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Archive for September 25th, 2018

On the Amazon probe: neutrality everywhere (or the rise of common carrier antitrust)

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Amazon probe

Commissioner Vestager announced, last week, the launch of a preliminary probe into some of Amazon’s practices. According to the information that has been made available, the probe has been triggered by Amazon’s use of data coming from merchants using its marketplace.

Because the users of the marketplace are also Amazon’s competitors, the practice would create an uneven playing field that would be tilted to Amazon’s advantage (Amazon would benefit from all the insights coming from the data). As far as I can gather, this is what the case is about.

As soon as the probe was announced, I received a call from Bloomberg’s Aoife White (see here). I told Aoife that this trend seems to mark the rise of what I called ‘common carrier antitrust’ (the concept did not make it, alas, into the piece).

What do I mean by that? I mean that vertically-integrated online platforms are expected not to discriminate against rivals that are also their customers.

The wind seems to be blowing in a clear direction: we may be reaching the point where it is problematic, in and of itself, that an online platform’s affiliate is treated more favourably than third parties. This trend has been going on for a while: it is not by chance that Neutrality Everywhere? was the topic of our 2nd Chillin’ Conference.

If discrimination indeed becomes an antitrust problem in and of itself, online platforms may soon be subject, across the board, to the same sort of access, non-discrimination and accounting separation obligations to which incumbent telecoms operators are already subject (i.e. common carrier).

Is common carrier antitrust new? Is it business as usual?

This trend, if it wins the day, will change the shape and scope of EU competition law. So in short: no, I do not think it is exactly business as usual.

  • In essence, common carrier antitrust involves the extension to all dominant companies of some principles that originally applied in a relatively narrower context.
  • Strict common carrier obligations make sense in the context of Article 106 TFEU (companies that benefit from exclusive or special rights). GT-Link is a wonderful example in which strict non-discrimination obligations are uncontroversial.
  • It is not unreasonable to extend common carrier principles to dominant companies that control an indispensable input (as in Commercial Solvents and Telemarketing). This is a point that was also made by the Court of Justice in Deutsche Telekom (see paras 230-233).
  • The Amazon probe is one of many recent examples that signal the likely expansion of common carrier obligations in relation to non-indispensable inputs – Google Shopping is probably in the mind of everyone reading this; but Android, at its heart, is also about a vertically-integrated firm favouring its affiliates through various contractual devices. The Internet Explorer case was closed in a very ‘common carrier’ way: a must-carry obligation placing Microsoft’s and competing web browsers on an equal footing vis-à-vis the platform (operating system).
  • Amazon might (only might, we do not even have a formal investigation) signal a step forward in the expansion of common carrier antitrust. If discrimination is deemed problematic in and of itself – that is, absent actual or potential foreclosure, then the practice would have become prohibited by its very nature (that is, by object). The same would happen, for all practical purposes, if the threshold of effects were set at a low level.
  • If so, the case would mark the expansion of common carrier antitrust all the way through the legality spectrum: the scope of common carrier antitrust would have extended from Article 106 TFEU firms –> to indispensable inputs –> to dominant firms (subject to an effects analysis) –> to dominant firms (by object).

If we accept that there is, in some respects, a friction between common carrier antitrust and the case law, the next question is whether this trend, under which discrimination may end up being perceived to be a problem in and of itself, is desirable.

My view is that we should have an open and explicit debate about the merits and consequences of common carrier antitrust (for competition law and for markets), and about the range of legal tests that can be used to address discriminatory conduct. It would be a bad idea to just pretend that it is business as usual.

In this regard, I guess my point of view is well known:

  • EU competition law never saw vertical integration, or favouring an affiliate in a vertical integration setting, as a problem in itself. On the contrary. It has long been accepted as undisputed that discrimination by vertically-integrated firms is not only pervasive but is often actually pro-competitive.
  • In many instances, discrimination (which manifests itself in many ways) paves the way for competition; sometimes, it is what makes competition possible in the first place. Some products and some innovations exist only as a result of a vertically-integrated firm favouring an affiliate.
  • I can think of many examples, some of which I discussed with Aoife:
    • HBO, which has transformed TV for the (much) better, is a child of discrimination. Cable companies expected to attract subscribers to a nascent technology by keeping attractive programming to themselves, and by giving it more favourable treatment within the platform.
    • Supermarkets favouring their private labels has not only done wonders for the competitive process, but has also brought prices down and improved the shopping experience of ordinary people.
    • I have discussed the example of the Tour de France on the blog. The Tour de France was created by a newspaper to attract new readership. The point of creating the event was to favour its affiliate so it could give better and more exhaustive coverage.

Some people may argue that the Amazon probe is addressing Amazon’s incentive to favour its own service. Commentators have spoken, in this regard, of a ‘conflict of interest’ (that is, an incentive to foreclose), which would be the real problem (see here, for instance).

Again, the said conflict of interest cannot be – at least, it has never been – a problem in and of itself. And this in spite of the fact that the incentive to foreclose will in many cases be real and difficult to dispute.

Why do firms refuse to license their intellectual property rights? Because they have an incentive to keep the downstream activity for themselves (i.e. they have an incentive to favour their own downstream services over those of rivals). There is probably not a much better example of a conflict of interest.

Taken to its logical consequences, the claim that the conflict of interest is in itself a problem, would mean that dominant firms should not be entitled to refuse to give access to their own tangible or intangible property.

And, of course, that would be a major departure from competition law as we know it – if there is something that we know for sure is that, no matter how undisputed the conflict of interest, only in exceptional circumstances are firms required to license their intellectual property under Article 102 TFEU.

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I guess the many words I have written above can be summarised fairly easily: common carrier antitrust would entail, in some respects, a departure from EU competition law as we know it.

If this is the direction of travel, let us have a long deep thought about the major consequences that come with this new way of conceiving competition law. In this sense, the consultation launched by the European Commission on this question comes across as the right thing to do (and note that you still have time to submit your views).

Written by Pablo Ibanez Colomo

25 September 2018 at 10:29 am

Posted in Uncategorized