Challenges of digitalisation and the prohibition of abusing a dominant market position
The antitrust concept of prohibiting the abuse of a dominant market position is becoming increasingly important to competition authorities as digitalisation proceeds apace and monopoly trends emerge in specific industry sectors and certain business models. In recent years, the European Commission has imposed record fines on Intel, Qualcomm and Google for the alleged abuse of their dominant market positions. Germany’s Federal Cartel Office is also currently investigating against Facebook which has captured considerable international attention. The expectations of politicians and the public regarding the control of abusive behaviour are high. Against this background, there is currently lively discussion as to whether the prohibition of abusing a dominant market position can still keep up with digitalisation or whether specific legislative amendments are needed.
What is at issue?
Particularly in the digital economy, one can observe a certain trend towards monopolisation in specific markets due to network effects and the rising importance of large data volumes. In particular, it often happens that platform providers with new, innovative services in certain market segments rapidly generate a constantly rising number of users and thus in a short time achieve a very strong position in the services they offer. The competition authorities face the challenge of not restricting new, innovative business models in the start-up and development phase, but at the same time keeping competition alive in highly dynamic and strongly innovative markets and avoiding risks for dependent companies and consumers. Antitrust law has already been given a greater focus on consumer protection in Germany by the amendment to the Act against Restraints of Competition (“ARC”) in June 2017 with introducing a new section 32e para 5 ARC, according to which the Federal Cartel Office can even initiate a sector investigation if there is justified suspicion of substantial, lasting or repeated breaches of consumer protection law provisions (more on the subject can be found here).
The European Commission proceedings in the matter of Google Shopping as well as those by the Federal Cartel Office on data gathering by Facebook show the competition authorities assume there is a broad scope of application for abusive behaviour in antitrust law. For companies in digital markets this means they must expect to come under scrutiny by the competition authorities not only when using non-competitive means but also in new scenarios. For example, the use of algorithms for the autonomous adjustment of prices (known as dynamic pricing) in the digital economy has been in the sights of the Federal Cartel Office for some time, as well as of other European competition authorities and the European Commission (more on the subject can be found here).
The importance of controlling abusive behaviour is set to grow further over the next few years. For example, in the coalition agree-
ment of the current German federal government, it is recognised that there is a need to modernise antitrust law and especially by refining the prohibition of abusing a dominant market position, especially with regard to platform companies (more on the subject can be found here). The Federal Ministry of the Economy and Energy already commissioned a report “Modernising the law on abuse of market power” (full text only in German), which was recently published, in preparation for possible legislative changes. The Commission on Competition Law 4.0 has also just started work to deal with matters of controllling abusive behaviour among other things. In view of these developments, 120 competition experts met in early October as part of a conference by the Antitrust Law Task Force of the Federal Cartel Office for discussions and sharing of ideas. The main outcome was summarised by the Federal Cartel Office in a briefing paper (only in German).
What should companies expect?
The possible modernisation measures initially relate to the duration of proceedings against abusive behaviour. Especially given the fast pace of the digital economy, there is a discussion of whether the existing legal framework can keep up with the market dynamics. In this respect, too, the coalition agreement sees a need for action to speed up such proceedings. In relation to this, there is discussion in particular of reinforcing provisional measures by reducing the conditions for intervention similarly to the UK Competition Act, in which “reasonable grounds for suspecting” a cartel infringement already empowers the competition authority to take action.
There is also a proposal to take account of the peculiarities of digital platforms and networks by introducing special offences (if not already done by the most recent amendment). Experts are discussing whether platform providers in concentrated markets should be prohibited from causing a “tipping” of the market into a monopoly by means of strategically hindering competitors, in other words before an undertaking has achieved a dominant position. This is designed to cover in particular types of conduct that artificially impede the parallel use of different providers (known as “multihoming”) or switching platforms. Once the markets have “tipped”, measures to restore effective competition can be difficult. Especially platform markets in which the platform providers are in competition with the third-party companies using the platform, have recently drawn the attention of the competition authorities (see for example the European Commission’s investigations into Amazon).
Another key aspect in this context is access to competitively relevant data. A clarification in section 20 para 1 ARC is being considered, which states there can be a dependency arising from the fact that an undertaking is dependent for substantial internal value creation on access to automated generated data, which however can be exclusively controlled by another undertaking. This is set to become more important especially in the context of the Internet of Things (IoT), since communication between various networked devices mandatorily requires access to certain data. However, since obtaining a dominant market position with competitive means is generally lawful under antitrust law, other options such as regulating certain areas, are being considered. For example, the European Commission has already proposed new rules for digital platforms and search engines in relation to their commercial users. The aim of the rules is to achieve greater transparency, especially in drafting and amending business terms and conditions and efficient dispute resolution by the introduction of redress mechanisms.
What are the consequences?
Against this background it is likely that the prohibition of abusing a dominant market position will be considerably refined with regard to digital markets. Companies operating in these markets should therefore not forget when positioning themselves strategically in the market that in many situations there can be traps in antitrust law. Thus, every company should take a critical look at whether its business processes and contractual foundations can be brought into line with the current and expected provisions on market dominance, or whether specific precautions/measures should be taken, such as adapting existing contracts. Depending on the contract partner’s perspective and position, the risks and opportunities should be examined very closely.
Any questions? Please get in touch with: Dr Sebastian Janka or Patrick Kalina
Practice Groups: Antitrust, Digital Business and Regulatory & Governmental Affairs