European Commission Considers Expanding Investigative and Regulatory Authority in Digital Sector

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The European Commission recently launched two consultations that would expand its investigative powers and establish regulations for digital platforms. The Commission intends to close perceived gaps in its authority to remedy alleged competition concerns in the digital sector.

Market Investigation Powers

The first consultation (and roadmap) outline alternative scenarios that would enhance the Commission's investigative authority to impose behavioral or structural remedies to prevent inefficient market outcomes with respect to higher prices, lower quality, less choice, and innovation. The proposal draws on similar powers of the UK Competition and Markets Authority ("CMA"), which can impose remedies to avert an "adverse effect on competition."

The proposed new powers build on the Commission's investigations in the digital sector where the Commission claimed that market characteristics, such as high entry barriers, network, and scale effect, can make a "dominant position," once acquired, difficult to contest. Among the questions posed by the Commission is whether the new authority should be limited to the digital sector and/or to dominant companies.

Platform Regulation

The second consultation (and roadmap) would establish a regulatory framework, most likely overseen and enforced by the Commission, to "ensure contestability, fairness and innovation and the possibility of market entry" in platform markets. The proposed regulation addresses platforms that are online "gatekeepers," controlling access to users, goods, or services. The consultation will feed into the wider legislative proposal for a Digital Services Act, which also revamps the 2000 E-Commerce Directive.

Factors such as size of the user base, significant network effects, and/or ability to leverage data across markets will determine whether the rules would apply. Thus, only a subset of large online platforms would potentially be subject to the regulations. The proposed regulations contemplate a blanket prohibition of some practices (e.g., ban on self-preferencing) and/or tailor-made remedies such as in the telecom sector.

The proposed rules would be a substantial expansion of the Commission's investigative powers and could potentially lead to imposing significant prohibitions or even divestitures without a violation of existing competition laws. The proposed rules and options are controversial. Some may suggest that certain options do not go far enough whereas others say the rules are a burdensome overreach that risks stifling competition and innovation.

Companies must submit comments on the roadmaps by June 30 and the consultations by September 8. The proposed Digital Services Act is expected by the end of 2020.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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