Legal standards in competition law fall across an analytical continuum whose boundaries are set, respectively, by categorical rules of condemnation (per se illegality) or acquittal (per se legality) on the one end, and an elaborate, fact-intensive assessment of reasonableness (Rule of Reason) on the other. These poles are connected by a range of intermediate tests that seek to combine some of the clarity and economy of bright-line rules with the greater analytical accuracy that a fuller examination of evidence can produce – e.g. in the US, the modified per se and the truncated effects based tests.

This paper, available here, reviews a number of recent cases in high technology markets on both sides of the Atlantic (Intel, Google, QUALCOMM), to compare how abusive practices are treated in Europe and the US.

Across the Atlantic.jpeg

Section II compares legal tests in the EU and the US.

In the EU, there are multiple goals guiding antitrust enforcement. Under the influence of a strong Ordo-Liberal tradition, the dominant liability standard is non-welfarist (i.e. it does not focus on consumer welfare), focusing instead on the impact of the investigated conduct on rivals (i.e. what is the impact on the “competitive process”). It is also common for the EU to adopt per se illegality standards as regards abusive practices. The European Courts’ choice of legal standard for a large number of abusive practices is one of per se illegality, while for the rest the legal standard is a truncated effects’ analysis which falls well short of a full effects’ assessment.

In the US, we have witnessed a change from antirust protecting many “goals” – including, importantly, protecting the competitive process – and monopolisation cases being decided under per se illegality legal standards before the 1970s, to courts adopting the view that antitrust law is a “consumer welfare prescription”. With regard to legal standards, there have been two competing schools since the end of the 1970s: the Chicago School argues that one should presume that unilateral conduct is legal even when significant extant market power has been established, while the Post-Chicago School has defended that a full effects’ analysis is apposite.

Section III looks at the differences in legal standards and operating presumptions under EU and US competition law.

Ideology, the culture of competition, tradition, and the role and influence of economics and economists explain some of the differences between both sides of the Atlantic. It is less clear what are the reasons for the existence of different baseline presumptions and legal standards in these jurisdictions – e.g. conduct by firms with a dominant position that is presumptively illegal in the EU is often presumptively legal in the U.S – or the fact that a full effects’ based analysis is not adopted in either place.

The author believes that legal standards are adopted by competition authorities in anticipation of the standards adopted by appeal courts, reflecting those authorities’ risk aversion on the one hand (i.e. competition authorities prefer not to have their decisions reversed or annulled), and implementation costs on the other (i.e. competition authorities prefer legal standards with lower implementation costs). In turn, the courts’ choice of legal standards is influenced by their substantive standards and by the courts’ priors concerning the implications that different legal standards have for errors, deterrence and administrability.

Differences between the US and Europe can make sense once one considers the different substantive standards – which must be distinguished from legal standards – that are adopted in each jurisdiction. Conduct that is considered on average to have exclusionary effects – and is considered presumptively illegal given the EU’s focus on protecting the competitive process – can simultaneously be deemed, on average, not to reduce consumer welfare – and thus to be presumptively legal in the US. This difference in substantive standard goes some way towards explaining the different legal tests adopted in each jurisdiction. If the focus in the EU is on ensuring that business conduct by a dominant company does not disadvantage rivals, it follows that the legal standard will necessarily be less onerous that a full effects’ analysis. This is because procompetitive effects or efficiencies, and how they balance with anticompetitive effects, are less important than maintaining competitive dynamics. Instead, given the presumption of illegality of certain conducts that can foreclose competitors from the market, it is natural for courts to adopt a modified per se or a truncated effects’ analysis – which still predominates, despite steps towards a more effects’ based analysis such as those in Intel. In the US, the focus on consumer welfare prevents the adoption of a presumption of illegality, but the acknowledgement of welfare enhancing effects of many types of unilateral business conducts is not so strong as to justify a (modified) per se legality approach.

Section IV tries to explain why neither the EU nor the US actually pursue full effects’ based analysis.

Given the analysis above, it is easy to understand why a full-blown effects’ analysis has not been adopted in Europe. This is harder to explain in the US, given the focus on consumer welfare and the positive view in which most unilateral business practices are held. The author advances two main hypotheses for the legal standards adopted in the US. First, courts may lack confidence that economic models and evidence are able accurately to distinguish between pro- and anticompetitive conduct in abuse of dominance cases, which leads them – and, by extension, competition agencies – to adopt a less-demanding truncated effects’ analysis. A second hypothesis is that, even if full-effects’ analyses are considered appropriate by courts, such an approach increases the likelihood of the competition agencies’ decisions being rejected. Given this, and the additional cost of implementing full effect’s analyses, competition authorities may be more inclined to adopt less stringent tests – and forego cases where it needs to pursue full effects’ analyses.

Section V comments on the importance of technological innovation for competition enforcement.

It has been stressed by many authors that enforcement in innovation-intensive markets must be re-calibrated to preserve the incentive to innovate (i.e. by placing more weight on dynamic over static competition). The relevant question is exactly what this re-calibration should involve.

The author thinks that the starting point of any discussion on whether/how innovation should affect enforcement practice must be to consider how innovation is related to the intensity of competition. While this is a subject still open to additional theoretical and empirical analysis, there is a high degree of agreement that antitrust intervention tends to occur in contexts where innovation is positively influenced by competition intensity. Another relevant concern is with error costs. Given the fact that many technology markets have already tipped when competition intervention occurs, the impact of exclusionary behaviour on competition is unlikely to be reversed by market forces.

These two considerations suggest that, at least as regards highly innovative digital platform markets, it may be appropriate to switch from a presumption of legality (as is currently the case in the U.S.) to a presumption of illegality (as is currently the case in the EU). However, for this to occur in the US, then one of two things must happen: a truncated effects’ analysis coupled with a presumption of illegality of certain conducts must be adopted as long as the focus remains on consumer welfare; or the consumer welfare substantive standard must be modified into a standard that focuses on the protection of the competitive process.

Comment:

In my opinion, the author’s research has produced some interesting insights. For example, I like how he draws out how legal standards, competition law goals and assumptions regarding how markets operate all impact one another. This is often ignored in academic and policy discussions, which typically focus solely on one of these dimensions (e.g. legal tests, goals of competition law, contestability of markets) and how it differs across jurisdictions – implicitly (and erroneously) assuming that there is full alignment in the other dimensions. I also agree with the author that a lot of the ‘progressive’ discussion in the US often sounds like it just wants its courts to adopt the EU’s approach.

On the other hand, the paper is very hard to read. To my view, this is a result of the author’s unnecessary reliance on acronyms and formulae – which make the argument sound much more complex than it actually is. Further, I am not sure that the author’s analysis of the US is fully accurate. The author neglects the fact that antitrust enforcement in the US is shared between public and private enforcement, so the choice of the applicable legal test adopted by the courts cannot be solely explained on the grounds of choices by the competition authorities regarding which cases to bring. It is inherent to the author’s argument (and, it seems to me, common sense) that the adoption of a more onerous legal test for infringements, such as a full effects’ analysis starting from a presumption of legality, will reduce both public and private incentives to bring antitrust cases. However, it is not clear to me exactly how this reduced incentive will lead to a less stringent test being adopted by the courts, which is what I understand the author to be saying.

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