CASE-(X/2014)

EUROPEAN COMMISSION
VERSUS
STANDARDS & POORS
Defendant,
Standards & Poors, represented by C. Sahin, principal
legal advisor and P. Jolly, principal legal advisor.

CONTENT

FACTS
COMPLAINT
DOMINANT POSITION
RIGHT OF STANDARD & POORS
FIRST CHARGE: EXCESSIVE PRICING
I UNITED BRANDS TEST
II NON-DISCRIMINATION OF END USERS
III INTANGIBLE ASSETS ( BENEFITS)

SECOND CHARGE: BUNDLING

REJOINDER
REQUEST TO THE COURT
APPENDIX
REFERENCES

FACTS

S&P is the only allocator of US ISINs and the only operator to receive
first-hand information from all US securities users.
US ISIN records are used by almost all players in both the financial
services industry and service providers, such as financial institutions,
banks, brokers, fund managers and insurance companies ISPs, market
places, clearing houses, Central Securities Depositories (CSDs) and
custodians. S&P Capital IQ operates CUSIP Global Services (CGS), the
identifiers developed for the national purposes in the US.
The identifiers are extremely important for clearing and settlement,
database management of securities for various financial institutions and
the interbank communication.
American Bankers Association, owners of CUSIP (Committee on Uniform
Security Identification Procedures) has designated S&P as the competent
National Numbering Agency (NNA) to generate, allocate and distribute
US ISINs to market participants. Thus, S&P enjoys a legal monopoly to
issue and distribute US ISINs.
[http://europa.eu/rapid/press-release_IP-11-1354_en.htm?locale=en]

CHARGES

(1) S&P charges a unfair licensing fee from direct

and indirect users, which is not in line with the costrecovery principle.

(2) S&P bundles two distinct products, namely, ISIN

numbers and ISIN records on the one hand, and
additional commercial data elements on the other.
The charges for the same, regardless of whether the
licensees use only the ISIN records or the additional
data as well. Most users, dont need the additional
commercial data elements but are obliged to buy
them, due to the bundling of the two products.
[Slide 7 of the Prosecutor, the European Commission.]

DOMINANT POSITION
Article 102 TFEU (ex Article 82 TEC):

Any abuse by one or more undertakings of a dominant position within the

internal market or in a substantial part of it shall be prohibited as
incompatible with the internal market in so far as it may affect trade
between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices

or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice

of consumers;

(c) applying dissimilar conditions to equivalent transactions with other

trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other

parties of supplementary obligations which, by their nature or according to
commercial usage, have no connection with the subject of such contracts.
[Article 54 of the EEA has the same content as article 102 TFEU]

DOMINANT POSITION (CONTD1)

The prohibition of Article 102 TFEU is explained in the United
Brands decision as: The dominant position referred to in Article 82
relates to a position of economic strength enjoyed by an
undertaking which enables it to prevent effective competition in
being maintained on the relevant market by giving it the power to
behave to an appreciable extent independently of its competitors,
customers and ultimately of its consumers.
[Court of Justice of the European Communities, Case 27/76, para. 65.]

Justification grounds
Though economist argue that in some situation one single firm
can produce a total output at a lower unit cost and with that
having an efficient output, providing systemic stability within
and to the financial markets clearly prevails as an justification
ground.
[http://www.un.org/esa/esa99dp8.pdf; Sharon E. Foster, Systemic Financial-Service Institutions and Monopoly Power, 60
Cath. U. L. Rev. 357 (2011).]

DOMINANT POSITION (CONTD2)

Facts regarding

Though S&P is not the original creator of the US ISIN (records and
numbers), it possesses the distribution rights (authorized by the
ISO standard 6166).
[To be found at http://www.sdc.com.jo/arabic/images/stories/pdf/iso_6166_2001_.pdf]

This has the consequence that S&P is the (and only) responsible
National Numbering Agency (NNA).
Also, no other company or institution can issue US ISINs or
become the NNA for US securities in the near future.
[Commission decision of 15.11.2011, case COMP/39.592-Standard & Poors, para. 24.]

Statement of S&Ps
Based on the facts, S&P recognizes being in a dominant position
and argues that it is legitimate one referring to presence the
systemic stability. Hence, clearly there is no other company
enjoying a similar position meaning there is no comparable.

THE RIGHT OF STANDARD &

POORS
COPYRIGHT

The owner of a copyright has the exclusive right to

reproduce, distribute, perform, display, license, and
to prepare derivative works based on the
copyrighted work.
[U.S. Copyright Act, 106 and 107.]

The copyright gives a right to distribute the work.

Distribution rights are codified as: Exclusive right of
a copyright owner to distribute copies of the original
work
(book, illustration, photograph, record,
software, etc.) to the public by sale, lease, or rental.
[www.businessdictionary.com]

THE RIGHT OF STANDARD &

POORS (CONTD1)
Derived copyright
Derived work is protected by the original copyright through de Minimis rule:

substantial contribution the derived work is also copyrighted in its own right;
and

original copyright is not diminished.

[Regular Mail, Copyright Registration for Derivative Works. [http://copyright.gov/circs/circ14.pdf; [Software
Center, Originality Requirements under U.S. and E.U. Copyright Law, 27 September 2007, p. 8.]

Freedom Law

Signatories to the WIPO (World Intellectual Property Organization) Paris and

Berne Convention for the Protection of Literary and Artistic Works (an
international agreement governing copyright) recognize the copyright of works
by authors from other signatory countries. Hence, EU being the signatory to the
convention agrees that the derivative works will be eligible for copyright if the
conditions mentioned above are satisfied.
[Software Freedom Law Center, Originality Requirements under U.S. and E.U. Copyright Law, 27 September 2007, p. 14.]

For instance: Author of the original book has the right to say whether a
translation of his work can be distributed or not and if distributed can expect a
royalty from the derived work which is a result of creative process.

THE RIGHT OF STANDARD &

POORS (CONTD2)
Statement of S&Ps

The economic justification for copyrights is

derived from a utilitarian perspective. S&P
argues here that the same goes up for the
derived copyrights, because derived copyrights
contributes substantially to the original copyright.

Therefore, S&P being the only NNA in the USA has

the electronic distribution and licensing right to
first hand distributes ISINs as an original source
of ISINs.

[William Landes and Richard Posner, "An Economic Analysis of Copyright Law," Journal of Legal Studies, 18 (1989): 325. ;
Commission decision of 15.11.2011, case COMP/39.592-Standard & Poors, para. 25.]

FIRST CHARGE: EXCESSIVE

PRICING

Prosecutor argues that there is an infringement of Article 102 sub (a) TFEU
meaning that the purchase or selling prices are excessive and with that unfair.

With respect to the charge of the European Commission as stated as:

(29) The ISO standard 6166 was developed at international level as a public
service to the financial services industry. Under ISO's cost recovery principle,
NNAs must not charge, for the distribution of ISINs, more than necessary
to recover the costs incurred for such distribution and only if they are the
direct supplier of ISINs. Furthermore, according to the same principle, in the
absence of a direct supply, NNAs should not charge for the mere use of ISINs.
In other words, charges to direct users should observe the cost recovery
principle and there should be no charges to indirect users.4.3.1. S&P's
charging policy for indirect users (31) S&P charges a licensing fee from
indirect users, which is not in line with the aforementioned cost-recovery
principle. (32) End users such as banks, brokers, fund managers and other
users that need the standard identifier for their day-to-day business, are
required to pay license fees to S&P for using US ISINs in their own databases.
[Slide 12 of the Prosecutor, the European Commission.]

FIRST CHARGE: EXCESSIVE

PRICING (CONTD1)
The content of excessive prices has been explained by the
Commission in its Working Party on Competition and
Regulation. Here, if the copy-right management society in
question were able to justify that the difference charged in terms
of aggregate royalties on 8.25% of the gross turnover of
discotheques in France was on the basis of reference to objective
and relevant dissimilarities between copyright management in
other member states and copyright management of a state in
question then would be no abuse of the dominant position
(Article 102).
The Court held that the grounds presented by the copyright
management society of France: traditional high level of
protection provided by copyright, peculiar feature of legislation
and the traditional method of collection of royalties could not
account as a justification for the difference.
[Competition committee, Working Party no.2 on Competition and Regulation: Excessive prices, 17 October 2011, para. 28.]

FIRST CHARGE: EXCESSIVE

PRICING (CONTD2)
Assessing the excessive price by

I United brand Test

II Non-discrimination of end-users
III Intangible assets (Benefits)

FIRST CHARGE: EXCESSIVE

PRICING (CONTD3)
I UNITED BRANDS TEST

In the United Brands case the test of excessive

pricing was examined with the outcome whether
the differences between the costs actually incurred
and the price actually charged is excessive, and, if
the answer to this question is in the affirmative,
where a price has been imposed which is either
unfair in itself or when compared to competing
products.

The judgment in this case provides test of excessive

pricing with two limbs.
[Case 27/76 United Brands, paragraph 252.;
http://www.eu2013.lt/uploads/documents/Prezentacijos/Lucas%20Peeperkorn_Excessively%20Hight%20Pricing.pdf]

FIRST CHARGE: EXCESSIVE

PRICING (CONTD4)
I UNITED BRANDS TEST: FIRST LIMB
Price difference must be excessive by comparing
1. The cost analysis:
If the difference between the price charged and the costs incurred is excessive and also if the price is
unfair in itself or when compared to competing products. [United Brands, paragraph 252.]
The Court added that the above test is not conclusive and that other rules may be devised for
determining whether a price is excessive. [United Brands, paragraph 253.]
A suitable comparator can provide a basis for assessing whether a price charged by a dominant
undertaking is excessive. [See, for instance, Case 226/84 British Leyland v Commission [1986] ECR 3263, paragraphs 25-30 and Case 30/87
BodsonPompesFunbres[1988] ECR 2479, paragraph 31.]

Demanding payment for services that have not been requested by the customers could be considered
as unfair. [Case C-179/90 Merci convenzionaliporto di GenovaSpA v Siderurgica Gabriella SpA[1991] ECR 5889, paragraph 19.]
Also, it may be possible to infer interpretative criteria to determine if a price is excessive from sectorspecific rules and regulations. [Case C-66/86 Ahmed Saeed [1989] ECR 809, paragraph 43.]

2. Profit margin between the products (either identical or at least comparable) or profit margin by the
competitors in other markets; and
3. Return on capital between products or sectors.

BUT, high prices charged by the dominant company when compared with other comparable prices can
be explained by the differences in cost conditions. [Case 27/76 United Brands, paragraph 228.]

FIRST CHARGE: EXCESSIVE

PRICING (CONTD5)
I UNITED BRANDS TEST: SECOND LIMB
Unfair price when compared with

Its own price in other markets;

Prices over time;
Costs of next most profitable competitor; and
Price of enterprises in other competitive markets.

A comparison of the prices charged by the dominant company with

prices other companies charge in other markets. This comparison is
only valid if the products are identical or at least comparable.
It would be particularly relevant if the prices of the dominant company
can be compared to prices that other companies charge in competitive
markets. Care must also here be taken to control for differences in, for
instance, product quality and distribution costs.
[Competition committee, Working Party no.2 on Competition and Regulation: Excessive prices, 17 October 2011, para. 50.]

FIRST CHARGE: EXCESSIVE

PRICING (CONTD6)
Statement of S&Ps (United Brand Test)
S&P states here that the products are not
identical and there is no comparable in the
market referring to its monopoly with
respect to U.S. ISINs.
Therefore, it would not be appropriate to
compare the market position of S&P, other
than the European Commission states.

FIRST CHARGE: EXCESSIVE

PRICING (CONTD7)
II NON-DISCRIMINATION OF END USERS
The visual case of the European
Commission as shown as:
[

Commission.]

Slide, 8 of the Prosecutor, the European

FIRST CHARGE: EXCESSIVE

PRICING (CONTD8)
Statement of S&Ps (Non discrimination)
Here, S&P clearly states that there is no abuse of
the dominant position, because end users can
obtain the ISINs directly from S&P instead of the
indirect way, via the ISPs. End users are trying to
abuse the circumstances (the dominant position of
S&P) in their own favor, where they can obtain the
benefits provided by the S&Ps for free (freeriding).

Therefore, S&P argues that the complaint of

abusive behavior clearly fails.

FIRST CHARGE: EXCESSIVE

PRICING (CONTD9)
III INTANGIBLE ASSETS ( BENEFITS)
Method for assessing the benefits provided by the S&P to the authorized recipients via its data feed of the US ISINs.
The types of benefits transferred are:

It has a high reputation for correctly identification (cross border) of a security;

Reduces systemic risk by eliminating information asymmetry and with that creating certainty;

Geographical benefits are provided in more than 240 countries, including more instable countries;

It is more useful and universal from the other types of identifiers such as Ticker symbols provided by Bloomberg.
For example a company will have different ticker symbols in different countries whereas; the ISIN code is the same
throughout the global straight-through processing (GSTP) to provide certainty on securities. Thus, it eliminates the
cross border errors with respect to information asymmetry;

Custodians have an universal format to track holdings of institutional investors across international markets;

Firms have maximum exposure for their business;

Firms can trade with one ISIN number trough more than 30 trading platforms and exchange worldwide, even if the
currencies differs (S&Ps network);

Multiple choices of using ISINs includes debt securities, shares, options, derivatives and futures;

Popularity to the companies and funds that have investors or are looking to raise capital;

Diversification of portfolios are more easy created which leads in most cases to a lower discount rate;

European countries use ISINs as their primary security identifier, whereas U.S. and Canada use it as an
secondary identifier;

The offering is structured correctly; and

Expertise and effort in providing the data in real time, hence reducing both cost and time.

Synergy among these benefits are likely to happen.

[http://www.isin.org/isin/.; http://isin.net/services/isin/]

FIRST CHARGE: EXCESSIVE

PRICING (CONTD10)
Statement of S&Ps (Benefits)

Since, no other ISIN distributor is a comparable and do not provide any of the
mentoined benefits which S&P is providing, it would be unfair that end-users would
benefit of the effort and the position of S&P has in the market.
The European Commission states that S&P abuses its market dominance by refusing
financial institutions access to US ISINs through ISPs when these same financial
institutions do not pay the required license fees. This is a clear example of
financial institutions willing to benefit from the networking position of S&P for free. The
refusal to supply them has a legitimate ground and with that S&P seeks protection of its
rights.
Thus, the ISINs comes along with a lot of benefits which are created by the effort and
expertise that S&P. Without taken these benefits into account in the valuing the (1)
costs and the rights of S&P and (2) the time and costs savings for the users,
undervaluation of S&P is unavoidable.
Therefore, S&P pleads that the value of these benefits must be taken into
consideration and needs to be added up to the amount calculated by the cost
recovery rule. Here, S&P pleads that the judge appoints an independent analyst
providing the value of these benefits.
[We wanted to do a valuation (Reuters and Bloomberg) here, but we did not know what the benefits of the ISINs were due to the
consolidated annual report.]

SECOND CHARGE:
BUNDLING
With respect to the charge of the European
Commission as stated as S&P bundles two distinct
products, namely, ISIN numbers and ISIN records on the
one hand, and additional commercial data elements on
the other. The charges for the same, regardless of
whether the licensees use only the ISIN records or the
additional data as well. Most users, dont need the
additional commercial data elements but are obliged to
buy them, due to the bundling of the two products.
[Slide 7 of the Prosecutor, the European Commission.]

Statement of S&Ps

S&P request the European Commission to provide its

conditions to solve this issue.

REJOINDER
FIRST CHARGE: The European Commission agrees that the benefits are all valid, but does
not agree that these benefits are provided by S&P. Since the appointment of S&P to be the
first distributor S&P and implemented the guidelines of the ISO standard 6166. The
implementation brings technical and practical issues along. S&P ensured that everthing
was implemented correctly. Though, the ISIN identifier provides standardization, it is the
actual use of the ISIN identifier by financial institution ensuring that there is in fact a
standardization. The use of the ISIN identifier of financial instutution is partly due to the
reputation of S&P and not the ISO standard 6166. Financial institutions knows the
trustworthy, network possibility and in general accepted identifier across the
whole world. The financial institutions knows that they have the possibility to obtain
another security identifier FOR FREE. However, they voluntarily choose for the ISINs
S&P is providing and the reason for this is due the intangible assets (benefits) of S&P. The
European Commission ignores the value of the position of S&P obatined by its own effort.
In the name of Law and Justice, S&P request the judge to reconsider these
legitimate (and as the European Commission itself states Valid) grounds and
take them into account in its judgement.
SECOND CHARGE: S&P agrees on these points and commits to incorporate the findings
and advises of the European Commission with respect to the arguments.

REQUEST TO THE COURT

S&P request that the charges upon S&P

by the European Commission are
dismissed with regard to the excessive
price charge;
and

that the judge appoints an independent

analyst providing the value of the
intangible assets (benefits).

APPENDIX

The original Commissions decision (settlement procedure) does not

conclude whether there has been an infringement of Article 102 of
the Treaty on the Functioning of the EU (TFEU) which bans abuses of
dominant positions. The commission according to Article 9 of
Regulation 1/2003 legally binds S&P to the commitments and ends
the commissions investigation. If S&P were to break its
commitments for the 5 years starting from the day of the
implementation then the commission could impose a fine of up to
10% of the companys total turnover and also the commission will
not be required to prove a violation of EU competition rules.
If the commission was not satisfied with the commitments offered
by the S&P then it would have invoked Article 7 of the Antitrust
Regulation prohibition decision which was not invoked in this case.
Thus, commitments offered by the S&P were satisfactory enough to
clear the doubts rose in the Statement of Objections (SO).
[http://europa.eu/rapid/press-release_IP-11-571_en.htm?locale=en;
[http://ec.europa.eu/competition/antitrust/procedures_102_en.html]

REFERENCES

Case 226/84 British Leyland v Commission [1986] ECR 3263.

Case 27/76 United Brands v Commission of the European Communities [1978] ECR 207, judgment of 14 February
1978.
Case 30/87 Bodson Pompes Funbres [1988] ECR 2479.
Case C-179/90 Merci convenzionali porto di Genova SpA v Siderurgica Gabriella SpA [1991] ECR 5889.
Case C-66/86 Ahmed Saeed [1989] ECR 809.
Commission decision of 15.11.2011, case COMP/39.592-Standard & Poors.
Competition committee, Working Partyno.2 on Competition and Regulation: Excessive prices, 17 October 2011.
Court of Justice of the European Communities, Case 27/76.
http://copyright.gov/circs/circ14.pdf
http://ec.europa.eu/competition/antitrust/procedures_102_en.html
http://europa.eu/rapid/press-release_IP-11-571_en.htm?locale=en
http://isin.net/services/isin/.
http://www.businessdictionary.com
http://www.eu2013.lt/uploads/documents/Prezentacijos/Lucas%20Peeperkorn_Excessively%20Hight
%20Pricing.pdf
http://www.isin.org/isin/.
http://www.sdc.com.jo/arabic/images/stories/pdf/iso_6166_2001_.pdf
http://www.un.org/esa/esa99dp8.pdfRegular Mail, Copyright Registration for Derivative Works
Sharon E. Foster, Systemic Financial-Service Institutions and Monopoly Power, 60 Cath. U. L. Rev. 357 (2011).
Slide 12 of the Prosecutor, the European Commission.
Slide 7 of the Prosecutor, the European Commission.
Slide 8 of the Prosecutor, the European Commission.
Software Freedom Law Center, Originality Requirements under U.S. and E.U. Copyright Law, 27 September 2007.
U.S. Copyright Act.
William Landes and Richard Posner, "An Economic Analysis of Copyright Law," Journal of Legal Studies, 18
(1989): 325.