And Here We Go Again….

The European Union has launched a fresh salvo against Google, this time charging Google with abusing its dominance in Internet searches and opened a probe into its Android mobile system.

The E.U. Executive Commission has stated that it has found that Google “gives systematic favourable treatment” to its Google Shopping at the expense of others in its general search results.

Am pretty sure by the time the Google anti-trust investigation ends, one will be able to write an entire book on the company and its competition law troubles.

There IS a Better Way to Call India: A Quick Comment On Competition Law And Advertising.

In all the chaotic hullabaloo which arose on Airtel’s VoIP Data charges issue (detailed article on the issue currently in progress), another protest which drew comparatively little attention (probably due to the substantially lesser individuals/entities it affected) was the protest by International Long distance(I.L.D.) Operators against the Company’s practice of advertising it’s own VoIP Application Airtel Talk over long distance calls. Specifically, a few seconds before connecting the call.

I am a total outsider to the precise details of the case, and the facts are also disputed (I.L.D. Operators claim the advertisement was run selectively only on those networks with whom Airtel had not entered into collaboration agreements. Airtel denies this and claims that the advertisement was played on all networks equally without any discrimination.) But it did get me thinking on the issue of Advertising in Competition Law.

Prima-facie, one would consider advertising and competition law as congruous to each other. After all, advertising is an essential part of the competitive process in any economy. If a consumer is not aware as to what goods and services are on offer and at what price they are on offer, he or she will be unable to choose between the suppliers of the goods or services, and therefore, competition between suppliers may get diminished. But in this imperfect and admittedly anti-competitive world that we live in, it never is that simple. There are two different scenarios which need to be considered while addressing the issue of advertising and competition law.:

Individual Advertising

Individual Advertising is what I referred to above, i.e., an individual entity choosing to advertise it’s products with the aim to grab market share from competitors in the same sector. This would generally not be subject to perceived anti-competitive harm. Misleading and false advertising, including comparative advertising, may be concerns, but in India they would dealt before other fora. There is however some literature which suggests that advertising paradoxically carries with it an inherent anti-competitive effect as advertising costs act as a serious barrier to the entry of new entities wishing to enter a market which is already dominated by a few relatively large competitors, especially in markets which inherently require enormous amounts to be spent in building up a brand name for the product/company. In fact, Bork has even gone so far as to state that it should be considered as a Barrier to trade !! (See Robert H. Bork, The Antitrust Paradox.)

Horizontal Agreements on Advertising

This refers to agreements among competitors in a market, and needless to say, these are a bit problematic. Any agreement among entities which restricts advertising would generally be considered as an anti-competitive agreement.

However, the reaction of the European Commission (E.C.) has been mixed depending upon the facts and circumstances of each case. While in the case of Belgian Roofing Felt, OJ [1986] L 232/15 (later upheld on Appeal in Belasco v. Commission, [1989] ECR 2117) the Commission ruled against joint advertising which led to a uniform image of products in a market wherein individual advertising would have facilitated differentiation, and consequently competition, on the other hand, in Re CECIMO, OJ [1969] L 69/13 and UNIDI, OJ [1984] L 322/10 (later upheld on Appeal in ANCIDES v. Commission, [1987] ECR 3131), it was accepted that it is sometimes desirable to rationalise and coordinate advertising efforts while imposing certain conditions on such coordination.

Post Script: The Advertising Market

As a post script, other than the above, an important area where competition needs to be maintained is the advertising market itself. It is important that the advertising media itself should function in a competitive manner free from any anti-competitive practices, including (but not limited to) any practice which might lead to reduction of advertising space in the market. This has been affirmed in the U.S. as far back as 1951 in Lorain Journal Co. v. United States, 342 US 143 (1951). One such allegation has already arisen before the C.C.I. is the case of Advertising Agencies Guild v. Indian Broadcasting Foundation, Case No. 35 of 2013. Though that particular Information was closed, the currently running Google Investigation before the C.C.I. involves similar issues (among others) and one will have to wait and watch for further competition law developments in this area.

E.C. Policy Brief On Commitments

The European Commission recently released a Competition Policy Brief on it’s Commitment Decisions.

“In a nutshell The Commission retains a margin of discretion in the choice of opting for an Article 7 prohibition decision or an Article 9 commitments decision. The choice depends on the main objectives pursued and the specific features of the case. In practice, commitment decisions are not appropriate in cases calling mainly for imposing high fines for past behaviour, or where no effective, clear and precise remedy is identifiable. They are only possible when companies are willing to offer appropriate commitments.”

The topic isn’t particularly relevant for India as of today, since the Competition Act as of now does not allow the C.C.I. to “settle/compromise” cases or investigations. But the transparency adopted by the E.C. is definitely encouraging. For example, one would definitely like the C.C.I. to release guidelines on the determination of penalty as a start.

State aid to Spanish football clubs cannot be justified using the Market Economy Investor Principle

I recently wrote a post on recently launched E.U. Commission investigation into State Aids provided to Spanish Football Clubs.

Click here to read the post.

Brief Notes

I have been falling behind in case law readings in recent weeks, which is why a number of posts are presently saved as half finished drafts on the Dashboard of the Blog. Nevertheless, while trying to finish the backlog, I recently had the opportunity to sift through the recent Orders of the Commission. Two of them stand out and thus deserve a special mention.:

The first is that of Mr. Larry Lee Mccallister v. M/s Pangea3 Legal Database Systems Pvt. Ltd., mostly for the reason that as far as can be recalled, this is the first time the Commission has dealt with Non-Compete clauses under the Competition Act. The reasoning seems to be sound on the facts and circumstances of the case as the matter was more about the personal grievances of a particular individual rather than that of anti-competitive or consumer harm. Personally, am waiting for the day when the C.C.I. has to deal with a Telefonica like situation in the context of cooperative joint ventures or M & A transactions.

For those who are not aware about the above mentioned case, in 2010, Telefonica acquired sole control of the Brazilian mobile operator, Vivo, which was previously jointly owned by Telefonica and Portugal Telecom. In the context of this transaction, the parties inserted a clause in the purchase agreement indicating that Telefonica and Portugal Telecom would not compete with each other in Spain and Portugal as between the end of September 2010 and the end of 2011. The European Commission opened an investigation in January 2011, and the parties terminated the non-compete agreement in early February 2011. The European Commission held that, by virtue of the non-compete agreement, Telefonica and Portugal Telecom had deliberately agreed to stay out of each other’s home market. The European Commission considered that this preserved the status quo in Spain and Portugal, which hindered the integration process of the E.U. telecom sector and prevented the parties from competing with each other for offering clients the most advantageous conditions. Despite the short duration of the infringement, which was only 4 months, the European Commission fined Telefonica €66,894,000 and Portugal Telecom €12,290,000.

The second one is Shubham Srivastava v. Department of Industrial Policy & Promotion (D.I.P.P.)/Supplementary Order , which deserves to be added in the growing list of Orders of the Commission on determining the scope of the definition of the term “Enterprise” under Section 2(h) of the Act. In the Order, while dismissing the Information, the C.C.I. has held that D.I.P.P., under the Ministry of Commerce and Industry, would fall under the definition of “Enterprise” under the Act.

Hope this satisfies readers for now. More (finally) finished posts to follow in the next few days. 🙂

EC Dawn Raids: A human Rights Violation ?

I recently read an old 2008 article titled “EC Dawn Raids: A Human Rights Violation?” by Imran Aslam and Michael Ramsden.

The Paper examines whether the ‘Dawn Raid’ procedure provided in E.C. Regulation 1/2003 is consistent with two rights protected by the European Convention on Human Rights and Fundamental Freedoms: the privilege against self-incrimination (Article 6 E.C.H.R.) and the right to privacy (Article 8 E.C.H.R.). The paper argues that the protection provided by the European Court of Justice falls far short of protection necessary to undertakings. On this basis, it analyses what available source(s) of judicial remedy an undertaking has in order to avail itself of E.C.H.R. rights.

While the article is old, it does hold special relevance for India in light of the expansive powers which are proposed to be given to the C.C.I. in the still pending Competition Amendment Bill which proposes to amend Section 41 of the Act, conferring the authority on the Commission to grant powers of search and seizure to the Director General’s office as and when required.

Lundbeck et. al. (COMP/39226) – European Commission

If Ranbaxy’s trouble with the F.D.A. in the U.S.A. and in India wearnt enough, it has now beeen slapped with the fine of 10.3 million Euros by the European Commission for anti-competitive practices in delaying the entry of the generic drug Citalopram into the markets European Economic Area (E.E.A.).

According to the Press Release by the Commission,

“The European Commission has imposed a fine of € 93,8 million on Danish pharmaceutical company Lundbeck and fines totalling € 52,2 million on several producers of generic medicines. In 2002, Lundbeck agreed with each of these companies to delay the market entry of cheaper generic versions of Lundbeck’s branded citalopram, a blockbuster antidepressant. These agreements violated EU antitrust rules that prohibit anticompetitive agreements (Article 101 of the Treaty on the Functioning of the European Union – TFEU). These generic companies were notably Alpharma (now part of Zoetis), Merck KGaA/Generics UK (Generics UK is now part of Mylan), Arrow (now part of Actavis), and Ranbaxy. (Emphasis added)

….

Citalopram is a blockbuster antidepressant medicine and was Lundbeck’s best-selling product at the time. After Lundbeck’s basic patent for the citalopram molecule had expired, it only held a number of related process patents which provided a more limited protection. Producers of cheaper, generic versions of citalopram therefore had the possibility to enter the market. Indeed, one of them had actually started selling its own generic version of citalopram and several other producers had made serious preparations to do so.

….

But instead of competing, the generic producers agreed with Lundbeck in 2002 not to enter the market in return for substantial payments and other inducements from Lundbeck amounting to tens of millions of euros….”

Ranbaxy plans to appeal against the decision and fine.

P.S.: Not sure if this is the correct citation for unreported Commission Orders. Please do correct me if am wrong.

Why the CCI Google Investigation faces Difficulty.

A recent Economic Times Article states that the “probe by Indian authorities to examine if Google abused its dominant position in the Internet search engine market is progressing at a sluggish pace, mainly due to a lack of understanding on Internet-related issues.” Furthermore, it also stated that “India (presumably through the C.C.I.) has sought the FTC’s help in this matter.”

While the reason stated above is probably true, I feel another important reason the investigation faces difficulty is becaue of the direction the D. G. Office seems to be taking to reach its goal. This is evident from the second line quoted above, where the article states that the C.C.I. is looking for aid from the F.T.C. There is no harm in asking for aid from others, but in this case, the Commission may be asking for aid from the wrong people. One needs to understand that the F.T.C. and the European Commission have SETTLED their cases with Google on the basis of certain commitments they received from the company. (See here for the F.T.C. commitments and here for the E.U. commitments). It is more than evident from their respective press release and the commitments received from Google that both the competition authorities never approached the investigation with an intention to prosecute. Their primary intention was merely to ensure competitiveness without disrupting the market (being the internet search engine market and online advertisement market) to the best possible extent. The merits of such an approach are of course debatable, but are presently outside the scope of this post. What is important is that settlements require a mediative approach (far different from an adjudicatory approach) and this is not the approach the C.C.I. wishes to follow. Even if it wishes to, it as of now can’t, as explained in a previous post.

It is better if the Commission looks eastwards to the Australian Competition and Consumer Commission (A.C.C.C.) for help. The judgement of the Federal Court of Australia is the only case which Google has lost on allegations against its Adwords programme, which is the primary subject of investigation even in India.