BUSINESS LAW II

(study slides)

European and national competition law

Is a set of legal rules that aim to protect competition in the market by prohibiting business …

What is competition? An independent process in which several people independently strive

to be the best at something and “win the prize”

What might the prize be in the business context?

Why do we value and protect competition in the market? (opposite of competition =

monopoly)
Economic benefits
- low prices
- high output
- varied product
- high quality products → in monopoly people get lazy
- high levels of innovation
Other benefits
- freedom of opportunity → new markets can enter the market
- democracy

The objective? To protect competition in the market in the interest of enhancing consumer
welfare, in terms of low prices, high quality …

key problem at the moment

- how to apply these rules to digital platforms

How does competition law achieve its aim of protecting competition in the market? → By
prohibiting certain types of business conduct:
1. anticompetitive agreements
2. abuse of dominant market position
3. anticompetitive mergers (fusioni)
= the three pillars of competition law ( or antitrust law)

The three pillars:

1. Article 101 TFEU: prohibits anti competitive agreements
2. Article 102 TFEU: prohibits the abuse of dominance
3. The EU Merger regulations (added later): prohibits anti competitive mergers

National competition law → each member state has its own national competition law, which
is closely aligned with EU competitive law

When does national competition law apply? And when does EU competition law apply?
- if business conduct only affects trade within one member state, the national
competition law of the State applies
 - If the business conduct is capable of affecting trade between Member States. EU
competition law applies

US antitrust (not in the exam) → built on the same pillars

Who enforces competition law?

- at EU level: European commission
- At national level: the national competition agencies (NCAs), for example: autorité de
la concurrence …
Commission decisions → are formally enacted by the European commission

Margrethe Vestager → EU commissioner for competition policy (2 times)

Judicial review of a commission decision → addresses of a decision can bring an action for
annulment before the Court of Justice of the EU
- first instance: General court
- appeal to the Court of Justice

ART 101 TFEU: anticompetitive agreements

1. prohibition
2. legal consequence
3. exemption

PROHIBITION
- agreements
- between at least 2 undertakings
- that may affect trade between EU member States
- object or effect of restricting competition

Undertaking (impresa): any entity, regardless of its form, that is engaged in an economic
activity → an economic activity consists of offering goods or services in the market
(exchange of money) → ex. layer/ EDHEC

Agreements: definition: the concept of an agreement centers around the existence of a

concurrence of wills between at least two parties, the form in which it is manifested being
unimportant so long as it constitutes the faithful expression of the parties intention
ex. formal legal contracts

Horizontal and vertical agreements

Horizontal: between competitors → manufacture 1, manufacture 2, manufacturer 3 ( Nike,
Adidas, Puma)
Vertical: between undertakings active at different levels, not competitors → input provider,
manufacturer, wholesaler, retailer

Effect on trade between member states

- the business conducts needs to be capable of affecting trade between member
states
- if it only affects the territory of one Member State, EU competition …
Object or effort of restricting competition → in order to be considered anticompetitive,
agreements must either have the object or the effect of restricting competitions
- What does this mean? restrictions by object are contractual restrictions that are so
likely to have negative effects on competition, in particular on the price, quantity or
quality of the goods, that it would amount to a waste of public resources for the
competition …

Restriction by effect: agreements that do not have the object of restricting competition (less
obvious cases) will only be considered anti competitive if the enforcement agency can prove
on the basis of sound …

Type of agreement that is bad for competition and consumers?

Horizontal agreements
- price fixing: for example, manufacturers of the same product agree at which price
they will sell the product → it’s bad because competitors fix higher price than would
have in a competitive market (its like invisible way of stealing)
How can we prove it? They tend to be secret and “smoking gun” documents are very
rare → one single meeting amongst competitors if it is followed by a parallel price
increase will be deemed sufficient evidence that collusion took place
- cut back production/ output reduction: competitors agree amongst each other to
cut back production. Bad because it artificially decreases the availability of a product
+ prices go up
- to divide up markets or customers/ customer allocation: manufacturers of the
same product divide up geographic markets, and agree not to compete with each
other in these markets or decide not to compete for customers. bad for competition
because create artificial monopoly and consumer welfare suffers
- bid-rigging (manipolazione): append in the building industry. The undertakings agree
amongst each other who should be awarded the contract for that particular bid. The
undertakings who have decided to step back this time, will submit unreasonably high
bids → they pretend to compete but they eliminate competition from the contract →
the buyer will suffer (high price and low quality)

Vertical agreements:
- export bans: the manufacturer prohibits the distributor from exporting the goods to
another EU Member State. Damage because reduces availability of products in other
member states, creates artificial barriers, usually this is done to appoint exclusive
distributors in each EU Member State. This creates artificial monopolies for the
manufacturer’s product in each EU Member State.
- resale price maintenance: manufacturers dictate at what price distributors have to
resell
1. fixed resale price maintenance → it restrict piece competition
2. minimum resale price maintenance → it restrict piece competition
3. maximum resale price maintenance → at first side might seems good for
consumers, but de facto all distributors align themselves on the maximum
price
4. genuine recommendation are not restricted

The agreement must:

 1. result in efficiency
2. at least partially passed on to the consumer so as to cancel out welfare loss caused
by the anticompetitive effects
3. be necessary to achieve these efficiencies
4. not completely eliminate competition
burden of providing these condition rests on the undertaking invoking Article 101

Proving the conditions:

- requires solid empirical evidence
- the burden of proof rests on the undertaking invoking the defense
- very difficult to do in practice
- success rate almost zero for the past 15 years

LEGAL CONSEQUENCES
Any agreement prohibited by article 101 must be void
Financial penalty: calculating the fine → reflect the gravity and the duration of conduct (the
fine must not exceed the 10% of the undertaking turnover in the preceding year)

Leniency procedure: 95% discovered in this way

- key forcement problem in the case of cartels: secrecy
- in order to uncover and destabilize cartels and create mistrust between cartels
members, the commission operates a leniency procedure
- the leniency procedure grants complete immunity to the first undertaking to blow the
whistle and inform the commission (in detail) of the existence and workings of the
cartel
- the other participants can get reductions in their fine if they provide further
information of significant “added value”

Do you think such administrative fines are an effective deterrent?

- the fine is imposed on the company (company is an abstract concept)
- it fails to punish the individuals who actually entered into the agreement
- the cost of the fine is ultimately borne by the shareholders
- The fine is capped by law at 10% of the undertaking’s annual turnover. Often, the
anticompetitive profits outweigh the fine

Solution: many states do not consider fines on businesses sufficient to deter future cartel
conduct, and have made certain types of hard- core cartel conduct criminal offenses that
carry substantial prison sentences for the potential involved (directly to the person): ex. USA
and United Kingdom: price fixing, Germany, Italy Austria and Poland: bid rigging

Extraterritorial application of competition law

- competition law has extraterritorial application
- it does not matter where the undertaking is based
- what matters is where the effect is felt
- EU competition law applies to US companies it their conduct affects the EU market
- US antitrust law applies to EU companies if their conduct …

ARTICLE 102
Purpose
- article 102 TFEU pursues the same objective as Article 101 TFUEU
- these days, its objective is interpreted as the protection of economic consumers
welfare (read it)
4 conditions (key elements)
1. an undertaking
2. in a dominant position
3. that engages in abusive contract
4. in a way that is capable of affecting trade between EU member states, not just one
(otherwise national law)

What are the key differences between article 101 and 102?

Article 101 Article 102

prohibits agreement between several prohibit unilateral conduct by one

undertakings undertaking

addressed to any undertaking only addressed to undertakings that have a

dominant position in the market

The position of dominance: refers to a market power → concept of mainstream economics

- The ability to profitably increase prices, reduce output, choice or quality of goods and
services, diminish innovation, ot negatively influence other parameters of economic
consumer welfare over a sustained period of time
- traditionally, the focus of competition agencies has been on the ability to raise prices
(relatively easy to measure and prove)
- shorthand for market power therefore “the ability to profitably raise prices over a
sustained period of time”

How does one assess whether an undertaking has market power? Are there any factors that
could constrain the investigated undertaking if it wanted to raise prices to supra-competitive
levels? What kind of factors would you look at?

a. market share of the investigated undertaking

b. market share of actual competitors
c. number of actual competitors (market concentration)
d. potential competitors
e. barriers to entry
f. customer power → negotiating ability
g. maturity of the market → the newer the product in question

THE RELEVANCE OF MARKET SHARES

- everyone agrees that market shares are useful first indicator of market power
- according to the court of justice
1. very large market shares are in themselves, and save in exceptional
circumstances, evidence of dominant position
 2. the Court will presume dominance if the undertakings has a market stare
more than 50%

THE CONCEPT OF ABUSE

Undertakings that have a dominant position must not abuse
2 types:
1. exploitative abuses: conduct that harms (exploit) consumers directly: the dominant
undertaking uses its market power to force “unfair trading conditions” on consumers,
who have no choice but to accept these terms because there is no reasonable
alternative → ex. Italy (2016): italian competition authority fined the Aspen
pharmaceutical group for increasing the price of 5 cancer drugs by 300% - 1500%

What are the advantages of outlawing excessively high prices?

Are there any downsides to outlawing excessive prices?

advantages disadvantages

result in lower prices for consumers not allowing undertakings to fully exploit a
position of dominance that they lawfully
obtained by producing superior product may
discourage undertaking from competing
aggressively in the first place

that is the key aim of competition law competition agencies/courts deciding on

when a price is acceptable is difficult to
reconcile with the system of a free market
economy

For this reason, EU competition law outlaws how to determine what is excessive?
excessive prices, but the rule is used with
great caution

for this reason, contemporary US antitrust

law does not outlaw excessive pricing
- 2-step test developed by the court of justice of the european union
- the price needs to be
1. unfair in itself (compare production cost and end price) and
2. unfair when compared with similar products (compare with the price of similar
products)
- to be assessed in every individual case, taking into consideration all of the market
circumstances

2. exclusionary abuses: refers to conduct → does not harm consumers directly

- it harms consumers indirectly by first excluding competitors from the market,
which them puts it in a position to raise prices
- +much more commonly pursued by competition agencies than exploitative
abuses, in practice
Standard test for assessing an exclusionary abuse:
 1. did the dominant undertaking engage in conduct (other than competition on the
market) that is capable of excluding competitors from the market
2. is this exclusion likely to result in a situation in which the dominant undertaking would
be able to harm consumer welfare. Ex. By increasing prices?
The European Commission and the national competition authorities bear the burden of proof
for establishing the abuse.

Competition on the merits → competing simply on the basis of a superior product or service
→ this is allowed
Examples: there are many ways in which a dominant undertaking can exclude competitors
from the market. Key examples are:

- Exclusive dealing agreements

- Tying and bundling
- Predatory pricing
- Refusals to supply
- New type: self-preferencing by dominant digital platforms (Google cases, current
Apple, Facebook and Amazon investigations

1. exclusive dealing: a dominant manufacturer requires retailers to sell only its

products and not that of its competitors- Ex. Intel, a dominant manufacturer of
microchips (>90% market shares), paid the major manufacturers of mobile phones to
use only intel microchips in their phones.
Why is this dangerous to competition and consumers? → If the dominant undertaking
ties a sufficient number of customers into these exclusivity agreements, competing
manufacturers will no longer be able to access customers.

- If they cannot access customers, they will not be able to sell their products, and will
end up leaving the market (exclusionary effect).
- This eliminates competition for the dominant undertaking which can then increase
prices.
- There will also be less innovation, and consumers may miss out on better quality
products.

→A dominant undertaking may not enter into exclusive dealing agreements that are capable
of excluding competitors.
2. Tyning/bunding: an undertaking that is dominant in market A, makes the sale of
good A dependent on the consumer also buying good B from it. Types:
- contractual tying
- technical tyning
What is this type of conduct dangerous to competition and consumers? → If
an undertaking, which is dominant in market A, makes the sale of good A
dependent on consumers also buying good B, it becomes more difficult for
competing manufacturers of good B to access consumers.
 - If the competing manufacturers of good B cannot sell their product, they will end up
leaving the market (exclusionary effect).
- The undertaking can then increase prices in market B, and even extend its
dominance to market B.

→ it is abusive on the part of a dominant undertaking to make the purchase of one product
dependent on the purchase of another distinct product.

3. predatory pricing: the manufacturer sells its goods below cost (=at a loss). How can
low piercing. How can low pricing possibly be dangerous to competition and
consumers? Are low prices not a key aim of competition law? → 2 phase process:
a. The predator prices below cost and voluntarily incurs losses, until the other
undertakings leave the market (sacrifice phase).
b. Once all its competitors have left the market and the predator is the only
provider left, it raises its prices above competitive levels and recoups its
losses (recoupment phase).
- When is the price “too low”? According to the Court of Justice, if the price falls below
average variable cost (AVC). → A dominant undertaking must not price below AVC!
4. refusal to supply: the dominant undertaking controls a key input of infrastructure
and refuses to give its competitors access to it.
Example: Deutsche Telekom, which is the privatized successor company to the
former state-owned telecommunications monopolist in Germany, owned the only
telecommunication network in Germany. It refused to give potential new entrants in
the telecommunications industry access to this network.
Why is this dangerous to competition and consumers? → The dominant
undertaking’s refusal to make a key input available to competitors can result in these
competitors leaving the market (exclusionary effect).
Legal test: a refusal to supply is abusive if the dominant undertaking:

1. Refuses to give a competitor access to a key input;

2. This input is necessary for manufacturing a product/providing a service;
3. It is not reasonably possible to replicate this input,
4. The refusal will result in the competitor leaving the market, and
5. The refusal is not objectively justified (competitor is a bad debtor or the dominant
undertaking does not have enough of the input).

5. Self preferencing: Relatively new type of conduct: A dominant platform that acts
both as an intermediary for independent businesses and competes with them, gives
its own services preferential treatment in the ranking and display of search results.
Examples:
a. Google
b. Amazon
 Where is the danger to competition? → Consumers tend not to go beyond the
second page of search results (belief that the top results are the most relevant)

- Displaying the products on top/more prominently, risks excluding independent

providers (with whom the platform competes).
- Recognised as a new type of abuse in the Google Search (Shopping) case
(Commission decision of 2017, upheld by the General Court in 2022, appeal
pending).

Can abusive behavior ever be justified? There is an efficiency defense

- article 102 TFUE does not contain an explicit exemption clause
- however, the Court developed an efficiency defense similar to article 101 TFEU:
abusive conduct may exceptionally be allowed if
a. the conduct results in economic efficiency
b. the efficiency is passed on to consumers in such a way as to offset the
reduction in consumer welfare caused by the abuse,
c. the abusive conduct is necessary to create the efficiency
d. competition is not completely eliminated.
- First recognised in T-201/04 Microsoft v Commission
- The burden of proof rests on the undertaking. Never successfully invoked to date!

Two key types of efficiency effect:

- Cost efficiencies or quantitative efficiencies: cost savings (e.g., economies of

scale/scope)
- Qualitative efficiencies: creation of a new product, improving product quality, better
customer service, etc.

Average duration of an Article 102 TFEU investigation:

- 61 months (±5 years)

- Reason: The Commission needs to prove the undertaking’s market power, the
exclusionary effect and the effect on consumer welfare on the basis of solid
evidence. Often, the undertaking drags out the investigation.
- Particular problem in the digital economy – too slow. The Digital Markets Act is
supposed to address this issue for the platform economy

EU DIGITAL MARKET ACTS

- Not competition law, but regulation (global “first”)

- Council and EP Regulation from Oct 2022
- Establishes conduct rules for the most powerful platforms (designated “gatekeepers”)
that outlaw many types of exclusionary conduct that could fall under Article 102
TFEU (e.g., tying, self-preferencing) per se
 - Per se rules: no need for Commission to prove the actual effects => quicker and
cheaper tool
- No efficiency defense
- 6 gatekeepers were designated on 6 Sep 2023 (GAFAM + DanceByte)
- Will start applying from March 2024

WHAT IS THE CONSEQUENCE OF INFRINGING ARTICLE 102?

- The competition agencies will order the undertaking to stop the behavior (“cease and
desist order”).
- It can also order it to behave in certain ways (impose “remedies”).
- They also have the power to fine the undertaking in question (Article 23 of regulation
1/2003).
- Fines are based on the undertaking’s turnover, and take into account duration and
severity of the infringement. They are capped at 10% of the undertaking’s annual
turnover in the preceding business year.
- Fines for abuse of dominance can be very high.
- Record fine to date: decision against Google on 18 July 2018 (€4.34 billion).
- But not a criminal offense. The leniency procedure does not apply.

MERGERS AND ACQUISITIONS

● Core feature: 2 formally independent operators become one - there is one less
undertaking on the market.
● EU competition law collectively refers to merger and acquisitions as “concentrations”.
● 2 types of concentration:
● mergers (companies A and B agree to become company C), and
● acquisitions (company A purchases company B – either by acquiring B’s
stocks or assets).
● In practice, “merger” is commonly used to refer to both mergers and acquisitions.
● Third pillar of competition law
● It stipulates under what conditions a merger or acquisition will be deemed
anticompetitive and hence illegal.
● Council Regulation (EC) No 139/2004 on the control of concentrations between
undertakings (‘the EU Merger Regulation’)
● It allows the European Commission to assess the legality of mergers with a Union
dimension before they go ahead (ex ante control).

DIFFERENT TYPES OF MERGERS

● Horizontal mergers
● Non-horizontal mergers
● Vertical mergers
● Conglomerate mergers

Question: What might these concepts refer to?

Horizontal merger: Merger between companies that are competitors, i.e., between
companies that are active in the same product and same geographic market.

Non-Horizontal merger:

● Vertical merger: merger between companies that are active in the same geographic
market, but at different stages of the production line (e.g. a manufacturer acquires a
distributor, or an input provider).
● Conglomerate merger: merger between companies that are neither competitors nor
vertically related.

The substantive test:

Scope of EU mergers regulations: All 3 types of mergers (horizontal, vertical and
conglomerate) are caught by the EU Merger Regulation, if they result in a significant
impediment to effective competition (SIEC).

- However, the 3 types of merger tend to restrict competition in different ways.

How to assess whether a merger is likely to result in a SIEC?

SIEC:

1. Significant restriction of competition, that is

2. likely to result in consumer harm (e.g., higher prices, lower quality, less innovation
etc.)

Particular difficulty: because merger control happens ex ante, the competition agency needs
to make a prediction about how the market will develop if the merger goes ahead, and how
it would have developed if the merger had not gone ahead.

Assessing the legality of horizontal mergers:

● Key change: the merger eliminates one competitor from the market.
● Possible anticompetitive effect: if the elimination of the competitor leads to the
creation of market power, i.e., the merged entity will be able to profitably raise prices
after the merger.
● In other words, we need to carry out a prospective market power analysis.

Market power analysis: To predict whether the merged entity will be able to profitably raise
prices after the merger, we need to consider the following factors:

● Combined market share of the merging parties after the merger

● Number of remaining competitors
● Market shares of remaining competitors
● Potential competitors
● Barriers to entry
● Countervailing buying power
 ● Maturity of the market

Assessing the legality of vertical mergers:

● No reduction in the number of competitors on a specific market.

● Nonetheless, vertical mergers can result in anticompetitive effects if it allows the
merged entity to exclude competitors by cutting them off from customers or supplies
(exclusionary effect).
● 2-step test
1. Foreclosure of competitors upstream or downstream. Key mechanisms:
● input foreclosure, or
● customer foreclosure
2. The foreclosure must result in consumer harm (higher prices etc.). This is the
case if the merged entity has market power => market power analysis.

Input foreclosure:

● Definition: the newly merged entity cuts a competitor off from a key input.
● Hypothetical example: Toyota, after having acquired Michelin, stops selling tyres to
competing car manufacturers.
● This is only a problem if there are no alternative suppliers of tyres.

Customer foreclosure: Definition: a manufacturer acquires a distributor, which will then

stop distributing for competing manufacturers.

● Hypothetical example: Toyota, which has acquired Michelin, will now only use
Michelin tyres. Competing manufacturers of tyres will no longer be able to sell their
tyres to Toyota.
● This is only a problem for competing tyre manufacturers if there are no alternatives to
Toyota. As long as there is a sufficient number of competing car manufacturers in the
market, it is not a concern.

Credibility of input and customer foreclosure: Input and customer foreclosure are only a
credible danger to competition

- if there are no alternatives for the competitors in question, and

- if the merged entity has both the ability and the economic incentive to cut off
competitors downstream and upstream. Often, cutting off competitors makes no
economic sense, because the merged entity will thereby forego significant profits.

Conclusions on vertical mergers:

● Vertical mergers are less dangerous to competition than horizontal mergers, as long
as the affected markets are competitive.
● They are also more likely to generate efficiency effects.
● Generally, they are therefore considered less concerning than horizontal
mergers.
● They can become problematic, though, if one of the merging parties has market
power.
Conglomerate mergers:

● An undertaking acquires another undertaking that is neither a competitor nor

vertically related.
● Hypothetical example: The Coca-Cola Co, a major manufacturer of soft drinks,
acquires Nike.
● Where lies the danger for competition and consumers?

Would your answer change if the Coca-Cola Company acquired a major producer of orange
juice?

Assessing the legality of conglomerate mergers:

● No elimination of direct competition.

● Exceptionally, they can result in anticompetitive effects if the parties operate in
closely related markets (complementary products).
● Key danger: customer foreclosure though tying/bundling the complementary
products. If product A is a must-have product, A has market power, and the merged
entity will only sell product A with product B, it could exclude competing
manufacturers of product B from the market.

Conclusion on conglomerate mergers:

● Traditional presumption : conglomerate mergers are highly unlikely to result in

anticompetitive effects. Tying and bundling is only of concern
● if the merged entities are active in closely related markets, and
● if one of the undertakings has market power.
● Problem: is this also true in the digital platform economy where powerful digital
platforms are buying up providers of complementary softwares to integrate them into
entire ecosystems of interrelated products and services?

In summary:

● The key danger of a horizontal merger is the creation of market power.

● The key danger of a non-horizontal merger is foreclosure/exclusion of competitors.
● Traditionally, competition agencies have primarily been concerned about
horizontal mergers. Out of the 13 mergers prohibited on the basis of Reg.
139/2004 to date, 12 were horizontal and only one has been vertical in nature.

Efficiency defense:

● No explicit efficiency defense in the EU Merger Regulation.

● Recognised in the case law (e.g. Ryanair/Aer Lingus)
● In essence, same conditions as Article 101(3) TFEU
● The merger must yield efficiencies (timely and verifiable)
 ● Pass-on to consumers
● No less restrictive means available
● No elimination of competition
● Success rate nil in practice.

PROCEDURE

● Spelled out in detail in the Merger Regulation itself

● Key elements:
● Ex-ante control (unlike Article 101/102 TFEU)
● One-stop-shop for mergers with a Union dimension
● Strict deadlines that the Commission needs to adhere to (unlike Article
101/102 TFEU)

Scope of EU merger regulations and enforcements powers:

● The EU Merger Regulation only applies to mergers that have a “Union dimension”
(determined on the basis of turnover and where this is achieved).
● If a merger has a Union dimension, it cannot be assessed under the national merger
law of the EU Member States anymore (“one-stop-shop” principle).
● If a merger does not have a Union dimension, it can be assessed under the national
merger regimes of the EU Member States.

Extraterritorial application:

● Companies do not need to be based in the European Union in order to be subject to

EU merger control.
● It is sufficient that their conduct affects competition in the internal market.
● In other words: the place of establishment is irrelevant. What matters is the effect!

Notification requirement:

● Merger control happens prior to the implementation of the merger (ex-ante control).
● Therefore, undertakings that intend to merge need to notify the European
Commission of this intention before carrying out the transaction (Article 4 Merger
Regulation).
● This usually happens on the ‘Form CO’, on which the parties have to describe the
merger in detail.

Stand-still clause:

● The parties may not proceed with the transaction before the Commission has cleared
it (Article 7 Merger Regulation).
● There are substantial fines for “gun jumping”.

Phase I:
 ● Purpose: a first look at the notified transaction
● Time limit: 25 working days.
● Investigative powers
● Possible outcomes after the phase I investigation:
● The merger is cleared, either unconditionally or subject to accepted
commitments; or
● The merger still raises competition concerns and the Commission opens a
Phase II investigation.
● Statistics: over 90% of all cases are resolved in Phase I.

Phase II:

● Purpose: in-depth analysis of the merger's effects on competition

● Time limit: 90 working days from the opening of Phase II.
● Possible outcomes: at the end of the Phase II investigation
1. Unconditional clearance
2. Commitments decisions
3. Prohibition decision

Commitment decision:

● Rather than prohibit a notified merger that would have anticompetitive effects, the
Commission may accept commitments offered by the parties that would address
these concerns.
● The parties can offer commitments at any stage of the investigation.
● Types of commitments:
● Structural commitments (e.g., divestiture)
● Behavioral commitments
● These commitments are made legally binding in a “commitments decision”.

MERGER CONTROL IN DIGITAL MARKETS

Common findings:

● Certain platform markets are characterized by extremely high concentration levels.

● Many are dominated globally by one or two of the same five large digital companies:
Google Apple, Facebook, Amazon and Microsoft (GAFAM).
● Examples:
● Search (Google)
● Online advertising (Google and Meta)
● Private social networks (Meta)
● Mobile operating systems (Google and Apple)
● PC operating systems (Microsoft)
● Online retail (Amazon)

What explains this extraordinary market concentration?

 ● Certain digital markets are prone to “tipping” (winner-takes-all). Once a market has
tipped, the incumbent is very difficult to dethrone.
● Explanation: unusual combination of factors:
1. high returns to the use of data (the more data you control, the better your
product)
2. marginal costs close to zero (cost of servicing another consumer close to
zero)
3. low distribution costs that allow for a truly global reach
4. exploitation of consumer biases
5. strong network effects

Network effects:

● Platforms are subject to so-called network effects, i.e., the value of the service
depends on the number of users.
● Direct network effects: the value of the service for one user group depends
on the number of users from the same group.
● Indirect network effects: the value of the service for one user group
depends on the number of users from another group.
● To benefit from network effects, the undertaking needs scale = significant barrier to
entry

Is merger control working as it should in digital platform markets?

GAFAM acquisition to data → Collectively, GAFAM have acquired close to 1000 companies
over the past 20 years.

● These are the numbers in the public domain. Many acquisitions have not been
disclosed.
● What GAFAM acquisitions are you aware of?

Examples:

● Microsoft/LinkedIn
● Microsoft/Skype
● Microsoft/Yahoo!
● Google/DoubleClick
● Google/Android
● Google/YouTube
● Facebook/Instagram ($1 billion)
● Facebook/WhatsApp ($19 billion)
● Facebook/Oculus ($2 billion)

Track record of the enforcement agencies to date:

● European Union
 ● European Commission: 0 prohibitions
● National competition agencies: 0 prohibitions
● United States: 0 prohibitions
● United Kingdom: 2 prohibitions (Meta/Giphy in 2021; and Microsoft/Activision
Blizzard, Apr 2023)

WHAT EXPLAINS THE LACK OF PROHIBITIONS?

Speculations:

● Turnover based notification requirements inadequate in digital platform markets?

Many platforms make significant losses for the first few years while they grow their
user bases.
● Is the standard of proof too high? How can competition agencies reliably predict what
would have happened in the absence of the merger in fast-moving and novel digital
markets? E.g., Facebook/Instagram acquisition.
● Is the presumption that non-horizontal mergers are generally harmless appropriate
when the acquiring company is GAFAM?
● Or maybe competition law is working just fine, and there is no reason for concern?

FTC v Facebook

● In Dec. 2020, the US Federal Trade Commission filed a complaint under sec. 2 of the
Sherman Act against Facebook in the DC District Court.
● Aim: to break up Facebook into 3 companies.
● Accusation: Facebook has monopolized the US market for social networking services
by strategically buying up competitive threats.
● The FTC is thereby trying to undo Facebook’s past acquisitions of WhatsApp and
Instagram
● Problem: FTC had not opposed the acquisition of WhatsApp and Instagram at the
time.
● Currently pending in the DC District Court

Chapter 1:
Company name, domain name, trademarks

AIM of IP

● Protect the immaterial assets of the company.

● The aim can be to protect:
● The company itself;
● Its products and services.
● Intellectual property rights (IPR) are not something that you sell to your clients or
customers but IPR will increase the value of your company.
 ● Example 1 → DECATHLON is a company name, a brand name it is also a sign,
which since it is protected, is a trademark.

decathlon.fr is a domain name

● Example 2 → E.Leclerc is the company name;

Quiestlemoinscher.com is the trademark and a domain name.

THE COMPANY NAME

● A company, as a legal person, is identified through its name. Just like natural persons
are, through their surname (family name).

No INPI registration needed: first use conferring protection

● The company name does not need to be registered in order to be protected.

● It is its first use that confers it protection.

Conditions linked to public first use:

● First use must be proven.

● Provided that the company name is necessarily mentioned in its bylaws (also called,
memorandum agreement or statutes), when the company creation is registered with
the RNCS (national registry of companies and trade), this automatically provides
proof of public first use.
● Other public communication proof can be: business papers, prospectuses,
advertisements, invoices.
● However, registration with the INPI can increase the protection of the company
name.
● Careful: not to confuse it with a trade name: the name under which the activity of
your company will be known to the public. It is sometimes the same as the company
name itself.

Two conditions
1) It must be valid
2) Il must be available
1) Validity
= A valid name is not contrary to public order or good morals, which means mainly:
a) It cannot be a racist expression
b) It cannot designate an illegal activity, i.e. Cannabis
c) It cannot be insulting, i.e. Guilty police
d) It cannot mislead people
 = is misleading the case where reference is made to a regulated activity (architect,
medicine, chartered accountant, credit institution, etc.) while the company in question
does not meet the legal conditions or regulations required for its exercise.

- Example: it was judged that the name "Société Architect" chosen by a real estate
development and construction company and which did not meet the legal conditions
of the profession of architect, could not use this term in its name (CCass 1990).

2) Availability
= the chosen name must not infringe previous IPR (intellectual property rights)
a) Name identical to another company, another domain name or brand?

■ If the other one does not offer the same products or services, it is
possible, if they are different sector: ex. restaurant, gym store (but
always legal risk if the other company is big and influent– the
assessment of the difference will be made before the judge)
■ if the name of the chosen company is identical to a domain name but
does not operate in the same sector of activity, the designation of the
company will not infringe the rights of third parties
■ Despite such an apparent difference, to be strongly avoided,
especially if the name of the other company or brand enjoys notoriety
or reputation, i.e. Nestlé or Decathlon
■ Because this will necessarily and instantly create confusion in the
public’s perception, which will be (unfairly) beneficial to the company

b) Name similar to another company, another domain name or trademark?

■ Always the same logic = The Court of Cassation will evaluate the risk
of confusion created by the similarity of corporate names and of
misappropriation of customers of the company whose name has been
usurped (CCass.1977)

c) What about surnames?

■ In principle, the company name can be our own surname or the

surname of a third party.
■ But only when there is no possible risk of confusion with another
company.
■ The risk is not incurred when the name is a widespread or a common
one: i.e DUPONT ok

Availability search tools: No legal obligation to search for availability

● But bad faith can be retained if no research has been undertaken

● The tools exist, so it is better to use them: (Google, Infogreffe, INPI, EBRA, EUIPO,
WIPO)
LEGAL ACTIONS AND CLAIMS

1) Risk of being sued (litigation) under the accusation of:

a) Disloyal competition:
= means using a competitor’s company name (similarity even) to attract customers by
fraudulent means.

● Acts of unfair competition are characterized by deception, bad faith, fraud.

b) Parasitism / free riding:

= the act of taking unfair (and free of cost) advantage of the know-how, human and financial
efforts of a company, and use its notoriety (= its fame) to acquire its customers or even
attract their employees.
2) Difference between the two?

● A few years back, parasitism was just a form of disloyal competition.

● But progressively, the notion detached itself from disloyal competition,
meaning that companies do not need to be rivals- in competition with one
another (Cour de cassation, civil, Chambre commerciale, 7 avril 2009,
07-17.529).
● Example: parasitism can occur between a real estate agency and a
restaurant.

3) Possible remedy is an obligation

● Under Article 10 ter of the Paris Convention for the Protection of Industrial Property
dated 1883 (treaty still in force in 140 countries): The countries undertake to assure
to nationals of the other countries appropriate legal remedies effectively to repress all
the acts of disloyal competition.

DOMAIN NAMES

Registration of a domain name

1) « First come, first served » rule:

It is the rule which applies for the registration of a domain name, which means that, from a
technical point of view, a domain name can be registered as long as it is free.
2) How? ➢ Go on any registrar website and search for the domain name you want to
register:

Three limits to registration

You are not authorized to register the following domain name, even if it is free:
decathlon-france.fr
Otherwise, you could be sued by Décathlon which is the owner of the well-known Décathlon
trademark.
WHY?
a) First limit:
Not authorized to register a domain name which infringes previous IPR, meaning which is
identical or similar to a previous well-known trademark or company name.
b) Second limit:
Prohibition of cybersquatting: the act of registering a domain name similar to a previous
well-known trademark in the intention to sell it to the company which is the owner of said
trademark.
c) Third limit:
Using a trademark as a key word to be well-referenced.
Example:
Let us say that you use the trademark Décathlon as a keyword.

As a result, people who search on Google for sport articles will see your website and will
click on it thinking that you are Decathlon. As a consequence, you attract customers using
the goodwill of the Décathlon trademark.

● Careful/Problem: legal uncertainty and inconsistent case law

Natural referencing: using a company name or renowned brand in this way seems to be
prohibited

● TGI Paris 09-11-2018

● Court of Appeal of Paris 05-03-2019 (a brand name was used when the
products of this brand were not offered for sale by the website in question)

Paid referencing (i.e. keyword on Google): it does not seem to be necessarily prohibited

- TGI Paris 08-03-2018

Optional: article to read (in French) by Adrien Cohen BOULAKIA (lawyer) “L’usage d’un
signe distinctif concurrent comme mot clé sur google” --article disponible sur
www.village-justice.com

LEGAL ACTION AND CLAIMS

1) Engaging into litigation

See again slide 12
2) Alternative resolutions (outside the courtroom)
SYRELI procedure: a quite efficient alternative dispute resolution procedure, allowing you
to quickly get back your domain name .fr (generally within two months) – for that, you have
to file a request on the following website: https://www.syreli.fr/
UDPR procedure: uniform Domain Name Dispute Resolution Policy for international
domain names claims

TRADEMARKS

WHAT IS A TRADEMARK?
1) Definitions
 ● Art. L.711-1 French IP Code: A trademark is a sign used to distinguish the products
or services of a natural or legal person from those of other natural or legal persons
● Art 3 EU Directive 2015: Trademarks may consist of any signs, in particular words,
including personal names, letters, numerals, colors and color combinations, the
shape of goods or of the packaging of goods, or sounds, hologram, digital images
(synthesis), multimedia (combination of images and sounds).
● From these definitions, we can identify what it takes for a sign to be a trademark
● We can also understand why it is impossible to register a trademark to protect a taste
or a scent: no sign can ascertain a taste or a scent..

2) Two cumulative conditions for a sign to become a trademark

● Art. L.711-1 IPC

a) Able to distinguish it from other third parties' signs. → ADIDAS case

b) Able to be represented in the national register of trademarks in such a way as to allow any
person to determine precisely and clearly the object of the protection conferred on its holder.
In order to do so, it must be represented in a clear, precise, distinctive, easily accessible,
intelligent, durable and objective way.

NON VALID TRAMARKS: According to Art. L. 711-2 IPC, cannot be validly registered and, if
registered, may be declared void:

● 1° A sign which cannot constitute a trademark within the meaning of Article L. 711-1;
(see slide 19 again)
● 2° A mark devoid of any distinctive character;
● 3° A trademark composed exclusively of elements or indications that may be used
to designate, in trade, a characteristic of the product or service, (the species,
quality, quantity, destination, value, geographical origin, the time of production):
● 4° A brand composed exclusively of elements or indications that have become
customary in everyday language or in the fair and constant habits of the trade;
● 5° A sign consisting exclusively of the shape, or another characteristic of the
product imposed by the very nature of this product, necessary to obtain a technical
result or which gives this product substantial value;
● 6° A trademark excluded from registration pursuant to Article 6 ter of the Paris
Convention for the Protection of Industrial Property in the absence of
authorization from the competent authorities;
● 7° A mark contrary to public order or the use of which is legally prohibited;
● 8° A mark likely to deceive the public, in particular as to the nature, quality or
geographical origin of the product or service;
● 9° A mark excluded from registration under national legislation, European
Union law or international agreements to which France or the Union are parties,
which provide for the protection of designations of origin and indications
geographical, traditional mentions for wines and traditional specialties
guaranteed;
● 10° A trademark consisting of the denomination of an earlier plant variety,
registered in accordance with Book VI of this Code, European Union law or
international agreements to which France or the Union are parties (…)
 ● 11° A trademark whose filing was made in bad faith by the applicant.

IMPORTANT: In the cases provided for in 2°, 3° and 4°, the distinctive character of a mark
may be acquired by use (following the use that has been made of it).
Example of 2°

● In this case, Showroomprive.com position tried to cancel the trademark

“vente-privee” on the basis of its usual character and of its lack of
distinctiveness.
● The Paris Court of Appeal ruled in favor of the company Vente-privee.com
(now Veepee) in a decision of September 17, 2021.
● For the Court, distinctiveness was acquired by use, because the brand
acquired goodwill* in the mind of the consumer.
● Concerning its usual character (the use of two very common language terms
“vente” (sale) & “privee” (private), the Court held that the sign is protected as
a whole: such a protection (of a complex sign) does not entail the protection
of the usual and descriptive expression which remains usable for the
competitors of the leader in ephemeral sales.

REGISTRATION OF A SIGN AS A TRADEMARK

1) Checking availability before seeking registration

● you must ensure the trademarks’ availability (not already used by a third
party)
● https://www.inpi.fr/fr/base-marques for French trademarks;
● https://www.tmdn.org/tmview/#/tmview for European and international
trademarks.

2) Registration is a condition to be protected

● A trademark shall be obtained by registration.

● You must use your trademark, otherwise, it will lose its protection.

3) Possibility for third parties to oppose the registration

● Opposition is possible, prior or post registration

● A third party, and especially a competitor, may consider that your trademark is
not distinguishing enough, or if it considers that your trademark infringes on
its own trademark because both are similar, or because the sign (wording is
too usual)…
● Prior to registration (after filing) = within two months, before the INPI
● Post registration = it may sue you in court to have your trademark declared
void (takes effect on the date of its filing)

EFFECT OF REGISTRATION & SPECTRUM OF PROTECTION

1) Duration of the protection

● The trademark is protected for a duration of 10 years from the date of its filing.
● It may be renewed for additional 10-year periods for a renewal fee.
 ● A proof of use may be required by some countries for renewal to be possible: see
next slide
● If you do not renew your trademark you may lose the protection (trademark becoming
available again for registration by a third party).

2) International classes of products and services

● When you do the formalities to register your trademark, you have to choose in which
business activities you will protect your trademark.
● For that, you need to choose classes of products and services in the Classification of
Nice that you can download online
● Unless you do so, your trademark may be declared void

3) Use it or lose it?

● As seen previously, under many national IP laws, brand owners can file trademark
applications without any requirements to file evidence of use of their chosen mark.
● This applies to both the UK and the European Union.
● But, if it is not required to file any evidence of use in the early stages of a trademark
application and registration in those territories, you must use your trademark
otherwise you may lose your protection afforded by the registration.
● This rationale comes into play in most legal IP systems, later in the life cycle of a
trademark registration.
● In the UK and EU, after five years of registration of your trademark, the right
becomes subject to proof of use considerations.

4) Defense and opposition

● You may need to defend your trademark in two situation:

a. a third party is allegedly using your IP right
b. A third party opposes your application or registration of your trademark and seeks to
stop or cancel it.

5) International protection

● Territoriality: the trademark is protected in the country where it is registered

(=national trademark).
● 6 month priority: « Right of Priority '': means that a national trademark owner has the
right to extend the protection of his trademark abroad within a max of 6 months,
without having to worry about the filings made during this period by third parties in
the countries it covers. In practice, it is always necessary to specify, at the time of
filing abroad, the trademark for which priority is claimed. In case of omission, it is
impossible to invoke it a posteriori. The priority only works if the mark abroad is
strictly identical to the nationally protected one.
● EU trademark: Regulation EU 2017/1001 of June 14 2017: An EU trademark is
registered before the EUIPO and shall have equal effect throughout the Union: it is
not necessary to file a registration in every Member State.
● International protection: it is possible to register an international trademark before the
WIPO. Consequently, the trademark shall be protected in the countries chosen and
which are Member States of The Madrid System.