Competition law in the digital economy
Report by the Commission “Competition Law 4.0”
In September 2018 the German Federal Ministry for Economic Affairs and Energy tasked an independent set of experts, the Commission “Competition Law 4.0” (“Commission”) to put forward proposals for driving the development of European competition law in particular. The recently published report of the Commission contains 22 recommendations on platforms, data access and digital ecosystems. The proposals are intended, inter alia, to help the Federal Government prepare for the Presidency of the Council of the European Union in 2020.
Does competition law need to be reformed for the digital economy?
The new data economy, the prevalence of platform business models and the growing importance of cross-market digital ecosystems are often described as game changers of the digital economy. Innovations appear to be a key driver of competition and economic development. The Commission therefore sees effective competition guaranteed in future only by protecting the development and marketing of innovations and by strengthening consumer autonomy. In the Commission’s view, to achieve this, in particular (1) the power of consumers to dispose of their own data must be improved, (2) clear rules of conduct for dominant platforms must be introduced and (3) legal certainty for cooperation in the digital sector must be enhanced.
Data access and self-determined handling of data
Data certainly plays a key role in the digital economy. Once collected, it can be used as often as required and thus also for the development or placing of other products and services. In addition, in some cases the use of data is said to have rising marginal returns, in other words the value of additional data rises the more data the company already has. This appears to be important especially in the use of self-learning algorithms, the training and optimisation of which normally requires access to large volumes of data.
In the Commission’s view, guaranteeing consumers’ freedom of choice is crucial to keeping markets open. In this context it is important to avoid what are known as “lock-in” effects which can arise from exclusive access by product and service providers to user data. To enable users to switch to other providers instead, the Commission proposes drafting principles in a framework directive on when and how users should be granted a right to make a digital user account accessible to third-party providers. Here we can see a parallel to the second Payment Services Directive (“PSD2”), in which third-party payment services providers (like PayPal) are given the option of accessing a consumer’s payment account based on a corresponding contract with a consumer.
Rules of conduct for dominant platforms
Digital platforms in particular have proven to be disruptive technologies in many markets and are leading to extensive structural changes across all industries. Since the appeal of platforms often depends on the large number of users, these network effects can also lead to market entry barriers. A dominant market position, once attained, can thus become entrenched especially quickly and strongly. If such “tipping” has occurred in a monopolistic or highly concentrated market, competitors are hardly able to still challenge this market position (see our article on 29 October 2018). Also, providers of goods or services (e.g. app developers) may have to rely on the intermediary services of certain platforms as gatekeepers in order to access the other side of the market.
The Commission therefore recommends imposing specific rules of conduct on dominant online platforms operating as intermediaries between companies and consumers (B2C), by way of a Platform Regulation. Market dominance is to be determined not only by turnover but also on the basis of user numbers. The parameter of daily active users or monthly active users was already applied in the Facebook decision by the Federal Cartel Office to determine a dominant market position (see our article on 26 March 2019). An important rule of conduct is to be a prohibition on favouring one’s own services over third-party providers unless this is objectively justified. The European Commission recently considered the issue in its “Google Shopping” decision. It held that Google abused its dominant market position as a search engine operator by placing its own price comparison service higher up in the search results than competing offerings.
Notification procedure for novel forms of cooperation
According to the Commission, companies are facing considerable legal uncertainty in the area of novel forms of data cooperation. Companies may therefore refrain from innovation-boosting cooperation in order to avoid suspicion of infringing antitrust law for sharing competitively sensitive information.
The Commission therefore recommends introducing a voluntary notification procedure at European level with the Directorate-General for Competition (“DG COMP”) for novel forms of cooperation in the digital economy. To avoid over-burdening the DG COMP with a large number of notifications, the notification is to be limited to certain types of cooperation. These would have to give rise to new legal issues not yet clarified in European law or pending before EU courts and also be of considerable economic importance from the perspective of those requesting goods or services concerned by the agreement.
In light of the far-reaching recommendations of the Commission in some cases, European competition law in the area of the digital economy could undergo significant refinement. Germany’s Federal Government, as part of the 10th amendment to the Act against Restraints of Competition, has also set itself the target of modernising antitrust law to create an excellent regulatory framework for the German and European digital economy. When developing digital business models, companies should therefore always keep an eye on aspects of competition law and carefully analyse whether specific precautions have to be taken.
Any questions? Please contact: Patrick Kalina
Practice Groups: Antitrust & Competition, Regulatory & Governmental Affairs, Digital Business