From hipster antitrust to Big Data: fresh challenges to competition law?

by Dentons
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The modern foundations of competition law and policy – with a focus on competitive pricing for consumers rather than a broad and diverse set of social and economic issues – are being shaken by the dual tremors of populism and the digital economy. This is occurring in major jurisdictions such as the European Union and the US, and tremors have also been felt in Canada. But do these two developments represent seismic threats to competition law and policy?

That question has been the subject of recent debate in Canada and elsewhere in the world. 

Hipster antitrust

Populist concerns about income disparities and inclusive growth have led some to call for updating antitrust/competition law. Advocates of so-called “hipster antitrust” such as the Democratic Party’s Better Deal mission and Elizabeth Warren, a leading Democrat, criticize antitrust law as focusing too much on price and overlooking problems arising from corporate concentration. According to this perspective, dominant companies squeeze suppliers and employees experience job cuts and wage freezes. Critics of orthodox antitrust approaches also raise the concern that corporate concentration leads to sluggish economic growth. They argue that corporate concentration and insufficient competition leads to payouts to shareholders rather than an expansion of investment.

In February, the Senior Deputy Governor of the Bank of Canada, Carolyn Wilkins, echoed concerns about corporate concentration in a speech at the G7 symposium on innovation and inclusive growth. Wilkins cited “compelling evidence that innovation has been an important reason behind rising income inequality in advanced economies in recent decades”, which in turn can lead to weaker economic results.

Competition law and policy in the digital economy 

Wilkins’ comments were focussed in particular on the digital economy. Concerns about being “left behind” – once the concern of workers in rustbelt industries – have now spread to those affected by digitalization and automation. Wilkins noted that the share of income going to labour has decreased in G7 countries while the share of income going to the top 1% has doubled since 1980.

Wilkins also pointed to technology that leads to “market concentration and the rise of ‘superstar’ firms”, such as industries with network effects and scale economies. She also underlined barriers to entry in the digital world: those created by data from a large network or firms who use their position as gatekeepers to critical online services.

Some have called for the breaking up of technology companies, as occurred with AT&T in the US in the early 1980s. By contrast, Wilkins in her speech raised the prospect of regulation: “If user data are the primary source of monopoly rents in the digital age, how should we regulate who owns these data and how they are shared?” It is clear, however, that competition law is unlikely to be the correct tool to rectify the entire litany of concerns raised by critics of technology giants which include the privacy of personal data, fake news and the threat to liberal democracy stemming from the echo chambers created by social media (people viewing only news specially curated for them). 

For now, competition authorities are focussing on a narrower set of concerns arising from digitalization – especially the collection and use of data on a massive scale by data-related businesses. This topic has received significant attention from competition authorities in key jurisdictions around the world.  Europe in particular has focussed significant attention on competition and big data, not only producing discussion papers (such as a joint study by the French and German competition authorities in 2016) but also raising the possibility of serious concerns.  In a speech on the use of algorithms in pricing, EU Competition Commissioner, Margrethe Vestager, warned: 

“They [businesses] may not always know exactly how an automated system will use its algorithms to take decisions. What businesses can – and must – do is to ensure antitrust compliance by design. That means pricing algorithms need to be built in a way that doesn't allow them to collude….And businesses also need to know that when they decide to use an automated system, they will be held responsible for what it does. So they had better know how that system works.” 

In addition, at the national level in Europe, the German Federal Cartel Office is currently investigating whether Facebook has abused a dominant position in its collection and use of user data.  (For more information, see article). The concern is that Facebook’s conditioning the use of Facebook’s services on the user’s granting extensive permission to amass and use his or her personal data may potentially infringe data protection rules and, as such, be a violation of the abuse of dominance provision. 

It is noteworthy that under the German abuse of dominance provision, like its EU counterpart, a dominant company’s exploitation of consumers may rise to the level of an “abuse”. Exploitative abuse may involve the setting of excessive charges or the provision of poor quality services by a business holding a dominant position. Such conduct would not, by itself, be an abuse under Canadian competition law; exclusionary, predatory or disciplinary conduct towards a competitor is generally required. Despite this, the intersection of competition law with other areas of law and policy in the context of big data is not foreign to Canadian law. For example, the recent TREB case (see Dentons Insights article regarding this case) addressed how a refusal to provide access to data by a dominant provider may interact with privacy law and copyright law. However, further clarity on how privacy, consumer protection and competition law objectives intersect will need to be developed through case law or government guidance. The Competition Bureau’s recent paper represents a modest step in this direction as discussed in the next section. 

Canadian Competition Bureau response to big data:  “déjà vu”

On February 19, 2018, the Competition Bureau released its paper on “Big data and innovation: key themes for competition policy in Canada” following a public consultation period and earlier discussion paper. In this publication, the Bureau rejects the contention that a radical overhaul of competition enforcement is required for the digital economy: “There is little evidence that a new approach to competition policy is needed although big data may require the use of tools and methods that are somewhat specialized and thus, may be less familiar to competition law enforcement”. In addition, the Bureau emphasizes the importance of relying on market forces rather than price regulation and states that firms should not be condemned merely because they are “big” or possess valuable big data. At the same time, the Bureau recognizes that with the evolution of big data, it is difficult to offer “categorical guidance”. 

The Bureau also provides specific commentary on how big data could affect its analysis in three areas:

Mergers and monopolistic practices

While indicating that competition law tools are “up to the task” of addressing mergers and single firm conduct involving big data, the Bureau notes that competition analysis of big data may be complicated as big data can be both an output that is sold and priced but also an input that is neither sold nor priced.  Moreover, the Bureau’s analysis may need to be adapted to take into account particular traits such as platforms and network effects. In regard to the latter, the Bureau highlights some of the issues that can arise with big data:

  • Network effects can generate efficiencies but also constitute a barrier to entry.
  • A firm with very low share but with access to scarce and valuable data may be found to have market power.
  • Particular non-price effects may arise with big data. Quality is a non-price dimension of competition and “it is conceivable, for example, that in some cases consumers may view privacy as an important element of quality”. For example, the Bureau mentions a search engine that tries to differentiate itself by promising not to track users.
  • Mandating a duty to deal (e.g., provide access to data) as a remedy in a merger or conduct case should only be used in “exceptional circumstances” as it can also “chill” incentives to innovate.

Cartels

The Bureau expressly responds to the concern that computer algorithms relying on big data require a change in enforcement against cartels (agreements between actual or potential competitors to fix prices, allocate markets or restrict output). The fundamental question is whether there is an agreement among competitors. The Bureau does recognize that big data may facilitate innovative ways of implementing and verifying compliance with a cartel agreement; however, it states that it is “premature” to provide guidance on situations where competitor agreements are achieved through artificial intelligence without the intervention of humans.

With regard to data tools that analyze and adjust to changes in the conduct of consumers and competitors, the Bureau notes that big data may “soften competition” but that this is really just an extension of practices that companies used before information technology was developed. Moreover, conscious parallelism (i.e., where firms in an oligopoly are aware that their pricing and output decisions have a significant impact upon rivals and without an explicit agreement coordinate their behaviour as if they were engaged in collusive behaviour) is not by itself prohibited under Canadian competition law.  That said, the Bureau notes that “disclosing a pricing algorithm to competitors may be construed as akin to distributing a price list to competitors and may give rise to an inference of an agreement”.

Deceptive Marketing Practices

The Bureau highlights specific issues that arise in respect of the collection of data, on one hand, and the use of data on the other. With respect to data collection, firms are urged to ensure that they do not make false or misleading representations to consumers about their collection of data. In addition, the Bureau notes the potential for dual enforcement under the Competition Act as well as under privacy law – a prospect that may be of concern to businesses. For example, the Personal Information Protection and Electronic Documents Act (PIPEDA) prohibits organizations from “collecting information by misleading or deceiving individuals about the purpose for which information is being collected” while the Competition Act prohibits false or misleading representations.

With respect to using data to deceive, the Bureau hones in on, among other things, the practice of submitting fake reviews on review websites (“astroturfing”), native advertising, i.e., disguising an advertisement as news and entertainment, and targeted advertising which may harm vulnerable consumers. 

Conclusion

The Canadian Competition Bureau’s conclusion is that the “emergence of firms that control and exploit data can raise new challenges for competition law enforcement but is not, in and of itself, a cause for concern”. Further, while big data may require specific methods and tools, the Bureau’s traditional enforcement framework will continue to apply. So for competition law enforcement in Canada, it is “déjà vu” for now.  Moreover, “hipster antitrust” calls for an overhaul of competition law to address income inequality and growth have not been taken up in Canada to any significant degree.  Nevertheless, the loud outcry in recent weeks about the misuse of personal data in American political campaigns may prove to be a tipping point that may lead to pressure on government authorities to re-focus enforcement and legislative activity on the rules governing technology companies and big data—although any changes are more likely to be skewed towards bolstering privacy and consumer protection rules rather than antitrust enforcement.

 

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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