L’innovation prédatrice en droit de la concurrence, Thibault SCHREPEL, preface by Philippe AGHION

Thibault Schrepel

This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of Concurrences. Publishers, authors and editors are welcome to send books to stephane.rodrigues-domingues@univ-paris1.fr for review in this section.

*This article is an automatic translation of the original article in French, provided here for your convenience. Read the original article.

Here is a book - it is worth mentioning - which is not only extremely pragmatic in its legal approach but also allows itself to be extremely innovative in its global thinking of the problem, legal analysis, demonstration and audacity of the solutions!

What are we talking about: innovation and competition [1]law.

Since J. Schumpeter (Capitalism, Socialism and Democracy, 1942), it has been known that each new innovation is supposed to nibble and eventually destroy the "monopoly" rent held by the incumbent monopolists, who have no interest in risking radical change through new innovations! Such innovations would therefore allow a certain competitive dynamic in a given sector. This is the classical theory on which a significant part of the principles of competition law (in particular the law on concentrations and abuses of dominant position) is based.

On the other hand, what is sometimes harder to grasp (and what one does not always dare to argue before the regulatory authorities) is that too much competition kills hopes of an innovation rent (at the very least innovation profits) and therefore ... kills the desire of companies to innovate. This is what P. Aghion’s team, for example, attempted to demonstrate in its study Competition and Innovation: An Inverted-U Relationship (Quarterly Journal of Economics, vol. 120, no. 2, 2005, pp. 701-728). Too much competition in a market would therefore be counterproductive (if such a shortcut can be afforded) and ultimately detrimental to final consumers. This is sometimes the case in the so-called "FRAND" patent debates.

Here we would be tempted to conclude - deliberately and relatively abruptly - that these are nevertheless "real innovations".

What is the book that is the subject of this review about? Predatory innovation and competition law!

It’s a new kind of innovation. Unlike "real" innovations, these predatory innovations would only be "predatory or discriminatory innovations" towards competitors.

These would be "false innovations" which deliberately lead to (or even "allow") the alteration of one or more technical elements of a product in order to restrict or eliminate competition. They may also include, for example, "post-innovation practices" that take place once a product is placed on the market.

Innovation, in the sense that economists and even engineers may understand it, may therefore sometimes not be technically real [2] but only a form of anti-competitive strategy.

The author takes a number of examples to confirm the intuitions we may have on this subject: Microsoft®’s Windows® operating system. In civil law countries such as France, the symbol ® is not mandatory for a third party quoting a trademark in a text. On this "basic" [3]Windows platform, users often add compatible software, such as photo retouching, CRM or accounting software.

Predatory innovation, therefore, would consist for Microsoft® in upgrading its Windows® to incorporate modifications, all under the guise of innovation for the end user; but if this ’innovative’ modification leads to the end of compatibility or degradation of the software present before the modification, then the latter risks being ’squeezed out’ of the system or even discriminated against ’technically’ and in favour of other competing products (including those of Microsoft). The same may be true if a company changes, for example, the connectivity of its computers.

About the introductory part

In this part of the book, the author reports on the predatory innovation practices that exist but also on the few classifications that have been proposed for them. He then proposes to rationalize all these classifications and groups them together in a clearer way: on the one hand, predatory innovation practices through the modification of a platform and on the other hand, predatory innovation practices through the modification of the technical design of a product.

Again, this is extremely pragmatic for a legal practitioner and never sacrifices the legal rigour one is entitled to expect from such a work.

He went on to explain that a clear legal concept of "predatory innovation" will make it possible to denounce practices which, while appearing to be "real innovations", are in fact "anti-competitive strategies" aimed at eliminating competition without really benefiting end consumers in the medium or long term.

However, the author makes the bitter observation that this concept of predatory innovation, which is nonetheless of striking topicality, is coupled with a deafening silence in European legal doctrine. He adds to this observation a clear-cut position which makes the flavour of the book: the current competition law is (moreover) not adapted to fight effectively against these new practices of predatory innovation.

He will therefore propose innovative (i.e., to say the least) improved legal solutions in the second part of his work ( Part II. On the application of a test dedicated to predatory innovation practices").

But before we get there, he will explain to us very effectively what exactly these predatory innovations are and all the forms they can take ( Part I. On the need to filter out the potential for predatory innovation practices").

According to the author, the stake and objective of such a work is to make everyone (jurisdictions, regulatory authorities, lawyers, jurists, etc.) aware of and understand this notion - this concept of predatory innovation - and the legal consequences associated with it. This also and necessarily requires legal recognition of this new type of anti-competitive practices.

Indeed, its concern is that failing this, the regulatory authorities and the courts in charge of these cases will not only allow too many violations of competition law to the detriment of genuinely innovative companies, but will also excessively punish genuinely innovative companies that did not have anti-competitive foreclosure or discrimination objectives.

The forms of predatory innovation and its analytical keys

The first part of this study is devoted to the analysis of the applicability of competition law to predatory innovation practices. In other words, the aim is to understand the presumed effects of the different practices so that competition law can be applied only when necessary.

It is at this stage of the book that the different predatory innovation strategies are analysed (and in a very clear manner).

Later, the author is careful to specify that predatory innovation is indeed a global concept that applies to any type of market. However, it is in markets linked to new technologies that the practice of predatory innovation is likely to be most used, because this sector has a particularity: it often has "winner-takes-all" [4]markets. Therefore, and in this case, the use of predatory innovations would make it possible to speed up this process to the detriment of competitors and final [5] consumers!

This is why the author takes care to detail these problems in several chapters.

The jurist emerges from the reading of this first part with a new question: "But then, if this is true, should the authorities and judges not apply to these practices an illegality per se; on the grounds that it would be too difficult to assess [6]?".

The author once again takes a stand and argues rather for the use of the rule of reason to these practices... but he goes further in his book and is not satisfied with such an answer. He proposes to structure this rule of reason by integrating several filters (what he calls a structured rule of reason). And this is the object of the second part of his work.

The creation of a test specifically dedicated to predatory innovation practices.

In this regard, he suggests that two tests can be used to effectively evaluate predatory innovation practices: the efficiency test and the test of lack of economic justification. After explaining them, the author emphasizes how the latter is particularly well suited to this type of practice.

The so-called "no economic justification" (or "economic reason test") is based on the simple idea that a practice should be considered anti-competitive if it makes economic sense only because of its tendency to eliminate or restrict competition. Four steps for such an analysis are outlined in the book.

If we had a purely theoretical work in our hands, the author could have stopped at this point, but this work is fundamentally oriented towards the concrete implementation of the theories proposed as well as the "on-piece" demonstration, we could say, of these theories.

It seeks to show us (through a study of all the most significant cases in this area) that the proposed test is indeed the most effective and efficient. Faced with the magnitude of such a demonstration, the author does not take a step back and analyses all these cases one after the other.

Here we are immersed (with delight) in the famous IBM (1979), Berkey Photo v Eastman Kodak (1979), Microsoft (2001) [7], Microsoft (2004) [8], C.R. Bard v M3 Systems (1998), Allied Orthopedic Appliances v Tyco Health Care (2010), HDC Medical v Minntech Corporation (2007), Intel (2010) before the FTC as well as iPod and iTunes (2014).

However, the editor of the book believes that his analysis cannot be complete without a study of the sanctions that courts and authorities should therefore impose on companies that have implemented predatory innovation practices.

It therefore proposes (as a first step) the creation of a new penalty reduction mechanism. According to him, the taking into account of investment in R&D should be a mitigating factor in the calculation of the penalty for predatory innovation and, more broadly, in the calculation of all penalties for innovative companies.

Of course, it acknowledges (in a second step) that these predatory innovation practices must nevertheless be punished. He then considers that two points are particularly worthy of debate, and this is what he does in his book: on the one hand, the need to integrate innovation when calculating the penalty and, on the other hand, the appropriateness of decisions imposing access to the infrastructure of a dominant undertaking in the context of these markets.

The author concludes with proposals for reforms and amendments to current competition law. He also vigorously details his proposals regarding predatory innovation in the strict sense, but also (and above all, shall we say) regarding markets linked to new technologies. Subtlety that he has managed to maintain throughout the demonstration that he wanted to share with us by publishing this book.

Footnotes

[2Immediately one is tempted to think about the details of the Phoebus cartel of 1924, which aimed at such technical modifications.

[3A system which, we remind you, is legally a platform just like the Apple® iOS mobile operating system. On these points, see also e.g. Electronic platforms and competition law from the seminar "Economy and competition law" with Brice Allibert (DG COMP) and Etienne Pfister (Competition Authority) organised by the Revue Concurrences as of September 11, 2018.

[4See e.g. Innovation economics for antitrust lawyers - 3rd annual conference organised by Concurrences Review in partnership with King’s College London.

[5This particularly echoes the exchanges that took place at the OECD conference and workshops on this subject in June 2019: Conference on Competition and the Digital Economy.

[6Even so, it should be remembered that normally the purpose of legality per se is not to "facilitate" the authorities’ procedures.

[7Its North American "flap".

[8Its European "strand".

PDF Version

Author

Quotation

Arnaud Fournier, L’innovation prédatrice en droit de la concurrence, Thibault SCHREPEL, preface by Philippe AGHION, September 2019, Concurrences N° 3-2019, Art. N° 91262, pp. 276-278

Publisher Bruylant

Date 16 August 2018

Number of pages 680

Visites 270

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