Judicial review of economic analysis of competition cases

The European experience Jan Peter van der Veer [email protected]

28 April, 2020

Overview 1.

Background

2.

Standards applied by the European courts when reviewing economic analyses

3.

Case study: judicial review of the Ryanair/Aer Lingus merger

4.

How can courts appraise complex economic analyses?

5.

Conclusion 2

1. Background

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Background (1)

 In the last 10 years, the use of economic analyses by the European Commission in competition cases has increased very substantially  Economic analyses are now routinely used in: – – – The assessment of mergers: will a merger give rise to higher prices?

Abuse of dominant position: did the alleged behaviour restrict competition and harm consumers?

Assessment of cartels and cartel damages: did the cartel lead to higher prices?

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Background (2)

 The increase in the use of economic analyses has, in part, been driven by the European courts  In a series of court judgments in the early 2000, the courts heavily criticised the quality of the analyses undertaken by the European Commission – Cases include

Airtours, Tetra Laval/Sidel and General Electric/Honeywell

 The European Commission responded to these criticisms by substantially improving the quality of its economic analyses – – To this end, the position of “Chief Economist” was created National competition authorities likewise have improved the quality of their economic analysis 5

Background (3)

 The increase in the use and complexity of economic analyses in competition decisions raises the question how these should be assessed when decisions are appealed  Decisions of the European Commission are appealed at the General Court in Luxemburg (formerly Court of First Instance, CFI) and ultimately to the European Court of Justice (ECJ)  How do these Courts review the quality and validity of economic analyses undertaken by the European Commission?

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2. Standards applied by the European courts when reviewing economic analyses

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Tetra Laval/Sidel (ECJ 2005)

 “The basic provisions (...) confer on the Commission a certain discretion, especially with respect to assessments of an economic nature .”  “Whilst the Court recognises that the Commission has a margin of discretion with regard to economic matters, that does not mean that the Courts must refrain from reviewing the Commission’s interpretation of information of an economic nature .” 8

Tetra Laval/Sidel (ECJ 2005)

The Community Courts must establish:  whether the evidence relied on is factually accurate, reliable and consistent  whether that evidence contains all the information which must be taken into account in order to assess a complex situation; and  whether it is capable of substantiating the conclusions drawn from it.

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General Electric/Honeywell (CFI 2005)

 Where the Commission analyses the effects of a merger, it is for it to show on the basis of convincing evidence and with a sufficient degree of probability not only that any conduct foreseen by it will take place in the relatively near future but also that the conduct will result in negative effects on competition in the relatively near future. 10

General Electric/Honeywell (CFI 2005)

 It is not enough for the Commission to put forward a series of logical but hypothetical developments which, were they to materialise, it fears would have harmful effects for competition on a number of different markets.

 Rather, the onus is on it to carry out a specific analysis of the likely evolution of each market on which it seeks to show that a dominant position would be created or strengthened as a result of the merger ...

... and to produce convincing evidence to bear out that conclusion.

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3. Case study: judicial review of the Ryanair/Aer Lingus merger

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Background

 Ryanair , an Irish “low cost” airline, attempted to buy the former state-owned Irish airline Aer Lingus in 2006  In June 2007, the European Commission prohibited the proposed merger – – Would have resulted in a monopoly airline on 22 routes out of Ireland On 13 other routes, merger would significantly have reduced consumer choice  In its prohibition decision, the European Commission relied (in part) on complex economic analyses  Ryanair appealed the decision to the European Court of First Instance (now General Court) 13

Judicial review by the court (General Court, 2010)

 The court did not carry out economic analyses itself (e.g. in order to check whether the analysis carried out by the Commission were correct)  The court extensively referred to the “margin of discretion in relation to economic matters” that the European Commission enjoys under the case law  Nevertheless, the Court reviewed the analyses undertaken by the European Commission in great detail 14

Example

 Ryanair submitted a number of economic analyses that it claimed were more robust than those undertaken by the European Commission  The court paid close attention to whether the European Commission had carefully considered Ryanair’s claim – Did the decision contain a detailed examination of the studies submitted by Ryanair?

– – Did the Commission undertake alternative analyses to refute the results of Ryanair’s studies?

Did the Commission “arbitrarily reject” any study that was submitted to it?

 However, the court did not attempt to determine itself whether Ryanair’s analyses were more robust than those undertaken by the European Commission – Could it have done so?

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4. How can courts appraise complex economic analyses?

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Methods to appraise complex economic analyses

 Court-appointed experts – These undertake their own economic analyses and report to the court  Court-appointed assessors – These do not undertake their own analyses, but advise the court on the economic analyses undertaken by the parties during the hearing – More limited role than court-appointed experts  Cross-examination – – Lawyers of one party interrogate the expert of the other party In order to effectively cross-examine an expert, lawyers will need to understand the economic analyses that have been undertaken – This will also help the judge to understand the analysis  Simultaneous evidence (“hot tubbing”): – The parties’ experts discuss directly with each other in front of the court (with the judge acting as chair) 17

5. Conclusion

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Conclusion

 European Courts have shown a willingness to heavily criticise the European Commission regarding the quality of its economic analyses – The reforms that the European Commission has implemented owe their roots to a series of high-profile court defeats  While the Courts recognise the “margin of discretion” that the Commission has regarding assessments of an economic nature, they continue to engage in detailed reviews of economic analyses in Commission decisions  Various methods are available by which the Courts can assess complex economic analyses – These are frequently applied at national level, though less so by the European courts 19

Locations and contact

London

The Connection 198 High Holborn London WC1V 7BD Telephone +44 20 7421 2410 Email: [email protected]

The Hague

Lange Houtstraat 37-39 2511 CV Den Haag The Netherlands Telephone: +31 70 302 3060 Email: [email protected]

Johannesburg

Augusta House, Inanda Greens 54 Wierda Road West Sandton, 2196, Johannesburg Telephone: +27 11 783 1949 Email: [email protected]

Brussels

Bastion Tower Place du Champ de Mars 5 B –1050 Brussels Telephone: +32 2 792 0000 Email: [email protected]

Melbourne

Rialto South Tower, Level 27 525 Collins Street Melbourne VIC 3000 Telephone: +61 3 9935 2800 Email: [email protected]

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