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When in October 2011 the Court of Justice of the EU handed down the Murphy preliminary ruling few understated the significance of this decision for the protection of exclusive broadcasting rights across the EU.  The judgment was met with dismay by the Premier League and its licensees, who regarded it as marking the end of their ability to differentiate licence fee in each Member State and, in that context, to exact a “premium payment” in certain countries (see especially para. 96-100 and 115-117).  In the words of the Court, while “derogations from the principle of free movement can be allowed only to the extent to which they are justified for the purpose of safeguarding the rights which constitute the specific subject-matter of the intellectual property concerned”, this “specific subject matter” does not allow the right holder to extract “the highest possible remuneration” (para. 106-107); in light of the judgment, the holder of the right to broadcast football matches could only ask for remuneration that was “reasonable (…) in relation to the actual economic value” of the service, including the number of potential users (para. 107-109).

On their part, the “advocates for the single market” could only be pleased at the outcome: the Court of Justice took the view 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 (…)” infringed Article 101 TFEU, on the ground that they eliminated all competition among providers of the same services in the areas of the single market on which they had taken effect (see para. 139, 142-144 and 146).  The Court of Justice in effect sanctioned the end of absolute territorial protection in the field of sports broadcasting as contrary both to the rules on competition–consistently with the common market imperative at the basis of much of its Article 101 case law–and on the free movement of services.  Once again, the Court of Justice sought to read the concept of “specific subject-matter” of intellectual property rights restrictively, so as to exclude a right to a “premium fee” for the licensor and thereby upholding the “completion of the internal market” as a fundamental goal for the Treaty.

However, the Court of Justice made clear that not all the “parts” of the broadcast would be subjected to these principles: certain elements of it, in as much as they were “the expression of the authors’ own intellectual creation”, such as the logo, the anthem and the “opening sequence” of match broadcasts, would remain within the “subject matter” of the rights enjoyed by the author–in this case, the FAPL.  In practice, therefore, cardholders would only be allowed to show the match, without being able also to show the Premier League graphics or play the League’s own anthem. (see para. 152 ff.; see especially para. 158-159): in the Court’s view, unlike the “main broadcast”, i.e. the broadcast of individual football matches, these “fragments” enjoyed legal protection under the applicable rules on copyright so long as it could be demonstrated to the satisfaction of the domestic court that they represented the outcome of their author’s creative endeavour (para. 153-159).  These “fragments” should have been, therefore, “effaced” from the “unauthorised” transmission of a match broadcast via a “foreign” decoder card: this restriction of the card-holder’s right to the free movement of broadcasting services was regarded as being justified in light of the need to protect the “subject-matter” of the copyright enjoyed by the authors of these elements of the transmission–in this case, the FAPL itself (para. 156-157; see also case case C-5/08, Infopaq, [2009] ECR I-6059, para. 39, 45-46).

Fast forward a few years… when Mr Anthony Luxton, the landlord of the Rhyddings Pub in Swansea was taken to Court by the Premier League on the ground of having “illicitly used” a foreign (in this case, a Danish) decoder card to show football matches in his pub.  IN light of the 2011 landmark preliminary ruling he could have been forgiven for thinking that he could have relied on the “Euro defense” affirmed in the Murphy decision.  However, the FAPL had other plans… no longer able to rely on the territorial exclusivity of its licenses within the UK, the Premier League resolved to relying on the “intellectual creation” exception recognised to it by the European Court of Justice to restrain pubs from showing not the “action” on the pitch, but rather the “graphics” and the other “broadcast fragments” which were the outcome of its “creative efforts” and on which it retained full copyright.  In FAPL v Luxton, Helen Davies QC successfully argued before the High Court that the defendant had infringed the copyright rules protecting these valuable “proprietary fragments” of the broadcast that were, in the words of the EU Court of Justice, the fruit of the “intellectual creation” of the Premier League and whose exclusivity could therefore have been maintained (see: http://www.bbc.co.uk/news/uk-wales-south-west-wales-25968200). The decision against Luxton was welcomed by the complainant as a victory for its effort to protect the value of the Premier League’s brand and goodwill in an era in which territorial protection is no longer an option after the Murphy judgment.  Importantly, it was made clear that this did not represent an isolated case, but rather it was the first of 100 new copyright prosecutions against those pub landlords and tenants who have opted to exercise their right to freedom of movement of services, as sanctioned by the ‘Murphy’ judgment without however “effacing” the proprietary images and logos from their broadcast.

And lo and behold, the First National Wine Bar in Liverpool City centre was next in line for a similar action: just as Mr Luxton, Mr Berry had shown Premier League matches via a foreign decoder card without, however, “effacing” the proprietary symbols on which the FAPL had registered a copyright.  Before the High Court the pub landlord had admitted to having infringed the applicant’s copyright and on that basis the Court awarded the premier league an interim payment over £60,000.  Commenting on the local Liverpool Echo (see: http://www.liverpoolecho.co.uk/news/liverpool-news/liverpool-city-centre-bar-fined-6832195), Mr Berry claimed that such a hefty legal bill would have landed his enterprise on the verge of bankruptcy:”“They didn’t like me showing the football because they’re not getting anything directly from it. I deal with legitimate suppliers. I think they’re pursuing me because I’m a sole trader. I’m one person with no money, and they want to make an example.” (from the same Liverpool Echo article: http://www.liverpoolecho.co.uk/news/liverpool-news/liverpool-city-centre-bar-fined-6832195)

In light of the forgoing and especially bearing in mind the clear resolve of the Premier League to protect its reputation as “embodied” in its logo and anthem, one could wonder what the future holds for any individual or business wishing to rely on his or her prerogatives as a “good EU citizen” and thereby enjoy his or her freedom of movement of services… thanks to a foreign decoder card allowing them to receive FAPL broadcasts.  It is clear that in Murphy the EU Court of Justice sought to strike a careful balance between securing the effet utile of this fundamental freedom and protecting the “essence” of the copyright insisting on those “proprietary” broadcasting fragments that constituted the outcome of the League’s creative efforts.  However, this outcome is likely, at the very least, to keep the English Courts (and perhaps their Scottish counterparts, since an interdict was granted by the Court of Session against Lisini Pub Ltd on petition by the Scottish Premier League in March 2013–see [2013] SLT 629) busy for considerable time.  While it is undoubted that the Premier League is seeking to enforce its prerogative as copyright holder at least as regards these elements of the broadcast, which it is possible to efface, it is also clear that invoking the right to freedom of movement of services ‘a la Murphy’ is going to be increasingly riddled with difficulties for individual drinking establishments who may face significant monetary liability, albeit on copyright grounds.

 

The energy market has been at the forefront of the political, legal and media debate for a considerable time: concerns at high prices, “suspicious” market transparency and a considerable degree of concentration have characterised the retail market segment of the industry (see e.g. http://www.bbc.co.uk/news/business-26734203). In addition, the trend toward significant vertical integration, with the “big six” active in the generation and wholesale as well as in the retail supply side of these markets have increasingly been regarded as a factor contributing to the opacity of prices and profits. Undoubtedly the last year or so has seen more customers switching suppliers; however, at the same time more complaints against energy companies have been lodged, many of which concerned the lack of clarity as to energy prices. The main energy suppliers have been repeatedly accused of limiting the best deals to new customers and to apply significantly higher tariffs to their existing ones (see inter alia http://www.bbc.co.uk/news/business-24238708). More generally, despite the efforts on the part of OFGEM to inject greater transparency in the area of billing, consumer organisations continue to denounce that customers find bills confusing and as a result, according to a very recent Which? survey, only 35% of the adults surveyed are able to identify the “best deal” (see http://www.bbc.co.uk/news/business-26566667).
Against this background, it is not surprising that OFGEM announced today its decision to refer the energy market to the Competition and Markets Authority for an investigation. The CMA will become officially operative, replacing the OFT and the Competition Commission and working closely in partnership with sector regulators through the UK competition network on the 1st of April; this reference is therefore going to offer it a prime opportunity to act upon one of its strategic priorities, namely to to promote strong and fair competition in all markets, including regulated ones, so that consumers can feel “empowered, confident and able to exercise informed choice” (see CMA, Vision and Values Strategy document, available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/274059/CMA13_Vision_and_Values_Strategy_document.pdf, p. 1).

So, what are the live issues that the CMA may wish to consider in its Market Investigation?

In an interview with BBC Breakfast (for an extract see: http://www.bbc.co.uk/news/business-26734203), the OFGEM Chief Executive, Brendon Nolan, was very clear in saying that no evidence of cartel behaviour had been established so far.  However, the OFGEM report highlights the big six’s practice of regular price announcements, taking place more or less at the same time and likely to be followed by price increases: while announcing prices may, to an extent, be justified in light of the characteristics of the industry, it can also act as a “signal” for competitors who may then choose to replace healthily competitive pressure on fellow rivals with the “quiet life” of coordinated behaviour (see chapter 4 of the report).  The challenge for the CMA, therefore, seems to be in assessing the extent to which this may amount to conscious parallelism which, without going as far as to meet the ‘concurrence of wills’ requirement, characterising an ‘agreement’, can be regarded as a concerted practice.

Vertical integration is also singled out as a challenge for the competitiveness of the energy markets: the OFGEM report (available at: https://www.ofgem.gov.uk/ofgem-publications/86804/assessmentdocumentpublished.pdf) emphasised that the fact that the big players are active not only on the retail but also on the wholesale/generation market for energy is liable to represent one of the explanations of the weak position of smaller players on the customer segment, thus preventing them to reach a greater slice of retail demand (see chapter 5 of the Report).  In addition, trading in energy at wholesale level has proven to be opaque and any revenues accruing to the big six from this activity difficult to “decouple” from retail profits (see chapter 6 of the report).  In light of the forgoing, it may legitimately be queried whether allowing the more powerful companies, including a former statutory incumbent, to act on both market segments may represent an obstacle for entry as well as for the expansion of smaller firms: in this respect, it may be especially probed whether evidence of margin-squeeze type behaviour could be gathered from the market investigation.  The ostensible difficulties in identifying and separating out revenues from retail and generation activities has also complicated the picture in respect of energy prices and the calculation and actual appraisal of profits: OFGEM pointed out that while profits have increased there is no clear evidence that operating costs have gone down (see chapter 6 of the Report, especially pp. 100-110).  Accordingly, it can be questioned whether the big six suppliers may have achieved this outcome by cross-subsidising between the two market segments: while the evidence is not sufficient to found a conclusion that these profits may be excessive (see Summary of the Report’s market outcomes, sections 1.6-1.8) it could be interpreted as an indication of the ability of the major suppliers, shielded from significant pressure from the other 18 small rivals, to “hedge” their returns thanks to their ability to rely on the supply of power that they themselves generate.  This, however, is also liable to have an adverse impact on non-integrated competitors, who not only have to put out significant capital in order to trade on the wholesale market, but are also dependent on their very rivals on the retail market (see Summary, sections 1.30-1.34).

Overall, the OFGEM report paints a bleak picture indeed for the energy industry: weak competition with a trend toward conscious parallelism; high barriers to entry, much of which derive from the vertically integrated nature of these markets (especially the one for electricity); low consumer confidence, based on the evidence of high profits coupled with the opacity of cost and pricing structures.  All of these outcomes are likely to provide a lot to think about for the CMA.  However, there is much to be gained in dealing with this industry quickly and effectively: energy expenditure is a key figure in family and industry budgets (especially for SMEs). The MIR in the energy markets represents certainly a challenge but also brings opportunity, namely, the opportunity of truly empowering consumers to make informed choices in their purchases: it is therefore in the interest of the economy and of society as a whole to identify the drivers that may cause consumer harm in these markets.  Holding the big six to account, especially by making their cost, profit and pricing structure clearer is also likely to increase the switching rate in a more sustained way overtime.

In its Vision and Values Strategy document the CMA expressed a clear commitment toward “using the market regime to improve the way competition works where evidence shows it can most benefit consumers” (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/274059/CMA13_Vision_and_Values_Strategy_document.pdf, p. 1-2). The energy market investigation reference is definitely likely to test its willingness to do just this.

 

When the EU Commission opened its investigations on Google’s business practices on a number of market segments, related to search services and online advertising, it was clear that it was embarking in a complex and potentially long-running investigation, which could potentially turn controversial.  At the time the Commission had alleged –on account of Google’s market power on the marker for online search and advertising services run via search engines–that Google had infringed Article 102 TFEU in respect of four different practices: two related to the advertising space’s supply deals concluded by Google with a number of partners and alleged that the latter were limited in the freedom to select and place certain types of advertisements on their websites; the Commission also suspected Google of using similar clauses in order to force software vendors to “privilege” its own search services to those provided by rivals. The other allegations related more directly to Google’s provision of internet search services: the Commission had accused it of privileging links to “paying” services’ providers (e.g. those websites providing price comparisons) to links to websites that were not paying Google for its services, by lowering their ranking on the retrieving webpage.  And finally the search engine was accused of granting preferential treatment to the results of its own vertical search services vis-a-vis rivals on the market for the provision of similar services.

As is well known, Google is the leader in the provision of internet search , with a market share of just over 71% worldwide (see: http://www.netmarketshare.com/google-market-share), something which in and of itself represents evidence of dominance on this market;  Against this background it is not surprising that the Commission, in its March 2013 Communication following the preliminary investigation, expressed serious concerns that the undertaking may have disregarded its special responsibility by affording preferential treatment to its own as opposed to other websites’ services for “vertical search”.  This position appears to be consistent with well-established precedent under Article 102 TFEU, starting from the SeaLink/Stena Line decision (Commission decision 94/19/EC, Stena Sealink/Sea Containers (Hoyhead), [1994] OJ L15/8) and going all the way to Telemarketing (case 311/84, Telemarketing v Compagnie Luxemburgeoise de Telediffusion SA and another, [1985] ECR 3261).  While it could be argued that Google is no Holyhead, its prominent market position, coupled with the network effects characterising the market and steering demand and users toward the “leading search platform” raises serious concerns that its practices may have an adverse impact on competition on these market segments, by diverting consumer choice away from rival providers on to Google’s own services for reasons that have very little to do with competition on the merits.  Broadly similar remarks can also be made in respect of Google’s allegedly anti-competitive exclusivity supply deals concluded with publishers wishing to avail of the services offered by the leading search engine. It is well established that a dominant company that ties its own customers to itself in a regime of exclusivity, even if it does so at the customer’s own request, infringes Article 102 TFEU, on account of the foreclosure effect that the arrangement is likely to have on other rivals (see e.g. case 85/76, Hoffmann LaRoche v Commission, [1979] ECR 461, para. 89-90); on this basis, and especially taking into account the ubiquity of Google and the associated value of using its services as a means of reaching out to the public, it is not surprising that the Commission looked at these practices with considerable concern.

Fast forward almost a year–February 2014 (SPEECH/14/93): in a statement the Competition Commissioner, Joaquim Almunia, announced that the Commission had adopted a commitments decision with which it had sought to exact changes in the way in which Google had been managing both its search services, including “vertical services”, and its supply arrangements on the market for the provision of advertising services.  As a result of this decision, Google will be obliged to display links to rival websites in the same way and with the same “visual aids” as to the manner in which it displays its own; furthermore, in relation to specialised search services, Google will choose and rank paying customers on the basis of an auction processes, with the “free access” links being ranked on the basis of their “natural priority”.  As to the supply of advertising services, the Commissioner announced the removal of exclusivity clauses both for publishers seeking to advertise on Google’s search pages and for the advertisers themselves, who will be able to rely on its own and on other providers’ services.

Importantly, the statement seemed to suggest that the requirement of proportionality may have played a decisive part in framing these commitments: the fact that the commitments were limited to the way in which search results are shown and do not go as far as, for instance, to prevent Google from advertising its own services; and additionally, the circumstance that access to the search engine’s space on the part of advertisers would be open to all via an auction mechanism would ensure greater equality of opportunity, thus preventing foreclosure in this neighbouring segment–both sets of commitments seem to confirm the willingness of the Commission to assuage concerns for market rivalry and openness without interfering with Google’s “search algorithm” or indeed with its own ability to compete with others ‘on the merits’.

So, can one be justified in saying that “all is (more or less) well” again on the market for the provision of internet search and online advertising services? The Commission clearly seems to think so: although he acknowledged that these behavioural commitments may require significant monitoring efforts (hence also requiring the appointment of an independent trustee for this purpose), Commissioner Almunia expressed the view that the new practices to which the Commission has now subscribed are going to provide an appropriate and effective response to the need to restore competition on a fast-moving, innovation and compatibility driven market in which the investigated company is an almost unavoidable trading partner. In his view, adopting a “proper infringement decision” would not be appropriate in view of the need of providing a speedy and “tailored response” to the concerns arising from Google’s behaviour–in fast moving markets such as these time is of essence and so is the need to make the response of the competition agencies appropriate and well-suited to addressing the concerns for maintaining rivalry.  It is submitted that this approach should be welcome, since it denotes greater awareness of the sometimes peculiar dynamics of the new economy markets and consequently, a greater responsiveness to the demands of maintaining rivalry therein.

It is however the choice of relying on Article 9 in order to close this investigation that gives pause for thought.  In the words of the Commissioner, concerns for users being able to “benefit from competition on the merits as soon as possible” and for ensuring an immediate response to competition concerns justified extracting commitments as a means of terminating the infringement.  Nonetheless, it is undeniable that the pervasiveness of Google’s presence as supplier of internet search services and the nature and the significant impact (especially in terms of foreclosure of neighbouring markets) of the denounced practices had all the hallmarks of a serious infringement of Article 102 for which, according to the 2009 Guidance, action on the part of the Commission and potentially the imposition of fines could have been justified.  The Commissioner’s statement, by contrast, appears to place the demands of “swift” action ahead of deterring similar, future infringements: this, as was stated above, is undoubtedly positive, at least in its face, since it shows greater “realism” and a commitment to assessing carefully the impact of these practices on fast-moving markets.  However, it is equally clear that adopting an Article 9 decision, which contains no “official” finding of infringement and, perhaps most importantly, relies on purely behavioural obligations, comes at a considerable risk and perhaps more importantly, cost–in terms of uncertainty as to the future behaviour of the undertaking being investigated and in particular of the costs associated with monitoring the observance of these obligations.  It is acknowledged that the type of response taken vis-a-vis Google will be met with relief among the IT business community–no lengthy and invasive investigations, no infringement decision, no potentially sizeable fine.  However, shortly after the Commissioner’s Speech news outlet reported “unease” both within the Commission and among Google’s rivals at the perspective of the leading search engine to be able to “get away” without having to admit liability for the infringement (see for instance reports in The Register, 14 February 2014, http://www.theregister.co.uk/2014/02/14/ec_officials_voice_doubts_about_almunia_planned_settlement_deal_with_google_on_search_biz); more generally, it may be wondered why, in the face of potentially serious competition breaches, Google could be regarded as being treated “more benevolently” than other IT undertakings, such as Microsoft (see e.g. the report in Bloomberg, 12 February 2014: http://www.bloomberg.com/news/2014-02-12/google-deal-with-almunia-said-to-be-criticized-by-eu-officials.html).

Against this background, can the commitments decision addressed to Google be regarded as a suitable and effective response to the nature of the practices and to the demands of addressing their anti-competitive effects on the market? It is suggested that due to the length of the investigation, the decision can hardly be regarded as a knee jerk reaction to the traditional plea that ‘something must be done’ to prevent Google from interfering with any remaining competition on the markets affected by its position of market power.  Yet, one cannot help but doubting whether the costs associated with monitoring its compliance with the decision and, perhaps more significantly, the message that an article 9 decision in this area sends to other players in this and other markets that are compatibility- and network effect-driven are likely to outweigh any of the allegedly positive implications of not resorting to a fully fledged investigation and, potentially, to adopting an infringement decision.  For many years, the EU Commission has sometimes been criticised for relying perhaps too often and in too heavy-handed a manner on financial penalties without perhaps pausing to consider whether “less intrusive” sanctioning responses could have been more appropriate.  However, in the face of the Google case it may legitimately be queried whether 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, if only to stigmatise the seriousness and the wide anti-competitive impact of the practices for which Google had been investigated.

Spring 2014 is getting closer and closer: this is the time in which, according to the UK Government timetable, the Competition and Markets Authority will be fully operational.  The change will be momentous and very challenging: combining the functions hitherto performed by two bodies, i.e. the OFT and the Competition Commission will be no doubt fraught with difficulties, if anything in terms of internal organisation and workload.  However, this far-reaching reform is not the only one that is mooted for the competition public enforcement framework in Britain.  The recent consultation paper on ‘Streamlining regulatory and competition appeals’ (see: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/229758/bis-13-876-regulatory-and-competition-appeals-revised.pdf) touches upon a key aspect of the public enforcement mechanism established by the Competition Act 1998, namely the scope of the power of judicial review that the Competition Appeals Tribunal (CAT) can exercise on infringement decisions.  As is well known, the Tribunal enjoys powers of judicial control on the merits when it comes to these measures: this means that it can conduct a full inquiry, extending to all aspects of the decision being challenged and most importantly encompassing the merits and the facts of the decision.  This feature of the UK public competition enforcement machinery has enjoyed widespread recognition as a strong safeguard of the due process rights of the parties subjected to OFT investigations: the jurisdiction ‘on the merits’ represents perhaps the most effective tool with which the fairness of “composite” criminal proceedings–i.e. proceedings in which the judicial control of a decision adopted in respect of a substantially “criminal charge” follows an administrative phase before an “integrated agency”–can be secured.  In a recent speech (see: http://catribunal.org.uk/247-8158/Reforming-the-UK-Competition-Regime–assessing-the-impact-of-new-legislation-and-challenges-ahead-for-the-CMA.html) Sir Gerald Barling, chair to the CAT, emphasised the importance of the “full review on the merits” and in particular highlighted how this standard of review had received a full seal of approval from Government itself just a year ago, in the response to the Consultation on competition damages and collective redress.

Against this background, it is certainly surprising that in the recent consultation document on regulatory and competition appeals the Government has brought this issue of the opportunity and necessity of a “review on the merits” back in discussion: the Consultation Paper suggests that bringing the scope of review of competition decision “in line” with appeals in other sector and thereby limit the review on the merits only to the part of the decision fixing a penalty would be beneficial for “consistency” across regulatory sectors.  It also hints at the fact that appeals should focus more on identifying decisions marred by “material errors” and be informed by principles of cost effectiveness and accessibility.  Perhaps more importantly, and more worryingly in fact, the Consultation seems to suggest that the rules governing appeals before the CAT should restrict access to the tribunal only in cases in which “new evidence” that has just become available at appeal stage has would have justified a different outcome at administrative level. But is removing the “review on the merits” the best way of achieving these goals? And more generally, is the appeal process all about ensuring that the facts are correctly stated, or should it pursue wider and more overarching goals, such as securing fairness for the parties and the sound exercise of public powers?  It is further argued, as the chairman of the CAT suggests, that the Government’s proposal seem to overlook the fact that the Tribunal itself enjoys incisive case management powers and consistently exercises them to admit any evidence which was not available to the administrative authorities and which “the interest of justice” justifies introducing at appeal stage.  So who is right? Is the Government justified in pursuing these goals of consistency across the regulatory spectrum, purportedly to “streamline” and make more accessible the competition appeals route, even if these outcomes are de facto achieved at the cost of limiting rather drastically the right of the investigated parties to see that criminal charges made against them are dealt with fairly?

Sir Barling is certainly right to be concerned at these proposals: the experience of the CAT has shown that competition appeals can be heard efficiently and quickly as well as fairly.  In this respect, the proposals tabled by the Government itself at the start of 2013 (see: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/70185/13-501-private-actions-in-competition-law-a-consultation-on-options-for-reform-government-response1.pdf) and concerning private antitrust claims should have been seen as a vote of confidence for the Tribunal.  The BIS response, in fact, called for a wider jurisdiction being recognised to the CAT, by allowing it to hear standalone claims and (except in Scotland) grant injunctions.

It should also be emphasised that since its inception the Competition Appeals Tribunal has been heralded as an example of how the demands of effective enforcement, ostensibly pursued by the “integrated agency” model, can be reconciled with the need to respect the requirements of due process enshrined in human rights principles and especially in the right to a “fair trial” and to a “fair non judicial procedure”, protected by, inter alia, the European Convention on Human Rights.   Antitrust infringements are “criminal in nature”–this much is now established.  And this brings with it as an inevitable consequence that each decision finding such infringements should be subjected to a “full review”, encompassing matters of fact and of law, including a review on the merits.  This is exactly what the CAT has been doing since its creation: according to the 1998 Competition Act, the Tribunal has the power, inter alia, to “remake any decision” that the OFT could have made and to review afresh impugned infringement measures.

Against this background, it is difficult to explain why the CAT, which should become “a major venue” for competition cases and so far has acted as the lynchpin of the overall fairness of the UK competition enforcement structure, should see its review powers significantly curtailed.  It is argued that generic references to the need to maintain “uniformity” in appeal powers across the overall regulatory spectrum do not seem to provide a sufficiently strong justification for this choice.  Furthermore, it may legitimately be queried whether a similar choice would be compatible with the Convention requirements, as incorporated in domestic law by the Human Rights Act.

Not long ago, the later Marion Symmons, a former chair to the CAT, defined the “jurisdiction on the merits” enjoyed by the Tribunal as a means through which the overall competition enforcement framework established in 1998 could be “Convention-proofed”.  Today, the Government seems to be rather unconcerned at the possibility that this guarantee of conformity could be done away with: it is however rather doubtful that a justification based on “administrative efficiency” could support such a radical and criticisable choice.

They say that time is of essence in business… and the proposed merger between Britvic (producer of famous beverages) and the very Scottish brand Barr, purveyor of Irn Bru seems to confirm how true this say is! It is also a cautionary tale for merger systems in general and also for the future Competition and Markets Authority, which is going to exercise both merger review and competition enforcement powers in the UK.  the drinks’ industry is not new to mergers: any Merger control student has studied the Nestle’/Perrier decision, adopted by the Commission.  Carbonated soft beverages are big business in the United Kingdom: this industry turns out slightly over £14,500 million and its key players are The Coca Cola Company (TCCC) and, you would not guess?, Britvic and Barr.  It was therefore not unexpected that a merger between two of the three main incumbents would attract the attention of the OFT–however, given the size of TCCC, one could have been forgiven for thinking that rivalry would not have been significantly affected, with the market leader well able to countervail any headway that the merged entity may have been able to make.

In the decision to refer (see: http://www.oft.gov.uk/news-and-updates/press/2013/14-13#.Uh8Xa3fO63Y) the Office had expressed concerns that the acquisition of Britvic by Barr would have left, in substance, the latter in a position of relatively unconstrained leadership on the market for soft drinks: it was held that as a result of the concentration the competition constraints otherwise existing on Irn Bru and Orangina would have been significantly lessened.

The decision on the proposed merger was eventually handed down on 9 July 2013. The Competition Commission, however, was far less sanguine as to the ability of Barr to “hog” a significant part of the market in issue.  The Commission accepted that the relevant market should be that for carbonated soft drinks and that the transaction would have given rise to a “relevant merger situation”; however, unlike the OFT, it took the view that  the level of substitutability between Britvic and Barr’s drinks was limited in the eyes of consumers, thus minimising the risk of adversely affecting horizontal competition.  The Commission also dismissed the allegation that the merger would lead to portfolio effects that would be detrimental to smaller beverage suppliers: it took the view that given the strength of the merged entities’ next competitor, i.e. TCCC, the merger would not have made any significant difference, both in terms of the ability of the merged firm to constrain the expansion of smaller rivals and of the likelihood of coordination with TCCC.

The decision was obviously welcome in industry quarters; speaking to STV (see: http://news.stv.tv/west-central/228930-competition-commission-approves-merger-between-ag-barr-and-britvic/) the Chairman of Britvic appeared rather pleased at the Commission’s findings.  However, he was less committal as to the company’s immediate plans concerning the transaction: in his words, “Our company is in a different place to last summer when the terms of the
merger were agreed. The cost savings from merging are less, we are
performing better, we have new management and we have a new strategy (…). These are among the issues the board will reflect on in August once the
Competition Commission’s conclusions are known in order to ensure that
it acts in the best interests of Britvic’s shareholders (…)”.

In light of these declarations, the news that Britvic and Barr would no longer go ahead with the proposed merger was not very surprising.  Already in mid July Britvic had let it be known that, in order to “resurrect” the merger a new offer, reflecting the improved condition of the company and its goodwill for the future, would have been required.  Barr duly obliged: however, the revised deal “bit the dust” just a few weeks later, much to the regret of Barr’s officers.  (See among other reports the informative piece published by the Belfast Telegraph just after the news broke out: http://www.belfasttelegraph.co.uk/business/business-news/ag-barr-merger-with-britvic-firm-collapses-29413843.html). Despite the offer being on more favourable terms, Britvic’s Chairman expressed full confidence in the new CEO and in the company’s plans to continue operating on its own; AG Barr, on its part, emerged from this long running story as relatively unscathed–this is especially clear if one looks at the value of its shares, which rose by 1% the day after the news that there would not be a merger after all was revealed.

Reading the reports one could be forgiven for thinking that the Britvic/AG Barr merger was just one of the many proposed deals that fail to see the day.  Yet, this story clearly raises important questions of agency effectiveness and of institutional performance in the area of merger review: one of the uncontested “hallmarks” of a well-functioning merger control framework is the ability of the competent agencies to deliver decisions on individual proposed concentrations in accordance with principles of “speed” and “finality”: in other words, decisions should first of all be “good”, in the sense of being the outcome of accurate and well-informed legal and economic analysis; second, they should be delivered within a timescale that allows, so far as possible, the parties to act upon the decision in accordance with their commercial interests.

Unfortunately, if a week is a long time in politics, as the old adage goes, so is in the commercial and business world.  The Britvic/AG Barr story provides a very tangible example of how quickly the position of an undertaking on the market, its shareholding value and, perhaps more importantly, its current and future plans can change and, consequently, affect any plans of consolidation.  In this case, the fact that the Competition Commission got on to decide on the merger after a whopping 5 months from it being referred by the OFT  meant that the approval, while being a reasonable outcome in light of the conditions of the market and the economic strength of the parties, remained largely ineffective.  Against this background it may be legitimately asked whether this decision was a “good use” of the OFT and CC resources, as well as an appropriate response to the needs of the parties and to the demands of effective competition enforcement.   In this specific context, it should be emphasised that the CC was invested of the case in the exercise of its exclusive powers of merger review and still managed to hand down a decision a significant time after the referral.  It is therefore legitimate to ask whether once both antitrust enforcement and merger review are entrusted with a single authority (i.e. the CMA) we will see more concentration decisions like Britvic/AG Barr–“good decisions” but neither sufficiently “speedy” or “final” as to satisfy the demands of effective merger control.

 

The preliminary reference procedure has represented a powerful tool for maintaining the unity and consistency of EU law in cases in which domestic courts were called upon to interpret and apply the Treaties and other union rules.  Thanks to this procedure, the Court of Justice of the EU has been successful in construing an egalitarian relation of cooperation with the domestic judiciaries, by assisting them in the day to day administration of justice and at the same time seeking to empowering them to apply EU law rules autonomously and confidently.  However, how to strike a balance between the demands of unity and consistency in the interpretation of Union law and respecting the independence of the judiciary has been a constant question for the Court as well as for the domestic judges: how far should they “trust their expertise” and therefore, by relying on the EU precedent, decide cases involving EU law questions on theor own? And what cases are instead best being dealt with only after the EU Court of Justice has had the opportunity to “have its say” and advise the domestic courts?

The doctrine of acte clair, which was enunciated by the EU Court in the CILFIT case, represents a clear example of how difficult it can be to answer this question,  in light of the “peculiar features” of EU law, of its “multi-lingualism” and, paramount, of the need to maintain its inner coherence and consistency.

Equally complex questions arise for domestic courts, whenever they are asked to raise a reference to the EU court in Luxembourg: the dictum of Lord Denning in Bulmer v Bollinger may sound like the expression of 1970s scepticism vis-a-vis the “Common Market”, which could be breathed in many circles afte the UK had acceded to the European Economic Community.  however, it seems to harbour deeper concerns for the independence of the judiciary, the demands of delivering justice to claimants quickly and within acceptable financial limits and the corresponding need to allow the EU Court of Justice to discharge its”cooperative function” in respect of the most relevant and “novel”questions of Union law.

The recent decision of Lord Doherty on the challenge brought by the Scotch Whisky Association against the Scottish legislation introducing minimum pricing on alcohol sales represents another example of this carefully crafted, yet still relatively nuanced relationship.  AS is well known, the legislation in issue was challenged via judicial review on the ground that, inter alia, it had infringed Articles 34 and 36 TFEU, concerning the freedom of movement of goods and laying down strict requirements according to which Member States could interfere with this principle.  In a landmark decision for the compatibility of public-health related constraints on the freedom of traders to set their prices according to their cost structure, Lord Doherty, for the Court of Session,was asked, among other questions, to make a reference to the EU Court of Justice on the question of whether the challenged measures represented a “proportionate” restriction on the freedom of movement, in light of Article 36.  He was consequently faced with an alternative: should he act as a “Union judge” and therefore rely on the existing and rather copious precedent on these questions to decide the case? or should he resort to the assistance of the EU Court?

Lord Doherty went for the former: in a terse couple of paragraphs he explained why he felt able to  address the question and respond to it “with complete confidence; he expressed the view that “there [was] no issue of legal interpretation of [Article 36] which required elucidation”.  In that respect Lord Doherty emphasised that domestic courts were “better placed” vis-a-vis the Court in Luxembourg when it came to examining “all the circumstances bearing upon proportionality” and emphasised that, due to the “supervisory nature” of the EU Court’s jurisdiction, it fell on the domestic judge, in accordance with the requirements of article 36 TFEU, to identify the goals of the legislation, the “appropriateness” of the measures being enacted and the “proportionality” vis-a-vis the goals being pursued.

On that basis, Lord Doherty rejected the petitioners’ plea for a preliminary reference: he held that, in accordance with the lond-standing approach adopted in inter alia ex p. Else (R v International Stock Exchange of the Uk and Ireland LTd ex p. Else, [1993] QB 534 at 545-546), a domestic court should only make a reference to Luxembourg if it felt unable to decide on the case “with complete confidence”, after having found all the facts and identified a “question of EU law” that was “critical” to the outcome of the case, in light of factors such as “(…) the differences between national and Community legislation, the pitfalls which face a national court venturing into what may be an unfamiliar field, the need for uniform interpretation throughout the Community and the great advantages enjoyed by the Court of Justice in construing Community instruments” (per Lord Bingham, p. 545).

However, as the Court of Session’s decision shows, none of the issues at stake in the challenge to the Minimum Pricing legislation were such that the domestic court could not decide “with complete confidence”:it should be emphasised that already at the start of his decision, Lord Doherty made clear that the task of a domestic court charged with dealing with a question of EU law was in all similar to the “supervisory jurisdiction” enjoyed by the EU Court of Justice and in that context held that it should be primarily for the domestic court to consider whether the challenge brought against the domestic measure was “well-founded”.  He also emphasised the importance of respecting the “margin of discretion” recognised to the national authorities (see para. 48-49) and especially to defer to the parliamentary deliberations in this area (see para. 79).  On that basis, and relying on the EU Court of Justice’s precedent on these issues, Lord Doherty felt “sufficiently confident” to assess the legislation under challenge and to provide an answer to the EU law questions before him.

By looking at this judgment, one cannot help but think that this is an aspect of the “acte clair” doctrine in action: it may be recalled that in CILFIT the EU Court of Justice had affirmed that the domestic courts before which a “question of EU law” was pending, which was “relevant” for the decision of a specific case, could refrain from making a reference if it thought that the “answer was so obvious as to leave no reasonable doubt” as regards what its solution should be; in that context, the court emphasised that this would be the case if the same question had been dealt with in an earlier case (although the facts or the nature of the proceedings were not exactly identical).  Against this background, it is suggested that the challenge of alcohol minimum pricing legislation constitutes one such case: the Court of Session, acting like a proper “Union court, relied on the existing acquis in order to address a sensitive question, after having dealt with all the questions of fact and taking into account the “margin of discretion” to be accorded to the domestic authorities responsible for judgments that were “policy-laden” in their essence. As paragraphs 106 and 107 indicate, had the Court of Session been unable to give “its own answer”, a reference may have been justified.  However, as Lord Doherty’s careful consideration of the issues shows, petitioning the Court in Luxembourg when the domestic judge could clearly adopt his own conclusions, in light of established principles and of a clear factual picture, was not necessary.

Over the years, the Scottish Courts have been criticised for the paucity of the references they made to the EU Court of Justice: however, in light of this recent decision, one may perhaps be forgiven for thinking that this is the consequence of “Euro scepticism” among Scottish judges! To the contrary, if Lord Doherty’s careful assessment of the compatibility of the Alcohol (Minimum Pricing) (Scotland) Act is anything to go by, it could be argued that the small number of references made so far can be explained as a consequence of the willingness of the Court of Session (and perhaps of the Scottish Courts generally) to engage actively with the EU law acquis and to apply complex principles to the cases pending before it before seeking guidance from the Luxembourg court.  Could this be a sign of things to come for the future-in other words, greater confidence on the part of domestic courts to act as “Union courts” in the course of their day-to-day administration of justice? Surely it seems that Scotland could “blaze a trail” in this area.

Today has seen the Court of Session rule on the legality of the Alcohol (minimum Pricing) (Scotland) Act 2012( see:  http://www.scotland-judiciary.org.uk/9/1040/Petition-for-Judicial-Review-by-Scotch-Whisky-Association-And-Others); while the final judgment will be published in a few hours, the Court of Session press release has already been published… and it makes for very pleasing reading for the Scottish Government and in particular for Alex Neil, the Health Secretary (see: http://www.bbc.co.uk/news/uk-scotland-scotland-politics-22394438).

Lord Doherty rejected both challenges brought by the SWA against the Bill, i.e. the plea that the Act in question was outwith the competences of the Scottish Parliament under the Scotland Act and the argument that the Act itself represented an unlawful restriction on the freedom of movement of goods under Article 34 TFEU, one which could not have been justified in light of the requirements laid out in Article 36 of the Treaty.  Finally, Lord Doherty also refused to entertain any plea that the measure had infringed the limits of the UK competence to regulate the area of trade in wine and other alcoholic or fermented beverages, on the ground that, as the SWA had argued, this area had already been subjected to a degree of harmonisation.  Importantly, Lord Doherty refused to make a preliminary reference to the EU Court of Justice-as it is within his powers of doing so under Article 267(3) TFEU.

While the reasoning of the Court of Session was eagerly awaited, many of the conclusions anticipated in the press released could have been expected in light of recent developments in other cases, also concerning challenges to Scottish Parliament legislation under the Act of Union and the Scotland Act.  One can, for example, recall the judgment of the UK Supreme Court upholding the validity of Scottish measures outlawing the display of tobacco products and the sale of cigarettes via vending machines in public places.  In that case the applicant, Imperial Tobacco, had argued that Holyrood had acted ultra vires in as much as these measures were designed to alter the conditions of "sale or supply of goods" to consumers,  an area which was still "reserved" to Westminster.  The Supreme Court, however, had thought otherwise; it took the view that the ultimate purpose of the Act was to uphold goals of public health by discouraging the purchase of tobacco products via limiting its "visibility" in shops and its availability to "vulnerable" categories (such as children).  Thus, it concluded that since the goal of the measure fell squarely within one of the "key" competence areas of the Scottish Parliament, they had been adopted well within the limits of the Scotland Act (see a previous blog post: http://www.law.ed.ac.uk/clie/blogentry.aspx?blogentryref=9086).

It should be reminded that after this decision the SWA had withdrawn part of its arguments concerning the compatibility of the said legislation with the Act of Union.  The decision of Lord Doherty confirms the conclusion that just as the "legislative competence" pleas made in the Imperial Tobacco case, the Act of Union's rules governing freedom to trade within the UK did not require that conditions of trade be "identical" across the UK; in particular, he refused to accept that minimum prices could be seen as equivalent to "excise duties", and as such contrary to Article 6 of the Act of Union.  He held therefore that the Act remained within the boundaries of the Act of Union in as much as it was of general application and therefore did not discourage traders from other parts of the UK vis-a-vis traders established in Scotland.

It should also be noted that Lord Doherty dealt rather swiftly with the argument that the Scottish minimum pricing legislation encroached upon the EU competence to act in the field of agricultural policy and in particular to adopt measures designed to harmonise the market for specific products, such as wine and other fermented beverages.  He took the view that this area was one of "shared competence" between the Union and the Member States and that, while domestic measures could not be enacted which jeopardised the effet utile of EU action, Member States could intervene to regulate aspects of the area that had not been subject to specific Union measures.  On this point, Lord Doherty noted that Regulation 1234/2007, which dealt with the "common organisation" of the wine and spirits market did not cover the issue of price or of protection of health and in general, it was not a "fully harmonising" measure; accordingly, he held that the Scottish Ministers and the Parliament were fully entitled to enact the 2012 Act, subject only to the general limits set out by Articles 34 and 36.  Importantly, it was held that none of the rules concerning the harmonisation of the agricultural market prevented Member States from introducing measures governing prices and from pursuing, through them, objectives of public health.

It is however the reasoning on the compatibility of the Act with the EU Treaty rules on free movement of goods that makes for more interesting reading.  On this point, one may recall that in June 2012  the Scottish Ministers had notified the draft measures implementing the Act to the Commission, in accordance with the relevant EU measures on technical standards; following that notification, the EU Commission had issued an opinion in September 2012, noting its concern as to the possibility that the proposed minimum pricing rules, whilst being justified in the public interest, could have been "disproportionate". However, Lord Doherty emphasised how the Commission's opinion, just as the views of the other Member States that had chosen to contribute to the notification procedure, were "of interest; but not more than that"and should therefore not bind the Court.

Moving on to the substantive question of the compliance of the minimum pricing legislation with Articles 34 and 36, Lord Doherty refused to entertain the petitioners' argument that similar measures could NEVER be justified: he argued that, unlike in the "tobacco cases" concerning the setting by individual member states of minimu prices for cigarettes (see e.g. case C-221/08, Commission v Ireland, [2010] ECR I-1699), the area of alcohol sales had not been subjected to any degree of harmonisation; thus, unlike in those cases, the 2012 Act and the implementing Order had to be assessed exclusively in light of the general provisions of Articles 34 and 36 of the Treaty.  

Lord Doherty emphasised that domestic authorities had been allowed a margin of appreciation in enacting measures affecting rights and freedoms granted by EU law; thus, the domestic court should scrutinise these measures just as the Court of Justice would do, by asking whether an "objective justification" existed for them.  In this context, Lord Doherty held that under Article 36 TFEU this assessment should encompass the question of whether the measure in issue was "appropriate for securing the attaintment of the objective pursued" and did not "go beyond what is necessary in order to attain it".   This notion should instead be interpreted as requiring that the proposed measure be both "appropriate", in the sense of "genuinely reflecting a concern to attain an objective in a consistent and systematic manner", and "necessary"; the latter criterion should be read as meaning that the measure be "proportionate", i.e. that no other alternative exists to it that is less restrictive of interstate trade.  Thus, it was held that the Treaty could not be read as obliging the domestic authorities "to prove, positively, that no other conceivable measure could enable that objective to be attained under the same conditions".

On that basis, Lord Doherty reviewed the minimum price legislation: in respect to the question of which "public interest goal" the legislation pursued, he observed that the Act was aimed not at "eradicating alcohol consumption" in full, but only at "striking at alcohol misuse and overconsumption", by targeting sales of "cheap alcohol" to mainly "hazardous drinkers".  Thus, in his view this goal represented a "legitimate aim" within the meaning of Article 36, and was being pursued by measures adopted in "good faith and with the best of intentions" in order to stamp out alcohol-related harm caused by dangerous drinking patterns.  The imposition of minimum prices was regarded as "appropriate" to achieve these aims, on the ground that it would result in the diminution of consumption of "cheaper" beverages across the most vulnerable groups who tended to spend more of their income in alcohol purchases and were, consequently, more sensitive to price changes.  Seen in this light, and considering the level of health harm suffered by those in lower income groups, the measures in question were regarded as being "suitable" to the attainment of their public interest goal.  Finally Lord Doherty approached the central question, i.e. the issue of whether the imposition of minimum prices was "proportionate", i.e. whether an alternative measure existed that was "just as effective as minimum pricing" in securing these public health gains.   He first compared minimum pricing with the most "obvious alternative", namely the increase of excise duties on alcoholic beverages: after observing that unlike minimum pricing, an increase in excise was less "easy to understand, measure and enforce"and encouraged traders to absorb it in their sales structure (e.g. by cross-subsidising it against the revenues from the sale of more expensive alcohol).  Perhaps most importantly, it was emphasised that increasing the percentage of excise would not be "sensitive" to the different alcohol content of each beverage and consequently would be both "disproportionate" vis-a-vis the demands of preventing alcohol related harm resulting from lesser strenght products and less suitable to achieve the public health objectives being pursued; on this specific point, Lord Doherty accepted that, unlike with minimum pricing, the excise structure could not be adjusted to target "hazardous drinkers" only or mainly, by increasing the price of cheaper alcohol and therefore could not be used to "displace" demand from the most vulnerable consumers by depriving them in essence of the option of "trading down".

Thus, Lord Doherty concluded that the measures introduced by the 2012 Act were "objectively justified" wtihin the meaning of Article 36 TFEU: in his view, the Scottish Government and the Parliament had, in choosing to enact minmum pricing measures, struck a balance between the level of public health that they considered to be a desirable goal and the interests of those affected by the measure.  he observed that in doing so it was legitimate to take into account such factors as the socio economic considerations arising from the impact of the Act on "mild" drinkers: however, since the target of the Act was to diminish consumption among "hazardous drinkers", who were likely to trade down on "cheaper" alcohol,  as opposed to "stamping out" alcohol consumption altogether, minimum pricing, in view of its "differentiated impact" on sale prices, was the least "restrictive" of the options available to attain the "desired degree of protection of health and life" in light of all circumstances.

The ruling in the case of Scotch Whisky Association v Scottish Ministers represents a true landmark case for a number of reasons: leaving aside the political sensitivities of this case, both for the Scottish Government (whose leading party had been strongly pursuing this agenda since its first foray in power) and for the UK Government-which had tried a consultation on similar measures, albeit on the basis of public order concerns-the judgment represents a clear and cogent analysis of the compatibility of measures restraining the freedom to set prices (which is perhaps the most important manifestation of a "free" and competitive market) for the purpose of serving "higher goals" and the good of society.  It also reflects the complex, multi-layered and nuanced relationship between the EU and its Treaties and the Member States' policy agendas, interests and choices since it relies on the concept of "necessity" and of "proportionality" in order to identify which measures, among a set of alternatives that can all in principle fulfil the same public interest, are the "least restrictive" for the internal market and, it could be argued, also for free competition.  More generally, it could be argued that the choice of Lord Doherty to engage actively with the relevant case law in order to deal with these complex questions speaks of the willingness of the Court of Session to act as a "true European Union court" (see http://www.law.ed.ac.uk/clie/blogentry.aspx?blogentryref=9169).  At this stage, it is difficult to predict what the next steps of this fascinating story will be: it may be wondered, for instance, whether the SWA will appeal the judgment and whether, in that case, the UK Supreme Court will make a reference to Luxembourg.  What is clear however is that the Court of Session seems to have embraced the central role played by the public health and human welfare (or, in the words of the Treaty, "health and the life of humans") within the framework of Article 36 TFEU.  More generally, the ruling suggests that, within the general framework of the EU treaties,  "the needs of the single market" may have to give way in favour of these objectives, subject to the assessment made by those authorities that are "closer" to the demands of a specific society in a given moment of time: however, it is equally clear that the "outer boundaries" of this margin of discretion are once again those principles of "necessity" and of "proportionality" that the EU Court of Justice has painstakingly built over the years and to which the Court of Session has showed a strong commitment.

 

 

2013 has started in earnest for the Scotch Whisky Association and the Scottish Health Minister: the challenge against the Scottish Parliament's legislation imposing a minimum price on alcohol beverage is due to be heard on 15 January for seven days.  However, according to court sources, the applicants have dropped their claim that the act infringes the Scotland Act, having allegedly been enacted beyond the scope of the powers conferred to the Holyrood Parliament by the devolution legislation.  Their arguments will therefore seek to convince the Court of Session that the measure in question represents an unwarranted restriction on the freedom of movement principles and an infringement of the competition rules, enshrined in the EU treaties.  How is one to read the change of heart of the SWA? And what is this going to mean for the complaint lodged by the SWA and other bodies before the EU Commission and alleging an infringement of the Treaty by the UK in respect to the Alcohol Minimum Pricing (Scotland) Act?

In respect to the former question, it could be suggested that the recent UK Supreme Court judgment confirming the legality of Scottish legislation banning the presence of vending machines of tobacco products in publc places may have convinced the applicants against pursuing their pleas based on the Scotland Act.  In December 2012 the Supreme Court upheld the validity of Sections 1 and 9 of the Tobacco and Primary Medical Services (Scotland) Act 2010: these provisions had banned, respectively, the display of tobacco products in placed where the latter were on offer for sale and the presence of vending machines for the sale of the same goods.  Imperial Tobacco had sought to have the measure declared incompatible with the Scotland Act on the ground that, being allegedly related to "product safety" and to "the sale or rupply of goods to consumers" they affected areas reserved to the Westminster Parliament.  In addition, the appellant argued that, in as much as they provided sanctions for the infringement of these prohibitions, they had created "new offences", and were therefore also incompatible with the 1998 Act.

The UK Supreme Court, however, held that the purpose of sections 1 and 9 was not to regulate either the conditions of sale and supply of goods to consumers or the safety of specific products.  Instead, it was stated that the act should have been read with a view to identifying its purpose and, thereafter, to examining whether, in light of the scheme of the 1998 Act, the Scottish Parliament had overstepped the limits of its powers in this specific case.  The Court unanimously found against the appellant.  It took the view that the objective of Sections 1 and 9 of the 2010 Act had been, respectively, to limit the "visibility" of tobacco products, with a view to reducing consumption and smoking and to make cigarettes less available to the public, especially to children and young people.  At the core of both provisions, therefore, was a concern for discouraging the consumption of tobacco, in order to, ultimately, secure health protection objectives.  The UK Supreme Court, therefore, rejected the appellant's claim that these provisions affected the Westminster Parliament's power to legislate for either the purpose of regulating the sale or supply of goods or indeed of enforcing appropriate product safety standards.  In particular, the Court sought to read the latter objective carefully and expressed the view that its scope should be limited to the remit of section 11 of the Consumer Protection Act, i.e.devising and upholding appropriate safety standards especially so as to prevent that "dangerous" or "unsafe" goods do not end up in the hands of specific categories of individuals (or indeed of the public at large).

On tha basis, the Supreme Court rejected the applicant's challenge on the ground that the 2010 Act had not sought to prohibit outright the sale of tobacco products and was therefore incapable of "unbalancing" trading in these goods.  Thus, it was held that, since the purpose of Sections 1 and 9 of the 2010 was to promote public health by reducing the attractiveness and the availability of the tobacco products and esopecially to put it beyond the reach of persons that are not "old enough" to purchase them, they could be rightly adopted by the Scottish Parliament.  Having regard especially to its provisions imposing criminal sanctions for the infringement of Section 9, the Court explained that these too should be read having in mind the public health concerns at the basis of the 2010 Act: in its view, these sanctions were geared at reinforcing the deterrent effect on consumption of the ban on display of tobacco products or on the installation of vending machines, i.e. public health, and not at securing the "safe" supply of specific goods.

Against this background, and given especially the broad similarities between the arguments laid out by, respectively, the SWA and the pleas rejected by the Supreme Court in the November judgment,  it is not surprising that the Whiskey producers' trade body decided to drop the 'devolution arguments' in advance of next week's hearing: in the appeal, the SWA had argued that the minimum pricing legislation affected matters reserved to the Westminster parliament, i.e. the regulation of the sale and supply of goods and services to consumers (see: http://www.bbc.co.uk/news/uk-scotland-20028728). As a result, and in consideration of the public health rationale underpinning the 2012 Act, it may be foreseen that this argument would be unlikely to succeed in the Court of Session.  

It shoud be added that  the decision adopted by the Court of Session to allow Alcohol Focus Scotland to intervene in the public interest in support of the introduction of alcohol MPUs may stoke up the chances of the Scottish Goverment succeeding on this ground:  according to  Lord Hodge the court would be likely to derive assistance from the submissions made by the petitioner, on the ground of its expertise and its role of "independent voice" in Scotland for the public health concerns raised in the face of alcohol abuse.  Thus, it could be argued that ACS's participation seems to confirm the 'public health-centric' nature of the Sottish Parliament's statute.

So, the SWA's pleas are now focused exclusively on the EU law-based arguments that the 2012 Act would infringe the competition and single market rules enshrined in the Founding Treaties.   This development, however, opens up a number of interesting scenarios: the Court of Session could decide to rule on these questions straightaway.  It is in fact not a 'court of last resort' and it is open to the parties to challenge its decision and thereby seek to have the Court of Justice involved at a later stage of the proceedings via Article 267 TFEU, i.e. the preliminary reference procedure.  If this was the case, however, and the case proceeded all the way to the UK Supreme Court, it may take a considerable time for these questions to arrive in Luxembourg.  Or the Court of Session may decide to suspend proceedings and refer one or more questions to the Court of Justice already at this stage: seeking a reference at this point in time may appear more favourable to both parties, since it would secure a more timely resolution of the dispute and increase legal certainty in a cloudy area of free movement and competition law.

However, if this was the preferred solution of the Court of Session, what would happen to the complaint lodged by the SWA with the EU Commission? It is reminded that in December 2012 the Daily Mail had leaked a memorandum of the Secretary General of the Commission (see http://www.bbc.co.uk/news/uk-scotland-scotland-politics-20533189) in which it had been stated that, while the objectives pursued by the 2012 act could be "made to fit" within the broader framework of the goals pursued by the EU in the field of public health, the "proportionality" of the restrictions carved by the introduction of compulsort MPUs was under considerable doubt.  However, it is to this day not clear whether and when the Commission will take action in court against the UK-as is well known this is very much the gift of the Commission itself and its discretionality in this area remains unfettered.  Seen in this light, it may be argued that the way in which the Court of Session will deal with the EU law questions before it may have an impact on the Commission's decision in this area: it is in fact well known that, at least in the area of competition enforcement, the fact that a specific case is pending before a domestic court may constitute sufficient ground for the Commission to "drop a complaint" concerning the same set of facts.  Consequently, it may legitimately be argued that a possible decision of the Court of Session to either examine the legislation's validity by itself or, perhaps most importantly, to refer the matter to the Court of Justice could prompt the Commission to dismiss the complaint on the basis of the same approach.

Detractors of the Scottish Parliament's legislation in this area may argue that the Commission should in any event push ahead with the infringement proceedings against the UK, on the grounds of the "novelty" and importance of the question and of the "Union interest" in upholding free movement and competition principles against a statutory attempt to set a "floor price", albeit for prima facie meritorious reasons.  However, there are equally weighty reasons for cautioning against the Commission taking any "rushed decisions" on this issue: the fact that the Court of Justice may at some point be called upon to decide on these questions, and consequently the risk of the Commission itself adopting decisions that may be incompatible with a future preliminary ruling, should be regarded as sufficient ground for, at the very least, sitting it out until the Court of Session has at least heard the SWA's challenge.

In light of the above, it is clear that next week's hearing will not ring the "time, gentlemen, time" bell for (off license purchasing) drinkers… surely not, but it is equally certain that the 2012 Act imposing minimum price per alcohol unit still hangs in the balance of a very politically charged and economically weighty dispute.

Just when we thought that Russian/European energy adventures could be left to simmer away in Brussels… here comes the announcement that BP has disposed of its 50% interest in TNK/BP in exchange for Rosneft shares.

http://www.bbc.co.uk/news/business-20030610

Given the importance of the oil reserves existing in Russia and, consequently, of the rather convincing justification for BP (just as, it could be evisaged, for any other energy company) to keep a strong foothold in the region, one could be forgiven for thinking that BP's move may actually be a "good idea".  It would pretty much guarantee a continuous source of oil supply for a company who's been through mixed fortunes lately: starting from the oil spill in the gulf of Mexico to its fitful, to say the least, relationship with its own partners in TNK, BP's recent history can easily be defined as chequered to say the least.

However, the picture is not as clear or straightforward as it looks like.  Rosneft is a company controlled by the Russian State and Mr Putin has made no mystery of his wish to remain closely involved in its management, to the point of being briefed ahead of the TNK/BP deal.  BP's life as a partner in the joint venture has not been the happiest or quietest either: in 2008, its chairman (now at BP) Bob Dudley, had to leave the country following a number of run-ins with Russian authorities as well as with its own partners in TNK. To cap it all, the joint efforts made by TNK/BP and Rosneft itself to start drilling in the Arctic region faced intense opposition by other Russian oil producers, and were eventually abandoned.

So, what can be gained from a similar merger? And what does this mean for competition in the energy industries and especially for rivalry on the oil marker? There is little doubt that energy supply in Continental Europe, despite growing capacity in the gas segment, remains significantly dependent on oil. Oil is especially important in other economic sectors, such as transport: consequently, it could be argued that BP's move toward greater corporate and ownership-based integration with Rosneft represents a rational response to an ever changing and deeply challenging industry.  As was reported by the Financial Times on 22 October, this concentration is likely to harbor significant" benefits for BP shareholders, in terms of exposure to one of the world largest oil companies", productive sinergies and the ability to tap in extremely extensive and thus valuable oil reserves (see: http://www.ft.com/cms/s/0/9776a77a-1c39-11e2-a14a-00144feabdc0.html#axzz2AOdVeWmx).   However, it is legitimately questionable whether similar enthusiasm can be expressed when one looks at the potential consequences for the accessiblity of the oil market in vast areas of continental Europe.

It appears in fact from the details available as to the deal that the merged entity will maintain a hold on the supplies directed to numerous Member States, starting from the three Baltic Republic; in addition, it will own or enjoy exclusive rights to use key infrastructure (such as that allowing for the exploitation of rich Arctic oil fields).  The merger is also very likely to boost the battered reputation of BP, especially after its poor dealing with the consequences of the Gulf of Mexico oil spill.   However, it is equally clear that any rival wishing to threaten the leading position of Rosneft after the concentration will have, at the very least, significant difficulties in accessing much of the Continental market.  On 22 October 2012 Businessweek reported (see: http://www.businessweek.com/articles/2012-10-22/bps-good-deal-with-rosneft) that as a result of its takeover of BP/TNK, Rosneft will pull neck-and-neck with Exxon Mobil, which to date has been the most significant competitor when it came to access of the Russian reserves, on the one hand, and of European customers, on the other hand.  As a result, not just Exxon, but also other key rivals will be more and more sidelined when it comes to attempting an entry into the rich Russian oilfields: for instance, deals such as the Arctic/Black Sea drilling jointventure that exxon itself negotiated with Rosneft in late 2011 are to become less and less likely, due to the fact that, given the sinergies created with the BP-co-owned company, Rosneft will see lesser and lesser convenience in seeking out other partners.  As was aptly put by  Pavel Molchanov, a US based analyst, as a result of this deal, BP has been "officially endorsed" as the preferred partner" for Rosneft, which means, in practice, that it will retain a very privileged position, vis-a-vis other potential entrants, in securing both access to Russian oil and rights to exploit the oilfields with a view to exporting oil to countries in Europe. See: http://www.businessweek.com/news/2012-10-22/russia-off-limits-to-big-oil-after-bp-wins-putin-s-approval

As a result of this merger, the oil market in Continental Europe, whose dynamics affect oil availability and oil prices across the EU, appears more and more concentrated.  Due to the dependency on Russian-held resources, the consequences of the merger are likely to be felt in many Member States, with non-Russian companies in a position of increasing disadvantage vis-a-vis BP when it comes to securing supplies and to channeling them to other areas of the Continent.  The merger also raises significant questions concerning governance: it is in fact well known that Rosneft, in its position of state-run oil company, is very exposed to the political influence of the Russian Government and Presidency.  Consequently, a number of concerns were raised that BP's own internal governance may also be exposed to similar influences or threats thereof.  more generally, it may legitimately be questioned whether the merger could remain consistent with another objective, which has been at the core of among others the EU's policy agenda on energy, namely the attainment of "real" privatisation and of greater, easier access to the energy markets (see e.g. http://ec.europa.eu/energy/infrastructure/strategy/2020_en.htm). 

In the aftermath of this merger, several analysts have suggested that the Kremlin seems to be poised toward the "re-nationalisation" of the extraction industry.  Ostensibly out of a concern for keeping oil and gas "Russian" and "Moscow-centric", this deal seems to confirm the intention of the Russian State to tighten its hold on strategic oilfields while at the same time continuing to trade with foreign customers via a "trusted" ally, such as BP.  Gone are the days, it would seem, of the Russian "oligarchs" who, in the wake of the fall of the USSR were poised to become the free-market heroes of modern, post-Communist Russia (see e.g. http://news.bbc.co.uk/1/hi/business/3218515.stm).  Leaving aside the "historical" background, it may be genuiney questioned whether the merger between BP/TNK and Rosneft is going to herald an era of less expensive, more easily available oil to be sold in vigorously competitive markets.  Certainly, BP stands to benefit from his "special position" in the eyes of the Kremlin… but whether this will lead to a more contestable market in Europe in the long run, at least as far as onshore drilling and extraction go, it is highly doubted.

The energy sector has represented a key target for the competition enforcement activities of the EU Commission for a considerable time.  This activity has accompanied and in some cases followed the enactment of legislation designed to liberalise the markets for the supply of gas and electricity, through the imposition of unbundling and infrastructure sharing obligations on incumbents (often former state monopolists).  While sector specific regulation has undoubtedly been effective in removing barriers to entry and in creating the conditions for a more contestable market in many member states, it has not been wholly successful in curtailing the ability of incumbents to seek to shape the conditions of competition on the retail markets in a way that could be detrimental to newcomers, for instance by downgrading the conditions of access to the infrastructure or by seeking to tie customers via long-term arrangements, not just on the retail market, but also at wholesale level.  Competition decisions adopted since 2006 and addressed to major European former monopolists such as Distrigas in Belgium, RWE and E.ON in Germany and EdF in France show that ex post competition enforcement is an indispensable complement to sector regulation since it prevents the old monopolists, which invariably, at least for a time, are dominant on their respective relevant markets, from countervail, via their commercial practices, many of the positive effects of the liberalisation measures.

Yet, it appears that the road toward realising efficient, competitive markets in which energy is affordable as well as secure is rather uphill.  The recent statement of objections issued bythe Commission against the Russian energy company Gazprom (see http: //europa.eu/rapid/pressReleasesAction.do?reference=IP/12/937), alleging a number of infringements of Article 102 TFEU, especially to the detriment of customers in Central and Eastern European Member States, represents a good example of how "national champions", whether established within the Union or, as is the case with Gazprom, in non-Member States, can act in such a way as to foreclose the energy markets vis-a-vis rivals and thereby engender situations of dependency as regards supply in sizeable areas of the single market.  

A very extensive and exhaustive run through the Gazprom investigation and related matters is provided by a recent paper authored by Alan Riley, Professor of Law at City University and Fellow of CEPS at: http://www.ceps.eu/book/commission-v-gazprom-antitrust-clash-decade.  As is well known, Gazprom stands accused of partitioning markets, of applying "unfair prices" and of "preventing the diversification of the consumption of gas", to the detriment of EU consumers, viaa number of prima facie illegitimate practices, such as restricted access to the infrastructure (namely, the well known pipelines carrying gas from Central Russia and the Caucasus to more Western parts of Europe); dowgraded levels of service in transporting gas to Central and Eastern Europe; the practice of concluding long-term contracts of supply with a number of companies established in several member states in this and other areas.

These allegations present a number of difficulties, especially in terms of evidence, for the Commission: taking the allegation of "unfair pricing", this is admittedly fraught with problems.  For instance, how should an "equally efficient" rival be identified? And how high (or low) should a price be to be "unfair"? As to the other allegation of market partitioning this may admittedly be slightly easier to support with evidence: a careful analysis of pricing trends across the Member States concerned, for instance, could give the Commission clues as to whether a similar accusation is well founded.  But, assuming that the Commission is successful in gathering evidence and making a convincing case as to the existence of an infringement, could a prohibition decision, backed by fines, be the most appropriate way of terminating the infringements? As may be easily recalled, Gazprom, given its economic strength and, let's face it, its political adherences with the Putin regime, is admittedly notorious for the threats to interrupt or restrict supply of gas.  This has already occurred a few years ago against a number of its key customers (see e.g. http://www.bbc.co.uk/news/10362731). Accordingly, it could legitimately be questioned whether taking such a "heavy handed" strategy may be helpful, especially since (as the example of Lithuania shows-the country is 100% supplied by Gazprom) it would still be essential to maintain ties with the company in question, at least until such time as alternative sources of energy, especially renewable, are found and developed and thereby brought in a position of being capable of withstanding demand. 

As the experience emerging from the energy market study showed, commitments decisions, designed to put an end to the anti-competitive practices under a degree of supervision, may represent an equally efficient response to the consequences of unlawful behaviour.  However, this response presents inevitable risks, the first being the fact that it would not be based on a conclusive finding of infringement and the second, and perhaps the most significant, from a practical standpoint, being the fact that the efficacy of commitments decision relies heavily on the ability of the competition authorities to monitor compliance with them.  Perhaps it could be wondered whether the Commission would be better advised in "chancing" its way through a full-blown investigation procedure, culminating with a "real" response to Gazprom's suspected unlawful practices. It is suggested that taking this course of action would allow the Commission to exercise not just its detection powers, thus being able to reach a definitive decision that an infringement has actually taken place.  It would also enjoy the power to impose remedies on the investigated company, which would allow it to address the concerns identified already at this preliminary stage, along with imposing financial penalties.  As Microsoft has demonstrated, Article 7 can be deployed both flexibly and effectively to terminate the infringement as well as to allow rivals, who would otherwise be foreclosed from the market as a result of the dominant undertaking's misdemeanours, to be put on a more even footing in attempting to enter that market. Accordingly, it would definitely represent a more effective response to the consequences of Gazprom's behaviour in particular as well as being consistent, more generally, with the concerns for improving on openness and rivalry of the energy markets, goals in the realisation of which the Commission has invested significant resources as well as political capital.

But alas, the woes for policy makers arising from the energy industry are not limited to the action of the European Commission.  It appears that the UK Government, ostensibly out of a concern for growing gas and electricity prices, is preparing to legislate in order to "force" energy suppliers to apply their "lowest" tariffs to their customers' bills. At PM questions on 17 October the Prime Minister said: ""I can announce… that we will be legislating so that energy companies have to give the lowest tariff to their customers, something that Labour didn't do in 13 years, even though the leader of the Labour Party could have done because he had the job." (see: http://www.bbc.co.uk/news/uk-19986929) 

However laudable the objectives of the PM may be (especially given the ongoing difficulties that many families face in payihng their utility bills and the rising numbers of households in "fuel poverty"), this announcement rings many alarm bells in the ears of any competition lawyer.  What is meant by "lowest tariffs"? According to which benchmarks can this assessment be made? And secondly, how can it be ensured that, purportedly in order to fulfil their obligation under the proposed Energy Bill, suppliers will not conspire in their determination of what is the "lowest tariff"?

In respect to the first question, it is surely indispensable that suppliers should be "transparent" as to how their tariffs are calculated so that customers can compare each offer and thereby make an informed choice as to which firm to choose.  However, how in actual fact each tariff is determined remains very much within the gift of each supplier and is therefore determined on the basis of confidential information.  Against this background, it is clear that what appear to be "lowest tariffs"may not actually coincide with "competitive" tariffs, that is with the lowest prices that can be set having regard to the actual conditions of competition, of the size and number of rivals and of any other relevant factor characterising the industry at a given time.  It could be added that such a scenatio brings back to memory one of the most famous problems in competition law, namely the so-called "cellophane fallacy", which, it was alleged, had marred the US Supreme Court decision in the DuPont case. Be as it may, it is surely questioned whether imposing such a generalised obligation on suppliers, in the context of a market that is already subjected to significant regulatio, is really likely to benefit consumers, as well as being objectively feasible.  To the contrary, and coming to the second question highlighted above, the concern may well be raised that imposing such a blanket obligation woul restrict competition between suppliers considerably, as well as pushing smaller ones into a potentially unsustainable position of having to "meet competition" on the part of the major energy companies by, in substance, ending up pricing almost at a loss. 

In a very recent blog post (see: http://competitionpolicy.wordpress.com/2012/10/19/the-likely-effects-of-compelling-energy-firms-to-give-customers-the-lowest-tariff/#more-790), Catherine Waddams, of the Centre for Competition Policy at UEA, said: "Since any offer which a company made to try and encourage switching would oblige them to lower all the charges they make to their established customers, we would not expect to see very many offers.(…) A  small new competitor, with perhaps 100,000 consumers (less than half a percent of the market), would face a cost of £2million from lost revenue with existing accounts if it offered a twenty pound discount to attract new customers." Consequently, it could be argued that the obligation to bring all customers on the "lowest" tariffs would not only repress competition on the retail market, by producing a "bird-mirror effect" and thereby encouraging all energy suppliers on to a nigh to uniform price to their end users.  It would also be detrimental to the commitment to encouraging new entrants in the industry: it may legitimately be expected that any benefits arising from attracting new customers would be more than compensated with losses in revenue which may be very difficult to offset, especially given the high fixed and wholesale supply costs associated with energy production. 

In light of the above, it may be argued that the PM's announcement is at odds with the Government's commitment to both a more diversified energy supply side and a wider pool of energy sellers more generally.  If this position, with all the difficulties it is fraught with, is compounded with the Chancellor's retrenchment from the Exchequer's financial support toward "green" energy, it is easy to see how some commentators may have been justified in branding this latest Prime Ministerial announcement as"confused" (see for example, in the Guardian, http://www.guardian.co.uk/environment/2012/oct/18/coalition-energy-policy-lowest-tariff?intcmp=239).

Thankfully for Mr Cameron, his Energy Minister was ready to "take it on the chin" and issue a rather more anodyne statement on these issues (see http://www.guardian.co.uk/business/video/2012/oct/18/energy-secretary-lowest-tariff-video?intcmp=239).  Ed Davey emphasised the pivotal role of competition among suppliers and easier switching, the latter backed up by fuller information as to the competing offers available to consumers and by safeguards against "abusive commercial practices" (such as those emerged from door-to-door selling in the past), as the lynchpin of the energy market for the UK in the future.  However, he was silent as to the obligation to bring all consumers on the lowest tariffs-something that could potentially be interpreted as a sign that the PM's declaration had not formed the subject matter of deep cabinet discussion.  To all this the OFGEM response, issued at 7am on 19 October, adds further colour (for a good sum up, one can refer to, inter alia, http://www.guardian.co.uk/money/2012/oct/19/energy-firms-customers-cheapest-tariff).  In a key that was not verty different from that characterising the Minister's views, the sector regulator emphasised the need to have a clearer, much more linear and easier to compare set of tariffs. The Office seeks to put an end to an excessively wide variety of prices and to move toward simpler bills and up to 4 only tariff tiers.  OFGEM also plans to oblige suppliers to inform customers as to the available tariffs and to bring to their attention any more advantageous deal.  However, as is clear from its announcement (see http://www.ofgem.gov.uk/markets/retmkts/rmr/consumers/pages/index.aspx?&utm_source=homepage&utm_medium=banner&utm_campaign=simpler_clearer_fairer), it stops short of obliging suppliers, tout court, to "move" customers on to the lowest available rate-unless in the rather exceptional case of a "vulnerable" client whose tariff was "dead", i.e. no longer on offer.

So, too much ado about nothing? It could be argued that Ofgem's announcement, together with the urgent answer given by the junior Minister for Energy, John Hayes, to the Commons yesterday, confirm the existing commitment to securing more effective competition on the energy market, via provision for simpler tariffs and easier switching for individual users (see http://www.guardian.co.uk/politics/2012/oct/18/energy-minister-cameron-hot-air?INTCMP=SRCH).   however, arguably this debate raises deeper questions for the existing Government's energy policy: it would appear that energy is fast becoming another thug of war for the Cabinet, i.e. another instrument for "grabbing headlines" and try to win over "easily" consensus via well-sounding but not very thought through announcements, which require quick backtracks from other Ministers and, as is the case in respect to energy prices, the energy regulator.  It is suggested that this view seems confirmed by the fact that earlier today Mr Cameron, speaking from Brussels, far from either glossing over or indeed correcting his views on this issue, chose to renew his commitment to the "switch to lowest tariff" solution, but only as part of the debate concerning the new Energy Bill (see: http://www.guardian.co.uk/money/2012/oct/18/david-cameron-energy-bill-tariff-plan).  Admittedly, this does not promise very much for a debate that would require much clearer direction and, more to the point, far stronger grounding in competition principles and evidence based policy- and law-making.