Innovation is King. Or is it?

David Cardwell, Paul Lugard, Oct 05, 2012

Nowadays, it is undisputed that innovation is a key driver of consumer welfare. As a result, unwarranted restraints on desirable innovative activity as a consequence of enforcement errors that incorrectly condemn pro-competitive or competitively neutral conduct (Type 1 errors), are potentially most damaging. Obviously, by the same token, private restraints-whether through mergers, cartels, or unilateral conduct-which hamper innovation may bring about significant negative effects.

Against this background, one would expect that, over time, the application of EU competition law under Articles 101 and 102 TFEU, as well as the European Commission’s (“Commission”) enforcement practice under the EU Merger Control Regulation (“EUMR”), would have given rise to a refined analytical framework as to how to adequately integrate dynamic efficiencies (as well as restraints on innovation) into the overall analysis of business transactions.

However, it is striking that, despite the general recognition that innovation is an important source of welfare gains, the precise significance of innovation in EU competition law has remained, at best, opaque. In fact, it appears that, in many instances, the very notion of innovation is given remarkably short shrift and is, as a result, not yet well developed. This is particularly surprising as the Commission has, over the past few years, risen as a pro-active leader in single-firm c