Saturday, October 20, 2012
Posted by D. Daniel Sokol
Benoit Durand (RBB Economics) & Andreas P. Reindl (Leuphana University) analyze Fines for Abuse of Dominance in "High Tech" Markets.
ABSTRACT: Blockbuster fines have become a trademark of European Commission abuse of dominance cases. Intel's EUR 1 billion fine is currently under appeal, and just a few months ago the General Court largely upheld the EUR 800 million fine imposed on Microsoft for its failure to comply with the licensing remedy in the initial Commission decision, which "supplemented" the EUR 450 million fine imposed in 2004.
The practice of wielding the big stick in Article 102 cases involving high-tech firms has had an impact on the narrative about European competition law. Take the numerous reports in the trade press about the Commission's ongoing Google investigation; they have little to report on substance, but almost invariably emphasize that the tough antitrust enforcers in Brussels could impose a EUR 4 billion fine if they found Google guilty of a violation. That is not small change, even for the Googles of the world. For a firm with a little less cash at hand than Google, the threat of being subject to an investigation by a competition authority with little understanding of high-tech markets and equally little hesitation to consider novel and perhaps experimental conduct to be a "very serious" infringement on par with price-fixing, and thereby impose enormous fines, might be enough reason to change its business conduct when an unhappy rival makes noises about filing a complaint.
This is a worrisome development. The current fining practices in single-firm conduct cases rest on shaky grounds and are potentially harmful. We begin with a brief discussion of core economic concepts that should inform the imposition of corporate fines, in particular in single-firm conduct cases. We then use the Commission's Intel and Microsoft decisions to illustrate the risks associated with the current ill-designed fining practice, in particular in cases involving high-tech sectors: (i) enforcers may find it impossible to determine whether conduct was, in fact, inefficient and harmful; (ii) the risk of deterring beneficial conduct is particularly high; and (iii) market participants will typically find it impossible to understand what type of future conduct a fine is supposed to deter, given the rapidly changing market conditions and unclear substantive analytical standards. We conclude by identifying conditions that must be met if a competition authority considers imposing sanctions in single-firm conduct cases. We are not arguing here that corporate fines should never be imposed in cases involving high-tech industries, but we doubt that blockbuster fines are a suitable enforcement tool in most single-firm conduct cases.