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Unity is Strength: Regulating the Digital Economy

Related Lawyers: Lesley Hannah, Natalie Jukes
Related Practice Areas: Competition Disputes
Authors: By Lesley Hannah and Natalie Jukes*

In the age of digital revolution, antitrust authorities far and wide are calling for new powers to regulate the digital economy, especially online platforms with significant market power. The US Department of Justice’s complaint against Google marks a paradigm shift in approach towards ‘big tech’; the question is no longer whether to intervene but how.

Antitrust authorities globally share the concern that existing rules are insufficient to tackle the complex legal issues stemming from the development of digital markets. This includes new commercial practices present in digital markets, the commoditisation of consumers’ attention and the protection of personal data.

There appears to be a strong consensus in favour of expanding antitrust authorities’ regulatory “toolboxes” in relation to digital markets. The debate has been accelerated by the COVID-19 pandemic, which has resulted in both consumers and businesses becoming increasingly reliant on large online platforms, bringing questions about market structure and increased regulation to the fore.

Recent Developments in Europe

At EU level, the Platform to Business Regulation[1] which came into force in May 2020 (“P2B Regulation”), aims to establish a fairer and more transparent commercial relationship between business users and online platforms. In recognition of the unequal bargaining position of parties contracting with global online platforms with significant market power, the P2B Regulation requires online intermediation services (“OIS”) (such as Amazon) and online search engines (“OSE”) (such as Google Search) to give proper notice of changes to their contractual terms and conditions, or termination of the contract. In addition, OIS and OIE must explain ranking parameters and any differentiated treatment (favouring) that they give to their own goods or services. While the P2B may, ultimately, be a step in the right direction in ensuring transparency, the current ex ante regulatory framework falls short of addressing the potentially unfair and harmful commercial practices of certain online platforms.

In addition, the European Commission (“Commission”) has put forward various proposals to modernise the regulatory framework in the digital sector at EU level, including a new Digital Services Act. The Digital Services Act will confer increased powers on national competition authorities to examine structural problems in markets and take action to remedy those issues. As part of that campaign, the Commission has been consulting on the introduction of a New Competition Tool (“NCT”), seeking to understand whether there is a need for new investigative and intervention powers; and if so, what those measures should be.[2] The expert report of Professor Richard Whish (published together with the impact assessment)[3] proposes that the additional powers of the Commission to investigate and remedy structural competition problems should be similar to the Market Study and Market Investigation Reference powers held by the Competition and Markets Authority (“CMA”), the UK’s antitrust regulator. Such powers would allow the Commission to impose behavioural and/or structural remedies to overcome any structural harms to competition in the relevant market without having first to formally establish that there was a breach of European competition law under Articles 101 or 102 TFEU. As a ‘safety’ measure, the Commission would first have to conduct a rigorous market investigation and conclude that there was a competition issue before imposing remedies on an undertaking. The aim being for the NCT to complement, not to replace, the existing provisions under 101 and 102 TFEU. While it is proposed that under the NCT, the Commission would have the power to impose both behavioural and structural remedies, which could have very significant implications for affected undertakings (not least if separation or divestment remedies are imposed), the Commission would not have additional fining powers. It is currently proposed that the NCT would not be reserved exclusively to structural problems, it could also be used where there are behavioural issues affecting competition. Notwithstanding this, the report of Professor Heike Schweitzer[4] suggests that the NCT should be reserved to settings where the evidence available at the time of the opening of the proceedings suggests that the competition problem is rooted in the features of the market, instead of resulting primarily from market conduct.

The aim of the NCT is to provide a faster, more flexible tool to address competition issues than the ex post remedies following a finding of an infringement under Articles 101 or 102 TFEU. For this reason, it is proposed that there need not be a formal market definition for there to be a preliminary finding of a competition issue. The Special Advisers’ Report[5] on Competition policy for the digital era commissioned by Margrethe Vestager[6] published in April 2019, concluded that “established methods of market definition often fail to produce unambiguous results” and this “problem can be particularly acute where the potential competition law intervention takes place not with a view to sanctioning past infringements but to preserve competition in the future. In fast changing, innovative markets, consumer perceptions of viable substitutes can quickly change.”[7] This can be a particular issue in digital markets due to their “dynamic market environment” which can lead “fluid, quickly-changing relationships of substitutability and possibly partial overlaps of varying significance between different services, sometimes combined with practices of multihoming and/or changing perceptions of consumer needs.”[8]

As the NCT is intended to be sufficiently flexible to address a wide spectrum of competition issues, Professor Schweitzer recommends[9] that the range of remedies available to the Commission should include behavioural and access remedies in addition to structural remedies. Where structural problems are serious, the Commission will have serious powers, including divestiture.

Regulatory Taskforces

Separately, some national antitrust authorities have set up specialist taskforces to consider and take forward proposals to address some of the antitrust issues posed by ‘Big Tech’, for example the Task Force for Internet Platforms in Germany and the Digital Markets Taskforce in the UK.

In the UK, the Digital Markets Taskforce is consulting on the introduction of a Code of Conduct for firms with “strategic market status” (the “Code”). The intention is that the Code will apply to a small handful of firms principally in digital markets with overwhelming market power such as Google and Facebook plus a few others. The Code will adopt a principles-based approach and is intended to be a flexible regulatory tool enabling faster intervention and negotiated pragmatic solutions to market issues. The Digital Markets Taskforce will set up a specialist Digital Markets Unit (“DMU”) to monitor and enforce compliance with the Code. It is not yet clear whether the DMU will be a stand-alone organisation or whether it will be part of the CMA. It is currently proposed that the Code will be enforceable both publicly and privately, with the DMU having the power to fine egregious conduct and to impose structural remedies, while those affected by the conduct will be able to seek damages before the Courts.

Can Europe Live Together in ‘Digital Harmony’?

That depends.

If some jurisdictions decide to “go it alone”, there is a danger that market participants who operate on a global basis could face complex and contradictory obligations in different jurisdictions.

In a joint memorandum on digital platforms and the possible changes to competition law at the European level, the Nordic competition authorities[10] have recognised the importance of a collaborative approach: they encourage “a harmonised approach to any regulatory efforts to avoid fragmentation and safeguard the effective functioning of digital markets”.[11]

Similar calls for harmonisation have been made by the Bundeskartellamt, the German antitrust regulator (“BkA”). Andreas Mundt, the President of the BkA, recently suggested that harmonisation of Europe’s various digital rules “will be a great big challenge”, and offered an interesting viewpoint that the European competition authorities have been successful “maybe not at harmonising [national] law, but [building] up a legal framework that is quite coherent”.[12]

Columbia law professor Anu Bradford[13] suggests that, in its regulation of the privacy and data protection sphere, the EU is effectively setting global standards through the General Data Protection Regulation[14] because global companies have limited technological capacity or appetite for adopting nationally differentiated approaches. Rather than a ‘race to the bottom’, global corporates are adopting standardised global policies which comply with the most stringent regulation, thereby, de facto, extending those protections to their global user base. National and supra-national antitrust regulation has the capacity not just to set global antitrust standards but also to determine how antitrust issues are remedied. Active market interventions or remedies such as separation and divestment or the unwinding of a merger by one regulator would have a global impact on a global corporate. It is difficult to envisage such measures being imposed without multi-national cooperation and coordination.

Notwithstanding this, there is clear evidence of some antitrust authorities “going it alone” in so far as online platforms are concerned. For example, in December 2019 the French Competition Authority fined Google €1.4bn for abuse of its dominant position in the market for online search advertising by imposing non-objective, non-transparent and discriminatory operating rules upon advertisers, causing damage both to advertisers and search engine users. The BkA adopted a decision against Facebook in February 2019, prohibiting Facebook from combining data from all of its platforms: Facebook, WhatsApp, Instagram and third party websites without user voluntary consent. The BkA relied on its competition powers finding that in light of its ‘special responsibilities’ as a dominant company, the extent to which Facebook collects, merges and uses data constitutes an abuse of dominance in breach of competition law.

What is Next?

Following its public consultation on the Digital Services Act package, the Commission’s proposal for a regulation is planned for the fourth quarter of 2020. The detail of the package will be important, not least on fundamental questions such as how the Digital Services Act package interfaces with the current antitrust framework under Articles 101 and 102 TFEU.

In the UK, the CMA (supported by Ofcom and the ICO) is working towards the establishment of a DMU to design and supervise the enforcement of the Code. At the same time, the government is considering whether wider reforms to the antitrust regime are necessary to encourage innovation and investment in UK markets post Brexit and to aid economic recovery following the COVID-19 pandemic. In France and Germany, new laws have been adopted – following different approaches - to tackle structural issues in digital markets.

It is evident that governments and antitrust authorities recognise the need for further regulation of the digital sector. We should expect to see some significant developments over the coming years in terms of setting out a new regulatory framework(s) for the digital sector worldwide.

Whether those frameworks result in a united global regulatory approach remains to be seen.

Footnotes

[1]     Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services.

[2]     The consultation closed in September 2020 https://ec.europa.eu/competition/consultations/2020_new_comp_tool/index_en.html.

[3]     “New Competition Tool: Legal Comparative study of existing competition tools aimed at addressing structural competition problems with a particular focus on the UK’s market investigation tool – Expert study” ( accessed at: https://ec.europa.eu/competition/consultations/2020_new_comp_tool/kd0420573enn.pdf).

[4]     Also published with the impact assessment, “The New Competition Tool: Its institutional set-up and procedural design – Expert report” (accessed at: https://ec.europa.eu/competition/consultations/2020_new_comp_tool/kd0420574enn.pdf).

[5]     “Competition policy for the digital era” a report by Jacques Crémer, Yves-Alexandre de Montjoye and Heike Schweitzer (accessed at: https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf).

[6]     Competition Commissioner and Executive Vice President of Europe Fit for a Digital Age.

[7]     “The New Competition Tool: Its institutional set-up and procedural design – Expert report”, page 24.

[8]     “Competition policy for the digital era”, page 47.

[9]     “The New Competition Tool: Its institutional set-up and procedural design – Expert report”.

[10]   Denmark, Finland, Iceland, Norway and Sweden.

[11]   “Digital platforms and the potential changes to competition law at the European level – the view of the Nordic competition authorities”, September 2020, page 16 (accessed at: https://www.kkv.fi/globalassets/kkv-suomi/julkaisut/pm-yhteisraportit/nordic-report-2020-digital-platforms-and-the-potential-changes-to-competition-law-at-the-european-level.pdf).

[12]   Global Enforcers Panel, Georgetown Law’s “14th Annual Global Antitrust Enforcement Symposium”, 5 October 2020.

[13]   The Brussels Effect: How the European Union Rules the Word, OUP 2020.

[14]   Regulation (EU) 2016/679 (General Data Protection Regulation). 

 

*Lesley Hannah is a partner and Natalie Jukes is an associate in the London office. 

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