Tightening Up Refusal to Supply - a comment on the Article 82 Discussion Paper

Transcription

1 Tightening Up Refusal to Supply - a comment on the Article 82 Discussion Paper Eleanor M. Fox Professor of Law, New York University Brussels 14 June 2006, revised 22 June

2 Introduction This comment will look at Sec. 9 of the Discussion Paper from some thousands of miles away It will offer a critique from within and a comment (comparison) from without

3 When is refusal to supply an abuse? telescoping some suggestions (the critique from within) 1 Anti-competitive effect is the key But the DP does not sufficiently define anti-competitive effect and the relation of foreclosure to it 2 Structure of analysis Making the prima facie case Successive categories require 4, 5 and 6 conditions These conditions obscure the main point A suggestion for paring them down Rebutting the prima facie case I suggest including: This conduct is on balance not anticompetitive This suggestion fills a gap that is a fall-out of transposing Art.81(3) to Art. 82

4 A quick look at some US principles I examine some US principles with a view to highlighting similarities and differences Not necessarily to urge adoption but for information and perspective The US has fewer rules and more concept Makes a distinction between simple refusals to supply and strategies to put costs on rivals Has a very strong principle of a right to refuse which it assumes is generally pro-competitive + efficient

5 US US principles appear in Verizon v. Trinko Treating refusals as claims of insufficient assistance to rivals And forced sharing as impairing incentives Concerned about the risk of false positives EU is more concerned or also concerned with false negatives Stating that the Sherman Act does not require firms to do what might yield greater competition It s okay to just say no, with narrow exceptions US is not trying to maximize consumer welfare but to prevent acts that unjustifiably shrink it; EU is more proactive has specific policies to facilitate competition, as in telecoms, access notice

6 Discussion Paper, Sec. 9 The DP has four categories I suggest that it should have two categories 1 Terminating existing supply relationships Longstanding jurisprudence imposes special duty 2 Situations not involving a preexisting supply relationship

7 Terminating existing supply Is the termination anti-competitive? DP says: There is normally a presumption that a termination is anti-competitive Because of the presumption even absent an economicallybased inference, it is particularly important to have an explicit pro-competition defense DP specifies 4 conditions necessary for an abuse termination, dominance, negative competitive effect, and the conduct is not justified A drafting suggestion: Termination is part of the category; don t call it a condition Dominance is required for all conduct that may violate 82; leave it out here as a condition

8 Terminating cont d The 4 conditions they are of different orders; do they obscure the analysis? An alternative formulation of what constitutes a termination abuse (integrating the elements): But note: my proposal adds terms not required by the DP When a dominant firm terminates supplies of a critical and scarce input to a significant rival, the termination is presumed to have an anti-competitive effect. The dominant firm may justify by showing net pro-competitive effects, including efficiencies likely to inure to consumers and the market, or practical inability to continue supplying without harming its own performance The main point is Sec should be highlighted as the key, and is insufficient

9 Refusal to start supplying DP says: Here there are 5 conditions Indispensability is added Does this mean: necessary to efficient competition by rivals? Why is this not an element of termination cases too? [I used critical and scarce in my example above, implying a lower threshold for termination cases] It would be helpful if the text explains better why the two situations preexisting supply or not - are essentially different If Media Print had made its newspaper distribution system available to Bronner should it have a duty not to discontinue, although it has no duty to commence supplying?

10 Refusal to start supplying incentives to invent, innovate (par 235) DP: The dominant firm must not be unduly restricted; it must be free to seek compensation sufficient to take risks It should be allowed to exclude others for a certain period of time What period of time? Is this qualification problematic? Suggestion: it may be better to weigh the need to protect incentives to innovate in deciding whether there is or is not a duty to deal

11 Refusal to licence IP rights DP: Here there are 6 conditions The 6th condition: the refusal to grant a licence prevents the development of the market for which the licence is an indispensable input, to detriment of consumers What are the key new words? Is it not always necessary that firms are deprived of indispensable inputs to the detriment of consumers? Why is detriment to consumers mentioned for first time? IMS as source Is it possible to articulate the conception apart from the boxes of IMS?

12 Refusal to supply interoperability information: the 7 th test DP: Here we relax the standards. para 242 Exactly what is relaxed? Strength of indispensability? quantum of harm? both? Why the relaxation? Because of the importance Europe has placed on interoperability in a knowledge-based society? The problem is not only extending dominance from one market to another; it is also - entrenching dominance in the market of pre-existing power The European policy embedded in the access notice - is important; it would be helpful to cite it here The essence of e-communication is interoperability

13 Computers are made to speak to one another

14 Interoperability: para 242 It is not clear why trade secrets are referenced and not other forms of IP It would be helpful to recognize trade-offs regarding full interoperability and protection of IP E.g., re proportionality, is the IP a dominant part of the interface, or is it incidental to making the connection work? If a by-product, a duty to deal would not harm innovation Is imposition of a duty likely to enhance or harm innovation? Text above (para 240) helpfully mentions incentives of the rivals to innovate; that applies also here

15 CONCLUSION: Refusals to supply I have proposed that the drafting of Sec. 9 be tightened up More attention should be given to what is harm to competition, and when and why foreclosure is a proxy for such harm On substance: the paradigm for abuse is not clear All duties at least to start supplying seem to involve some version of an essential facility doctrine, with levels of need for access ranging from important need to indispensability In all cases where a critical input is involved and the dominant firm can supply it without damaging its own efficiency, statically, consumers would be better off with the supply assured and a major question is whether legal imposition of the duty significantly undermines incentives of the dominant firm to invest and invent

16 CONCLUSION CONT D The situations are all of one piece, and should be viewed as a conceptual whole The Discussion Paper very helpfully focuses on making markets work better, with a view to benefiting consumers This widely accepted focus also benefits creative and efficient challengers to dominant firms, who are trying to serve consumers Regarding some divergence between US and EU law much turns on first principles E.g., Given a highly concentrated, high barrier market dominated by one powerful functionally integrated firm, is the better first principle freedom of the dominant firm or access by apparently creative rivals? And should the law be proactive for consumers? Fully within Europe s first principles, the concepts of Sec. 9 can be honed and can become a useful basis for guidelines