Understanding Competition Law: Per Se Offenses & Vertical Restraints, Slides of Competition Law and Policy

Download Understanding Competition Law: Per Se Offenses & Vertical Restraints and more Slides Competition Law and Policy in PDF only on Docsity! COMPETITION LAW 1 Docsity.com Changing Role of Legal Scholarship • “In the beginning there was only law. Then came law and society, law and history, law and economics and so on. These developments have transformed the vocation of the legal scholar from that of a Priest to that of a Theologian.” ----Ms Kathleen Sullivan Dean of Stanford Law School 2 Docsity.com Economic Analysis of Legal Concepts • To begin with, ownership was synonymous with land. • The power of control resided in the same person who owned the land which is the subject matter of ownership. • Advent of industrial revolution and emergence of stock markets gave birth to new forms of intangible property like shares. 5 Docsity.com Modern Corporation & Private Property- Adolf Berle and Gardiner Means the first interdisciplinary study between law and economics • Stock markets led to divorce of ownership from control. • This change was highlighted by Berle and Means study which pointed out that due to widespread dispersal of stock holdings through stock markets it was impossible for any person to own 51% of shares in any company to exercise control over it. • On the contrary, he was able to exercise control with lesser percentage of shares. 6 Docsity.com Constitutional Dimensions of Contract Law • Contract law which was strictly private law till the end of 19th Century ceased to be private and assumed constitutional dimensions. • Thus economic analysis of ownership revealed that how legal institutions under went radical transformation while outwardly the conceptual shell remains intact. 7 Docsity.com Anti Trust laws are Magna Carta of free enterprise • Competition laws known more popularly as Antitrust laws in the United States, • “ . . . are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms." -United States v. Topco Associates, Inc. 1972 U.S Supreme Court 10 Docsity.com What is prohibited? • Competition law prohibits the deliberate exploitation of a dominant market position by a firm. • Generally any agreement, arrangement or understanding between enterprises that has the effect of substantially lessening or limiting access to market is prohibited by Competition law. • This prohibition applies not only to written agreements but also to oral and informal agreements. 11 Docsity.com Methods of Analysis • To determine whether an agreement unreasonably restrains competition, courts have applied one of two methods of analysis, depending on the type of agreement at issue 12 Docsity.com Exceptions to Prohibited Practices- • Apart from the above anti-competitive agreements there are other types of agreements between suppliers and distributors and members of trade associations which enhance economic efficiency, even though they may result in anti-competitive effects. • Such agreements, though anti-competitive, in effect can be exempted by the competitive authorities after weighing the anticipated gain in efficiency from such agreements vis-à-vis any adverse effect on competition 15 Docsity.com Rule of Reason & Block Exemption • Such exemption can be on a case to case basis or can assume the form of block exemption. • This approach is known as the Rule of Reason and requires an in-depth analysis of the effect on competition in the relevant market. • In rule of reason analysis, competitive intent and effect are weighed along with the business justification of the challenged activities to determine their legality. • Potentially anticompetitive practices which do not fall into the per se category are analyzed under a "rule of reason" standard. 16 Docsity.com Types of anti-Competitive Agreement Anti-competitive agreements which fall foul of competition law which are per se offences includes- • price fixing; • fixing of output by cartel; • collusive tendering; and • market sharing 17 Docsity.com Wilful acquisition of market power • For the second element, courts have required a showing of anticompetitive or predatory conduct -- efforts to exclude rivals on some basis other than efficiency. • Examples of such conduct include – i) below cost-pricing; – ii) filing of baseless litigation against competitors, or – iii) denial of access to an essential facility. 20 Docsity.com Attempt to gain Unlawful Monopolization • Attempt to gain monopolization is also an offence under competition law and consists of three elements:- – (a) specific intent to control prices or destroy competition; – (b) predatory or anticompetitive conduct directed at the unlawful objective; and – (c) a dangerous probability of success in achieving a monopoly in the relevant market. 21 Docsity.com Horizontal Agreements • Horizontal agreements are between independent enterprises or enterprises potentially competing in the same market. • Many horizontal agreements relating to • prices, discounts, output or the sharing of the markets often restrain the competitors and directly or indirectly limit access to market. • Such agreements are prohibited by competition law as per se offences. 22 Docsity.com Collusive Tendering Agreements between enterprises to submit identical bids for one or more contracts are called collusive tendering.  Collusive tendering may also assume a more sophisticated forms.  tenderers may agree among themselves and choose the businesses for which the chosen tenderer will bid for the deal.  Sometime this is backed up by a system which ensures that each firm in turn becomes a successful bidder.  a part of the profit earned by the successful bidder will be shared with other bidders to compensate for the loss incurred by the parties. Collusive bidding is recognized as a per se offence. 25 Docsity.com Price fixing • A collective agreement to fix prices is regarded as a per se offence. • However this is subject to two exemptions:- • (a) a list of recommended prices issued by the trade associations to its small business members may not be regarded as an infringement of competition law, if the prices are only recommendatory in nature and individual enterprises are free to charge what they like. • (b) cartels which seek to fix export prices for certain commodities are exempted from competition law because competition law is generally concerned with the effects of anti- competitive practices on the domestic market alone. 26 Docsity.com Output quotas • Cartels normally fix an output quota for each participating firm as an alternative to fixing the prices at which the goods can be sold. • The effect of this is to prevent the other firms less efficient or less vigorous form . • The result is lessening of competition and higher prices to consumers. • The collective agreement to set output quotas for the individual participants in a cartel is usually regarded as a per se infringement of the competition law. 27 Docsity.com Exclusive Joint Selling Rights • Joint selling on an exclusive basis restricts competition - be it in the sports or in any other sector - because it has the effect of reducing output and limiting price competition. • The sale of the entire rights on an exclusive basis and for a long period of time has the effect of reinforcing the position of the incumbent television companies as the only ones with the financial strength to win the bids. 30 Docsity.com • This, in turn, leads to unsatisfied demand from broadcasters and a lesser ability to make an attractive offer to customers. • Sports and films are two key ingredients for television and for pay-TV channels in particular. • They are also proving increasingly critical for the development of new technologies. 31 Docsity.com • Declaration on the specific characteristics of sport and its social function in Europe, of which account should be taken in implementing common policies. • Annex IV to the Presidency conclusions, Nice, 7-9 December 2000. 32 Docsity.com • The facts of the case Jean-Marc Bosman is a Belgian professional football player, who played for R.C. Liege, which was then a Belgian first division club. • The Bosman case arose out of a dispute in 1990 between him and his club. • Mr Jean-Marc Bosman claimed that the Belgian Football Federation and UEFA-FIFA transfer rules had prevented his transfer to a French club, US Dunkerque. 35 Docsity.com C-415/93 Bosman [1995] ECR I- 4921 • However, it was only in mid 1990s, after the judgement in the Bosman case ;and • the increasing money being paid for broadcasting rights to major sporting events, that the economic aspects of sporting activities became an issue of major importance. 36 Docsity.com • The questions asked to the European Court were: • "Are Articles 48, 85 and 86 of the Treaty of Rome of 25 March 1957 to be interpreted as: • prohibiting a football club from requiring and receiving payment of a sum of money upon the engagement of one of its players who has come to the end of his contract by a new employing club? 37 Docsity.com • Point 2: Limitations concerning the nationality of professional players who are citizens of a Member State of the European Union (within competitions between football clubs organised by sporting associations), are not allowed. 40 Docsity.com • Point 3: The Court has decided to exclude, exceptionally, any retroactive effect of its interpretation on the temporal effects of the judgment as regards the transfer system, except for persons, such as Mr. Bosman, who have taken steps in good time to safeguard their rights. 41 Docsity.com UEFA Chaqmpion League case • The Champions League is a tournament organised every year between the top European football clubs -- 72 clubs participate from both European Union and non-EU countries. • The last stage, which begins in September, comprises the 32 qualifying clubs. • The Champions League season ends in May the following year. 42 Docsity.com • The Commission originally objected to the joint selling arrangements, which were notified in 1999, because UEFA sold all Champions League TV rights in one package to a single broadcaster on an exclusive basis for up to four years at a time. • The buyers were often free-TV broadcasters that could sub-licence some rights to pay-TV broadcasters. • This was not in the interest of broadcasters, clubs, fans and consumers. 45 Docsity.com • One of the important drawbacks of the original joint selling arrangement was that not all matches were seen live on TV while Internet and phone operators were simply denied access to the rights. • UEFA's joint selling arrangement therefore had the negative effect of restricting competition between broadcasters. • By barring access to key sport content it also stifled the development of sport services on the Internet and of the new generation of mobile phones. 46 Docsity.com • The Commission had objected to the current rules, which had been notified for regulatory clearance, on the grounds that if a group of people join forces to sell a given product then that restricts competition. • The rules distorted competition between broadcasters, encouraged media concentration and stifled the development of Internet sport services and the new generation of mobile phones by barring access to key content, which is not in the broad interest of fans and consumers generally. 47 Docsity.com • Nearly a third of all current media competition cases, dealt with under anti- trust, i.e. agreements or • abuse of dominant positions, concern now sports rights, and the selling and buying of those rights. 50 Docsity.com • These cases demonstrate that the agenda of an effective and modern media policy and anti-trust • action is now largely dominated by rights to content issues. • More specifically, in recent years, arrangements for the central marketing of TV rights, i.e. the sale of • TV broadcasting rights to sporting events for a fixed period by the organizer of a competition rather • than the individual participating clubs, have attracted increasing attention from many competition • authorities. 51 Docsity.com • Telefónica Media S.A. and Sogecable S.A. regarding the pooling of their broadcasting rights in particular to the Spanish 'Liga' and 'Copa'. • Audiovisual Sport II agreement of 17 June 1999. 52 Docsity.com • After its preliminary analysis, the Commission considers that the notified agreement may represent an infringement of EC competition rules, the object and effect of which would be price fixing as well as the sharing, among the parties, of the relevant markets. • The price, as well as other conditions for the exploitation of the broadcasting rights, would be imposed by Audiovisual Sport SL on third operators which obtain a license to broadcast the Spanish 'Liga' and 'Copa' matches in pay- per-view 55 Docsity.com • In particular, the Commission considers that serious restriction of competition exist in the market for the acquisition of rights to broadcasting of football events. • The parties would share this market through a joint buying system. • Likewise, the Commission considers that the parties would establish a system of joint selling and price fixing on the downstream market for the wholesale of such rights, that is, the market in which the undertakings who have obtained the broadcasting rights from the football clubs grant licenses to operators in all modalities of broadcasting (free to air, pay-TV and pay-per-view). 56 Docsity.com • Such restriction of competition would cause serious anti- competitive effects in the downstream market for pay-TV and pay-per-view, in particular the foreclosing of the market to the new entrants and the elimination of potential competitors. • This fact is aggravated by the strong position that the parties have on all relevant markets. • It would also have negative effects for consumers, who might see reduced coverage of the rights to broadcasting. Furthermore, the joint exploitation by the parties of such rights would lead to an increase in the prices that subscribers must pay for watching the Spanish 'Liga' and 'Copa' on pay-per-view. 57 Docsity.com • All these anti-competitive effects do not mean, however, that joint selling is to be banned outright. • Article 81(3) requires the Commission to assess whether agreements, which at prima facie are anti- competitive could bring benefits, including to the consumer, in which case they could be exempted. 60 Docsity.com Telefónica and Sogecable • the sheer size of football rights acquired and exploited jointly by the two largest pay-television platforms in Spain • The case relates to the notification by Telefónica and Sogecable, which is owned by Canal+ of France and the Spanish media group Prisa, of an agreement whereby they commit to jointly acquire and exploit the broadcasting rights to Spanish First League football matches for 11 seasons ending in 2009 through their joint venture Audiovisual Sport. 61 Docsity.com • The Commission took the view that the agreement presented serious breaches of competition law since it would have had the effect of foreclosing the Spanish pay-TV market whose success depends heavily on the broadcasting of football matches like in many other countries. • It therefore sent the parties a Statement of Objections on 11 April 2000 62 Docsity.com • UEFA Broadcasting • In 2001, the Commission cleared revised UEFA broadcasting regulations allowing national football associations to block the broadcasting on television of football during two and a half hours either on Saturday or Sunday to protect stadium attendance and amateur participation in the sport. The regulations originally submitted to the Commission were highly complex and very broad in scope. The broadcasting of football matches was prohibited throughout the weekend. A balance was found between the interests of the broadcasters to maximise the rights they paid for and those of clubs throughout the game.(3) 65 Docsity.com Formula One • After long negotiations, the Fédération Internationale d'Automobile (FIA) agreed to change its rules to bring them into line with EU law. • The modifications ensure that the role of FIA is limited to that of a sports regulator, with no commercial conflicts of interest. • FIA rules will not be used to prevent or impede new competitions unless justified on grounds related to the safe, fair or orderly conduct of motor sport. Appeal procedures against FIA have also been strengthened. 66 Docsity.com • Football player transfer rules • After substantial negotiation, on 5 March 2001, Commissioners Monti, Reding and Diamantopoulou and the Presidents of FIFA and UEFA finalised discussions on international footballer transfers. FIFA and UEFA undertook to adopt new transfer rules on the basis of a number of principles,(5) including three main ones which seek to promote the training of young players and to ensure the stability of teams as well as the integrity, regularity and proper functioning of competitions, in the context of the specific features of football, so as to safeguard the interests of fans and spectators of the sport. New regulations were adopted in July, and in August 2001, FIFA and FIFPro the players union, reached an agreement about FIFPro's participation in the implementation of the new rules 67 Docsity.com