European Commission publishes report on competition policy for the digital era

Investigations of major tech companies have fuelled the debate regarding the fitness of competition rules to address questions about the digital economy.

On 4 April 2019, a special report on competition policy, commissioned by EU antitrust chief Margrethe Vestager, was published. The 127-page report examines how competition policy should evolve to continue promoting pro-consumer innovation in the digital age.

In particular, the report addresses the application of competition rules to platforms and data, and assesses whether European merger control needs to be updated.

The report highlights first the key characteristics of the digital economy, which include extreme economies of scale, important network effects, and the role of data constituting crucial input. These characteristics grant a significant competitive advantage to incumbent players, and renders new market entry very difficult.

Next, the authors present – or reiterate – competition policy’s goals and methodology and, while analysing their application to that sector, they found that established concepts, doctrines and methodologies, as well as competition enforcement more generally, should be adapted and refined.

Some key take-aways include the following:

• The report suggests a lower (or reverse?) burden of proof of consumer harm. “In a fast-changing world, we need to rethink both the timeframe and the standard of proof in the light of likely error costs.”
• Generally, there should be less emphasis on market definition, shifting the focus to theories of harm and eviction strategies. On the other hand, when “firms compete to draw consumers into [...] ecosystems, markets for specific products or services will persist from a consumer’s perspective, and should continue to be analysed separately, alongside competition on (possible) markets for digital ecosystems. Where the firms’ lock-in strategies are successful, and consumers find it difficult to leave a digital ecosystem, ecosystem-specific aftermarkets may need to be defined”.
• When measuring market power, the notion “unavoidable trading power” and access to data are important, even in an apparently fragmented marketplace.

When applying competition rules to platforms, the report identifies two goals: ensuring competition “for” the market (among competing platforms) and competition on a dominant platform (platforms play a form of regulatory role as they determine the rules according to which their users interact).

Regarding the first goal, the authors suggest stricter competition law scrutiny of MFN clauses, ensuring that multihoming and switching of platforms by users is possible. As to the second goal, the authors find that dominant platforms have a responsibility to ensure that the platform’s rules do not impede free, undistorted, and vigorous competition without objective justification. Additional behavioural rules may be needed.

When applying competition rules to data, the report points out that the competitiveness of firms increasingly depends on timely access to relevant data. The impact of access to data and its significance for competition must be examined case by case and will depend on the specifics of a given market, the type of data and data usage.

The report presents the current legal framework relating to data, including the GDPR, and examines its relation with competition law. With regard to the substantive analysis, the authors assess data pools under article 101 TFEU and examine several scenarios of access to data under article 102 TFEU. The report concludes that competition law could contribute to the data economy:

• by issuing a block exemption regulation on data sharing and data pooling;
• by giving guidance to dominant firms on the (obligation of) granting of access to data.

Finally, with regard to merger control, the report examines the merger control thresholds. It concludes that “it is too early to change the EUMR’s jurisdictional thresholds” and suggests monitoring “the performance of the transaction value-based thresholds recently introduced by certain Member States, as well as the functioning of the referral system”. As to the substantive merger control assessment, the report proposes a new test that would imply “a heightened degree of control of acquisitions of small start-ups by dominant platforms and/or ecosystems, to be analysed as a possible strategy against partial user defection from the ecosystem”.

In conclusion, the report recognizes many of the challenges faced by undertakings in the data economy. The report provides useful insight into the potential enforcement efforts and further research areas of the European Commission. Some useful guidance about the application of competition law to the data economy is set out in the chapters on platforms and merger control. In the area of data, the report presents many interesting ideas, but also raises questions without sufficiently clear guidelines for undertakings. Meanwhile, undertakings have to evolve in an uncertain legal environment.

The report rightly concludes, putting its intentions and objectives into perspective, as follows:

“Despite the ambitious title of our report, it certainly cannot be, and is not intended to be, the final word on how competition policy should adapt to the digital era. Rather, we hope that it is a useful contribution to the ongoing conversation between competition policy practice and academia on the ways competition policy can best shoulder its part of the responsibility for defining and applying a new legal framework for the digital world, which ensures that it serves the interests of European citizens.”

Full report at: http://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf