The EU pushes for new competition law instruments with far-reaching consequences for the digital sector



On June 2, 2020, the European Commission (“EC”) launched two parallel public consultations that could mark a turning point in the ongoing battle against ‘Big Tech’ in Europe:

  1. The first consultation concerns the introduction of a regulatory framework to tackle the market power of large digital platforms acting as “gatekeepers”, which would be included in the Digital Services Act (“DSA”). The DSA is a landmark package announced by President von der Leyen in her political guidelines and in the Commission's communication “Shaping Europe's Digital Future” of February 19, 2020 (see the EC’s press release on the Digital Services Act);
  2. The second relates to a new competition tool (“NCT”) to deal with structural competition problems that cannot be tackled or addressed in a timely and effective manner on the basis of the current competition rules (see the EC’s press release on a new competition tool).

Alongside the continued vigorous enforcement of the existing competition rules, particularly Article 102 TFEU which condemns market power abuses, these new tools are presented as forming two of the three pillars of the new holistic approach announced by EC Vice-President Vestager to ensure the contestability and fair functioning of digital markets. The EC’s new holistic approach was prompted by a series of landmark antitrust decisions against Google, as well as ongoing investigations against Amazon, Facebook and Apple. It is also informed by several studies and reports strongly suggesting that in today’s digital markets there can be a systemic and recurring risk that Big Tech has pushed these markets to a tipping point where competition is significantly impeded or often seen as permanently eliminated. In such extreme situations, the traditional antitrust enforcement ̶ which looks at market conduct ex-post ̶ is perceived as coming too late to restore effective competition and ensure that markets function in a way that foster innovation and choice for consumers.

The current public consultations are open to contributions until September 8, 2020. These consultations consist of detailed questionnaires that seek to collect stakeholders’ views on the need for new ex-ante regulation and competition tools and on the features that such instruments should have. As the work on the proposed ex-ante rules and on the NCT complement each other, the EC recommends stakeholders answer both documents.

Based on those contributions, the EC aims to adopt proposals for the introduction of ex-ante regulatory obligations on gatekeeper platforms and for a NCT under an aggressive timeframe. Specifically, initial drafts formalizing the EC’s initiatives are tentatively scheduled by the end of Q3 or beginning of Q4 and proposed legislative acts should be released by year-end for consideration by the European Parliament and the Council of Ministers.

Both initiatives have already been the subject of strong opinions and comments. This is quite unusual at such an early stage, where consultations have just begun, much of their features have yet to be defined, and initial drafts by the EC are not expected until the end of this year. While the frenzy around these initiatives suggest that the EU is progressing fast on its digital agenda, it is worth keeping in mind that any definite position on the new tools’ shape, scope and impact on digital markets and beyond is certainly premature and perhaps a little presumptuous.

The consultation on an ex-ante regulation of digital gatekeepers

The regulatory framework for digital services has remained largely unchanged since the adoption of the e-Commerce Directive in 2000. It helped the growth of European digital services but it neither gives answers to many of today's pressing questions, including users' safety as well as the respect of their fundamental rights such as their freedom of expression, nor does it deal with the specific role and responsibility of the largest online platforms.

Against this background, the consultation on an ex-ante regulation against digital platforms – dubbed the ‘gatekeeper regulation’ – seeks stakeholders’ opinions on the enactment of additional general rules, which could apply to all platforms of a certain scale and/or on the establishment of tailored regulatory obligations applicable only to gatekeepers. These measures could include rules aimed at avoiding self-preferencing, imposing non-personal data access obligations, and specific requirements regarding personal data portability or interoperability requirements.

The new competition tool consultation

For its part, under the EC plan, the proposed NCT is intended to tackle structural market failures that the existing EU competition law framework (i.e., Articles 101 and 102 TFEU) is deemed unable to address in an effective and timely manner. Specifically, the NCT would empower the EC to intervene in two well-identified scenarios. First, the EC would be able to act before the conduct of a would-be dominant company durably and fatally tips the market to its favor and seemingly renders antitrust intervention obsolete. Second, it would give the EC the power to impose curative measures when a market or industry sector is structurally inefficient and leads to sub-optimal outcomes. According to the EC, in both cases early intervention and remedy under the NCT would be more effective than launching a series of individual antitrust cases to fight against what is really a systemic problem or when the harm is done and likely irreversible.

Under this new instrument, the Commission would impose remedies to restore the level playing field even if there are no antitrust violations (no market abuse or collusive conduct). As a last resort, the tool would even allow the EC to break up dominant companies, particularly in situations giving rise to significant conflicts of interest and self-preferencing. However, under the new tool, the EC would not have the power to impose fines.

The ongoing NCT consultation tests ideas such as whether companies should be subject to the same invasive investigative tools that the EC uses in antitrust cases, including dawn raids and quizzing employees of the company under scrutiny. It also questions stakeholders on whether the EC should be able to impose interim orders to maintain the status quo pending the outcome of its investigation. While the scope of the NCT is also part of the ongoing consultation, EC Vice-President Vestager has herself already spoken out in favour of an instrument covering the whole economy. However, many consider that it is unlikely that the EC will get a "blank check" to apply the NCT beyond the digital space or well-identified sectors.

The tool is unapologetically inspired by the UK Competition & Markets Authority’s (“CMA”) so-called ‘investigation references’ – which give power to the CMA to conduct market investigation and impose remedies to address structural failures – and by similar instruments in certain EU member states and third countries. In that sense, the CMA’s closed market investigation cases should provide a useful perspective on what could be the NCT’s potential impact at EU level. To date, one of its most noticeable outcomes is the adoption, in 2016, of a so-called “Open Banking” system, designed to tackle the lack of competition in the retail banking sector, which enables consumers and small businesses to manage their accounts with multiple payment services providers via a single digital app. This app eventually gives them more control of their funds (for example to avoid overdraft charges and manage cashflow) and help them compare competing products based on their own requirements. Other CMA’s investigated industries include, among others, cement, energy and airports.

Ultimately, the degree of similarity between the proposed NCT and the CMA’s investigation references will largely depend on the feedback to the two consultations.

Initial feedback and links to the public consultation questionnaires

Stakeholders from the public and private sectors, including competition authorities and government bodies, academia, as well as legal and economic practitioners were invited to submit exploratory views on each of the consultations’ so-called inception impact assessments with deadlines on June 30, 2020. These documents are roadmaps setting out the main options for how the new proposed rules might look like and work. The EC received 85 feedbacks on the ex-ante regulation of digital platforms inception impact assessment and 73 feedbacks on the new complementary tool to strengthen competition enforcement (these contributions can be downloaded on the EC’s Better Regulation website here and here).

Respondents overwhelmingly welcomed the introduction of ex-ante regulation of digital platforms. This is an unsurprising result, given that only the Big Tech companies are expected to be affected and formulate opposite views. By contrast, the NCT received a cold shower and had critical responses from an extensive number of stakeholders, ranging from polite advice on its content to direct appeals to make better use of the existing EU competition tools, such as a more extensive use of interim measures and the protection of less efficient undertakings against dominant companies. As anticipated, one of the main sticking points appears to be the EC’s potential new power to force companies to stop profitable or otherwise consumer-friendly and efficient behaviors, or to divest strategic assets, in the absence of any tangible and palpable market foreclosure, giving rise to material consumer harm. The prima facie imbalance between the extensive powers of the EC and the companies’ rights, which might have to comply with EC remedies regardless of any competition violation, is highly questionable, as it seriously blurs the line between enforcement and regulation.

Other concerns relate to the test that has to be met to trigger an intervention under the NCT and the standard of proof to justify the imposition of remedies at the end of the investigative process. The need to safeguard fairness and to protect the rights of defence of the investigated companies have also been highlighted.

Stay tuned as Dentons is preparing submissions to the two public consultations and will take part in the subsequent policy and legislative debates. The ex-ante regulation of digital platforms and the new competition tool questionnaires are respectively available here and here.

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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