knowledge 27 November 2020 |

What the Tech is Going on with Digital Markets and Antitrust/Competition Law?

Why the focus on “big tech”?

Big tech firms have gotten big by innovating and improving our lives.¹  In recent years, though, concern has been growing among legislators and regulators that some firms may be getting too big.

In the EU, the European Commission points to “structural competition problems” caused by the dynamics of these new markets.  The European Commission explains the causes of the problems as “extreme economies of scale and scope, strong network effects, zero pricing and data dependency.”

• To give an example, the more people that use a search engine, the better its algorithm gets.  The better the algorithm, the better the customer experience and therefore the more people that use it.  And the cycle, in theory, repeats until we have one clear winner in the search engine space, what the European Commission calls market “tipping”.³

• Similarly, in the social media space, the more people that use a large social media platform, the more likely you are to join the platform and not its smaller competitor, thereby entrenching the size differential between platforms (leading to what the European Commission calls “’winner-takes-most’ scenarios”). ² 

Separately, concern has been expressed by both regulators and market players about the increasing power of successful platforms (so-called ‘gatekeepers’).  The European Commission has identified problems of (i) “bargaining power between large online platforms on the one hand and their users and rivals on the other, a trend which is expected to increase in the future”; (ii) tech giants’ ability to operate a platform while competing on it – “misusing their position as both player and referee“³; (iii) a “risk of reduced competition and dynamism” where platforms control the “ecosystem” within which competition occurs; (iv) some large platforms’ practice of “neutralizing threats from new entrants by means of pre-emptive acquisitions”;⁴ and (v) the ability of platforms to “benefit from the use of data gathered from one area of their activity to improve or develop new services in these adjacent markets.”⁵

In addition, prominent market players such as Spotify, Match Group (i.e. Tinder, Hinge, etc) and Epic Games (maker of Fortnite), who use platforms such as Apple’s App Store, to reach a significant proportion of their customer-base, complain of additional charges placed on their services, while alleging Apple’s own competing services, such as Apple Music, do not pay such charges.⁶

But doesn’t competition law protect competition in digital markets already?

On the one hand, regulators have been enforcing competition law, often in ground-breaking ways, to address with what they identify as problems in digital markets. 

• Just recently, the US Department of Justice filed a petition against Google.

• The European Commission has fined Google three times (for practices in relation to its Google Shopping, Google Adsense (advertising) and Google Android (mobile operating system) businesses). Recently, it formally announced its preliminary view that Amazon breached competition law by “systematically relying on non-public business data of independent sellers who sell on its marketplace, to the benefit of Amazon's own retail business.” The Commission also has open investigations into Facebook and Apple.

• The German competition authority made findings against Facebook and is investigating a deal between Apple and Amazon.

• The French competition authority has fined Apple.

On the other hand, law makers and regulators are concerned that behaviour that is not currently prohibited by competition laws leads to “inefficient market outcomes in terms of higher prices, lower quality, less choice and innovation.” The European Commission has concluded that “[l]arge online platforms are able to control increasingly important platform ecosystems in the digital economy.”⁸

On this basis, the European Commission says competition law needs to be modernised to deal with changes in technology and markets.  More specifically, the EU Competition Commissioner has said “in this age of digital gatekeepers, it’s becoming more difficult to keep markets working well with the powers we have.”⁹

Similarly, the US House of Representatives Antitrust Subcommittee report found that some platforms’ “business practices are a detriment to fair competition, but they do not easily fit the existing categories identified by the Sherman Act, namely “monopolization” or “restraint of trade.””¹⁰

Calls for change have been growing, with the European Commission, the Australian, French and Dutch governments, the US House of Representatives antitrust sub-committee and the UK competition regulator, among others, all applying pressure in recent months.¹¹

So what might change?

The European Commission is widely expected to announce the detail of a number of proposed new measures on 9 December.  These include:

1. Regulation of “Gatekeeper Platforms” – this may involve:

1. A power for regulators to gather information from “gatekeeper platforms” about their business practices (for ongoing monitoring);
2. Designating “gatekeeper” platforms “on the basis of a set of clear criteria, such as significant network effects, the size of the user base and/or an ability to leverage data across markets” for extra supervision and enforcement (the criteria are yet to be published);
3. Prohibiting certain practices by those “gatekeeper” platforms, such as:
   • “certain forms of self-preferencing” (e.g. where a platform gives its downstream sales arm preferential positioning in search results over third parties’ competing downstream sales businesses); and
   • “acceptance of supplementary commercial conditions that by their nature have no connection with the underlying contractual relationship”;
   
   
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4. A tool allowing the European Commission to impose “tailor-made remedies” on designated “gatekeeper” platforms, including possibly:
   • “platform-specific non-personal data access obligations” (apparently aimed at reducing data advantages);
   • “specific requirements regarding personal data portability” (facilitating customers switching service-providers and ‘taking their data with them’); or
   • “interoperability requirements” (to preclude ‘closing off’ the “ecosystem” controlled by a “gatekeeper” platform).¹²

2. A “New Competition Tool” – this may involve:

1. A power for the European Commission to impose behavioural or structural remedies on dominant firms “before a dominant company successfully forecloses competitors or raises their costs”, either in specific sectors or in any sector (this is to be decided), without the need for any breach of competition law to have occurred; or
2. A similar power for the European Commission to intervene, but without there necessarily being any dominant firm, where “a structural risk for competition or a structural lack of competition prevents the internal market from functioning properly”.
3. In theory, this could include the kind of rules envisaged under the “gatekeeper platforms” rules but could extend to ‘breaking-up’ firms, mandating non-discriminatory access to services or other as yet unspecified outcomes.¹³

3. Changes in merger review may also be on the horizon:

1. New theories of harm? Prominent reports commissioned by EU and US regulators and legislators have recommended “heightened degree of control of acquisitions of small start-ups by dominant platforms”, to assess whether they are a “defensive strategy against partial user defection from the ecosystem” (so-called ‘killer acquisitions’).¹⁴ Where this ‘theory of harm’ is plausible, the merging parties would bear the burden of showing the merger is on balance pro-competitive. 
2. Use of Member State referral system: From mid-2021, the Commission will accept referrals of mergers from Member States even if the national authorities did not have the power to review the merger¹⁵  – allowing the Commission to review acquisitions regardless of how low the parties’ revenues are. This change seeks to address the concern that turnover-based notification thresholds may not ‘catch’ potentially harmful acquisitions of innovative start-ups with low turnover.¹⁶
3. In September, the Commission announced “a reflection … to see if digitisation means we need to change some aspects of the way we assess how a merger affects competition.”¹⁷ The process will involve a review of recent merger decisions to see what effect they have had on prices, choice, quality and innovation, and may result in the issuance of new merger guidelines.

This is all in addition to:

• proposals to modernise the e-Commerce Directive 2000 (to regulate the dissemination of illegal content, products and services on all platforms, including potentially imposing liability on platform owners for illegal business and information distribution that they intermediate¹⁸); and

• ongoing modernisation of laws on audio-visual media regulation, updated regulation of copyright in digital markets, and recent rules to promote fairness and transparency for business users of online intermediation services (e.g. platforms).¹⁹

Changes are also likely further afield:

• In the UK, the government’s Furman Report called for a number of legislative changes to promote competition in digital markets.²⁰

• The US House of Representatives Antitrust Subcommittee has called for similar reforms.²¹However, statements by Republican politicians indicate that much of these are unlikely to be passed with bipartisan support. ²²

• In Australia, legislation is being drafted to force Google and Facebook to pay newspapers and other media for content displayed on the tech giants’ websites/apps.²³

• In Japan, the Fair Trade Commission is also exploring change.²⁴

How has big tech responded to the EU’s plans?

Responding to the Commission’s plans, tech firms have emphasised the pivotal role that online platforms have had in “driving economic value across the economy” and “deepening and broadening the Single Market”. They also raise specific concerns with the proposals:

• On the Commission’s proposal for ‘blacklisting’ practices by gatekeeper platforms, Facebook has suggested that “rigid prohibitions constructed in a one size-fits-all manner may not be the best solution for a sector characterized by dynamism and diversity.” Likewise, Apple stresses that “regulatory interventions must recognise the diversity of platforms’ business models.”

• Google has argued that ‘self-preferencing’ – mooted by the Commission as a ‘blacklisted’ practice – is not always bad, pointing to national court decisions finding that its placement of Google Maps and weather information at the top of search results increased the attractiveness of its search product and improved the search experience.

• Conversely, Google has argued that interoperability – proposed as a potential remedy for gatekeeper platforms – is not always good, warning that strict standards could stymie innovation by creating a “lowest-common-denominator” that prevents innovative providers from offering a higher quality service.

• Market entry is possible because “there are no barriers to developing new ideas” – Facebook cites the rapid rise of Zoom and TikTok as evidence that established platforms “compete vigorously” with new entrants.

• Several stakeholders take issue with the proposed criteria for designation of a ‘gatekeeper’ – labelling them “vague and subjective” - and drawing a comparison with the strict analysis required to designate an operator with ‘Significant Market Power’ in the telecoms sphere.²⁵

Conclusion

Change – in the form of closer regulation of big tech – seems inevitable.  But what form it will take is unclear.  That will ultimately depend on political will, in the EU and internationally.  With the final outcome of the US Senate race still unclear, for example, the jury is out on how it will all end.

Also contributed by Seán O'Dea  and Ciarán Donohue.