choice, without interference or discrimination”, through price differential or via content- or technology-based requirements.  A more integrated digital market will therefore not only benefit consumers but also businesses, who will be fully capable of operating and competing on a level-playing field (see: http://europa.eu/rapid/press-release_IP-15-5265_en.htm).

So far so good? from a consumer standpoint, it certainly seems as though we are edging close to full market integration when it comes to digital services… but at least for UK citizens and commercial entities, 23 June 2016 may yet prove to be the proverbial sting in the tail in all of this otherwise positive scenario… Could Brexit affect the “glidepath” toward a European digital single market? This certainly is a key question–as the UK leaves the Union, it could be expected that these provisions, to the extent that they belong to EU law, may no longer be applicable.  However, would going back to charging for roaming be a “sensible proposition”, whether politically or commercially? From a political standpoint, the UK Government “non-paper” on the EU Digital Single Market strategy (see: https://engage.number10.gov.uk/digital-single-market/) signals a strong commitment toward the full integration of the telecom services’ industry throughout the continent: this encompasses both the abolition of roaming charges and net neutrality obligations.  Ed Vaizey, then in charge of Culture and Digital economy affairs, told the House of Lords as far back as in September 2015 that there would be no backtracking from the abolition of roaming charges, even in the event of the UK exiting the Union.  He pointed out that, as some of the current EEA states do, the UK would be fully behind continuing with these deals (see: http://www.euractiv.com/section/digital/news/brexit-won-t-affect-roaming-charges-vows-uk-government/)  Nonetheless, very little detail was given on the way in which this aspect of the transition out of the EU would be dealt with by the UK institutions: would ad hoc legislation have to be enacted? or would regulatory measures, perhaps adopted by OFCOM, suffice?

From a commercial standpoint, it may well be argued that this aspect of the debate highlights the great uncertainty that Brexit introduces for commercial operators.  The Association of British Travel Agents, among others, commissioned a study on thje question of what consequences Brexit could have on roaming charges: in the report significant concern was raised at the possibility that as a result of a “leave” vote these charges could be reintroduced, much to the dismay of UK holiday makers (see: https://www.cable.co.uk/news/will-brexit-mean-higher-mobile-roaming-charges-in-europe-700001399/).  On this point, a “ray of hope” could conceivably come from the mobile phone providers themselves: it could be argued that, as the abolition of roaming charges has been a long-term goal for a significant length of time, they have had plenty of time in which to adjust to this outcome and for that purpose to internalise its consequences.  The statutory framework, for its part, has facilitated them in this process, especially through its tariff sustainability mechanism.  Accordingly, one could perhaps be slightly less pessimistic than ABTA and suggest that reintroducing charges may not only be a risky proposition in the face of strong competition that these companies face.  It would also be hard to justify if not as a profit-making exercise.

The Digital Single Market is a challenge and at the same time an opportunity for businesses and consumers, as well as for governments who are faced with having to deal with the transition to a borderless world.  Abolishing roaming charges is certainly a remarkably beneficial change: it will not only mean more money in the pockets of consumers, but will also instigate greater innovation and stronger competition, especially on grounds of quality and efficiency in a very strong sector of the EU and the UK economy: politics, especially in the UK/EU compartment, may challenge some stakeholders as we progress toward an increasingly integrated EU telecoms market.  However, its undeniable economic benefits may provide the best argument yet not just for achieving these goals of integration but also for remaining part of the European project as a whole.

Nota bene: a version of this post was also published by the Scotsman on 13 June 2016…

http://www.scotsman.com/news/politics/arianna-andreangeli-ditching-roaming-charges-just-one-eu-benefit-1-4152828

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Patented or generic? Time for the CMA to speak on pharmaceutical ‘pay-for-delay’ arrangements

Encouraging the development of innovative medicines and at the same time maintaining the steady flow of existing ones so that patients can access treatment at the point of need is an ongoing challenge for the pharmaceutical industry: in this context the ability to extract profits from the sale of these drugs with a view to re-investing them in the development of new products often means that producers, especially those holding patents on “blockbuster” medication, are especially wary of potential competitors. Especially when the life of their patents is coming to an end, outside pressure originating from the perspective of generic entering a hitherto lucrative market on which up to that time the patent holder had enjoyed a degree of market power may provide the incentive to engage in practices designed to delay entry of rival drugs. It is in this light that arrangements such as ‘pay for delay’ agreements (whether “naked” ones or those entered as a means of settling an existing patent dispute) should be looked at. Originally negotiated in order to settle “genuine” IP litigation, these practices have however increasingly come under fire: it was in fact argued that especially when they are stipulated by a powerful patent holder they may result in making entry into a specific market segment far more difficult for rivals, whether actual or potential. These practices have been found to be not just relatively frequent but also extremely problematic for a number of reasons: from a competition law and policy standpoint, pay-for-delay deals have been regarded as creating a de facto barrier to the entry into often lucrative markets for new competitors. On this point, the EU Commission found in its final report to the Pharmaceutical sector inquiry that if similar arrangements resulted in rivals of the patent holder being de facto either unable or impaired in its ability to supply a competing drug–e.g. because the deal involved a non-compete or a no-challenge clause–they would have been likely to be caught by Article 101(1) TFEU; similar conclusions were reached also in respect of agreements aimed at limiting the rival’s freedom to choose its own distribution mechanisms or marketing strategy or to source supplies necessary for the production of their drugs from suppliers other than the original patent holder. At the core of the Commission’s concern, therefore, was the need to ensure that pharmaceutical markets, which are by their own nature investment-intensive and strongly reliant on innovation, remain contestable–in other words, avoiding bottlenecks and preserving lively rivalry are regarded as fundamental to ensure not only that prices are kept as low as possible (something which is extremely important in view of the limited monetary resources that domestic health services have at their disposal in order to fund health care for individuals affiliated to them); it also contributes to avoiding that the market power that holding a patent inevitably confers on its holder does not result in innovation and development of new drugs be slowed down. In this specific context, it is undeniable that a delicate balance needs to be struck between the need to allow “first movers” to exploit economically their discovery, so that future generations of drugs may eventually emerge via fresh investment, and the demands of open markets, so that new contestants in this “race” not just “in” but “for the market” can be allowed to emerge and thrive. “Efficient markets” however cannot exist and should not be pursued as a goal in a policy vacuum: paramount to these considerations concerning market access are the already anticipated more general concerns for the financial stability of national health services for which the “drugs bill” is among the most considerable. From the standpoint of health authorities the possibility to source cheaper alternatives to “branded” drugs, such as generics, is extremely appealing since it allows taxpayer money to “go the extra mile” and thereby reach out to a wider array of patients to whom care can be delivered in the same way and to the same standards but at a cheaper price: as was explained by the EU Commission in 2009, generics tend to be on average 40% less expensive than the patented alternative after 2 years of patent’s expiration.
IN light of the forgoing analysis, it is therefore not surprising at all that the EU Commission together with its national partners has been very wary of these practices.  As was anticipated, the 2009 report concluding the Commission’s Inquiry in the Pharmaceutical sector (see: http://ec.europa.eu.ezproxy.is.ed.ac.uk/competition/sectors/pharmaceuticals/inquiry/index.html  had found that ” (…) originator companies use a variety of instruments to extend the commercial life of their products without generic entry for as long as possible.  (…)” (see EU Commission, press release IP/09/1098, available at: http://europa.eu.ezproxy.is.ed.ac.uk/rapid/press-release_IP-09-1098_en.htm?locale=en).  As a result of such delay, not only had drugs’ prices been held higher than it could have been had rivalry from unbranded products been allowed to exist, with considerable drawbacks for availability of care and, more generally, for the financial viability of national health services throughout the EU; it was also found that there had been a decline in the production and licensing of new drugs, something which was likely to have been linked to sluggishness in the entry of new, “maverick” producers.

It was therefore unsurprising that, since the 2009 report, the EU Commission has not hesitated to take to task 3 major pharmaceuticals, all of which held patents on very popular drugs for the treatment of widespread diseases (for a summary of these cases see e.g. Fraile et al., “”Drug test: when are pay-for-delay agreements illegal?”, (2014) GCLR 214).  In 2013 Lundbeck was fined close to 94 million Euros–and its co-cartelists were hit by sanctions totalling more than Eur 52 million–for having entered into a number of ‘pay-for-delay’ agreements designed to induce generics producers to postpone the sale of the generic anti-depressant drug citalopram, arguably one of the most prescribed such drugs across Europe (see: http://europa.eu.ezproxy.is.ed.ac.uk/rapid/press-release_IP-13-563_en.htm).  In the same year Johnson & Johnson and Novartis, together with Novartis’ subsidiary Sandoz, were fined Eur 16 million for a number of practices designed to de facto “extend” the patent life of a very popular painkiller (Fentanyl) and which also included the delay in the promotion and supply of the generic drug (see: http://europa.eu.ezproxy.is.ed.ac.uk/rapid/press-release_IP-13-1233_en.htm).  More recently, the French producer Servier and five generics’ manufacturers were fined close to Eur 428 million for having agreed to share markets and, in those markets where Servier had retained the exclusive right to sell the drug, to delay the release of generic drugs that would have competed with the patented version of  a widely prescribed blood pressure medicine for almost four years (see: http://europa.eu.ezproxy.is.ed.ac.uk/rapid/press-release_IP-14-799_en.htm).

Against this background, it is suggested that today’s CMA decision concerning pay-for-delay agreements concluded between GlaxoSmithKline (GSK) and a number of smaller generics manufacturers and entailing the transfer of money and “other value transfers” with a view to delaying the release of the generic version of paroxetine–a very commonly prescribed anti-depressant hitherto patented by GSK under the name of Seroxat–remains fully consistent with this general commitment to ensure contestability and genuine and effective rivalry in the pharmaceutical industry (see: https://www.gov.uk/government/news/cma-fines-pharma-companies-45-million).  As was affirmed by the EU Commission in its 2009 Report, it would ultimately be the consumer who would bear the brunt of these “defensive strategies” put in place by the original patent holder, in the form of either more costly or less widely available medicines.  In addition, it is suggested that relegating generics producers at the margin of otherwise profitable segments of the pharmaceutical market may preclude their engagement with an innovation cycle that must instead be supported.  Seen in this light, the concurrent concerns for the affordability of treatment and the maintenance of ongoing incentives to enter, invest and develop this industry emerge as decisive drivers for the CMA decision.  As was stated by one of the agency’s executive directors, preventing restrictive practices that are aimed at slowing down entry is essential to “(…) protect consumers, to encourage legitimate business activity that such practices stifle, and to stimulate innovation and growth. (…)”  In this context, protecting the financial stability of the NHS–namely the biggest buyer of medicines in the UK–and consequently the interests of taxpayer represents a key concern that, in the CMA’s view, should justify proactive competition intervention against these agreements.

In light of the forgoing, the decision on the pay-for-delay practices affecting the release of generic paroxetine is not at all surprising but reflects widely held and well-justified concerns for preserving accessibility and rivalry in pharmaceutical markets, so that medical treatment can be as widely available as possible for patients and, at the same time, innovation and efficiency in supply can be allowed to thrive without being unduly affected by the presence of powerful suppliers that may seek to extend prima facie exclusive rights such as those arising from existing patents.  At the same time, however, it is submitted that a degree of caution is warranted when it comes to the assessment of these practices, for which a case-by-case analysis is required: as was suggested by the EU Commission, “pay-for-delay” agreements, especially when they are stipulated by parties to an existing dispute–whether patent-related or of other nature–remain an acceptable and prima facie legitimate way of bringing that conflict to an end.  It is their “content and purpose”, seen against its “legal and economic context”, and in particular the extent to which they can contribute to the foreclosure of a market where competition is already limited by the existence of a “powerful supplier”–on account of its status as patent holder–that is decisive for the outcome of their competition assessment: if as a result of the delay in the release of a generic rival drug the interests of consumers have been harmed, e.g. because they were denied access to the same drug but at a significantly lower price, or if the agreement significantly restricted the freedom of generics’ suppliers to determine how to market their products it will be very difficult for the patent holder to argue that the agreement in question served the (legitimate) objective of settling an existing dispute or protecting the value of its invention.

In conclusion, the CMA decision concerning paroxetine and adopted today must certainly be applauded as a clear expression of the UK competition authority’s commitment to preventing the foreclosure of innovative and prima facie rather rivalrous markets through practices that despite being prima facie justified in the name of the integrity of intellectual and industrial property, de facto prove detrimental to innovation as well as to more general interests of a public policy nature.  It is also clear that this decision touches once again upon more general issues as to how the balance between genuine competition in “investment-hungry” markets” and the need to reward innovation so that future investment is possible going forward.  Whatever the answer to these questions, however, it is indispensable to bear in mind the public policy background in which these decisions are adopted: concerns for the stability, especially financial, of the national frameworks for the provision of health services free at the point of need via limited monetary resources provided by taxpayers appear to provide a powerful justification for adopting a proactive stance when it comes to policing these types of practices, especially when the latter seem to “stretch” the demands of IP protection “a bit too far” having regard to the essence of these rights and the public interest function that each legal system assigns to them.

 

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And then we came to the end, or perhaps not! The Court of Justice speaks on the Scottish alcohol minimum pricing legislation!

Christmas is a time of gifts and what a greater gift than seeing the EU Court of Justice eventually handing down a much awaited judgment just before the 24th of December? This time the judges in Luxembourg have seen it fit to reward all of us who had been waiting to hear the fate of the Alcohol (Minimum Pricing) (Scotland) Act 2012 with their decision a day ahead of Christmas Eve. As this blogger taps away, the full version of the judgment has just been made available on the EU Court of Justice website (see: http://curia.europa.eu/juris/document/document.jsf?text=&docid=173249&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1185858).  There will be plenty more to say about this decision, for sure; however, some initial reflections can already been sketched out.

On the face of it, the CJEU seems to have taken the advice of its Advocate General.  Thus, in respect of the allegation that the Scottish MUP would have infringed the principles of the EU CMO Regulation on the sale of wine, the Court confirmed that this Regulation did not preclude the Member States from adopting measures designed to pursue public interest goals, such as the objective of protecting human health that restricted free movement principles and in particular the freedom to set prices on the sale of wine.  Nonetheless, the Court held that such measures could only survive the internal market rules’ scrutiny if it could be shown that they were proportionate to the objectives they pursued: in other words, does the MUP not go beyond what is necessary to attain its beneficial goals, taking into account the internal market requirements and the objectives of the CMO itself? (see paras. 13-29).

This issue is examined by the Court when considering the central, in many ways, question of whether the 2012 legislation could comply with the requirements set in Articles 34 and 36 TFEU.  Starting from the nature, in EU law, of rules such as the Scottish MUP, the judgment is not surprising: the CJEU, confirming the views of AG Bot, states that the legislation in issue, to the extent that it hinders the ability of traders to “reflect in the selling price to consumers” any reductions resulting from lower costs for imported products, is capable of hindering the free movement of goods within the internal market.  Consequently, it represents a measure having equivalent effect to a quantitative restriction of trade in goods (MEQR) and can only be regarded as compliant with the TFEU if it also fulfils requirements of ‘appropriateness’ to the public interest objective it pursues and of ‘necessity’–the latter involving an assessment of its proportionality (see paras. 31-34).

The question of ‘appropriateness’ is dealt with, admittedly, rather curtly by the European Court: after acknowledging that the MUP seeks to attain a twofold public interest goal, i.e. the reduction of ‘hazardous’ alcohol consumption among “vulnerable” layers of society as well as the improvement of the general health and well-being of the Scottish population, the Court confirms that it is not unreasonable to regard the 2012 enactment as an “appropriate” means of achieving these objectives (see paras. 36-39).

Where the analysis is however more extensive, on the ground of the admittedly greater complexity of the questions before the CJEU is on the issue of ‘proportionality’: just as the AG had done, the Court shifts slightly its focus on the question of whether least restrictive means of achieving the public interest objectives being pursued could be found vis-a-vis the MUP.  As AG Bot has suggested, the generalised increase in indirect taxation is the “obvious candidate” to this end.  according to the Court, general excise increases constitute an equally “appropriate” means of upping the price of alcoholic drinks, inter alia for the purpose of boosting levels of public health; it further observes that, in their face, such measures appear to restrict  the freedom of movement of the affected goods to a lesser degree than the imposition of minimum prices: in the CJEU’s words, the MUP “(…) unlike increased taxation of those products, significantly restricts the freedom of economic operators to determine their retail selling prices and, consequently, constitutes a serious obstacle to access to the United Kingdom market of alcoholic drinks lawfully marketed in Member States other than the United Kingdom and to the operation of fair competition in that market. (…)” (para. 46).  Accordingly, for the Court the decision as to the lawfulness of the MUP comes down to a comparative analysis of the latter vis-a-vis fiscal measures of the kind discussed above: consequently, the Scottish legislation could only “survive” the application of the internal market principles if it can be shown that the “less restrictive” alternative is less effecting as a tool for the attainment of the beneficial goals it wishes to achieve, namely the “twofold goal” of greater public health among “vulnerable” or “hazardous” drinkers as well as among the general population.  Importantly, the Court emphasises that the attainment of “additional benefits”–in other words, of what can be seen as positive externalities above and beyond the objectives pursued directly by the Scottish legislation–is not just a “bonus” in favour of one or the other alternative, but must be seen as a ground to “reject” the measure that does not seem capable of securing these benefits (para. 48).

Admittedly, the CJEU does not tell us how the story ends… the ball is now in the court of the Court of Session in Edinburgh which, in the full knowledge of the facts of the case, must apply these principles to identify what alternative is both appropriate and less restrictive of the freedom of movement while at the same time securing the attainment of its public interest goals to the best extent (para. 49-50).

In many ways, this outcome was not unexpected, in light of existing precedent.  However, it leaves the Court of Session with a massive “hot potato”, due to the continuing commitment shown by the Scottish First Minister to this legislation, on the one hand, and on the other hand of the dogged determination of the SWA to continue to fight its case in court.  The initial reaction on the part of this blogger is, however, one of slight perplexity as to the approach adopted by the Court in respect of the ‘proportionality’ assessment: it seems to emerge from the judgment that the CJEU places a significant emphasis on the need to preserve “market access” for cheaper goods to the UK and thus to protect competition almost completely based on prices in a market where equally weighty considerations of public interest play a considerable part.  As was reiterated in other judgments, member states remain “sovereign” on matters of public health and thanks to the principle of subsidiarity can assess and determine levels of public health that are  appropriate for the survival of their population (see e.g. case C372/04, Watts, [2006] ECR I-4325, para. 86 and 92; see also case C-385/99, Muller-Faure’, [2003] ECR I-270, para. 102-103).  Thus, it is not unreasonable to think, as the CJEU, seems to acknowledge, that the Scottish Ministers, in the devolved asset of power within the UK, should remain competent to do so, albeit within the limits of the internal market principles.  And here is the crunch: can an increase in indirect taxation be regarded as less restrictive to free movement and thus more germane to the functioning of the common market? This will be for the Scottish Courts to determine: yet, one cannot help but wonder whether in light of the evidence brought forward in support of the MUP, an admittedly “modest” increase in prices for cheap alcohol may be regarded as perhaps not the magic bullet to cure Scotland of its drinking problem… but surely as an effective tool to balance, in the context of open and free markets, the needs of competition and free movement of goods against the demands of a healthy population.

 

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The Consumer Rights Act enters in force–a brave new world of consumer protection?

It does not happen very often–well, not to this blogger anyhow–to find out that a recent topic of research has made it to the Breakfast news (see: http://www.bbc.co.uk/news/business-34410782 for a potted history of the Act!)… but this is what has happened today! 1 October 2015 marks the entry in force of the Consumer Rights Act 2015 (see: http://www.legislation.gov.uk/ukpga/2015/15/contents).  For the first time, the Parliament in Westminster has brought the complete discipline of consumers’ rights “under one roof”–that is, within one piece of legislation, thus remedying to the perceived complexity of this area of the law.

The 2015 Act is undoubtedly ambitious and constitutes the expression of a genuine commitment to improving the clarity and effectiveness of the consumer protection rules in today’s world, where consumers shop online increasingly often, as opposed to turning up in the shops of their high street, and where tangible goods are often replaced with digital alternatives.  It was often argued that the “old” legislation, i.e., among others, the Sale of Goods Act 1979 and its “successors” (such as the eponymous 1994 enactment and its attending regulations) were no longer fit for purpose, especially in as much as they appeared to lack in legal certainty in respect of important aspects: for instance, how long is a “reasonable period” within which faulty or defective goods can be returned to the seller in order to obtain a refund? Ca a consumer change her mind and expect to be entitled to, for instance, an exchange? And what about digital products? How can these rights be exercise when for instance, a download “malfunctions”?

Admittedly, the EU had already enacted legislation seeking to address these issues: the Council and European Parliament’s Directive 2011/83/EU (see: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:304:0064:0088:en:PDF), i.e. the Consumer Rights Directive: the goal of the 2011 Directive was to lay out a common set of rules in the area of business-to-consumer distance selling and thereby to eliminate obstacles to inter-state trade that may arise from the lack of a uniform and certain discipline of key legal requirements such as,information requirements to consumers concerning essential aspects of the contracts (e.g. his or her cancellation rights), the specific conditions that websites used for distance selling should meet (e.g. in terms of legibility) and the discipline of  fees and charges that traders can levy from purchasers of digital goods or services.

The 2015 Act deals with some, albeit not all, of these issues, and yet at the same time it goes much further: its coverage is noticeably ample in as much as it covers consumer contracts for the purchase of goods, the discipline of unfair contractual terms plus, under the slightly minimalist title of “Miscellaneous provisions”, several other matters ranging from “investigating powers” to modifications of the discipline of weights and measurements to the much awaited (and welcome) amendments to the Enterprise Act 2002 in respect of the cartel offence and of the rules on collective litigation in competition cases.   The circumstance that important reforms in the field of competition law were enacted as part of consumer rights’ legislation is in and of itself of particular symbolic importance since it clearly indicates how germane to consumer protection competition law can be.  This may seem to an extent accepted and even a bit trite: it is in fact widely accepted that enhancing consumer welfare, e.g. by encouraging rivalry in the form of the provision of the widest possible variety of high quality goods or services is one of the goals that competition law and policy should pursue.  Besides, the Replica Kit case (see e.g.: http://webarchive.nationalarchives.gov.uk/20140402142426/http:/www.oft.gov.uk/OFTwork/competition-act-and-cartels/ca98/decisions/football-kit), which resulted in the only case brought by a consumer association under the “old” opt-in mechanism for collective litigation had brought to the attention of the wider public the possibilities and the challenges of pursuing a claim for damages arising from price-fixing behaviour through the courts…

Fast forward to 2015 and many consultations, guidance papers, legislative drafts later, the Consumer Rights Act 2015 has truly endeavoured to make redress for the adverse consequences of anti-competitive behaviour a reality, especially when the victims are many and “weak” (mainly because of the lack of any economic incentive due to the small size of their claims).  Gone are the days of the “opt-in”, representative actions that had proven  ineffective at best, such as those disciplined in the Competition Act 1998; the 2015 Act envisages for the first time, albeit within strict limits and under close judicial scrutiny, collective litigation through opt-out, quasi-US style class actions.  According to to the new text of Section 47B of the 1998 Act, the Competition Appeal Tribunal–now the main forum for competition claims–can hear claims brought by a representative claimant on behalf of an identified group of would-be plaintiffs.  As a result of the “opt-out” nature of these proceedings, the final judgment will be effective vis-a-vis all the members of the group unless any of them elect to exercise their right to “opt out” of the proceedings in the form and time limits established by the CAT.  In the face of the much advertised reluctance to introduce a similar form of action, the 2015 reforms are a true breakthrough: it could be argued that the UK Parliament has come to accept that due to the complexity of this type of litigation and to the high risk of “inertia” of individual victims, opt-out proceedings were the only way in which antitrust injuries could be compensated.  At the same time, mindful of the important derogations in which introducing the new rules would have resulted, the new Section 47B sets out a number of important safeguards designed mainly to secure compliance with due process requirements.  For instance, to be eligible for accessing compensation obtained via the opt out rule, would be plaintiffs must be domiciled in the UK.  It is incumbent on the CAT to ensure that the named plaintiff is a “suitable” representative for the class and that the latter is sufficiently uniform as to warrant a collective proceedings order initiating opt-out litigation.  Importantly, damages-based agreements and other arrangements designed to create an incentive for counsel to take on these claims are prohibited, thus eliminating the risk of disalignment of interests between the class and its legal adviser.

Class actions governed by the principle of ‘opt-out’ however are only one piece of a wider-ranging jigsaw: the 2015 Act strengthens the role of the institutions entrusted with the public enforcement of the competition rules.  As anticipated, the Competition Appeal Tribunal has now become the central forum in which these claims are heard.  Its powers of case management of competition cases–whether individual or collective–have been greatly enhanced.  In addition, the Tribunal is expressly tasked with the job of appraising collective settlements on an opt-out basis, with a view to ensuring that the deal being negotiated is fair and ensures an adequate level of compensation to the victims.  The Competition and Markets Authority (CMA) is also envisaged as a far more active participant in the task of securing redress of these injuries: according to the new Section 49C the CMA is empowered to approve “voluntary redress schemes”, i.e. those voluntary undertakings that companies investigated for allegations of anti-competitive behaviour often put forward in order to provide relief for the adverse impact of their practices.  This is undoubtedly an important development, since it places these schemes, which hitherto had been frequent but not “officialised” in any formal way, on a firmer legal footing and also ensure a degree of vetting especially as regards their inherent fairness and adequacy vis-a-vis the merits of each case.  It should be emphasised that the CMA has already consulted on a set of Draft Guidelines according to which the schemes should be assessed and approved, thus suggesting that this is an area of work that the Authority wishes to pursue keenly in the near future.

In light of the forgoing, it may be legitimate to wonder whether the 2015 Act is going to herald a new wave of competition litigation and more generally pave the way for the more frequent as well as fairer award of compensation for these complex injuries. Admittedly, the rather disappointing performance of the old Section 47B action sets the bar for any future achievement rather low.  The reforms introduced this year are to be commended for their focus on consumers and the “trust” they place on both the CMA as the expert regulator and the CAT as the specialised judge.  However, it is perhaps too early to expect a surge in new cases: take the limits on accessing opt-out adjudication for instance.  If one takes into account the nature of e-commerce, which is in itself “geographically delocalised”, it may legitimately be wondered whether, aside for concerns for the good administration of justice and the fairness of civil litigation, placing a domicile requirement on prospective claimants may be germane to the objective of granting prompt and effective relief of these injuries.  Also, while the new rules on the award of damages (contained in para. 6 of schedule 4 to the 2015 Act) envisage the possibility that the Tribunal could allow for damages to be paid to a third person, albeit within strict judicial supervision, thus potentially paving the way for third party funding, the Act seems to remain silent on a key obstacle to new cases, i.e. the costs involved in bringing these claims and the ensuing need to source appropriate levels of finance, something that may put even “ideological claimants” off the whole endeavour altogether.

The Consumer Rights Act 2015 responds to a much felt need to engender clarity, legal certainty in a key area of the law and in particular to bring often scattered and not altogether coherent legislation in line with the reality of business-to-consumer relations today.  Thus, for its breadth and ambition there is a lot to be liked in the new Act and this day is going to be certainly etched in the memory of policy makers, academic, legal advisers active in this area, as well as perhaps in that of may savvy consumers… which brings to a more general issue surrounding consumer law and policy: given that the legislator has gone a long way toward protecting consumers in today’s world, is the level of awareness that individual consumers have of these safeguards sufficiently strong as to make them active players when it comes to seeking relief against harmful business practices? This seems ultimately the litmus test for the 2015 Act: in other words, while it seems that as a result of these reforms the “hearts and minds” of many lawyers have changed on key issues (starting from opt out litigation, to name only one!), it is now necessary to translate these important reforms in concrete action among consumers: to this end, advocacy and education, while presenting inevitable challenges, are going to be indispensable for the true success of these important reforms.

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Bottoms up? Not just yet… the 2012 Minimum Pricing legislation put to the Advocate General’s test…

Controversial legislation always keeps the mood and attention of commentators rather alert and the 2012 Alcohol (Minimum Pricing) (Scotland) Act has been no exception. Come September 3 and while it cannot be said that the wait is over, it is certainly clear that the proceedings before the CJEU have reached a keystone, namely the Opinion of AG Yves Bot.
While this Opinion will keep commentators entertained for several months to come and until we have a final ruling, several points are worth making…

First of all, in respect of the nature of the MPU as a restriction on trade among member states, it is of great interest the fact that the Advocate General has addressed not just the question of whether this measure should represent a measure having equivalent effect to a quantitative restriction (MEQR) but also whether it could be characterised as a selling arrangement. Clearly, and maybe not surprisingly, the Advocate General took the view that the correct way to characterise these measures would be ro regard them as MEQRs: to the extent that the MPU legislation mandated upon undertakings engaged in alcoholic beverages’ sales in Scotland the reaping of a “compulsory minimum profit margin”, it had the effect of “cancelling out” any price advantage stemming from lower costs, thus making access to the Scottish market more difficult for cheaper foreign goods that could have relied, conceivably, on that advantage to make themselves more attractive. As to the applicability of the Keck principles to the Act, the fact of this or of any restraint on trade being prima facie caught in this category did not exempt them from an assessment conducted in light of the Treaty free movement of goods: thus, they could have only escaped being caught by Article 34 if it could have been shown that they were not “discriminatory”, i.e. capable of placing non-domestic good at a disadvantage. In the event, AG Bot expressed the view that since the Act resulted in the competitive advantage characterising cheaper foreign goods being de facto “cancelled out” by the compulsory minimum profit margin it commanded, it had such an effect.

Thereafter, the question of whether the restraints in issue could have benefitted from the application of Article 36 TFEU was examined, with a number of interesting and in many ways encouraging (especially for the Scottish Government) observations as to the extent to which minimum prices could be suitable to attaining public interest goals. AG Bot expressed the view that introducing such measures did not only represent an “appropriate response” to the need to tackle serious health and social harm (as the one stemming from hazardous alcohol consumption in Scotland) but could also be regarded as a “systematic” and “coherent” way of addressing these concerns.

The ‘necessity’ assessment was, however, admittedly far less reassuring for the Scottish authorities…  The Advocate General confirmed that the 2012 Act had a clear “deterrent effect” and could have resulted in a loss of sales especially for the beverages in the “lowest end” of the market. However, in his view the central question was to what extent there were alternatives to the MPU that were capable of attaining the same type and level of public policy gains, while being less restrictive of the freedom of movement of goods than the 2012 Act. A general increase in the indirect taxation on the sale of alcoholic beverages–as it has occurred, for instance, in the context of the trade in tobacco products–came inevitably in the frame of that assessment.

AG Bot recognised that tax hikes were undoubtedly less controversial in light of the internal market rules, due to their being generally applicable as well as not capable of restraining the freedom to compete on price. It was also noted that their impact could have been more pervasive in terms of attaining its aim of improving public health generally: the Advocate General observed that imposing higher indirect taxes on alcohol sales seemed capable of having an impact on consumption not only among lower tier consumers but also among drinkers belonging to middle-income social milieux; in his view, this move could have resulted in reducing health harm across the board and not only in the “target social layer”. On that basis it was stated that while it remained open to the member states to choose to introduce a minimum price-per-unit framework for the purpose of improving public health among their population, on account of their restrictive impact on the free movement of goods they were under an obligation to show that these measures had “additional advantages or fewer disadvantages” than other, prima facie equally appropriate measures. Importantly, the Advocate General made clear that the circumstance that alternative measures could yield additional benefits for public health “at large” could not be relied upon to exclude their adoption in favour of MPU rules.

So much for the assessment of the MPU against the background of the free movement rules… it may be argued that the AG Opinion is broadly consistent with the existing approaches characterising the CJEU case law.  However, a few more general points are worth highlighting for the benefit of further discussion in competition law circles: one has to do with the changing nature of the Common Agricultural Policy, which is now a field falling within the shared competence of the EU and of its member states.  It should be noted that for AG Bot, this should not be regarded as a “market free zone”, which is interesting in the face of current debates on pricing of key agricultural commodities, such as milk and of concerns as to the increasing market power of purchasers vis-a-vis farmers.  The second relates, instead, to the relation between the CJEU and the national courts as the latter look to apply a preliminary ruling to the facts at issue in the proceedings that have led to the reference… It is undeniable that AG Bot emphasised the cooperative and egalitarian nature of this interplay, thus calling forcefully the referring to court to conduct the ‘appropriateness’ and ‘proportionality’ assessment of the MPU in light of all available evidence and within the requirements of national autonomy and of overall due process.  Nonetheless it is equally clear that this leaves the Court of Session with a complex task which, due to the heated political undertones of the legislation, is going to present its own challenges.

And finally… what now for resale price maintenance? Due to the nature of the MPU as de facto representing “statutory RPM”, it may legitimately be queried whether the forthcoming ruling may have a bearing on the ongoing debate as to whether we should move from regarding resale price maintenance as a ‘by object’ infringement of Article 101 to assessing it instead as a ‘by effect’ restriction on competition.  It is acknowledged that the confines of the reference did not allow the analysis of these questions: however, it is expected that issues arising from the application of the legislation to future sales’ contracts and especially on the extent to which the latter may be held to be against the competition rules on account of having to conform to the minimum pricing rules may well become live in the event of the 2012 Act being allowed to stand. On this point, it is reminded that especially after the CIF preliminary ruling (Case C-198/01, [2003] ECR I-8055), the space for invoking the observance of obligations stemming from national legislation has become very constrained.

Nonetheless, it can legitimately be suggested that the opinion gives some food for thought when it comes to considering to what extent the attainment of high levels of public heath may provide a justification for restraining the freedom to set prices in markets in “harmful” goods such as alcohol.  Given the admittedly cautious but still potentially promising endorsement of the MPU scheme as an “appropriate means” to securing high levels of public health, one may legitimately wonder whether time may be ripe for looking again at resale price maintenance that may be motivated by prima facie public policy objectives (such as past experiments in the field of book sales, as the reference to Fachverband reminds us). In light of the AG Bot’s appraisal, one could certainly expect that any such arrangement may have to clear high hurdles when it comes to meeting the requirements enshrined in the “negative conditions” of Article 101(3). Nonetheless, the Advocate General seems to suggest that this is not going to be impossible for undertakings conceivably seeking to rely on Article 101(3) for the purpose of avoiding the sanction of nullity that could befall agreements containing a minimum pricing clause–even one that is “mandated” by domestic legislation.

Article 101(3), however, may not be the only avenue through which resale price maintenance clauses that may avoid the consequences of infringing the Treaty competition rules. The case law of the CJEU in recent years seems to have indicated a trend toward a more “in-context” approach to reading Article 101(1) of the Treaty in respect of practices facially motivated by concerns of general interest. It is suggested on this point that judgments such as Meca Medina (case C-519/04 P, [2006] ECR I-6991) and Wouters (case C-309/99, [2002] ECR I-1577) , with their emphasis on the requirements of “appropriateness” and “indispensability”, may well provide the space within which benefits arising from resale price maintenance aimed at securing public policy goals can be assessed against the loss of competition they can entail.

In conclusion, AG Bot’s Opinion reminds all of us of the complexities arising from the interplay of the single market principles with other delicate objectives of general interest, on which member states claim (legitimately) the right to set out what their agenda is going to be.  Beyond the legal niceties, therefore, there are wider political and societal concerns that make the job entrusted with the Court of Session very difficult and sensitive.  Walking on the tightrope of balancing out the needs of open markets with the demands of the protection of the citizens of Europe is a perilous and in many way invidious job–yet, there is every reason to think that the Court of Session will rise to the challenge of having to apply the forthcoming ruling to the case pending before it.  As for the impact on wider legal principles, including those of competition, we will have to wait for the next instalment of this long-running and fascinating saga… no time as yet to clink the glasses for us!

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The Smith Commission and competition policy–more power for Scottish Ministers?

To look at the figures, one could think that in Scotland “we do not do competition law”: cases in this area have been few and far between. Even the merger notification concerning BritVic and Barr, while looking “truly Scottish” (due to the leading role of Irn Bru in the market for carbonated drinks North of the Border), showed its farther reaching scope, by revealing a much wider, UK-wide relevant market.
It must be recognised that since its inception, the Competition and Markets Authority has made concrete efforts to become more “visible” in Scotland: as part of its drive toward boosting the role of the Office for Devolved Nations, which is responsible not just for Scotland but also for Wales and Northern Ireland, the Authority now relies on these peripheral offices as vital centres of intelligence and focal points for the creation of strong relations with local stakeholders, so as to make the action of the CMA more responsive to the demands of local economies, regulatory structures and market dynamics.  Arguably, the fruits of this renewed commitment are already visible: the OFT/CMA conducted an extensive market study (see: http://webarchive.nationalarchives.gov.uk/20140402142426/http://www.oft.gov.uk/news-and-updates/press/2012/09-12) concerning the economic challenges faced by communities living in the most remote areas of the UK, with a strong focus on Scotland and on that basis concrete measures were adopted to ease the burden placed upon them, inter alia, in the purchase of fuel (see e.g.: https://www.gov.uk/government/news/ten-rural-areas-in-uk-could-get-fuel-duty-tax-cut).
However, the enforcement of competition law, both in respect of Competition Act investigations and merger notifications is eminently UK-wide: among others, the Review of devolved powers conducted by the Calman Commission expressly recommended maintaining the status quo and thus the ‘reserved’ nature of policy areas such as competition policy, consumer protection and financial regulation, so as not  to undermine the integrity and good functioning of the UK-wide single market (see: http://www.commissiononscottishdevolution.org.uk/uploads/2009-06-12-csd-final-report-2009fbookmarked.pdf, pp. 208-209).

Five years on, these issues have been brought back to the fore in the aftermath of the Scottish Independence referendum: should a more autonomous Scotland, with a far stronger Parliament and a Government enjoying more extensive powers, be also responsible for running “its own” Competition authority? In other words, should competition policy become a devolved matter to Edinburgh, or should it remain within those policy areas within the remit of Westminster?

It is clear that an answer to this question cannot just be based on administrative convenience, but rather, must be given having regard to the extent to which any change is likely to deliver concrete benefits for the economy and for consumers by means of a framework that works effectively and fairly in applying the competition rules to individual cases.  To meet these objectives a number of options can be envisaged, from the most radical ones, involving the creation of a “Scottish Competition Office”, to less ground-breaking alternatives, which leave untouched the exclusive powers of the CMA as a “UK wide” authority while empowering the Scottish Ministers to influence the Authority’s exercise of its functions.  Undoubtedly, however, the first issue that needs to be addressed while interrogating issues of “devolution” in the field of competition enforcement is one of a substantive nature that also has considerable “practical consequences”: is there any such thing as  “purely Scottish” competition case? Admittedly, this question calls into consideration our current understanding of market definition and especially of what we mean as “geographic market”.  As the already cited Britvic/Barr merger case showed it is very difficult to identify a case that affects primarily (never mind exclusively) markets within Scotland:  in that decision, the Office acknowledged that AG Barr’s presence was significant and “substantially greater” North of the Border than in the rest of the UK: however, in the end it excluded that the relevant market should be confined to Scotland on the ground that, while consumer preferences were determined by behaviour of individuals localised in certain areas, product quality was uniform across the whole of the country (see ME/5801/12, AG Barr/Britvic, 13 February 2013, para. 40-41; see also para. 45). It was also emphasised that prices for carbonated soft drinks tended to be the complex outcome of supply and distribution patterns that are equally nationwide, thus allowing the suppliers to “arbitrate” any difference in prices by, for instance, increasing or decreasing supplies in different local areas within the country (see para. 41); consequently, although the Office accepted the need to take into account any material differences affecting the trade of the merging parties in Scotland (see para. 47), it identified the geographic market as coinciding with the UK as a whole.  Thus, it is argued that it may be very difficult to identify a “purely Scottish” case, due to the circumstance that the UK as a whole represents a deeply integrated internal market, in which any “local differences” are liable to lead to the identification of “local markets” only in very limited cases.

It is suggested that these observations appear to be confirmed by the OFT/CMA practice.  In  its submission to the Smith Commission (see: https://drive.google.com/folderview?id=0B1huTD2v1zfWaU93bTIxMVJDQUk&usp=sharing#, p. 14-15), the Competition and Markets Authority reported that since 2004 a total of 7 competition/consumer cases lodged with the OFT had been judged to be “relevant” for Scotland, in the sense of affecting “local markets” therein; this figure should be compared with the overall workload of the OFT.  Just in 2013/14 the Office issued 4 infringement decisions (see: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/322820/9988-2901757-TSO-OfT_Annual_Report_Web_ACCESSIBLE.pdf, p. 23). Notifications of mergers affecting markets within Scotland were admittedly more numerous, averaging 3 or 4 per year: if compared with the “UK-wide” cases, however, their number appears significantly smaller;  in its 2013/14 report, the Competition Commission (now merged with the OFT in the CMA) reported having progressed 12 inquiries, among which 2 were “leftovers” from previous years (see: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/322811/40626_2902424_Web_Accessible_v1.1.pdf, p. 12).  Against this background, it can legitimately be doubted that there could be a sufficiently strong “critical mass” as to justify a sizeable transfer of resources aimed at creating a Scottish Competition authority.

Numbers, however, should not be the only decisive factor : compliance costs arising from the need for businesses to “adjust” to a different institutional set up as well as potentially “expensive” consequences stemming from the application of potentially differing standards and approaches North and South of the border, respectively, should equally be regarded as relevant in this assessment.  In this respect, the circumstance that Scottish firms are in the main engaged in substantial cross-border trade with the rest of the UK could mean that differences in policy may cause them to face financial and logistical burdens connected with having to adjust to the changed and more complex enforcement landscape (see e.g. CMA submission to the Smith Commission, pp. 6-7).

This option is not however the only avenue for devolving competition powers to Edinburgh: the submission made by the Liberal Democrats to the Smith Commission (see: https://www.smith-commission.scot/wp-content/uploads/2014/10/Scottish-Liberal-Democrats-Submission-1.pdf), among others, outlined a number of potentially promising mechanisms and approaches through which power can be flexibly and efficiently transferred to the Scottish Ministers in the regulatory sphere, without necessarily entailing the creation of new agencies (p. 5): the submission outlined a range of formalised partnership working arrangements, under which the competent Scottish authorities would be consulted, and “timing mechanisms” designed to allow the outcome of these consultations to be appropriately taken into account, as well as the conferral upon the Scottish ministers of “powers of initiation, “enabling (…) [them] to request formally” that another agency, enjoying UK-wide powers, “take specific necessary action to facilitate policy objectives” in its area of competence in cases having impact on Scotland (see pp. 8-9).  The Lib-Dem submission made clear that these arrangements should be “formalised” in the sense of being given statutory footing, as opposed to being merely outlined in concordat-type sources, to secure greater legal certainty and engender trust among all interested parties.

It is acknowledged that UK Ministers already enjoy powers that are akin to the ideas of “initiation” and partnership in decision-making in the field of competition, to be exercised vis-a-vis the CMA: according to Section 139 of the Enterprise Act 2002, Ministers can “refer” to the CMA matters of public interest arising from market investigation cases; references may be “full” or “restricted.  Following a “full” reference the CMA is required to investigate these matters of public interest in the context of its competition investigation and if it finds that action should be taken by the Secretary of State to address public interest matters, it should report specifically to them to that effect. The Secretary of State is then empowered to decide on whether to make an adverse public interest finding and, if that decision is warranted, to decide also how to address any adverse effects.  If instead the Secretary of State wishes to retain its power to consider the public interest issues, it will adopt a “restricted” reference, as a result of which the CMA can only investigate the competition profiles of a given matter and report to the Secretary of State on whether it considers that action should be taken on his or her part. In addition, the Competition Act 1998 allows Ministers to issue orders designed to exclude the applicability of the competition rules in exceptional cases, namely when either “compelling reasons of public policy” so require or when this is necessary to avoid a conflict between the application of the competition rules and the fulfilment of international obligations.  And finally, it should be recalled that the Secretary of State can intervene in merger cases for the purpose of upholding public interest considerations.  This power was deployed inter alia in respect of the merger between Lloyds and HBOS, in order to protect the financial stability of the UK. It should be emphasised that so far the UK Ministers have made use of this range of powers very sparingly: as was highlighted by the CMA in its submission to the Smith Commission, this reflects a wider trend toward strengthening the independence of the British competition agency vis-a-vis governmental pressure and consequently toward ensuring that the CMA can perform its statutory function away from political interference (see pp. 10-11, CMA submission).  However, it is equally clear that especially in cases presenting important public interest profiles, some space for reciprocal “dialogue”, albeit within limited and well-defined frameworks, between the competition officials and the Government may be required.  It is argued that the current legislative framework governing governmental intervention in CMA activity is characterised by strong checks and balances to minimise the possibility of such interference–for instance, there are only limited grounds for intervention and the CMA remains ultimately responsible for identifying “public interest issues” e.g. in the context of market references.

It is against this background that the proposals made by the Smith Commission should be examined: the final report calls for the power currently enjoyed by UK Ministers to request the CMA to carry out a full phase II market investigation with a view to examining “particular competition issues arising in Scotland”.  While the details are yet to be determined, it is already clear that the Smith Commission sees the Scottish Ministers’ powers in this area as liable to being “stretched” as far as those enjoyed by their Westminster counterparts.  Thus, it could be expected that the same “checks” and “balances” characterising the exercise of these powers on the part of the latter are also going to govern analogous action adopted by members of the devolved administration, with evident benefits for legal certainty and for maintaining the independence of the CMA itself.

What remains, however, open to question is the extent to which this mechanism will be applicable in practice, due to the difficulties associated with market definition and especially with identifying “genuinely Scottish cases”, that have been already briefly examined: in other words, it is uncertain whether, even when a reference was made on the part of Scottish Ministers, the CMA would be obliged to continue its investigation if the case in issue turned out to be of concern to the UK, seen as a whole.  Would the Scottish Ministers be in a position of enjoining the agency’s discretion as to whether to take on a new case as a matter of “policy priority”? Or would the case just “join the queue” in the context of the CMA’s normal priority setting functions? Furthermore, it is open to discussion what the position of the members of the Scottish Government would be if the reference affected industries in respect of which the devolved administration had no power to legislate (see to this effect the thoughtful discussion contained in the CMA submission, at p. 11-12).  Ultimately there is the much vexed question of resource allocation: who “would pay for” Scottish work? Should the devolved administration be expected or even required to foot the bill for these activities, as part of its enlarged taxing and spending powers, or should this work be funded as part of the CMA’s own budgetary allocation?

It is undoubted that there are clear benefits associated with enhancing the role of the CMA as competition authority in Scotland, by adopting measures designed to “share” its powers more efficiently with the devolved administration, to encourage dialogue and interaction with individual ministers and, ultimately, increase the take-up of new Scottish cases in the future.  However, the limited powers enjoyed by the Scottish Government, even in light of future changes of the status quo, and the corresponding need to maintain the independence of the CMA vis-a-vis political power  are likely to play havoc with the viability of the reforms that the Smith Commission seeks to propose.  There remains, of course, the possibility of encourage a “softer” sharing of powers, via milder form of partnership between the devolved administration and the competition agency: for instance, it may be queried whether imposing on UK Ministers an obligation to consult their Scottish counterparts in the event of a future reference or indeed requiring the CMA to seek views among Ministers North of the Border in cases that appear relevant to Scottish markets may be more viable alternatives to the conferral of “initiation”-type powers to members of the devolved administration.  It is acknowledged that the CMA enjoys already the power to seek information and evidence in the course of its “normal” investigating functions, a power that could be feasibly exercise also with a view to seeking out the views of the Scottish Government, among other stakeholders.  However, it is argued that recognising a formal obligation of doing so and enshrining it in a statutory framework could go some way toward ensuring that, albeit in a “mild” form, a degree of “devolution” is achieved to the benefit of the Scottish administration in the field of competition enforcement and in the respect of principles of transparency and of legal certainty.

In conclusion, the outcomes of the Smith Commission present the UK Parliament as well as the Parliament in Holyrood with a set of challenges and opportunities: the perspective of greater devolution should certainly be welcomed as a means to securing a stronger Parliament and Government in Scotland, albeit within the cohesive institutional framework of the UK as a whole.  However, its implementation also requires great care in ensuring that all levels of government work together within this “whole” in a coherent and unitary manner.  The enforcement of competition policy is not at all immune from these challenges: while it is recognised that the UK’s internal market remains unitary in respect of the great majority of goods and services, thus fully justifying the retention of the CMA as a “UK wide” competition authority, it is indispensable to bring its activity as close as possible to local markets, including those confined to Scotland, are appropriately taken into account.  Continuous dialogue and interaction with the devolved administration in the wider context of a formalised institutional framework, may provide the background against which these objectives may be achieved, in the spirit of “partnership” and of “compromise” to which the key stakeholders in the Smith Commission’s work have committed themselves.

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Mission accomplished–BSkyB/Sky Deutschland/Sky Italia: business as usual?

When it was notified in August, the merger between BSkyB and Sky’s German and Italian arms was met with mixed reactions. Several commentators, largely in the media arena, regarded it as an attempt for the acquiring business to streamline its structure and increase corporate value through seeking a “way in” markets that unlike the British one were still showing capacity for expansion. In other courts, instead, the proposed concentration had rung a few alarm bells, due to its temporal proximity to the Murphy preliminary ruling that had de facto outlawed (albeit with limits dictated by demands of protection of intellectual property) the practice of imposing geographic restrictions on the right of subscribers to “make their decoder card travel” across the Union. These concerns had been aired on this blog just after the news of the projected merger had been released: it was argued that a similar merger could have been interpreted as an attempt at de facto allowing the merged entity to engage in practices (such as the imposition of territorial restrictions to pay-TV licenses, condemned by the CJEU in Murphy) that would have been objectionable, had they been resorted to by separate economic entities. Although it was acknowledged that ex post control of prima facie anti-competitive behaviour could have provided a relatively swift and efficient response to these concerns, it was suggested that allowing the merger to proceed could have consolidated practices of territorial segmentation, as opposed to furthering the goal of market integration.

In light of the forgoing, it is difficult to gauge what the implications of the approval of this merger are likely to be: the press release detailing the key aspects of the Commission decision point to the “geographical complementarity” of the activities performed by each of the merging parties as one of the main justifications for approving the merger.  In its view, the merged entity would not have been able to increase its economic strength to any significant degree on each of the affected geographic markets;  the Commission drew a very clear distinction between the market for the licensing of audio visual programmes free to air or pay TV to individual users and that for the acquisition of the broadcasting rights concerning these programmes.  Having regard to the former, the Commission excluded the existence of concerns for competition, on the ground that the parties were active in sufficiently independent national markets, due to their linguistic and cultural internal homogeneity, as not to give rise to overlaps and, after the merger, to any loss of competition between them vis-a-vis the sale of individual subscriptions.

Broadly similar conclusions were adopted in respect of the impact of the merger on rivalry vis-a-vis the acquisition of TV broadcasting rights: the Commission found that the current licensing practices were directly linked to “national territories or language areas”.  In other words, a combination of “practical obstacles”, such as different deadlines governing bidding procedures for the assignation of these rights, and of long-standing adherence to a model of licensing based on single territories meant that the merging parties, would have continued to acquire broadcasting rights each in their own geographic market; in the Commission’s view, unless evidence could be found that “multi-territorial licenses” were capable of securing higher revenues, it would have been unlikely that the merged undertaking would have deviated from “individual nation” licensing practices.  And finally, the Commission added that in any event even if the holders of the broadcasting rights had decided to grant “multi-territorial” licenses the merged entity would have faced stiff competition from a number of  rival broadcasters active across the EU, all vying for the same number of licenses.

It is suggested that the outcome of the “summary” examination of the merger is not entirely unexpected: it is accepted that both the acquisition of the rights to broadcast TV programmes, movies and sports events and the supply of licenses to end users who  may wish to view this “paid for”content are organised on the basis of well-defined geographic areas, each of which tends to be identified with an individual member state or, for those states sharing the same language, the same “linguistic area”.  Consequently, it is to an extent inevitable that even after the concentration the merged entity would continue to operate through its Italian, German and UK and Irish arms in appreciably homogeneous and therefore reciprocally distinct markets.  What is, however,  unclear is the extent to which the rationale for these findings can be reconciled with the approach adopted in Murphy by the CJEU.

It should be borne in mind that at the heart of that judgment was a concern for avoiding the segmentation of the common market by restricting the right of holders of legitimately acquired and used decoder card to enjoy the broadcasting services anywhere in the EU: although the CJEU had acknowledged that this right should be limited to preserve the integrity of copyright and of other intellectual property rights that were “independent” from the broadcast, it had taken the clear view that licensors could not limit the geographic scope of the license and thereby extract a “premium profit” in states where broadcasts of specific sports events were regarded as a particularly “prized commodity”.  It is argued that the Court’s assessment of the FAPL’s and BSkyB’s licensing practices were predicated, to an extent, on an understanding of the relevant market as one whose boundaries are not necessarily restricted to single Member States or well-identified linguistic territories, but rather as one spanning across the Union taken as a whole–in other words, it could be legitimately argued that the Court, faithful to its commitment to the “single market imperative”, chose to uphold the rationale of free movement of services and, more generally, the demands of open markets that cannot be constrained by national boundaries.  It is in fact clear from, among others, para. 139, where the Court rather unsurprisingly referred to practices aimed at recreating the national boundaries among member states as very serious infringements of Article 101 TFEU.

Against this  background, to what extent can the decision approving the BSkyB/Sky Deutschland/Sky Italia concentration be reconciled with the Court’s own assessment of territory-based licensing practices, whose ubiquity in the industry and in the case at hand seems to have provided much of the justification for the approval of the merger?  It is beyond doubt that in its approval decision the Commission expressly accepted that present and future licensing practices would be inspired by “territorial” principles–in other words, that the merged entity would likely continue to operate through its “national arms” in their respective geographic and linguistic areas both on the “demand side”, i.e. when seeking to bid for and adjudicate contracts concerning new broadcasting rights, and on the “supply side”, that is when vying for business among end users on the retail market.  This conclusion can be contrasted with the position adopted by the CJEU in the Murphy preliminary ruling, where the Court expressly outlawed territorial restrictions on broadcasting licenses (especially in respect of decoder card usage) as not only injurious to the functioning of the single market but also as eminently anti-competitive: in light of this, and if the merger decision in issue was taken at face value, two options could potentially be envisaged.  Either the EU Commission has decided to veer slowly but steadily away from the EU Court of Justice’s position as expressed in Murphy, perhaps out of a concern for remaining within the limits of its powers of “ex ante appreciation” of notified mergers.  Or the Commission has made a conscious effort to “fit” the assessment of an admittedly relatively wide-ranging and controversial concentration within the scope of the Murphy judgment itself.

It is submitted that the second option appears more likely to find a justification: first of all, it should be reminded that, when reviewing a merger, the Commission engages with an ex ante analysis of the notified concentration.  Accordingly, it is not concerned with possible infringements of competition law that the merged entity could commit post-clearance, but rather, its assessment focuses on the extent to which as a result of the concentration competition would be significantly impeded.  In this specific context, a careful assessment of the confines of the relevant market, especially from a geographic point of view, is especially important: on this point, it should be emphasised that, by their very nature broadcasting services can only be provided in a specific language, which in turn limits their fruition to a well-defined national or “linguistic” area.  Accordingly, it is argued that the Commission’s finding that the notified concentration would not significantly hamper rivalry can be justified on account of a careful definition of the relevant market, which reveals contours that are genuinely national, on account of the eminently “language dependent nature” of broadcasting and of the often significant differences between the rules governing the award of these rights in each Member States; as a consequence, it is submitted that the findings of the Commission appear fully justified when it comes to the actual assessment of the concentration on each relevant market, both on the “supply” and on the “demand side” of it.

However, this is not the end of the story: as was suggested earlier, it may be wondered whether the future of a “single market for broadcasting services”, envisaged by, inter alia, the CJEU in Murphy, is to an extent under threat after the merger, on account of the recognition that, even after the emergence of a “multi-national conglomerate”, such as the merged entity, licdensing practices are likely to remain national in nature.  Admittedly, this is not, strictly speaking, a question that should be relevant when it comes to assessing the lawfulness of the concentration, but rather, an issue that affects the post-merger conduct of the merged entity.  In light of the forgoing analysis, should the merged entity seek to stipulate “pan-European” licenses, estensibly to conform to the principles enshrined in Murphy? Or would it still be justified in relying on “national” or “language based”  contractual arrangements with its customers?  It is suggested that the answer to this question lies once again in the Murphy preliminary ruling: in that decision the Court itself acknowledged that arrangements resulting in the partitioning of the internal market will be found to infringe Article 101 TFEU unless “(…) other circumstances falling within its economic and legal context justify the finding that such an agreement is not liable to impair competition (…)”.

It emerges from the Commission’s clearance decision that by their very nature broadcasting services can only be provided in a specific language, which in turn limits their fruition to a well-defined national or “linguistic” area.  Accordingly, it may be argued that the continuing reliance on “national” as opposed to continent-wide arrangements which are stipulated and implemented by each of the “national arms” of the merged entity, may fall within those practices that, as stated in Murphy, are not “liable to impair competition”.  In other words, the eminently “language-dependent” nature of broadcasting services, together with the need to take into account national preferences in the choice of the broadcasts to be supplied to users in specific areas would form part of the “legal and economic context” of the licensing practices adopted by each of the merging parties, thus excluding at least in principle their anti-competitive nature.

However, it is suggested that this does not mean that the “implementation” of these licensing agreements may in certain cases infringe Article 101 TFEU: it is argued that this would likely be the case if, as it occurred in Murphy itself, the licensor placed restrictions on, e.g., the use of decoder cards or other devices that resulted in an impairment of the freedom of movement of these services from one Member State to the other.  Similar conclusions could also be reached if the licensor was able to extract from certain licensees, resident in certain Member States, fees that are so high as to earn it a “premium profit”, something that is especially stigmatised by the preliminary ruling.

In conclusion, can it be said that it is “mission accomplished” for BSkyB in Europe?  Clearly, the Commission seems to think so, on account of a definition of the relevant markets that, not unwisely, emphasises their eminently “national” and language-dependent” confines.  However, these very same considerations seem also to demand a high degree of vigilance on the part of the competent competition agencies, to prevent the merged entity from resorting to practices whose impact on competition goes beyond what is consistent with the “legal and economic context” that characterises the broadcasting industry in Europe.

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Once more unto the (alleged…) breach: the EU Commission reopens the Google file…

In many ways, it could have been predicted–when last February Commissioner Almunia announced that a settlement had been reached as regards the allegations of abuse of a dominant position made against Google criticism was almost inevitable (see: http://www.clie.law.ed.ac.uk/2014/02/28/when-is-an-anti-competitive-practice-truly-of-serious-concern-the-google-commitments-decision-leaves-this-and-other-questions-open/ for what had been said on this blog). The perceived lack of “proper and exhaustive” market testing for the commitments agreed by Google, the reliance on Article 9 as a way of addressing the consequences of what was clearly a serious prima facie infringement and, more generally, the absence of a “proper finding” as to whether these allegations had been well-founded were all raised as areas of grave concern as to the response to the Commission’s decision.

Against this background, one could legitimately wonder whether the recent decision to reopen the Google file (see e.g. http://www.theguardian.com/technology/2014/sep/08/european-commission-reopens-google-antitrust-investigation-after-political-storm-over-proposed-settlement for an agile summary of the decision and surrounding events) may be the result of deeper reflection and analysis of the evidence that was available at the time of the commitments decision and also of the outcome of more recent market testing.  In his speech at the Conference on International Antitrust law and policy (see: http://europa.eu/rapid/press-release_SPEECH-14-592_en.htm) Mr Almunia openly acknowledged that “new arguments and elements” had been provided by interested parties in the course of more exhaustive market testing of the remedies package being devised for Google; as a result, in his view the Commission was fully justified in re-opening the investigation on the strength of the new evidence: in the Commissioner’s words, “every time I have talked about Google’s proposals as a basis for an Article 9 decision, I’ve always made clear that it was without prejudice of the complainant’s arguments”.   Seen in this light, it could be argued that the scope of Article 9 and the substance of the decisions adopted on the basis of this provision acted as something akin to a safety valve, since they provided the Commission with the framework within which to re-assess, against the background of fresh evidence, whether the initial commitments’ package was an appropriate response to the competition concerns arising from Google’s conduct as regards the integration of its own sale services within its search engine facility.  In this context the flexibility offered by Article 9 has permitted fresh investigations as to the existence or otherwise of an abuse of a dominant position, something which a more formal outcome would not have allowed.

It is however still unclear whether this can be regarded as an advantage stemming from the adoption of a less formal commitments decision or as a symptom of the fact that its flexibility comes at the cost of a less exacting and in-depth assessment of the evidence which(often in hindsight and at a later stage) may (and as in this case often does) point to the existence of a prima facie more serious infringement of the competition rules.  More generally, it is at least questionable whether the limitations stemming from Article 9 as regards legal certainty and finality in individual cases can be justified by the concern for providing fast-moving and often complex markets with “quick fixes” whose effectiveness may be limited in time, due to the very nature of the industries concerned.  When Council Regulation No 1/2003 was enacted Article 9 decisions were regarded as a way of tackling the anti-competitive impact of practices that were perceived as being “less serious”.  In these circumstances, it could have been thought that leaving it to the goodwill of a dominant company to modify its commercial practices and thereby to neutralise any restrictive effects on rivalry would have represented an “acceptable compromise” between concerns for maintaining the integrity of competition on a given market and demands of expeditiousness in the design and imposition of commitments.  However, what emerges starkly from the Google story so far is that, once Article 9 decisions are relied upon outside the remit for which they were originally thought, the consequences cannot be fully predicted: it is in many ways to the credit of the outgoing Competition Commissioner that the EU competition officers have been willing to reopen such a controversial case after taking on board the outcome of the market testing phase of the projected commitments.  Nonetheless, it cannot be doubted that in a fast-moving industry like the one for the provision of search engine and internet sales services the lapse of time between a “provisional solution”, such as that envisaged in February 2014 and a future, more “final” decision, which is not likely to see the light before early next year, may increase the risk that any remaining rivalry be irremediably compromised.

It is acknowledged that, as the General Court admitted in the Microsoft/Skype appeal judgment (Case T-79/12, judgment of 11 December 2013), any position of market power held on fast-changing industries, such as those for the provision of internet services (in that case, of Voice-Over-Internet communications) are less likely to endure than in more traditional markets; thus, it could be suggested that any anti-competitive effect stemming from the conduct of companies enjoying such positions may also be of limited duration.  However, in consideration of the network effects characterising these industries and of the potentially irreversible impact of this “feedback loop” it is argued that there is an inevitable risk of compromising any residual competition, if no decisive intervention is resorted to within the short to medium term.

In February it had been suggested on this blog that “(…) the Commission may have chosen to adopt an approach to these issues that is more “responsive” to the nature of the market and to the demands of consumer welfare in a case which could have warranted a less “expensive” (especially in monitoring terms) and perhaps more forceful solution (…)”.  Maybe, it is this more “forceful” response to the concerns arising from Google’s conduct that the Commission will seek to identify now that it goes about engaging with the outcome of the market testing initiated at the beginning of 2014.

 

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BSkyB/Sky Italy and Sky Deutschland–almost done and dusted? All thanks to Ms Murphy perhaps?

When the news that BSkyB was in talks with NewsCorp got to the headlines a few months ago, one could have been forgiven for thinking that we had gone back to June 2010… that was when NewsCorp had made its own bid to buy the 61% of the shares in BSkyB, thus acquiring full control on several key media outlets, only to drop it nearly a year later, given regulatory criticism and public opinion opposition. Come May 2014, it all looked as though it was going to work the other way around: BSkyB declared to have open talks (which are in their “early stages”) with a view to acquiring from Mr Murdoch or, to be more precise, from its 21st Century Fox, control over the Italian and the German arms of Sky (see: https://corporate.sky.com/media/press_releases/2014/statement_on_potential_acquisition). So, the roles are reversed, in as much as Mr Murdoch is the target and not the pursuer in this new race.
Many possible explanations have been given as potential causes for BSkyB’s move; commenting on the Daily Telegraph (see: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/media/10825535/Sky-Europe-what-is-behind-BSkyBs-effort-to-buy-Murdochs-European-pay-TV-businesses.html), Christopher Williams suggested that this bid may be prompted by “fairly simple matters of scale and efficiency”; he argued that BSkyB is very likely to see in the acquisition a way into a market which unlike the British one, is not at “saturation point” yet and gives the company room to grow.  Commenting on the Guardian, John Plunkett (see: http://www.theguardian.com/media/2014/may/12/bskyb-talks-germany-italy-pay-tv-rupert-murdoch) cited similar concerns for boosting efficiency and for aiming to boost shareholders’ value via the “consolidation” of Sky’s TV business into a multinational pay-TV group.  He stressed that this concern was not new, but one that had already been aired in July 2013 by James Murdoch: in an interview, Mr Murdoch had indicated that consolidation should be a “long term goal” for the family business, by saying that “clearly the situation [was] not optimal” and that, consequently, a degree of “fresh thinking” was required (see: http://www.theguardian.com/media/2013/jul/25/james-murdoch-sky-europe).  Come as it may, news of the talks were met with mixed reactions on the financial markets, with BSkyB’s shares taking  a 2% tumble and observers sounding divided as to the assessment of the costs and benefits of a similar possible change (see: http://www.independent.co.uk/news/business/news/bskyb-confirms-talks-to-buy-sky-italia-and-sky-deutschland-9355532.html).  In its corporate statement of 14 May, the company confirmed that an “approach” had been made to 21st century Fox “to evaluate the potential acquisition of its pay TV assets in Germany and Italy”; however, it made clear that whatever talks, they were at a “preliminary stage” and that, perhaps most tellingly, Board discussions on these issues were conducted within an inner circle made of independent directors of BSkyB, to the exclusion of those directors that had connections with 21st Century Fox.

Today, both British and European (such as the Italian Corriere della Sera) reported that BSkyB and Fox had agreed on the terms of a merger between the former, controlled by Rupert Murdoch’s 21st Century via a majority stake, and Sky Italia and Sky Deutschland (see: http://www.theguardian.com/business/2014/jul/25/bskyb-buy-sky-italia-deutschland-fox; and also: http://www.corriere.it/economia/14_luglio_25/bskyb-compra-sky-italia-nasce-pay-tv-multinazionale-europea-e396f28c-13c6-11e4-9950-e546b7448c47.shtml): according to the report by the Guardian’s Juliette Garside, this operation is likely to “bring together 20 million customers in the three richest European economies”; it is also going to net Fox close to $7 bn, providing all the minority shareholders of Sky Deutschland sell up.  And finally, in an extremely wide-ranging change of BSkyB’s corporate make-up, the merger will also bring the National Geographic Channel within the Fox’s “TV family”.

When news of the talks emerged, it was queried whether reasons of efficiency, including the concern for securing economies of scale and scope  across Europe were the only possible explanations for BSkyB’s projected move.  It was widely acknowledged that the pay-TV market on the Continent was rather appealing to a company who faces tough competition in the UK and Ireland and could therefore be well justified in looking at new areas where expansion is still a viable proposition.  Yet, it is equally undeniable that, even absent the merger, BSkyB has been doing rather well in attracting new customers for both its TV channels and its ISP services’ products.  For instance, according to, again, the Guardian, the last quarter for which data are available saw 50,000 new UK customers signing up to Sky broadband packages and 76,000 taking up its payTV services.

However, taking into account James Murdoch’s declarations back in July 2013, according to which a need seemed to be felt at corporate and board level to “sort out” the pay-TV strategy across Europe it may be wondered whether the 2011 preliminary ruling in Murphy (case C-403/08 and 429/08, [2011] ECR I-9159) may have anything to do with these plans of consolidation…

It may be recalled that, according to the EU Court of Justice, it is against the right to free movement of services and the principles enshrined in Article 101 TFEU to prevent the holder of a TV decoder card purchased anywhere in the EU from using the same device in a different Member State in order to receive, subject to limitations aimed at protecting the integrity of IP rights potentially affected by these practices, broadcasts of live football matches (see Murphy, para. 96-100, 115-117). The Court acknowledged that the basic principles of freedom of movement and of competition could be limited with a view to protecting the “specific subject matter” of an IP right: however, it held that an exclusive license agreement obliging “(…) the broadcaster not to supply decoding devices enabling access to that right holder’s protected subject-matter with a view to their use outside the territory covered by that licence agreement (…)” would be disproportionate to that aim, on the ground that it would have eliminated all competition among providers of the same services in the areas of the single market on which it had taken effect (see para. 139, 142-144 and 146).  The ruling was met with dismay by the holders of the rights to broadcast football matches on pay-TV platforms: it was suggested that by remaining faithful to the imperative of the single market, Murphy had in fact marked the end of absolute territorial protection in the field of sports broadcasting, since it prevented licence-holders from relying on their exclusivity in order to exclude rival broadcasters and thereby extract a “premium fee” from their licensees (see especially para. 107-109)  Internal market advocates, on their part, could not be more pleased: not only could the rules on free movement of services be relied on in order to allow decoder card holders to use their devices, for all intents and purposes,. anywhere in the Union; broadcasters were also constrained in the size of the licence fee they could charge–according to the Court of Justice, the “specific subject matter” of their right only allowed them to extract a “reasonable remuneration”, that is a fee that could only reflect “the actual economic value” of the service they offered.

The scope of the ruling was however somehow tempered by the need, also acknowledged by the Court of Justice, to maintain in place effective safeguards for any “creative work” that could have been affected by these broadcasts; as was forcefully held in the preliminary ruling, not all the “components” of the broadcast could be shown across the single market as allowed by the ruling (see para. 152 ff.).  Certain “elements” of it should have been effaced, if the broadcast took place outwith the territory for which the license had originally been granted, on the ground that they represented the outcome of their author’s intellectual and creative endeavour and consequently fell within the “specific subject matter” of IP rights granted within that territory (Murphy, para. 156-157; see also case C-5/08, Infopaq, [2009] ECR I-6059, para. 39, 45-46).  ON that basis, the English courts saw a number of claims for copyright infringement being brought by either BSkyB, as the licensee of broadcasting rights from the Premier League, or by the FAPL against pub landlords or tenants who held foreign decoder cards and had not in actual fact “effaced” the broadcast they showed (especially on public premises) from the “proprietary elements”.  (see e.g. FAPL v Luxton; for a report, http://www.bbc.co.uk/news/uk-wales-south-west-wales-25968200).

However, it is plain to see that relying on IP litigation in order to forestall the “economically undesirable” effects of the 2011 preliminary ruling is not ideal for licensees who cannot prevent the transmission of the matches’ images, unless in doing so the person responsible for it had infringed the “subject matter” of their copyright.

Against this background, it may legitimately be queried whether an alternative, less resource-intensive strategy could have been found to limit the “damage” inflicted to Sky in the UK especially by the application of Article 101 TFEU arrived at in the Murphy case.  A careful look at the EU acquis seems to point to another solution–again, in the way in which Article 101 has been read by the CJEU!  It is in fact clear from this acquis that this provision can only apply when “two  or more undertakings”, that is entities carrying out independently an economic activity are concerned; in other words, Article 101 cannot apply to what is commonly called “single firm conduct” which, in light of existing precedent of the EU Court of Justice, also encompasses certain forms of “intra-group practices”, i.e. commercial arrangements designed to regulate the reciprocal relations between members of the same corporate group.  As was held in, inter alia, the Ahmed Saeed ruling, Article 101 TFEU would not apply to behaviour imputable to a subsidiary which, in the context of a wider corporate group and especially in its relations with its parent company, did not enjoy any “real freedom to determine its course of action on the market” (Case C-66/86, [1989] ECR I-803, para. 35).  Consequently, this provision would not catch ” (…) agreements or concerted practices between undertakings belonging to the same concern (…), if the undertakings form an economic unit within which the subsidiary has no real freedom to determine its course of action on the market, and if the agreements or practices are concerned merely with the internal allocation of tasks as between the undertakings (…)” (case 30/87, Bodson, 1988] ECR 2479, para. 12).  The assessment of the degree of independence enjoyed by the subsidiary would have to take into account the “nature of the relationship” between the members of each corporate group and especially the extent to which they pursue the same “commercial strategy”, as determined by the parent company or companies within that group. (para. 13).

Against this background, one could legitimately wonder whether the merger between BSkyB, Sky Italia and Sky Deutschland could have been motivated by the concern for forestalling the impact that the preliminary ruling in Murphy had had on the licensing strategies and practices that the broadcaster had deployed, especially in as much as sports broadcasting had been concerned; in other words, it may be suggested that thanks to the merger restrictions on inter alia the “free movement of decoder cards” or on the geographic reach of licenses, as well as the right to reap a “premium” on profits made in jurisdictions where the Premier League matches’ broadcasts are seen as very popular and therefore prized, may become immune from Article 101 TFEU scrutiny (see also, mutatis mutandis, the General Court’s decision re: Viho Europe, T-112-92, [1995] ECR II-17).  Seen in this light, it could therefore be argued that these and other arrangements would not longer be regarded as restraining the freedom to trade and compete enjoyed by independent companies, but as mechanisms for the allocation of tasks to different part of the same “economic entity”, that is this new “international payTV” (see the leader on La Repubblica at: http://www.repubblica.it/economia/2014/07/25/news/sky-92352319/?ref=HRER2-1).

At this stage it is difficult to predict the shape of the post-merger scenario, if only because, due to its geographic reach and its financial implications, this transaction is going to have to be notified to the EU Commission under the 2004 EU Merger Regulation.  In an allied context to that of merger review at Union level, and thanks to the “legitimate interests”  clause of Article 21(4) of the Regulation, domestic media regulators are very likely to conduct a careful scrutiny of the consequences of the merger for media plurality in their respective jurisdictions.

From a competition law and policy standpoint, it should be emphasised that any ex ante control on the proposed concentration is not going to be the “last word” on its compliance with a system of genuine and undistorted competition.  As the CJEU forcefully stated in Viho, any “unilateral conduct” such as that at issue in that specific case would not have escaped scrutiny in light of Article 102 TFEU, provided that the condition for the application of that provision–especially as regards the existence of a position of market power on the part of the “corporate entity”.  Consequently, it could be expected that, if the group seen as a unitary entity enjoyed significant market power, conduct designed, for instance to apply “different conditions to equivalent transactions” or to discriminate customers on the basis of, inter alia, their geographic location, or, more generally, to “limit markets”, it would held liable for an infringement of this provision (see e.g., mutatis mutandis case 27/76, United Brands Company v Commission, [1978] ECR 207, especially paras. 157-160).

As was highlighted by several media outlets, BSkyB, in its post-merger configuration, is likely to “swallow” a significant slice of the European market for payTV and ISP services; according to Juliette Garside from the Guardian, “(…) The acquisition will double Sky’s customer base from 11.5m in the UK to 20m when it includes Germany, Austria, Switzerland and Italy; and will increase group revenues from £7.6bn to £11.2bn. (…)” (see: http://www.theguardian.com/business/2014/jul/25/bskyb-buy-sky-italia-deutschland-fox).  Yet, it is an open question, at this stage, whether this is going to amount to having a dominant position on rather extensive and diverse geographic markets.  Yet, one cannot help but wonder whether Ms Murphy’s victory for pub landlords and tenants as well as for football mad EU citizens may have had a part in BSkyB bid for such an important and wide-ranging concentration which, as things now stand, may appear to be perhaps the only way in which the status quo of “national licenses” can be restored.  At this stage, one cannot do much more than sit on the sofa, with a big bag of popcorn eagerly waiting for the next instalment of this long-running saga.

 

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