Chillin’ Competition Conference, Brussels, 21 November 2016

"Check against delivery"

Introduction

Ladies and gentlemen

I want to thank Alfonso Lamadrid and Pablo Ibáñez Colomo very much for inviting me to be here.

One of the first interviews I did after starting this job was with the Chillin’ Competition blog. And I'm afraid it may have given me the wrong idea of what to expect as competition commissioner. There were a lot of questions about movies and food, and not so many about competition enforcement.

But I think today will be a rather different experience. Today’s event really is all about competition policy, and especially about the very important question of what neutrality means.

Of course, for a competition enforcer, neutrality is a guiding principle of everything we do. When we take our decisions, we have to follow where the evidence and the law lead us, and treat every business the same. However big or small they are, and wherever they come from.

And I’d like to stick to that principle today, by staying strictly neutral on the subjects you’re discussing.

Instead, I’d like to say a few words about an issue that’s been on our minds a lot recently. And that’s when we should intervene directly to correct excessively high prices, and other ways that businesses exploit their customers.

Protecting competitive market structures

That’s never been something the Commission has done as a matter of course.

Most of the time, we get consumers a fairer deal by keeping markets competitive, not by correcting prices and other outcomes in the market.

A couple of weeks ago, for example, we started investigating the main Czech railway company. We suspect it may have charged prices that were well below its costs, to try to drive two private competitors out of the market.

Such low prices can seem good for consumers, at least at first glance. But we know that if predatory pricing succeeds in pushing rivals out of the market, the result may be higher prices in the long term. A less competitive market ends up harming consumers.

That’s why we listen when companies complain about the behaviour of their competitors.

And it’s why companies shouldn’t be prevented from coming to us – through the terms of a contract, or in any other way – if they think someone has broken the competition rules.

Then we can do our job and defend competition – not competitors.

Exploitative abuses

So a lot of our work protects consumers indirectly, by keeping markets competitive.

But we’re still bound to come across cases where competition hasn’t been enough to provide a real choice. Where dominant businesses are exploiting their customers, by charging excessive prices or imposing unfair terms.

We have to be careful in the way we deal with those situations.

Because sometimes, a company is dominant simply because it’s better than its competitors. And when that’s the case, it’s only fair that it should get the rewards of its efforts.

But we also need to be careful that we don’t end up with competition authorities taking the place of the market. The last thing we should be doing is to set ourselves up as a regulator, deciding on the right price.

But there can still be times when we need to intervene.

Let me mention three examples.

Gazprom

The first example is the Gazprom case.

Many countries in Central and Eastern Europe depend on Gazprom for much of their gas supply. In fact, some buy all their gas from Gazprom.

In our single market, that gas should be able to flow freely through the EU. But it appears that in some countries, Gazprom’s contracts may have stopped its customers reselling gas across borders. And that seems to have allowed Gazprom to charge excessive prices in certain countries.

So we’re concerned that those restrictions on the free flow of gas may be against the competition rules and that they may have paved the way for charging excessive prices. And we’re also concerned that those prices themselves may be against the competition rules.

Pharmaceuticals

The second example is in the pharmaceutical industry.

Often people’s health relies on drugs that are sold by just one company. That can be because the company has a patent. But it can also be that no one else is interested in coming in to the market, because there isn’t enough demand for the drug to make it worth their while.

That isn't a problem in itself, if prices stay at a reasonable level. But there can be times when prices get so high that they just can’t be justified. After all, people rely on these medicines for their health, even their lives.

The best answer is often to adjust regulation, or to give the health systems that buy those medicines better bargaining power. But as the recent action by the British and Italian competition authorities shows, there can be times when competition rules need to do their bit to deal with excessive prices.

Standard-essential patents

Another occasion when it has been necessary to act against exploitation is the case of standard-essential patents.

Patents and standards are very important in the world of mobile devices. One recent study shows that 120 dollars of the cost of each smartphone comes from paying royalties for the patents it contains.

Some of those patents are essential to make a phone that meets a standard, like GSM or 4G. And because they’re essential, their owners could demand royalties that they usually wouldn’t be able to get.

Of course, patentholders usually have to promise to make their technology available on fair terms. That is the condition for having it included in a standard. But that doesn’t help phone makers very much, if the patentholder goes back on that promise by threatening an injunction that could stop them selling their products.

In that situation, some phone makers may need to accept whatever terms they’re presented with. That could mean they end up paying unjustified royalties, and that their customers have to pay more than they should.

Which is why the Commission ordered Motorola not to ask for injunctions against phone makers that were willing to pay a fair price for a licence, and accepted Samsung’s commitments to stop doing the same thing.

Of course, mobile technology doesn’t stand still. As 5G technology develops, together with the Internet of Things, more and more products will be connected to each other. And to make sure that happens in a way that works for consumers, there needs to be fair access to standards, and a reward for genuine innovators.

Limiting excessive pricing without harming innovation

Because there is a reason why products like smartphone chips or pharmaceuticals can be protected by patents.

We depend on innovation to solve our society’s problems. To find new cures for diseases, or new ways to communicate with our loved ones. And if we want businesses to invest in coming up with those new ideas, then of course we need to make sure that innovation brings rewards.

So when we do take action against excessive prices, we need to make sure we’re not taking away the rewards that encourage businesses to innovate. Because we need the innovation.

That's why our decisions on standard-essential patents only apply when the holders of those patents have already agreed to license their technology on fair, reasonable and non-discriminatory terms. And when the phone makers are willing to take a licence on those terms.

Conclusion

So we need to act carefully when we deal with excessive prices. The best defence against exploitation remains the ability to walk away. So we can often protect consumers just by stopping powerful companies from driving their rivals out of the market.

But we still have the option of acting directly against excessive prices.

Because we have a responsibility to the public. And we should be willing to use every means we have to fulfil that responsibility.

Thank you.