Where now for Article 82?

Amelia FletcherChief Economist

Office of Fair Trading

BIICL Transatlantic Dialogue15 May 2008

(The views expressed here are my own and not necessarily those of the OFT)

Background

● Few Ch2/Art82 cases at OFT

● No sign of long-awaited EC guidelines

● Few s2 cases in the US and no imminent promise of guidelines

● Is this….

….a death knell for Art 82?

ARTICLE 82

No! The DGComp caseload….

Ram

bu

s

Inte

l

RW

E

ENI

Alcan

EDF

Boe

hrin

ger Q

ualcomm

Microsoft II Electrabel

No! UK High Court judgments

● Attheraces v BHRB (Feb 07)

● EW&S v E.ON (Mar 07)

● AAH v Pfizer (Mar 07)

● Chester City Council v Arriva (June 07)

● Software Cellular Network v T-Mobile (Jul 07)

● Virgin Media v BSkyB (case pending)

So why no EC guidelines?

● Do the current DGComp cases provide a clue?

EDF Long-term exclusive supply agreements

Electrabel Long-term exclusive supply agreements

ENI Capacity hoarding Strategic under-investment

RWE High access prices Artificially inflated costs, Capacity hoarding Artificial network fragmentation

Microsoft II Refusal to supply Tying

Qualcomm Non-FRAND licence terms within standard

Rambus ‘Patent ambush’ Unreasonable royalties

Intel Loyalty rebates Below AVC predationPayments to OEMs to delay competitor launches

Alcan Tying

Boehringer Misuse of the patent system

So why no EC guidelines?

● Do the current DGComp cases provide a clue?

● Might guidelines restrict the types of abuse that could be examined?

● Or is conflict with past precedent the greater worry?

Do we care?

● Art 82 Business ‘pretty brisk’

● DGComp - and others - broadly taking a more economic approach

● DGComp not losing Art 82 cases

Yes!

● The Commission’s ‘more economic approach’ needs Court buy-in

● Guidelines needed for this (prioritisation guidelines would be a start but not enough)

● Guidelines also important for ensuring consistency across EU

● So what can be done?

Non-horizontal mergers: a parable

● Cast your mind back 2 years…

- Some high profile losses for DGComp

- Basic problem: no clear story of harm and no clear empirical testing of logic

- Recognised need for change/guidelines

● Guidelines very principles-based: not tools/rules

● Working well - eg TomTom/Tele Atlas

Parallels with Article 82?

● Much behaviour categorised as potentially abusive could equally be pro-competitive:

- Low pricing and discounting

- Offering a second product cheap (or free) with a first

- Choosing the right business partner

● Potential for exclusion depends critically on market circumstances

● A clear story of harm would examine ability, incentive, likely effect and efficiency benefits

Refusal to Supply by Microsoft:

The Commission’s Key FindingsAbility to foreclose

● Interoperability necessary for server OS vendors to be effective competitors. There are no substitutes.

Incentive to foreclose

● The ‘one monopoly profit’ argument fails on the facts

Likely impact on effective competition is substantial

● All competitors refused interoperability

● Microsoft’s share in server market rising fast and indeed now dominant

Efficiency benefits do not outweigh harm

● Risk of harm to innovation from abuse outweighs potential harm to innovation incentives from intervention

An approach for Art 82 guidelines?

● Principles instead of detailed rules

● Harm to competition (and consumers) is crucial

● Four elements of a clear story of harm:

- Ability to foreclose

- Incentive to foreclose

- Likely impact on effective competition

- Efficiency benefits

● Plus: Dynamic ‘trumps’ static

Where now for Article 82?

Amelia FletcherChief Economist

Office of Fair Trading

BIICL Transatlantic Dialogue15 May 2008

(The views expressed here are my own and not necessarily those of the OFT)