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The European Commission’s 2018: A Year in Review

Related Lawyers: Anna Morfey, Lucy Rigby, Agnieszka Zalewska
Related Practice Areas: Competition Litigation
Authors: By Anna Morfey, Lucy Rigby and Agnes Zalewska*

On 15 July 2019, the European Commission published its Report on Competition Policy for 2018 (the “Report”). Such reports are produced annually for the institutions of the European Union (“EU”) and offer an overview of competition policy (including Commission antitrust and merger control decisions, and policy and legislative initiatives) during the previous year.

The Report notes at the outset that 2018 marked the 60th anniversary of the entry into force of the Treaty of Rome, the foundation for today’s EU. Clearly, the EU and its competition rules have developed considerably since the birth of the European Economic Community, and the EU now faces new challenges in the form of further globalisation and the ever-increasing digitalisation of markets. The Report addresses topics such as e-commerce and the broader digital economy, as well as issues such as the decentralised application of antitrust powers across the Member States and extensive international cooperation – the latter of which would have seemed inconceivable to the signatories of the Treaty of Rome in 1957.

This article focuses on the antitrust aspects of the Report, highlighting the key themes and trends identified by the Commission, and offering some broad commentary.

New Challenges in the Digital Economy

(a) A digital single market

The Report notes that over the past six decades the nature of the European economy has changed significantly. In particular, digitalisation has transformed consumer behaviour and how markets operate. In this respect, there are two main challenges for competition policy: first, the growing importance of algorithms in the delivery of products and services, which ‘learn’ by processing large quantities of data; and second, the increasing market power of digital platforms which can provide both platform-owned products and also a distribution channel for other players’ goods. Such business models can lend themselves to abuses of market power, especially when a platform controls which distributors can access it (and specifically when a platform competes with those distributors, its users).

Digitalisation has given life to new and powerful businesses, some of which have grown to become vital service providers in technological markets. Ensuring that such providers can continue to serve EU citizens and markets whilst protecting against potentially unhealthy concentrations of market power is a key challenge facing both the Commission and indeed regulators worldwide.

The Report notes that, as part of the Multiannual Financial Framework (MFF) for the period 2021-2027, the Commission adopted the proposal for the Single Market Programme.[1] This includes the new Competition Programme, which is designed to help the Commission tackle challenges linked to the use of Big Data, algorithms and further fast-moving technological developments, as well as to strengthen cooperation networks between Member States' authorities and the Commission to support fair competition.

The Report also highlights that Commissioner Vestager appointed a number of special advisors[2] to advise as to how competition policy should evolve in the digital age. The advisors’ report, “Competition Policy for the Digital Era,[3] cites one of the key features of digital markets as the presence of strong ‘economies of scope’ which favour the development of ecosystems and mean that newcomers to a digital market will have difficulty challenging powerful incumbents.[4] As the potential effects of any anti-competitive behaviour in digital markets are often nebulous and far-reaching, the advisors recommend that “even where consumer harm cannot be precisely measured, strategies employed by dominant platforms aimed at reducing the competitive pressure they face should be forbidden in the absence of clearly documented consumer welfare gains.”[5] Similarly, there should be less emphasis on market definition and more emphasis on developing compelling theories of harm and identifying potentially harmful conduct.[6]

(b) Antitrust enforcement in digital markets

Having set out the relevant policy considerations, the Commission refers to several enforcement decisions it has taken in the digital space. The Commission’s three infringement decisions against Google are chief amongst these: (i) in the 2017 Shopping decision, the Commission found that Google had abused its dominance in comparison shopping services and imposed a fine of €2.4 billion; (ii) in 2018, the Commission fined Google €4.34 billion for anticompetitive restrictions it had imposed on mobile device manufacturers and network operators; and (iii) in March 2019, the Commission fined Google €1.49 billion for restrictions that it had placed on the ability of third-party websites to display advertisements from Google's competitors.

However, it is not just Google in the spotlight: on 24 January 2018, the Commission fined Qualcomm €997 million for abusing its market dominance in LTE baseband chipsets.[7] In addition, whilst out of scope of the Report, in July of this year the Commission concluded a separate investigation into Qualcomm’s conduct in the market for 3G baseband chipsets, and fined the company €242 million for abusing its dominant position by selling below cost, with the aim of forcing its competitor Icera out of the market.[8]

The Commission is now considering using its powers to impose interim measures in the context of an investigation into Broadcom’s potentially restrictive exclusivity practices in respect of TV and modem chipset markets – a move that will be closely watched, given the potential for such interim powers to be deployed across a range of antitrust investigations in the tech space.[9]

(c) Developments in e-commerce

According to the Report, the rapidly growing European online sales market is now worth over €500 billion a year. In 2017, the Commission published the results of its e-commerce sector inquiry,[10] which showed that resale-price related restrictions are by far the most widespread restrictions of competition in the e-commerce markets. 2018 saw the Commission issuing a series of decisions fining companies for imposing anticompetitive online resale price restrictions. Specifically, on 24 July 2018, the Commission adopted separate decisions fining Asus, Denon & Marantz, Pioneer and Philips a total of €111 million, for restricting the ability of online retailers to set their own retail prices for consumer electronics products such as kitchen appliances, notebooks, and hi-fi products.[11] The manufacturers monitored and policed the pricing behaviour of the online retailers; if retailers did not follow the manufacturers’ pricing policy, they would face “sanctions” such as a refusal to supply goods in future.

In a decision also concerning a vertical infringement, Guess was fined almost €40 million in December 2018 for entering into anticompetitive distribution agreements restricting cross-border sales. The restrictions allowed Guess to maintain artificially high retail prices, in particular in Central and Eastern European countries. The Commission’s willingness to intervene in vertical as well as horizontal cases is to be welcomed, especially in the world of e-commerce, where many companies use pricing algorithms that automatically adapt their prices to those of competitors; meaning the effects of anti-competitive conduct can be felt across the market and beyond the companies directly involved in the infringement.

Efficient Enforcement and Increasing Cooperation

(a) Investigations and decisions

Insofar as the reporting of anticompetitive conduct is concerned, the Report notes that the Commission recently set up an ‘Anonymous Whistleblower Tool’ which is intended to make it easier for individuals with knowledge of cartel or other antitrust infringements to anonymously inform the Commission via a two-way encrypted messaging system.

Much has been done in recent years to streamline the procedural aspects of competition cases. The Report highlights the additional incentives the Commission has recently put in place to encourage companies to cooperate with investigations outside the scope of the Leniency Notice, which applies only to (horizontal) cartels. In 2018, the Commission concluded several non-cartel antitrust investigations on the basis of cooperation by the companies under investigation, including its decisions against Philips, Pioneer, Asus and Denon & Marantz.

With regard to horizontal conduct, the Report states that the settlement procedure was used in 75% of its decisions adopted in 2018. This has included some more complex infringements, such as in relation to foreign currency exchange. However, whilst the settlement procedure undoubtedly has clear benefits from the Commission’s perspective, the resultant ‘slimmed-down’ decisions which emerge, often containing scant detail of the infringing conduct, can be of limited utility to those injured by the infringing conduct who might wish to seek damages. It is therefore important that the desire for efficiency is adequately balanced against principles of open justice and transparency as settlement procedures continue to be developed.

(b) Sector focus: automotive

The Report singles out the automotive industry as an area in which a significant number of enforcement decisions have been taken in recent years. On 21 February 2018, the EC adopted decisions in relation to three different cases concerning breach of antitrust rules in the maritime transport of cars and car parts supply industry. It fined maritime car carriers €395 million, suppliers of spark plugs €76 million, and suppliers of braking systems €75 million. The Commission had also already fined suppliers of automotive bearings, wire harnesses in cars, flexible foam used (inter alia) in car seats, parking heaters in cars and trucks, alternators and starters, thermal systems, lighting systems, and occupant safety systems in the period from 2013 to 2018.

However, the Commission’s work in this sector appears far from complete: in September of last year an in-depth investigation into the possible collusion of car manufacturers was opened regarding emission cleaning systems for passenger cars.

(c) Member States’ enforcement and international cooperation

As to enforcement at national levels, the Report notes that the ‘ECN+ Directive’ was adopted in December 2018, which is intended to empower Member States’ competition authorities (NCAs) to be more effective enforcers of EU competition rules by ensuring that they have the effective enforcement tools and resources necessary to detect and sanction anti-competitive conduct. In the period 2004 – 2014, 85% of antitrust decisions were taken by the NCAs (the remainder by the Commission) – this is the context in which the Directive provides for NCAs to have the necessary financial and human resources to do their work, as well as to have all the powers needed to gather relevant evidence, tools to impose proportionate and deterrent sanctions for breaches of EU antitrust rules, and coordinated leniency programmes which encourage companies to come forward with evidence of illegal cartels.

Insofar as cooperation beyond the EU is concerned, the 2018 Report emphasizes that the Commission has long been at the forefront of international cooperation in the competition field. The Commission states that it remains committed to further work with competition policy enforcers around the world – indeed, given the increasingly global nature of today’s markets, cooperation amongst regulators on a global level is becoming ever more important.

Looking Ahead

It is already evident that the European Commission’s areas of focus for 2018, as outlined above, will also be those for 2019. For example, the Commission is continuing to focus on the challenges associated with new technology, platforms and multi-sided markets – as demonstrated by the recently announced investigation into Amazon.[12] Equally, the Commission is continuing to pay attention to vertical infringements, as made clear by recent fines against Nike[13] and Sanrio.[14] We look forward to reporting on 2019’s developments in due course.

Footnotes

[1] The proposal is available at: https://ec.europa.eu/commission/sites/beta-political/files/budget-may2018-single-market-regulation_en.pdf.

[2] Professors Heike Schweitzer, Jacques Crémer and Assistant Professor Yves-Alexandre de Montjoye.

[3] The report is available at: http://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf.

[4] Id.at p. 2.

[5] Id, at p.3.

[6] Id.

[7] The Commission’s press release is available at: https://europa.eu/rapid/press-release_IP-18-421_en.htm

[8] The Commission’s press release is available at: https://ec.europa.eu/commission/presscorner/detail/en/ip_19_4350.

[9] The Commission’s press release is available at: https://europa.eu/rapid/press-release_IP-19-3410_en.htm.

[10] The text of the final report is available at: http://ec.europa.eu/competition/antitrust/sector_inquiry_final_report_en.pdf.

[11] Decision in Case AT.40428 – Guess. The full text of the decision is available at: http://ec.europa.eu/competition/antitrust/cases/dec_docs/40428/40428_1205_3.pdf.

[12] The Commission’s press release is available at: https://ec.europa.eu/commission/presscorner/detail/en/ip_19_4291.

[13] The Commission’s press release is available at: https://europa.eu/rapid/press-release_IP-19-1828_en.htm.

[14] The Commission’s press release is available at: https://europa.eu/rapid/press-release_IP-19-3950_en.htm.

*Anna Morfey is a partner, Lucy Rigby is a senior associate and Agnes Zalewska is an associate in the London office.