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New Competition Tool: A Road Towards a More Proactive Approach

Related Lawyers: Rogier Meijer
Related Practice Areas: Commercial Disputes
Authors: By Rogier Meijer*

Introduction

Competition law is one of the cornerstones of the European internal market. Two of the main articles for European Competition Law are 101 TFEU and 102 TFEU, which respectively contain the prohibition on agreements and concerted practices restricting competition (Article 101), and prohibit companies with a dominant market position from abusing that position (Article 102). The enforcement of both prohibitions can be characterized as predominately ex post enforcement on the basis of a case-by-case approach. It is only after a breach has occurred – or an assumption of a breach has arisen – that the European Commission (the “Commission”) can initiate action. Although sector inquiries are possible, they only empower the Commission to request information and do not provide for any remedies outside the scope of individual infringement proceedings. In early June, the Commission initiated a Public Consultation for New Competition Tool designed to address current gaps in EU competition law, that would make it possible for the Commission to intervene in a matter without prior findings of an infringement.

Background

According to the Commission – with reference to its own experience in both antitrust and economic evidence – there are structural competition problems that either cannot be tackled under the existing EU competition rules (e.g. monopolization strategies by companies with market power), or cannot be addressed in the most effective manner (e.g. parallel leveraging strategies by dominant companies into adjacent markets).

The increasing digitalization of society and economy has attracted increasing attention under competition policy. The Commission points out that whilst digitalization has brought many benefits and holds the promise of still significant larger benefits in the future, a few large platforms have become gatekeepers for many digital and non-digital products and services. According to the Commission, there are many different characteristics in the current market that pose threats. In this regard the Commission refers to market characteristics such as extreme economies of scale and scope, strong network effects, zero pricing and data dependency, as well as market dynamics favoring sudden and radical decreases in competition (‘tipping’) and winner-takes-most scenarios.

The initiative for a New Competition Tool is complementary to the Commission's existing initiative for platform specific ex ante regulation, which seeks to provide a fair-trading environment for the platform ecosystems in the EU internal market, and which is part of the digital single market package announced in the shaping of Europe’s future digital communications. To avoid overlap, both regulations will be parallel to each other.

Objective and goal

The identified structural competition problems can broadly be grouped into two scenarios. First, structural risks for competition and second, structural lack of competition. The first scenario refers to a situation where a dominant player arises and takes over a market, or when unilateral strategies by non-dominant companies monopolize a market through anti-competitive means. The second scenario refers to a situation where the market is not functioning and not delivering competitive outcomes due to its structure. In order to prevent these two scenarios from happening The Commission has drafted four new policy options. These options are intended to have the following effects: (I) A fair and level playing field, (II) better competition that leads to lower prices and higher quality, (III) more innovation to European Consumers, and (IV) helping small and medium sized enterprises, which is especially important due to the recent COVID 19 outbreak. The options are intended to help level the playing field for businesses and guarantee quality for consumers.

Four policy options

The four policy options considered by the Commission are as follows:

Option 1: dominance-based competition tool with a horizontal scope

This option would allow the Commission to address competition concerns arising from unilateral conduct by dominant companies without any prior finding of an infringement pursuant to Article 102 TFEU. This tool would be generally applicable across all sectors.

Option 2: dominance-based competition tool with a limited scope

Option 2 is similar to option 1, except that it would be limited in scope to sectors in which the ‘risk’ factors due to the market characteristics mentioned above are most prevalent. These could include certain digital or digitally enabled markets, and/or other sectors identified as being especially prone to concerns due to entrenched competition, high entry barriers, etc.

Option 3: market structure-based competition tool with a horizontal scope

Option 3 also is like option 1 but does not limit itself to scenarios where a dominant player is present and also applies to companies that are not dominant (yet).

Option 4: market structure-based competition tool with a limited scope.

Last, option 4 is like option 3, but then only for certain sectors with the mentioned market characteristics which impose a potential risk to competition.

In short, the main differences among the four policy options are the requirement of the existence of dominance in order to enable the Commission to intervene (option 1 and 2), and the scope of the tool, whether horizontal (option 1 and option 3) or limited (option 2 and option 4). All options would enable the Commission to impose behavioral and structural remedies. However, the Commission would not make any finding of an infringement of the EU competition rules, nor would it impose fines, and thus would not generate rights to launch damage claims.

Received feedback

The initiative for the New Competition Tool started with a so-called Inception Impact Assessment which was open for feedback for one month. This resulted in 73 feedback submissions issued by various individuals, interest groups, and companies. Overall the initiative was relatively positively received by most respondents. However, they did express some concerns. An overall topic of discussion was the broad scope of the new tool. There are no guidelines to which the Commission is limited, or which companies should consider. Apple, for example, sees risks in the wide degree of discretion the initiative creates for the Commission. According to Apple, that could interfere with an open and competitive market, and could undermine legal certainty and predictability. Apple suggests that those two risks can be eliminated by making a clear set of criteria and remedies that the Commission can use when it ‘interferes’ ex ante to an upcoming problem. Moreover, Apple suggests certain guarantees as to when the Commission interferes to have quick access to the courts.

Other respondents argue that defining specific sectors as being “digital” or “non-digital” may create incentives for gamesmanship with sectoral definitions or corporate structuring. For example, Facebook states that the line between digital and non-digital markets will become increasingly blurred. Like Facebook, Google also has reservations regarding the new initiative. It suggests that the Commission should address regulatory concerns while preserving innovation and a positive outcome for companies and consumers alike.

All in all, many questions have been raised by the respondents to the public consultation. But most come down to what they consider the vague and broad policy the Commission suggests. Many call for clear and specific rules and an indication of the measures to which the New Competition Tool will lead.

Way forward

Following the Inception Impact assessment, the Commission will issue an Impact Assessment which is expected to be finalized in the fourth quarter of 2020. In the context of this Impact Assessment, the Commission opened a public consolation which started on 3 June 2020 and is open until 8 September 2020. The Commission will also carry out targeted stakeholder workshops to gather the views of particular stakeholder groups, such as the national competition authorities and consumer organizations.

In combination with the new initiative on platform-specific ex ante regulation, the New Competition Tool, could have a significant impact in the manner EU competition law can be enforced. Although the impact will also depend on the policy option that will ultimately prevail – with a dominance-based tool with a limited scope at the one side of the spectrum ,and a structure-based approach with a horizontal scope on the other end of the spectrum – the initiative would entail a shift from a mostly ex post approach to a more ex ante approach where interventions may become possible without an infringement or the existence of a dominant position.

Footnotes

[1] The author thanks Elina Jonis, a firm Intern, for her valuable assistance in the preparation of this Article.

*Rogier Meijer is a partner in the Amsterdam office. 

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