Tying and Bundled Discounting

Transcription

1 Tying and Bundled Discounting Experience 1. Please state the statutory provisions or legal basis for your agency to address tying and bundled discounts. Are tying and bundled discounts a civil and/or a criminal violation of your jurisdiction s antitrust laws? Do these provisions apply only to dominant firms or to other firms as well? In Colombia the statutory provisions on antitrust define tying as: ( ) the following agreements, among others, are considered to be against free competition: ( ) 7. Those which have as its object or effect, to subject the supply of a product to the acceptance of additional obligations which, given its nature, did not constitute the object of the deal, without prejudice to other provisions 1. ( ) when a dominant position exists, the following conducts constitute abuse of it: ( ) 3. Those which have as its object or effect, to subject the supply of a product to the acceptance of additional obligations which, given its nature, did not constitute the object of the deal, without prejudice to other provisions 2 Bundled discounting, as defined in the questionnaire, is not a practice specifically included under the Colombian statutory provisions on antitrust. However, those provisions prohibit, in general, any kind of practice, procedure, system or conduct that tends to limit free competition 3 and the competition agency is therefore entitled to pursue the relevant investigations related to them. The general prohibition reads as follows: The agreements that directly or indirectly have as it object to limit production, supply, distribution or consume of raw materials, products, merchandises or national or foreign services, as well as, in general, every kind of practices, procedures or systems that tend to limit free competition or maintain or determine unfair prices, are prohibited 4. ( ) In this sense, bundled discounting could be investigated either as a conduct with a specifically prohibited object or effect as defined in the statutory provisions, or as a violation of the general prohibition above. In the first case, it should be noted that bundled discounting would not be as itself considered anticompetitive, but it would be 1 Decree 2153 de 1992, art. 47, num. 7, (non-official translation). 2 Decree 2153 de 1992, art. 50, num.3, (non-official translation). 3 Law 155 de 1989, art. 1; Decree 2153 de 1992, art. 46, (non-official translation). 4 Law 155 de 1989, art. 1.

2 the means to an anticompetitive practice. In other terms, bundled discounting is not prohibited, as it is not to celebrate a contract, but it can be sanction if by those means an agent perse incurs in what has been specifically prohibited by the antitrust laws. On the other hand, bundled discounting, as defined in the questionnaire, could be viewed under certain concepts foreseen under the consumer statutory provisions related to price publication requirements, i.e., a sale involving an extra-product, in which case the price per unit of measure 5 must be indicated only with respect to the baseproduct to which the second accedes 6. The consumer protection provisions are relevant to antitrust investigations, given that violation of consumer rules related to publication requirements is considered to be an action against free competition. The specific action prohibited reads as follows: ( ) the following actions are considered to be against free competition: 1. Violation of the publicity rules contained in the Consumer Protection Statute. 7 Without prejudice to the different possibilities explained above, since bundled discounting as itself is not a practice included under the Colombian statutory provisions on antitrust, and therefore not considered by the law to lessen competition, the questions regarding that specific practice will only be addressed to the extent of any statement made by this agency on the subject. Regarding tying practices, they are considered a civil and not a criminal violation of antitrust laws. It should be taken into account that the Colombian Constitution protects competition as a right to which every person is entitled ( collective right ) 8, that is, it is not only possible that the antitrust agency initiates an investigation ex officio or prompted by an interested third party, but it is also possible, to the extent that it is considered of public interest, that any person initiates proceedings before the jurisdiction for suits under administrative law, in which case that person will be presumed to have a legitimate interest without any further evidence. According to the statutory definitions, tying practices can either be agreements, applying to firms not necessarily dominant or with significant market power, or conducts, understood under the antitrust laws as any agreement or action. These conducts are considered an abuse of market power, and therefore the applicability of the provision is subject to a previous qualification of the agent and its specific role in the relevant market. 5 Price per unit of measure is defined in the relevant provisions as follows: the figure in pesos (COL) that results from dividing the total price of each good, by the net quantity of that good (be it in mass (kg), volume (l),or length (m). Superintendencia de Industria y Comercio, Circular Única, (non-official translation). 6 External Circular 04, March 11, Decree 2153 de 1992, art. 48, (non-official translation). 8 Colombian Constitution, art. 333 and 334.

3 It would be pertinent to mention that under the Colombian antitrust legal definitions, an agreement includes any contract, concertation, concerted practice or conscious parallel behavior, between two or more firms. On the other hand, an action includes any behavior of a person that performs an economical activity. A conduct includes any action or agreement How many in-depth investigations (i.e., beyond a preliminary review) of tying arrangements and (separately) of bundled discounting arrangements has your agency conducted during the past ten years? Please describe what prompted the investigations (e.g., competitor complaints) 5. Does your jurisdiction allow private parties to challenge tying or bundled discounting in court? Yes/No If yes, please provide a short description of representative examples of these cases. If known, indicate the number of cases (or an estimate thereof) brought by private parties. Yes. A private party has two different options to challenge any anticompetitive practice. The first one, which is the most common, would be through the submission of a formal complaint before the competition agency, for the agency to initiate the relevant investigation and finally impose a sanction. The second option would be a popular legal action (similar to a class action, but without the possibility of a claim for private damages). As said before, free competition is considered of collective interest 10, and potential or actual damages resulting from its violation, are taken under a collective point of view. Therefore, litigation between two private parties as a consequence of one of them violating an antitrust rule is not foreseen as it is, for instance, in the case of unfair trade practices, where an individual right is protected by the law. This special procedure is submitted before the jurisdiction for suits under administrative law, and, as said before, it is not a dispute for the recognition, protection or restoration of a private individual right or for the compensation of a private damage (exceptions apply), but for the protection of a collective interest recognized by the Colombian Constitution. Therefore the purpose of these kinds of actions is either the avoidance of a contingent damage, the cease of any danger, threaten, breach or offense of those collective interests, or to restore previous state when possible 11. Every private party, either an individual or a legal person, is entitled to bring this legal action before the jurisdiction, against any action or omission of an authority or a private that have actually violated or threatens to violate the collective right or interest 12. These two options for challenging any anticompetitive practice apply both for tying or bundle discounting, only tying is considered to be against competition and therefore it would be necessary to demonstrate it, while in the case of bundle discounting it would 9 Decree 2153 of 1992, art. 45 (non-official translation). 10 Law 472 of 1998, art. 4, i). Colombian Constitution, art Law 472 de 1998, art Law 472 de 1998, art. 9.

4 not be about the demonstration of the bundle discount itself, but that it was the means to limit or restrict competition, or the means for any practice specifically considered against competition in the statutory provisions. There are not any cases brought by a private party before the jurisdiction regarding tying or bundled discounting since, as stated previously, it is not the common way used by private parties to challenge an anticompetitive practice committed by another firm. Most of the cases before the jurisdiction and related to the collective interest of free competition are against an action or omission of an authority. For instance, the first case in which a private party brought this special action before the jurisdiction to claim the protection of the collective right of free competition was ruled in However, the Court Agent before the Tribunal suggested the case should be decided against the claimant, since the claim was meant to protect a private and not a collective right, the latter being the specific object of that special procedure. The issue was related to the legality of a public tender for the granting of a license for the operation of PCS (830 MHz). Claimant submitted that the bidding specifications (ruled by the Government Ministry of Communications) and the latter granting of the license to the new entrant, lessened competition, not only because the new agent had been given a bigger portion of the electromagnetic spectrum than the one granted to current operators, but also because he was charged a lower cost for initiating operations (entry costs), resulting in an imbalance and favoring of the entrant firm. According to the claimant, under these circumstances, the aid altered the natural conditions of supply and demand in the mobile communication services. To synthesize, other actions heading to the protection of free competition have been brought, none of them regarding tying or bundled discounting, and almost all of them against an action or omission of an authority and not of a private 14. Evaluation of Tying Arrangements 6. In your jurisdiction, is the term tying used in a manner different from the definition in the introductory paragraph above? If so, how? The term tying in the questionnaire differs from the definition adopted by Colombian antitrust laws. There is one definition of the practice, applicable to different scenarios; one of them regarding a type of agreement, in which case dominant position is not an element of the rule, and the other one related to any action or agreement, in which dominant position would be necessary to incur in the conduct. Additionally, the rule in Colombia does not refer to a tied product, but to a tied obligation, that is, the supply of a product is subject to the acceptance of additional obligations, which, given their nature, did not constitute the object of the deal. 13 Procuraduría Primera Delegada ante el Consejo de Estado (Supreme Tribunal of the administrative jurisdiction), Alegato No. 082 before the Consejo de Estado, Third Section, Ref.: , Reporting Judge: Germán Rodríguez Villamizar, March 20, Among them is one against the conclusion of the free trade agreement between the U.S.A. and Colombia; against a provision limiting the permitted Conciliation Centers for transit issues; another against the maintaining and granting of a license for the construction of a highway and another one claiming the action from the authorities given a situation of dumping in the import of certain products from Venezuela.

5 Certain clarifications should be made regarding the possibilities considered in the questionnaire s definition of tying. In the first place, regarding the part where the buyer agrees that it will not purchase the tied product from another supplier, it could be viewed within the scope of Colombian s provision of tying defined in the answer to question no. 1, since it relates to the ( ) acceptance of additional obligations which, given its nature, did not constitute the object of the deal, without prejudice to other provisions. The word obligations as the conditioned element, gives the rule a wider scope of applicability, where even a non-performance obligation could be considered, i.e., not to purchase the tied product from another supplier. However, in a market where dominant position does not exist, that kind of agreement could also constitute other kinds of practices considered to be against competition under the antitrust statutory provisions. It could, for instance, have as its object or effect, the discriminatory commercialization against third parties, market distribution or even the assignation of supply quotas. On the other hand, as to the part of the definition including the sale of products or services that could be viewed as separate but are sold only together as a bundle, it is not that clear that it falls under the definition of tying given in answer to question number 1. It depends on the way the bundle is introduced to the public. For instance, consumer statutory provisions consider the possibility of selling a combo or similar, in which a collection of different items are offered as a comprehensive or integrated product and which are exempted of the requirement of indicating the price per unit of measure and the price of the items composing it. It is though prohibited that the price of the combo exceeds the addition of the prices of the different single items 15. It would then be necessary to consider these kinds of circumstances to the adequate determination that certain conducts falls within the scope of the tying definition in antitrust statutory provisions. 8. What specific tests, if any, are applied to determine under the competition law whether two products or services are separate rather than a single integrated product? The key test would consist in the nature of the obligation involved in the main deal. There is not a specific test that applies to determine the difference in nature of the obligations involved in one or another agreement or deal. There must be a case-by-case evaluation, also strongly determined by the market definition of the tying product and the tied obligation. 9. In what market(s) e.g., the tying or the tied market- must effects, if any, be shown to demonstrate an illegal tie? a. What specific types of effects must be shown, e.g. market distortion, market foreclosure, harm to consumer welfare? Colombian antitrust statutory provisions establish certain aims or purposes guiding the specific functions and jurisdiction of the competition agency. Among them, the 15 External Circular 004, May 16, 2005.

6 efficiency of the productive sector, the access to the markets of goods and services both of consumers and firms, free participation of firms and freedom to choose of consumers in the markets, and very importantly, the maintenance in the markets of a variety of qualities and prices of goods and services 16. Given these aims, the examples in the question, regarding market distortion, foreclosure, harm to consumer welfare, and any other limitation to competition are punishable by the competition agency, even if under Colombian provisions the market effect does not necessarily have to be proven or evaluated to sanction a conduct, as will be explained hereafter. Market effects must not be shown to demonstrate an illegal tie, but if it turns up affecting or limiting competition in certain market, it should be punishable regardless of any specific conduct previously proven. Having established the above, no specific types of effects must be shown to demonstrate an illegal tie under Colombian antitrust laws. Therefore, the agreement between two or more parties or an action of a single one, heading to or having as its effect a tying arrangement is considered an anticompetitive practice, subject to administrative sanctions, regardless of a harmful market effect. Consequently, the execution of the agreement or the action has to be shown in order to demonstrate the illegal tie.. A doctrinaire discussion exists concerning the nature of the presumption (conclusive or rebuttable) in the definition of antitrust practices contained in Colombians statutory provisions. It has been accepted, being also this agency s position that an agreement which object or effect consists, in this case, in a tying arrangement, is per se illegal and therefore the only possible defense would be that the agreement was never executed. However, in a case brought before the administrative tribunal 17 for the application of annulment of a decision made by this agency in , the Tribunal found that it was not enough to demonstrate the existence of the agreement, but that it was necessary to establish that the agreement had as its object to limit or harm competition and not only the price fixing. It was the Tribunal position that under Colombian antitrust statutory provisions fault had to be proven in order to impose a fine. This agency s position was (and currently is) that, intention of harming competition must be shown when the object or effect of the practice, in this case the conclusion of the agreement, is prohibited in the antitrust provisions. In this case, the agreement was openly celebrated between certain security firms, based on a former decision of the Colombian security authority fixing a minimum price to ensure that all legal requirements (labor and tax obligations) were being met by the firms. Even though the decision of the Colombian security authority was later declared null, the firms entered into an agreement in order to establish a minimum price. 16 Decree 2153 of 1992, art. 2, num Administrive Tribunal of Cundinamarca, Fisrt Section -Subsection B, November 27, 2003, Ref.: , Reporting Judge: Ligia Olaya de Díaz. 18 Resolution 29302, November 2, 2000 (Request for reconsideration denied: Resolution 00670, January 29, 2001.

7 b. What degree of proof is required? Must the effect be actual, likely or potential? As indicated above, he sole execution of the agreement which object or effect constitutes a tying arrangement is per se considered to lessen competition. Consequently, there is no need to proof the harmful effect to competition to demonstrate an illegal tie. 10. Does intent play a role, and if so what role and how is it demonstrated? No, intent does not play a role in determining the imposition of a sanction. As stated before, Colombian antitrust laws establish certain per se prohibitions such as any agreement or action which has as its object or effect the forbidden practices, regardless of the intention of the parties. It is not the intention of the agents what will be evaluated in order to determine whether or not a conduct is illegal. It is not a presumption of bad or good faith or willingness, but the performing of a conduct that is considered to lessen competition and can be sanctioned to that extent. Evaluation of Bundled Discounting 11. In your jurisdiction, is the term bundled discounting used in a manner different from the definition in the introductory paragraphs above? If so, how? N/A 13. Does price-cost comparison play a role in the evaluation of bundled discounting? Yes/No If yes, please describe the comparison used and the role that it plays. Please also indicate if recoupment plays a role and, if so, what role it plays. N/A 14. What sort of effects, if any, must be shown to demonstrate an illegal bundled discount? For example, must market distortion, market foreclosure, harm to consumer welfare or any other effect be shown? a. What degree of proof is required? Must the effects be actual, likely, or potential? In case of bundled discounting, since it is not a practice specifically typified under antitrust statutory provisions and it is not therefore per se considered to lessen competition, as said before (answer to question no. 1), if it is investigated and sanctioned for violating the general prohibition, it would be necessary to demonstrate that the conduct tends to limit or affect free competition in the relevant market or that it tends to maintain or determine unfair prices 19. Given the terms of the 19 Law 155 of 1989, article 1. Decree 2153 of 1992, article 46.

8 provisions, the effects could be potential, since a probability test is not applied in order to decide whether or not to punish the conduct and neither is it necessary for the effect to be actual in order to proceed. The terms used such as tends to limit or tends to determine unfair prices give the agency the discretion to investigate and eventually impose a sanction for a conduct that potentially harms, affects or limits free competition, not necessarily as a likely, or probable effect. 15. Does intent play a role, and if so what role and how is it demonstrated? See answer No. 10. Presumptions and Safe Harbors 16. Are there circumstances under which tying or bundled discounting is presumed illegal? Yes/No If yes, please explain, including whether the presumption is rebuttable and, if so, what must be shown to rebut the presumption. As previously explained, tying is an illegal practice since it is specifically prohibited by the antitrust provisions and the only defense would be the demonstration that the tying never took place or that the conduct (agreement or action) never had as its object the tying practice. On the other hand, regarding bundled discounting, there is not a special circumstance under which it is presumed illegal, unless it becomes the conduct to commit a practice specifically defined in the statutory provisions, i.e., to bundle discount as the means for a predatory price fixing. 17. Are there any circumstances under which there is a safe harbor? Are there any circumstances under which there is a presumption of legality? Please explain the terms of any presumptions or safe harbors. Safe harbors exist and they are treated as exceptions, although they are considered not to lessen competition and to that extent, they constitute a presumption of legality. They consist of the following conducts: a. R&D (Research and Development) Conducts which have as its object to cooperate for the research and development of new technology. b. Standard rules The agreements regarding the fulfillment of standard rules and measures that have not been adopted as mandatory by the relevant authority, when the agreement does not limit the entrance of new competitors to the market. c. Use of common facilities Conducts regarding any procedure, method, system or a form to use common facilities.

9 Justification and Defenses 18. What justifications or defenses, if any, are permitted (e.g., reduced manufacturing or distribution costs, meeting competition, product reputation, technological linkages) for tying or bundled discounting? a. Please specify the types of justifications and defenses that your agency considers in the evaluation of tying arrangements, the role they play in the competitive analysis, and who bears the burden of proof. There is only one justification possible: that the government authorizes the entering into agreements that have an adverse effect on free competition (limit competition), but which have as its object the defense of the stability of the basic sector of production of goods and services of interest to the general economy of the country. N/A Policy b. Please specify the types of justifications and defenses that your agency considers in the evaluation of bundled discounts, the role they play in the competitive analysis, and who bears the burden of proof. 19. What policy considerations does your jurisdiction consider with respect to tying and bundled discounts? You may wish to address the following sorts of issues: Are tying and bundled discounting common? Does your jurisdiction generally consider them to be procompetitive? Does your answer depend on whether the firm is dominant? Does your jurisdiction view tying and bundled discounting by a dominant firm as generally anticompetitive? What competitive concern(s), if any, are generally associated with tying and bundled discounts in your jurisdiction?