Third Roundtable of the Economic Impact Group

What is the optimal remedy for contractual breach in European Contract Law? Do we need a duty of good faith in European Contract Law and what is the optimal design for such rule? What are the limits of non-contractual liability? These were the main topics discussed at
the Third Roundtable of the Economic Impact Group (EIG) of the CoPECL network. After Brussels and Barcelona, this third meeting of the group took place on 23 June in Venice. There, Filomena Chirico, Gerrit de Geest and Pierre Larouche presented their thoughts on the abovementioned topics and collected reactions and input from the law and economics experts composing the EIG. The work of the EIG, coordinated by TILEC, as well as the CoPECL project itself, are currently being finalised and in the coming weeks recommendations based on EIG's economic analysis will be supplied to the groups drafting the Common Frame of Reference for European Contract Law. The final results will form the basis for the revision of the existing EC legislation by the EU institutions and will be proposed as a model law for EC and national law-makers.

Elves or Trolls?

Firm structure and the degree of vertical integration lie at the core of a key intellectual property concern currently under debate: the existence of "patent trolls" (those patent holders that prey upon manufacturers and other downstream firms by charging "supracompetitive" rates for their patents). In a recent TILEC discussion paper Damien Geradin (TILEC) and co-authors Anne Layne-Farrar and Jorge Padilla (both with LECG) argue that while court opinions and competition agency decisions have focused on "non-practicing" patent holders as the source of anticompetitive exclusion and hold-up problems, this view of upstream specialists is far too
narrow. In fact, patents in the hands of non-practicing entities can increase competition, lower downstream prices, and enhance consumer choice. The authors explain why and argue for more business-model-neutral policy when it comes to patent licensing. Clearly, patents are a complex subject that cannot be portrayed as either all good or all bad; tradeoffs will always be involved. Without a better understanding of the many complicated effects of patents in high technology markets, policy-makers run the very real risk of misguided decisions.

Should we encourage damage actions by victims of antitrust violations?

On 20 June 2008, TILEC organized a workshop on the issue of private enforcement of competition law. Indeed, the European Commission has now issued its long-awaited white paper on
antitrust damages and the wisdom, as well as the modalities, of the suggested facilitation of victims' access to compensation is much debated. Eddy de Smijter (European Commission) explained the policy choices advocated by the Commission. Jeroen Kortmann (University of Amsterdam) provided the audience with a tort-law perspective on the subject and showed how problematic some aspects of the proposal could be, given the myriads of legal solutions in force in the various Members-States. Turning to the more specific issue of the assessment of damages, Frank Verboven (KU Leuven) insisted on the so-called output effect (the welfare loss associated to those units which should have been sold absent the infringement), which seems problematic to estimate. Jan Tuinstra (University of Amsterdam) stressed the complications introduced by the presence of several layers of intermediate purchasers or suppliers. Wieland Müller (TILEC) suggested a general framework for the determination and practical estimation of the total harm to downstream firms and final consumers caused by e.g. price fixing upstream.

Do institutional shareholders take their investor role seriously?

As institutional investors are the largest shareholders in most listed UK firms, one expects them to monitor the firms they invest in. However, there is mounting evidence suggesting that they do not perform any monitoring. In a recent TILEC discussion paper, Luc Renneboog (TILEC) and co-authors Marc Goergen (University of Sheffield) and Chendi Zhang (University of Warwick) provide a new test on whether UK institutional investors engage in monitoring. The test consists of an event study on directors' trades. If institutional shareholders act as monitors, their monitoring activities will convey new information about a firm's future value to other
outside shareholders and reduce the informational asymmetry between the managers and the market. As a result, directors' trades will convey less information to the market when institutional investors own large share blocks, and the stock price reaction will be weaker. However, the results show that the presence of institutional shareholders in the ownership structure does not have a significant impact on the stock price reaction to directors' trades. Thus, the shareholder monitoring aspect of the UK corporate governance model seems to fail, although some recent developments have put more pressure on institutional shareholders to take a more active stance.

Catherine Schaumans, new TILEC member

Following the recent TILEC-Dutch Healthcare Authority (NZa) agreement to foster research on competition and regulation in health care markets, TILEC will soon welcome a new member, in the person of Catherine Schaumans, newly-recruited assistant professor in economics. Catherine recently defended her dissertation at KU Leuven under the supervision of Frank Verboven and Hans Degryse. Her research has focused on the impact of entry regulation on the market for pharmacists, on supply-induced demand for health care and on the strategic interaction between general practitioners and specialists associated to the introduction of mandatory referral (or 'gatekeeping') schemes. As of September, Catherine will strenghten the research group on healthcare, which was already reinforced by the addition of Marcel Canoy (economics) and Wolf Sauter (law) earlier in the Spring. A twin position to Catherine's has been created at the Faculty of Law and the vacancy has already been advertised. All those researchers will be involved in the project sponsored by NZa, in which it will invest € 800.000 over the period 2008-2011, while Tilburg University will contribute research time and facilities for over € 1 million. TILEC member Jan Boone is the overall director of the new research program.