Revamping of antitrust law? The EC proposes a new competition tool and digital economy regulation
05 June 2020
The European Commission (EC) has been under increasing pressure in recent years to ensure that antitrust rules are fit for an increasingly digital and globalised world. Until now, it has been in listening and evidence-gathering mode, conducting various consultations across sectors relating to digital technology, including commissioning an expert report in April 2019 on stricter rules for dominant digital firms.
Aside from launching initial stages of consultation on a market definition guideline and passing its Platform-to-Business Regulation (which relates to SMEs and is due to come into force in July 2020), it has not, however, taken concrete action to amend existing rules.
This is now set to change. Building on its initial findings, the EC proposed on 2 June 2020 a three-pillared approach to ensure the competitiveness of markets: a new competition tool, ex ante regulation of digital platforms, and vigorous enforcement of existing antitrust rules.
1. A new competition tool
The most radical proposal from the EC is for a completely new competition tool that would allow it to address structural competition problems without finding an infringement to antitrust rules on anti-competitive agreements or abuse of dominance. Its inspiration may be the UK’s market investigation regime, which Competition Commissioner Margrethe Vestager has mentioned favourably in a number of speeches.
The EC thinks that such a tool is necessary as its enforcement experience, as well as a body of economic evidence, indicates that structural competition problems exist in the digital and other sectors that cannot be satisfactorily addressed using existing rules. In particular, the EC is concerned by the risk of tacit collusion in concentrated markets. Algorithm-based technological solutions, on the basis that these facilitate monitoring of competitors’ behaviour and can enable tacit collusion in less concentrated markets, are a particular case in point.
The tool seeks to solve two structural competition problems: (a) structural risks for competition, and (b) structural lack of competition.
- Structural risks for competition occur where market characteristics (eg network and scale effects, lack of multi-homing, and lock-in effects) mean that companies operating in these markets can become entrenched and/or act as gatekeepers. So-called ‘tipping’ markets are an example, where a large player in one market is able to expand into a new market thanks to its access to specific resources (e.g. data) and then ‘tip’ that new market in its favour.
- Structural lack of competition - essentially structural market failure. Competition may be impaired because of the market’s specific structure, eg high concentration and entry barriers, consumer lock-in, lack of access to data or data accumulation, or where the market is oligopolistic and exhibits greater risk of tacit collusion.
It is not clear yet what form the tool will take. The EC is seeking views on whether it should be dominance-based or market-structure-based. A dominance-based tool would allow intervention before a dominant company successfully forecloses competitors or raises its costs, whereas a market-structure-based tool would not be limited to companies that are already dominant. The idea of a tool that is not linked to a finding of dominance is in line with the recommendation in the UK Government-commissioned Furman report for a code of competitive conduct applicable “only to particularly powerful companies”, ie those designated as having ‘strategic market status’, a concept developed to some degree in the UK CMA’s ongoing digital markets strategy and market study into online platforms and digital advertising.
The exact scope of the tool also remains undefined for the time being: it could potentially focus on sectors where issues are most prevalent, such as certain digital or digitally-enabled markets, and/or markets that are prone to entrenched dominance, high barriers to entry, and other structural problems. Alternatively, it could apply to all industry sectors.
Whichever type of tool the EC elects to adopt, it will have the power, despite no infringement decision being issued, to impose behavioural and, in certain circumstances structural, remedies. These will not, however, involve findings of abuse of dominance, fines, nor rights to launch damages claims. This could lead to the rather draconian result of firms being required to sell off businesses as part of structural remedies without any finding of a breach of antitrust rules. This is the case in the UK, where the powers of the CMA to impose remedies after a market investigation include structural remedies and we have seen the CMA require significant divestments of assets in the case of the private healthcare investigation (the remedies were subsequently withdrawn following appeals and additional consultation) and in the BAA airport operator case.
2. Ex ante regulation of digital platforms
As part of its wider Digital Services Act initiative, as indicated in its February 2020 Communication on shaping a digital future and in step with similar suggestions by other regulators around the world, the EC is also proposing potential ex ante regulation for digital platforms. The aim is to address perceived market imbalances in European digital markets and to ensure that the market for digital services remains competitive, transparent, and open to innovation. The EC’s concern is that existing regulation does not provide for adequate safeguarding of the digital single market from the control that large online platforms are able to exercise over entire ecosystems. Particularly, it sees large online platforms as (i) being able to distort bargaining power because traditional business have become increasingly dependent on a limited number of these platforms, (ii) preventing innovative firms from bringing new solutions to consumers, and (iii) increasing the risk of markets ‘tipping’ in favour of large online platforms. Enforcement after the event is often perceived as too slow in fast-moving digital markets.
New regulation could include the following:
- Blacklisted practices – these would be prohibited or restricted unfair trading practices, eg certain forms of self-preferencing, or the acceptance of commercial conditions that are not connected to underlying contracts. They would cover both principles-based prohibitions ( eg. bans against certain types of self-preferencing) and issue-specific substantive rules that relate to emerging problems relating to specific market players (e.g. arising from operating system or online advertising services, algorithmic transparency).
- Tailor-made remedies – these would be applied on a flexible, case-by-case basis where considered necessary and justified. Examples are platform-specific non-personal data access obligations, specific requirements on personal data portability, or interoperability requirements. The EC will draw inspiration for such remedies from the telecoms sector, given parallels around network effects and network control.
- A horizontal framework – this would include establishment of a new EU regulatory body with the powers to collect information from large online platforms acting as gatekeepers.
The EC’s proposal comes as international counterparts undertake similar initiatives. In the U.S., the 2018-2019 U.S. Federal Trade Commission (FTC)’s Hearings on Competition and Consumer Protection in the 21st Century focused on competition rules and online platforms and have been followed by FTC and Department of Justice probes. The Australian Competition and Consumer Commission’s digital platforms inquiry, which has led other antitrust authorities to initiate similar investigations, is now being followed by two more specific inquiries, one into digital platforms services and another into digital advertising services. In Europe, the joint memorandum by the Belgian, Dutch and Luxembourg authorities, drawing on previous studies elsewhere, has also called for ex ante regulation.
3. Vigorous enforcement of existing antitrust rules
From the outset, the EC is making clear that its engagement with digital and digitally-enabled markets is prefaced by continued vigorous enforcement of existing antitrust rules. The leveraging of the entire antitrust toolkit is something that Commissioner Vestager has been highlighting for several years, and use of the EC’s full powers to deal with anti-competitive agreements and abuse of dominance is set to continue unabated. Interim measures, imposed by the EC in its Broadcom abuse of dominance decision in October 2019 for the first time in nearly two decades, and other remedies to restore competition are likely to see greater use.
4. Next steps
A public consultation is running until 8 September 2020, with legislative proposals on both the ex ante regulation and the new competition tool expected in Q4 2020. Engagement with the consultation is possible via the EC’s portals for the ex ante regulation and the new competition tool.