Introduction
The accepted view that existing competition law can deal with complicated issues that the digital age has thrown at competition regulators is gradually giving way to a realisation that a combination of ex ante regulation, new legislation and competition law enforcement are likely to be most effective in regulating the digital economy.
The next year or so is likely to be decisive in laying down an appropriate framework for the regulation of Big Tech and online platforms in the UK and Europe.
In this article we look at how out of necessity competition regulators and law makers have expedited their efforts to ensure the regulation of digital services can meet the challenges of the digital society. However, a strong lead from regulators and law makers in the UK and the European Union is likely to bring Europe into greater conflict with the US which is still struggling to formulate its policy towards the digital agenda and Big Tech.
Things to Watch?
There are several UK and EU high profile cases and legislative initiatives which are likely to usher in a stricter approach to the commercial behaviour of Big Tech and in particular digital platforms.
(i) Merger Cases
One of the biggest challenges of the digital world is balancing the impact of platforms on consumer purchasing and how they deal with /use the immense data to which they have access against the need not to harm innovation.
There is a particular concern that a few digital platforms have become gatekeepers which can control routes to market and increasingly foreclose competitors. These issues are being examined in depth in two current merger cases.
The first is the Google/Fitbit case currently before the EU Commission. The European Commission opened an in-depth investigation of Google’s proposed acquisition of Fitbit on 4th August. The EU is seeking major concessions from Google to allow its $2.1 billion acquisition of fitness tracking company, Fitbit, to proceed. The acquisition has faced steep opposition from both consumer groups and regulators since it was first announced in November. The EU said they were concerned that the deal would strengthen Google’s dominance in online advertising by “increasing the already vast amount of data that Google could use for personalization of the ads it serves and displays to the detriment of its competitors.”
Among the concessions being sought is a commitment to keep Fitbit’s data separate from Google’s search data and that third parties will be granted equal access to it.
Amazon/Deliveroo Is another case in point. This deal was finally cleared by the UK CMA at the beginning of August. The transaction involves the taking of a cross shareholding by Amazon in Deliveroo and involves issues relating to concentrated consumer facing delivery platforms during the COVID crisis. This was initially labelled as a merger which would illustrate how the CMA would deal with mergers in the Coronavirus pandemic. Would mergers that would otherwise be blocked be allowed due to the inability of one party to provide effective competition because of the pandemic.
Internet giant Amazon announced plans to buy 16% of British food delivery firm, Deliveroo in May 2019. In submitting the deal to an in depth investigation the CMA stated it was concerned that £440m deal would prevent Amazon from launching a rival company, which would increase competition and potentially lower prices for consumers. However, in April the CMA surprised many by provisionally approving the deal to prevent Deliveroo from collapsing on the basis that Deliveroo would otherwise be likely to exit the market.
However, after announcing its provisional findings it appeared that the CMA was substantially altering its position after it appeared the COVID pandemic had not had such a pronounced effect on Deliveroo’s fortunes. The CMA then undertook a substantive competition assessment considering new market conditions and evidence from main rivals, Just Eat and Domino’s.
However, it finally cleared the transaction at the beginning of August on the basis that the level of shareholding was unlikely to have any substantial effect on competition in that it would not deter Amazon entering the food delivery market on its own account.
However, the CMA put a marker down to the effect that any increase in Amazon shareholding above its current level would be the subject of a further detailed investigation.
So what this merger shows is that the CMA is not willing to lessen the threshold for applying the failing firm defence even in the pandemic and will take into account changing market conditions during the course of its inquiry.
What it does not provide is any insight into how the CMA might take a more lenient view of mergers which fall outside the failing firm criteria but where the market conditions due to COVID-19 have had an adverse effect on the effective competitive constraint provided by the target on the market.
(ii) Behavioural Cases
The European General Court’s judgement in Google’s appeal in the Google shopping case in the next few months is likely to be a watershed judgment for the regulation of Big Tech and digital platforms in Europe.
This is the first decision in the Google dominance cases. This case goes to the heart of many of the concerns over digital platforms and relates to how a platform can use consumer data and influence consumer buying decisions to its own benefit and to the detriment of its rivals/consumers. Among other things it will clarify is the legal basis of the Commission’s abuse of dominance ruling.
The ruling will also go to the heart of whether Big Tech such as Google and Amazon could be considered essential facilities in their role as gatekeepers to digital markets.
There is growing concern that without legislative intervention there will be increasing exploitation of market power by the tech giants and the leveraging of their dominance into secondary markets to the detriment of consumers and the foreclosure of competitors.
The Commission will be hoping for a more supportive stance from the Court of First Instance than those taken in the Court’s recent Apple State Aid and Three merger appeal cases.
Software tying has also been raised as an issue driven by the popularity of videoconferencing platforms in the lockdown. The case related to the recent compliant by business communication provider, Slack, against Microsoft. Reminiscent of the previous watershed Microsoft case Slack has complained to the EU Commission that Microsoft has unlawfully tied its collaboration software Microsoft Teams to its dominant Microsoft Office suite of programs which includes Outlook, Word, and Excel. If their case is upheld Slack will be hoping that the Commission will be able to intervene decisively to provide effective remedies before the market tips irretrievably as happened with the tying of Windows Media Player and Internet Explorer in the previous case.
(iii) Legislative Initiatives and Sector Inquiries
There are an increasing number of legislative initiatives planned at both a European level and UK level.
(A) EU Digital Services Act
A new Digital Services Act will upgrade the EU’s liability and safety rules for digital platforms, services and products and is part of the Digital Single Market program.
The new Digital Services Act package is designed to modernise the current legal framework for digital services and is likely to set the rules for digital services for years to come. It is aimed at addressing foreclosure of competitors by gatekeepers to digital platforms and to attack other exercises of market power. It will approach regulation of this sector in two ways:-
First, the Commission will propose clear rules framing the responsibilities of digital service providers to address the risks faced by their users and to protect their user’s rights. The legal obligations would ensure a modern system of cooperation for the supervision of platforms and guarantee effective enforcement. Secondly, the Digital Services Act package would propose ex ante rules covering large online platforms acting as gatekeepers. These platform providers effectively set the rules for access to their platforms and which their users and competitors have to accept. This initiative should ensure that those platforms behave fairly and can be challenged by new entrants and existing competitors, so that consumers have the widest choice and the Single Market remains competitive and open to innovation.
(B) Internet of Things
The Commission launched the inquiry into the sector of Internet of Things for consumer-related products and services in the European Union on 16 July 2020 pursuant to the EU competition rules, in particular Article 17 of Regulation 1/2003. It is part of the Commission’s digital strategy and follows an announcement in the Commission’s Communication on Shaping Europe’s digital future.
So what is the Internet of Things? It refers to consumer products and services that are connected to a network and can be controlled at a distance, for example via a voice assistant or mobile device. There are early indications that certain technology companies’ behaviour may have the potential to structurally distort competition in this sector. Therefore, the Commission will use its market information gathering powers through its competition sector inquiry to better understand the nature, prevalence, and effects of the potential competition issues in this sector.
The Sector Inquiry will cover products such as wearable devices (e.g. smart watches or fitness trackers) and connected consumer devices used in the smart home context, such as fridges, washing machines, smart TVs, smart speakers, and lighting systems. The sector inquiry will also collect information about the services available via smart devices, such as music and video streaming services and about the voice assistants used to access them.
To obtain the information it requires the Commission will send requests for information to a range of players active in the Internet of Things for consumer-related products and services throughout the EU. The Commission expects to publish a Preliminary Report on the replies for public consultation in the spring of 2021. The final report is expected in the summer of 2022.
The object of the Inquiry is to assess how new connected devices are shaping markets and can contribute to monopolizing data and consumer attention. As with the Commission’s earlier E-commerce sector inquiry, this inquiry is likely to lead to new legislation and possibly enforcement action to tackle any anticompetitive conduct unearthed during its investigation.
(C) New Competition Tool
The European Commission announced on 2 June 2020,its proposal to develop a new competition tool to tackle structural problems inherent in the digitalisation of markets. The proposal takes its inspiration from the market reference investigation procedure under the Enterprise Act 2002 which is unique to the UK. The proposed new competition tool would allow the Commission to impose behavioural and where appropriate, structural remedies to remedy any structural competition problems following a market investigation. The Commission is proposing a number of options for the design of the tool which include intervention limited to situations where companies have a dominant position in technology markets or a more general power to investigate markets in all sectors of the economy irrespective of dominance. Under the process there would, however, be no finding of an infringement, or any fines imposed, nor the prospect of follow on damage claims. The EU Commission hopes within this framework to address structural competition problems and in particular to intervene in markets before they are at risk of tipping.
(D) Market Definition Notice
On 26 June 2020, the European Commission launched a public consultation as part of its review of its Market Definition Notice of 1997. The review of the Market Definition Notice should be seen in the broader context of the European Commission’s efforts to update its competition law toolkit for the digital age.
An essential part of any competition case is definition of relevant product and geographic market and this Notice has been central to the application of competition law in the EU for the last 20 years or so. However, the rise of digital platforms has called into question many of the traditional approaches to market definition. The review of the Notice is attempting to adapt the traditional approaches of market definition to the reality of multi-sided platforms and network effects. This consultation is also a good opportunity for the Commission to address concerns relating to legal certainty and the difficulties of how to interface with separate, sometimes contradictory competition regimes
(E) UK Platform Regulator
The UK has been no stranger in advocating a tough stance to digital platforms. Arguably what is the CMA is now proposing below is potentially more radical than the approach of the EU set out above.
Following its report on the £14 billion UK Digital Advertising Market the CMA has proposed radical measures to the UK Government to deal with the behaviour and market dominance of major digital platforms. Its Market Study concluded that about 80% of this is earned by just two companies: Google and Facebook. The CMA found that the dynamic nature of digital advertising markets and the types of concerns identified by it in its market study are such that existing laws are not suitable for effective regulation. It therefore recommended a new regulatory regime be established to govern the behaviour of major platforms funded by digital advertising, like Google and Facebook. This recommendation to government is the result of a year-long examination of the markets during which it used its statutory information gathering powers to lift the lid on how advertising revenue drives the business model of major platforms.
Conclusion
The next year is likely to be decisive in laying down an appropriate framework for the regulation of Big Tech and online platforms in the U.K. and Europe.
We are going to see a growth in the number of legislative initiatives to curb the power of online market platforms complimented by the enforcement of competition law. This will see a complete change in emphasis of the previous policy which pinned exclusive faith on the use of competition law to curb market abuses and restrictive practices.
