Regulators’ scrutiny of big tech is now the norm. Privacy concerns first turned authorities’ attention to internet companies, and led to more stringent legislative standards such as the GDPR. More recently, competition concerns have arisen, with regulators increasingly convinced that traditional competition policy may not be fit for the digital age. Ongoing initiatives in several countries, and at the EU level, have three things in common. Firstly, data is increasingly seen as an asset that can determine whether a market is competitive or not, and could represent a barrier to entry; secondly, authorities demand stronger powers to monitor big tech and act against them, sometimes even ex-ante; and thirdly, markets are increasingly seen as global rather than national in scope. Some national governments (Germany, Netherlands) have already started a process of competition policy reform and the EC is determined to follow suit. Perhaps more strikingly, regulators outside the EU are on a similar page. The ACCC in Australia, the CMA in the UK, and the FTC in the US are showing signs they want to change their approach to better oversee the dominance of digital platforms. However, it is unclear whether these national governments will act. In the US, the Government will likely continue to protect the interests of big tech, while too aggressive a stance in the UK could see the Government face obstacles when negotiating post-Brexit trade agreements outside of the EU.
The European Commission prepares for a new approach to competition in digital markets
The European Commission has some history in going after big tech. In her previous role, Competition Commissioner Margrethe Vestager fined US tech companies billions of Euros. However, those fines accounted for a small proportion of the companies’ revenues and did not address the problem of those companies’ dominance in the market. Under her new mandate, which started in December 2019 (and includes stronger focus on digital), Vestager has already hinted at the changes to come. These will focus on two objectives: on the one hand, the Commission will look to strengthen its oversight of digital markets; on the other, it will facilitate the creation of European champions which are able to take on dominant US players and those coming from Asia (China in particular). To this end, Vestager has already suggested the EC will review the market definition notice to take into account the increasingly global nature of business (the geographical scope of a market will be considered global rather than continental more often). The review will also consider whether instruments such as the ‘SSNIP test’ still hold validity in markets where end users consume a product for free, and how ecosystems which often provide services linked between one another can lead to consumers being ‘locked in’.
Perhaps even more importantly, on 19 February 2020 the Commission set out a Data Strategy. For the first time the EC is set to create a single market for data in order to tackle the perceived dominance of the US. This will follow the work of the previous commission in promoting re-use of public and non-personal data and on guidelines on data sharing in the private sector. The proposal aims to capitalise on Europe’s vast quantity of industrial and professional data by facilitating cross-border data use, data interoperability, and standards across a wide range of sectors, with a view to allow companies in Europe to use these resources for free. The proposal also aims to remove competition rules which are seen to currently hinder data sharing, and to prevent certain online platforms from unilaterally imposing conditions for access and use of data, or benefiting in a disproportionate manner. The EC will propose a framework for data governance (in Q3 2020), and a Data Act (during 2021), that covers business-to-government data sharing, more control of personal data, as well as clarifications on B2B data sharing scenarios and intellectual property rights in data sharing. During 2020, the EC will also launch a sector inquiry to evaluate competition rules. Within the context of the Digital Services Act, which will be proposed in Q4 2020 with the main objective to tackle online harm, the EC will further explore ex-ante rules to ensure that markets where platforms are currently dominant remain “fair and contestable”.
The Dutch Government proposes reform at EU-level along three pillars
The new European approach to antitrust is supported by pressure national governments are putting on the EC, who believe a coordinated approach across countries will prove to be more effective than going it alone. The Dutch Government was among the first in Europe to speak out in favour of an overhaul of the competition policy framework, and of the importance of reform at the European level. In May 2019, the Ministry for Economic Affairs and Climate Policy set out its stance on the matter, proposing measures in three areas: giving more power to competition authorities, amending the EU guidelines on competition, and changing the criteria to evaluate merger thresholds.
With regard to giving more power, the Dutch Government notes that a competition authority must have the ability to take ex-ante action on platforms which could gain a dominant position to the detriment of businesses or consumers. For example, it should be possible to require a platform to share data with other companies or force it to stop manipulating search results. As a result, the Dutch Government has called for an independent authority at the EU-level to be empowered to impose ex-ante remedies on a case-by-case basis. This competence would be supplementary to existing competition law, which only allows for ex-post intervention if a specific practice leads to abuse of a dominant position. The additional measures would allow the authority to intervene before the abuse occurs. The Dutch also propose to amend the EU guidelines for competition authorities, so that they are applied effectively to the digital economy. In their current form, the guidelines do not take into account the role of data, and fail to explain how to define markets which are multi-sided, or in which consumers do not pay a monetary price. On merger evaluation thresholds, the proposal is to include transaction value. Under current rules, larger companies planning a merger must notify the competition authority if their turnover exceeds a certain value. However, this way to calculate merger threshold does not prevent larger platforms from buying up smaller ones, especially innovative tech startups which could become rivals in the future. For example, the merger between WhatsApp and Facebook, which the European Commission cleared in 2014, did not exceed the merger threshold at the time.
German legislators will increase the scrutiny of mergers and the powers of the Bundeskartellamt
Germany has walked the walk more so than other countries when it comes to reforming antitrust and tabled a proposal to reform the Competition Act in January 2020. The minister of Economy said the aim is to “tighten abuse control for large dominant digital companies”, to the benefit of small businesses, startups, and consumers. The proposal sits on three pillars: tighter control on big tech, more powers granted to the competition authority, and an ease of the burden on SMEs.
With regard to controls on big tech, the proposal introduces the concept of “intermediary power” as a criterion to determine whether a platform holds a dominant position as a mediator in a multi-sided market. It also proposes to change the interpretation of the “essential facilities doctrine” so that the role of data can be taken into consideration when ruling on abuse of dominant position in both digital and non-digital markets. To strengthen the hand of the competition authority (the Bundeskartellamt), the bill proposes to grant it powers to prohibit conducts such as: “self-preferencing” when mediating access to markets (i.e. making sure a company’s own offers have the same treatment as competitors on the same platform); hindering competitors in markets where they can quickly expand their position; and harming other firms through the competitive data they collect. Businesses could also be punished by the competition authority for making data portability more difficult, thereby hampering users’ ability to migrate to other services, and prevented from behaviour that “tips” a market towards a monopoly. The Bundeskartellamt would be facilitated in adopting interim measures, to avoid situations whereby a monopolist is sanctioned after its competitors have already been pushed out of a market. To facilitate SMEs, the draft bill foresees an easing of merger control thresholds (from the current €5m to €10m for the value of at least one participant, and no control for mergers in markets with a value of less than €20m instead of the current €15m). On the other hand, merger control gets tighter for companies with annual revenues of more than €250m, where there are signs that future mergers may restrict competition in Germany, and there is a definite obligation to notify the merger when the acquired company has generated sales of more than €2m in a year, two-thirds of which occurred in Germany.
The UK’s CMA wants more power after Brexit – but will it get it?
In the UK, the Competition and Markets Authority (CMA) is as eager as its European counterparts to keep a watchful eye on the dominance of big tech. During 2019, the authority launched a Digital Markets Strategy. As part of that, it started an investigation into how major online platforms such as Google and Facebook operate, with particular regard to digital advertising which is the key source of revenue for these firms (and a market now £13bn larger than any other form of advertising). In December 2019, the CMA published the interim report of its inquiry, in which it expressed concerns that Google and Facebook’s dominance may now yield negative consequences for end users, since it makes it harder for potential rivals to compete in the same market, thereby harming innovation. It could also result in a lack of proper choice for consumers, and higher prices for advertisers which in turn could mean cost rises for goods and services. Google and Facebook’s market position could also be undermining the ability of publishers to produce valuable content, as their share of revenues is squeezed by large platforms.
At this stage, the CMA sees a strong argument for a new regulatory regime. This could include rules governing the behaviour of online platforms and giving people greater control over their own data. Other measures would look to address sources of market power and promote competition. For example, Google could be required to provide data to rival search engines (“click-and-query data”), and could be restricted from entering into arrangements to be the default search engine on devices and browsers. Its ad server business could also be separated. Similarly, Facebook could be required to ensure interoperability for some features of its network and made unable to impose restrictions on competitors’ use of these features. The authority sought input on its provisional findings until 12 February 2020, and will produce a final report with more detailed recommendations by 2 July 2020.
The extent to which the CMA will confirm its recommendations for a new framework, and in turn the extent to which the Government will take them on board in legislating, will be a key test to see how far the CMA will actually go. To this end, the UK’s departure from the EU provides an opportunity but also a challenge. As recently noted by the CMA’s chief, Andrea Coscelli, the authority is now able to ‘take back control’ of its decisions, without sharing responsibilities with the European Commission and therefore having stronger powers in large, international mergers and acquisitions. On the other hand, this means the authority will face a significantly heavier workload, for which it will need to be equipped with adequate staff and statutory powers – both things dependent on the will of the Government. The negotiation of a post-Brexit trade agreement between the UK and the US could also be a factor, with the US likely to ask that the UK retain a legal and regulatory framework in which US firms can expand and operate without facing additional regulatory burden.
Even outside Europe, authorities are starting to sing a different tune
While in keeping with tradition European regulators and policymakers have led the way, the tune of antitrust policies further afield is also starting to change. In Australia, the Competition and Consumer Commission (ACCC) concluded its Digital Platforms Inquiry in 2019. During the inquiry, the ACCC identified many adverse effects associated with digital platforms, many of which stem from the dominance of Google and Facebook in particular. These include how news content creators are reliant on the dominant digital platforms, yet face difficulties in monetising their content. The ACCC found that Google has “substantial market power” in the supply of general search and search advertising services. Facebook has the same power in social media services and in display advertising services. Both companies are considered to have “substantial bargaining power” in dealing with new media businesses in Australia. To address their dominance, the ACCC suggests updating the merger framework in the country (currently, merger notification is voluntary), and take these factors into account when examining whether an acquisition has the likely effect of lessening competition. Like other authorities, the ACCC also realises it is time to consider the role of data in assessing market power, though it concludes that data portability is unlikely to help mitigate the problem. Other recommendations put forward by the ACCC include a specific inquiry on ad-tech services, the implementation of a harmonised, platform-neutral regulatory framework for media, and the implementation of codes of conduct to govern the relationship between digital platforms and media businesses.
More strikingly, recent developments in the US have shown that the Federal Trade Commission (FTC) is considering a different approach to antitrust and competition policy having recognised that competition policy and consumer protection in the digital age can be radically different from the past. The extensive series of hearings which took place between June 2018 and May 2019, known as “Competition and Consumer Protection in the 21st Century”, is a clear signal of the authority’s willingness to make sure its toolbox is fit for the times ahead. The FTC is now in the process of turning those hearings into actionable outcomes. It plans to do three things in the near future: to publish guidance on how the antitrust laws might apply to conduct carried out by technology platforms; to prepare guidelines on vertical mergers; and will review the “consumer welfare standard” to assess its application over the years and to consider possible alternatives. It is currently too early to predict whether the US will abandon the largely hands-off approach that has been ingrained in the country’s culture for decades; however, the FTC’s recent decision to examine past mergers in the tech sector to identify lessons it can learn for the future suggests the regulator is not satisfied with current market conditions, and is ready to do things differently to protect competition in the future.
