Tuesday 30 April 2013

Competition protection in the interest of the private sector or of the state?

Telekom – The Impregnable State Fortress

Last month, the Ljubljana District Court issued its ruling, completely dismissing T-2’s damages claims against Telekom Slovenije in the amount of 130 million euros. T-2 filed its lawsuit already six years ago against Telekom Slovenije over alleged anti-competitive actions, which, it claimed, prevented it from successfully entering the internet services market. The main hearing did not get underway until January of this year, but it finished in just an hour and a half, so the ruling was no surprise. At the hearing, the judge did not even ask the question of whether or not the claims of Telekom’s abuse of dominant market position were founded, but first verified that T-2 had submitted enough evidence to calculate the damages. Since the judge was of the opinion that a solid cubic meter of documents was insufficient, she completed the proceedings without even giving T-2 an opportunity to submit additional evidence for its claims. With such a conclusion to the case in which the parties submitted to the court a total of three thousand pages of written materials over the course of six years and over five thousand pieces of evidence, one has to ask the question, what poses the greatest obstacle to competition: Telekom, the Civil Procedures Act, or Slovenian courts themselves? Or is this a concerted action?

Is Telekom not guilty?

Telekom’s management continues to insist that it has always adhered to Slovenian legislation, and that it has not violated any competition rules. Yet the facts suggest otherwise. Telekom’s competitors have been fighting against its anti-competitive activities and abuse of dominant market position since 1996. In these fifteen years, at least a dozen proceedings have been initiated before the Slovenian Competition Protection Agency (previously the Competition Protection Office). The Agency has never been particularly keen on investigating Telekom’s alleged abuses, as the proceedings for establishing the existence of infringements have always been dragged out longer than stipulated by law, but it has nonetheless issued a few decisions.

In three cases, the Supreme Court even confirmed the Agency’s findings on the existence of Telekom’s abuses of dominant market position and anti-competitive activities. A few of the Agency’s decisions are still pending the court’s final ruling; however, the proceedings are taking far too long. At the moment, the Agency is still dealing with a few ongoing proceedings against Telekom, concerning at least a dozen different alleged abuses. This includes the proceeding that was launched on a proposal of T-2 three years ago and should otherwise have been concluded last year; however, the Agency has yet to issue a statement of objections.

Merely considering these cases makes it difficult to believe Telekom’s claims of adherence to competition legislation. Regardless of already proven abuses, Telekom’s management insistently denies that Telekom’s activities have caused damage to competitors or limited consumers’ choices in any way. At any rate, apologising to the affected parties is beyond the ken of Slovenian managers, despite all the ethical codes adopted, as these are apparently null and void for the powerful, influential, and ruthless.

Abuse in the name of national interest

Telekom has support from established Slovenian experts and institutions that provide expert opinions that defend its anti-competitive activities. They have provided expert opinions in several proceedings, stating that Telekom’s activities did not cause any damage to its competitors, but that they were rather beneficial for competitors, as they protected them from entering and operating in markets where they would incur losses. There are also concerns among Slovenian legal experts, claiming that Slovenia is not yet ready for private enforcement of competition protection, as it might lead to competitors abusing damages claims, with the exclusive objective of grabbing a market share from companies with a dominant market position. From a professional standpoint, such opinions are absurd, yet they serve the notorious “national interest,” the catchphrase whose amorphous meaning fluidly shifts to best suit the current needs of holders of such interests.

Certainly, it is not in the interest of Telekom’s majority owner, the state, which also makes decisions about its property through the judicial system, to let successful lawsuits devalue the “family heirloom,” which has been filling the state’s coffers with dividends, as well as financing various private interest groups, and which appears to be set to remain in state ownership for the foreseeable future. Yet as long as Telekom remains in state ownership, one cannot completely exclude from the realm of reasonable doubt that the Agency and the courts will remain somewhat biased and “self-censoring” when it comes to ascertaining Telekom’s abuses of dominant position or quantifying damages caused.

Abuses – net profit

The established anti-competitive activities also benefit Telekom financially. One should not overlook its privileged position, which is evident from the fact that, in spite of established cases of abuse in final judgments no longer subject to appeal, it has never paid any fine as established by law. In the past fifteen years, not a single competitor has lodged a successful claim for damages (not counting two or three out-of-court settlements, which took place under somewhat questionable circumstances). This means that Telekom’s illegally gained revenue can be measured in tens of millions of euros.

It seems almost impossible that any competitor could succeed, although the total amount of claims in open cases is at least 400 million euros, even after T-2’s “rejected” lawsuit. ABM has trodden the longest path towards compensation so far, when after a ten-year court case the court of first appeal awarded the company a symbolic compensation, based on an expert opinion. Yet this case has not been conclusively resolved, even though the Constitutional Court has affirmed that Telekom’s actions were anti-competitive.

It could happen that ABM ends up in bankruptcy before it receives damages from the claims, as it already had to go into a compulsory settlement. In any case, it would not be the first company to end up this way. At that point, all the grandiloquent talk about its constitutional right to a trial within a reasonable time will no longer cut the mustard. This would allow Telekom to accomplish its ultimate goal of distorting competition, as it would force an “annoying” competitor out of the market, as well as retain the substantial gains illegally acquired from its abuse.

What does the European Commission say?

What is the crux of the problem? Is it true that Telekom’s anti-competitive actions really do not cause any damage, are the plaintiffs’ lawyers incapable of filing proper lawsuits, or does the problem lie in the Slovenian legal system, whose courts “demand” too much from the injured parties, and are lenient towards the generally larger and more influential companies breaking the law? A number of answers come to mind, however the speedy conclusion of the T-2 vs. Telekom case says a lot about the paucity of knowledge, dedication, and interest of Slovenian judges on the one side, and the vagueness of the legislation on the other.

Establishing damages in anti-competition cases has its own idiosyncrasies, and the European Commission has been well aware of them for some time now. Back in 2005, it launched an initiative on actions for damages to improve private enforcement of EU competition law and facilitate damages actions for infringements of competition rules. The European Commission has imposed fines of several hundred million euros on companies breaching EU competition law, and it finds that anti-competitive activities harm competition to the tune of several billion euros every year. Yet the affected companies only rarely manage to enforce their basic rights to compensation for damages, as established by EU law.

In 2008 the Commission published a White Paper in which it ascertains that antitrust damages cases display a number of particular characteristics that are often insufficiently addressed by traditional rules on civil liability and procedure, which gives rise to a great deal of legal uncertainty. In its draft guidance paper from 2011, the Commission in its Draft Guidance Paper further explains that legal systems shall take into account the inherent difficulties of quantifying such damages and shall ensure that damages actions by foiled market entrants are not made practically impossible or excessively difficult. Have Slovenian judges ever heard of the European Commission’s Actions for Damages project, either by their own initiative or within the scope of their training? Has the Slovenian legal system reflected appropriately on the Commission’s project? Are legislators aware of these issues at all, and are they considering whether any changes to the legislation are required?

Breaking the law is the easiest way to go

In such circumstances, Telecom’s easiest choice is to continue distorting competition, or to victimise and deplete competitors, for example by issuing invoices for disputable services, or “strategically” filing unfounded lawsuits against competitors (e.g., Centrex), all utterly devoid of any legal interest. Furthermore, breaching the electronic communications legislation and not adhering to decisions issued by the Post and Electronic Communications Agency (e.g., numbering) does not require much effort. Telekom needs merely to bide its time and see if a competitor survives or perhaps goes under, and then to pay millions of euros to a renowned law firm to defend itself, thus dragging out the case long enough for the competitor to go bankrupt.

It has to be noted that some competitors did not even manage to lodge damages claims against Telekom, as they went out of business before that (e.g.,, where the proceedings of ascertaining the abuse lasted for fifteen years!), while others lodged them too late (e.g., Sinfonika, because the provisions on extending the period of limitations for competition disputes were not yet adopted), while others still, much like T-2 recently, allegedly did not submit enough evidence attesting to the damages (e.g., Telego, where the court first confirmed the abuse of dominant position in its preliminary ruling). Some reached out-of-court settlements with Telekom (e.g., Amis). Foreign competitors (e.g., Western Wireless International) decided to pull out of the market when they realised what the conditions were, and decided to invest outside Telekom’s “playground.”

In an already uneven battle against the former monopoly, Telekom’s competitors have another difficult hurdle to cope with, which can almost be classified as “mission impossible”; they have to gather such evidence of damages caused that will satisfy the courts. What kind of evidence is required, however, remains a mystery, shrouded in the ambiguity of legislation and the absence of any case-law. Courts generally do not focus on providing guidance to parties to understand which facts can be legally relevant in the proceedings and how to supplement statements of claim and evidence accordingly, but instead choose, in the absence of substantive reasons, to “surprise” them by rejecting their claims.

Is there any alternative explanation possible for a state of affairs as explained above? Do Slovenian judges really dare not put the big, influential, and powerful on trial, as Boštjan M. Zupančič, a Slovenian judge at the European Court of Human Rights, and some other respectable lawyers have claimed before? Of course it is much easier to explain a court ruling in one sentence, stating that not enough evidence for calculating the damages was submitted, than to delve into the issues concerning the market and require Telekom’s competitor to provide additional evidence, as the Civil Procedures Act expressly permits.

Experts and damages calculation

As courts lack economic expertise, the damages or loss of profit in competition cases are assessed by expert witnesses, usually economists. However, there are several ways of assessing damages, as economics, after all, is not an exact science, and is constantly developing and evolving. The same holds for law – although some judges might not admit it – just like they might have never heard that the Slovenian competition law should give precedence to EU law, respect EU case-law and follow the principles of EU tort law and its specifics in competition cases.

The evidence required for the assessment of damages depends on the methodology that will be used by the chosen expert witness when establishing “the past that did not take place,” and that is why neither the parties nor the courts can know beforehand what kind of evidence the expert witness will even require. Moreover, much of the evidence lies in the hands of the offending party, and as the damaged party has no access to it, only the courts can try to obtain it during the proceedings.

Should the victims of anti-competitive actions submit to courts all the evidence they have, just in case, to ward off possible capricious decisions of some judges? That is what Amis did in its lawsuit against Telekom Slovenije a few years ago, when it submitted a van full of evidence to the court and let the court and expert witness sort their way through it as best as they could. This would certainly not have contributed to the efficiency of the case, but fortunately for the judge and expert witness, the parties reached a settlement before the court proceedings began.

»Do Slovenian judges really dare not put the big, influential, and powerful on trial? Of course, it is much easier to explain a court ruling in one sentence, stating that not enough evidence for calculating the damages was submitted, than to delve into the issues concerning the market and require Telekom’s competitor to provide additional evidence, as the Civil Procedures Act expressly permits.«

In the Tušmobil vs. Telekom Slovenije case, the judge stated already at the beginning of the proceedings that only the expert witness, yet to be appointed by the court, would have a say as to what evidence would be required in order to estimate the damages, and only then would the court demand such evidence from both parties. Apparently this judge was well informed about the above-mentioned European Commission project, as she even referred to the Commission’s study on Quantifying Antitrust Damages. She also notified the parties that the court may use its discretionary power to determine the amount of damages, should anti-competitive actions be proven beyond any reasonable doubt.

As mentioned above, the law does allow but does not require the courts to give notice to the plaintiffs before the main hearing to supplement their claims and provide additional evidence. This is exactly what the judge did in a recent hearing in the Akton vs. Telekom Slovenije case, when she advised the plaintiff that it had not submitted enough evidence to calculate the damages, calling upon it to appropriately supplement the evidence.

Why, then, did the judge in the T-2 vs. Telekom Slovenije case not do the same, if acquiring evidence is especially critical in competition-related disputes? Did the judge not want to know the substance of the case, or know how to define the facts that might have been missing in the plaintiff’s claims and evidence? Nothing is easier than to reject a case due to alleged insufficient evidence for calculating the damages, without ever asking oneself whether the plaintiff’s claims are well-founded. Nevertheless, can the fate of a hundred million euro lawsuit depend on the mere readiness, expertise, level of authority, or momentary mood of each individual judge?

Why competition protection?

Slovenia has no case-law for the private enforcement of competition protection, which is an alarming piece of information given indisputably confirmed breaches of competition law, thus also pointing to the effort of courts which have “successfully” avoided the resolution of such disputes. Before his “temporary” resignation, Minister of Justice Senko Pličanič called into question the professional qualifications of judges, as some of them prefer not to tackle more difficult cases, letting other judges or judges at courts of higher instance handle them. For instance, three judges were changed in the T-2 case, as well as in the ABM case.

Competitors who have suffered damages can thus only rely on the Slovenian legislation and the case-law of the EU Court. The European Commission recommendations mentioned above are not binding for the Slovenian courts, although the Constitutional Court has ruled, and as the EU Court has also stipulated, that national regulation should be interpreted in the light of EU law (lat. interpretatio europea), and that this interpretation should overrule other interpretations of legal norms. Future damages or loss of profit can never be calculated to the penny and estimated with the certainty towards which the Slovenian courts apparently strive. Nonetheless, the courts could readily ascertain damages based on the current legislation. It would just take a bit more effort. For the beginning, they should just pose themselves a simple question as to how much undue profit has Telekom made from its abuses.

In civil proceedings, and especially in competition cases, evidence standards cannot be set as high as in criminal proceedings. If even the most reputable and experienced law firms, with armies of top-notch lawyers, cannot over the course of several years succeed in gathering enough evidence to bring a trial to court, and if the courts do not bother with providing guidance to all parties, then all the victims of anti-competitive actions can forget about the justice promoted by the European Commission and should not even bother filing claims for compensation.

This begs the question as to whether we even need competition legislation, or would it not be more appropriate, in the spirit of widespread austerity spending cuts, to just abolish the Competition Protection Agency altogether, and maybe even judicial protection in the field of competition law? Exactly twenty years since the first Competition Protection Act was adopted, and the Competition Protection Agency established on its basis, the electronic communications market has experienced no hint of its influence. We also have yet to see any effect from the work of the courts through stern and just rulings that would give competition law the effet utile it needs to serve as an actual deterrent to those who breach competition law, and to award damages to ensure both consumers’ welfare and a functioning market!

This article is written based on my years of monitoring competition protection and related disputes in the field of electronic communications. I hereby state that I do not own any shares of T-2, nor am I involved in any business relationship with the company or its legal representatives.

The article is translated from the original, first published in Delo, Sobotna priloga, April 13, 2013, pp. 12-13.