EU: Competition policy in the digital era (Part 1)

This article is part of a series of articles exploring the regulatory challenges of the digital society from a competition law and data protection perspective within the European Union.

By Bertold Bar-Bouyssiere & Patrick Van Eecke

1.                   Vestager II

Several months have now passed since in late March the European Commission published its Report “Competition policy for the digital era” (“the Report“), a report co-authored by special advisors Jacques Crémer, Yves-Alexandre de Montjoye and Heike Schweitzer. Since then, the enforcement activities at EU and Member State level have already progressed, and while it may be too early to draw some sort of final conclusion, we do already get a feel for the direction of travel – if we did not already have it.

The Report, like most policy publications of the Commission, codifies current practice, but here and there shows what may come next, and we will try to focus on these novel aspects of future competition law enforcement.

It is only a report, not even guidelines, you might think. Written not even by the European Commission but by independent experts, you may say. That is certainly true, but do not underestimate the magnitude of the shockwave.  Whenever the Commission publishes a report, there is a high likelihood that it has not only commissioned the report but also endorsed its findings, and frequently reviewed one or several drafts prior to publishing it under the Commission’s colourful logo. Moreover, in many instances in the past, the publication of similar reports, not only of guidelines, has been the spearhead of subsequent enforcement activities. Just to give one example from almost a decade ago: when the Commission was frustrated with the lack of harmonisation of the national patent systems, it commissioned a study from a noticeable economist on a rather technical issue, namely “Assessment of potential anticompetitive conduct in the field of intellectual property rights and assessment of the interplay between competition policy and IPR protection“.[1] In one of the chapters, this report discussed patent thickets. Patent thickets, according to a very well-known academic in the pre-Brexit UK, were a barrier to innovation and should be eliminated in a sweeping reform of the national patent systems. This, according to the economist hired by the Commission, would take a lot of time, and he therefore suggested, in very subtle terms, a “more informed antitrust attitude” to achieve faster results.[2] The economist also suggested that competition authorities might be pro-active in other aspects of licensing. What most readers did not know at that time was that DG COMP was already busy gearing up for the various “pay for delay“-cases, which also use EU antitrust powers to overcome some of the actual or perceived shortcomings of national patent law and its lack of reform.  In the case at hand, Commissioner Vestager has endorsed the independent report with unusual candour, which only gives it more weight than the standard independent report. It should also be mentioned that just prior to the publication of the Report, more exactly in January 2019, the Commission organized a full-day conference on “Shaping competition policy in the era of digitisation”. Attendants at this conference shared the impression that the majority of the interventions were “at charge”, advocating for more intervention in the digital industries. It is thus not surprising that, as we have heard, the chief antitrust counsel of one of the bigger technology companies relies on the Report when advising his internal client as it if had guideline status.

A few weeks ago a prominent member of the antitrust community in Brussels stated that by publishing the Report shortly before the expiry of her term, Commission Vestager had created a legacy that her successor “could not afford to ignore”. As it turns out, Commissioner Vestager is her own successor, and that will ensure that nothing from the Report will be lost in transition. The fact that this will not happen is also ensured by the detailed Mission Letter that President Ursula Von Der Leyen sent to Commissioner Vestager II. In her new role as Competition Commissioner and Executive Vice-President for a Europe fit for the Digital Age, the Mission Letter requests for her to focus on “maintaining European digital leadership where we have it” and moving first on new-generation technologies, with a human and ethical approach. This includes making markets work better for consumers, business and society, supporting the industry to adapt to globalization, climate change and digital transitions. In the field of competition policy, Commissioner Vestager II is asked to ensure that competition policy and rules are fit for the modern economy, vigorously enforced and contribute to a strong European industry at home and in the world. Within the next two years we are also to expect sector inquiries into new and emerging markets that are shaping our economy and society.

  1. The challenges of digitisation in the competition law field

 The Report starts outlining the benefits and challenges brought about by digitisation. Digitisation is described as the transformation of information into “data”, and the way in which data is generated, stored, processed, exchanged and distributed (p. 12). Artificial Intelligence (“AI”) is but one of the aspects of digitisation. Clearly, technological progress unprecedented in scope and speed has fundamentally altered the way in which our lives are organised (by ourselves or others, that may be a question worth investigating). The benefits are enormous, as digital communication facilitates exchanges and searches, and enhances consumer choices not only in purchasing consumer goods, but also in finance, healthcare, and producing industries from manufacture to agriculture.

Undoubtedly, digitisation also gives rise to legitimate concerns of many sorts: is data safe, or even will AI replace human labour for example. None of these are in any way related to the threat of competitive harm, that should be the only concern that matters for competition policy, competition law and competition law enforcement. The same can arguably be said for the enormous wealth in form of market capitalization that some big technology firms currently seem to enjoy. The Report contrasts the financial magnitude of the “Happy Few” with the disappointed hopes of internet pioneer John Perry Barlow, who had wished for a decentralized, self-governing world (p. 13). Similarly, the Report suggests that today’s big “gateways” exercise influence on social and political issues, for example by influencing the types of political news that their users see (p. 13-14), not unlike traditional newspapers, which were known to be left or right.

This is of course a view with slightly ideological underpinnings. At all times, political establishments have feared financial power in private hands, driven by the thought that private money can influence, or even undermine, public power. For the historians in the readership, it has not really been different when the US Congress adopted the first-ever antitrust statute in 1890, the Sherman Act. It prohibited the “restraints of trade”, but at that time no one exactly knew what that meant, and concepts such as the “relevant market”, “competitive harm” etc. were not yet developed. After four decades of rising agricultural complaints against the all-so powerful railroad behemoths, another constellation of David vs. Goliath, Congress finally gave in and did, well, “something”. As to market capitalization of firms, we have all witnessed examples where unexpected events suddenly reduce the market capitalization of listed companies by half, or even more. Further, financial power does not mean market power, which should be the only power of interest to competition policy. This, by the way, has not always been the view of antitrust enforcers. As recently as the 1950s, US antitrust policy still expressed concerns over the “deep pockets” in financially powerful conglomerates. A more rationalistic doctrine of competitive harm only emerged with the Chicago School in the 1970s, and while Chicago is no longer the all-prevailing doctrine today, it has set a standard of rationality that has spread all over the world, with certain ups and downs and occasional signs of regression on both sides of the Atlantic. This is just one example of the many innuendos that underpin the Report from the beginning to the end, and which any reader should be mindful to identify for the good sake of antitrust rationalism.

Zooming in on issues closer to competition policy, the Report points out that from the beginning of the internet, practice has defied the economics of competition theory. The assumption that happy consumer hopping from site to site would lead to more competition between suppliers of goods and services, failed to materialise, as consumers “have limited time and need curators to help them navigate the long trail of websites to find what they are looking for” (p. 13) (or do they?). Hence, a limited number of “gateways” emerged, trying to keep users on their platform. The Report refers to AOL as an example of one of the first such gateways. Do you remember? The Report indeed explains that the market power of AOL as an internet service provider eroded as a result of competition and strategic mistakes. That is what unrestrained competition tends to do, at least in the traditional economy.

According to the Report, there has been a polarised debate on whether and which type of “regulation” is needed (p. 14). Note that “regulation” itself is an ambiguous word. One meaning is that regulation means “ex ante legislation”, in contrast to case-by-case law enforcement, typically ex post. “A broad scope of societal values is at stake, ranging from privacy to consumer protection to media diversity. In the context of these wide-ranging changes in society and markets and the vigorous ongoing debate, Commissioner Vestager has asked us to explore how competition law should evolve to ensure that digital era continues to benefit consumers.

This quote emphasises that there are in fact two challenges.  The first is: how to adapt the concepts and tools of competition policy and law enforcement to ensure that consumer welfare is preserved? The second challenge maybe even a more difficult and important one: how to ensure that competition policy and law enforcement continues to focus on consumer welfare, fighting threats to competition, rather than trying to solve a wide range of societal issues? At the risk of spoiling the suspense, the Report clearly acknowledges both challenges. It asks that competition policy remains vigorous, disciplined and coherent, and for it to rely on solid analysis of market settings and failures. On the other hand, the Report also emphasises that competition policy and law enforcement is needed in the new digital world, and that it should be flexible and adapt to the fundamental changes. This implies, as stated in the Report, “that ‘the invisible hand of the market’ must be supplemented by ‘the visible hand’ of competition authorities or of the legislator” (p. 14).

In the subsequent features of our mini-series, we shall examine in more detail what exactly the Report suggests, and whether we should agree with the suggestions. Stay tuned.

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[1] COMP/2020/16 of November 2011.

[2]The idea is, that the more informed antitrust attitude towards some forms of licensing arrangements might help private IP owners to get around patent thickets efficiently” (p. 16 of the study).