Chillin'Competition

Earlier this month the Bundeskartellamt announced via this press release that it had “imposed on Facebook far-reaching restrictions in the processing of data”. According to its President, Andreas Mundt, this “can be seen as an internal divestiture of Facebook’s data”. The remedies are not the only thing that is far reaching in this case.

I had to read the available materials last weekend in preparation for a training session with a competition authority, but we never actually discussed the case, so here are the preliminary thoughts for discussion that I wrote down then.

In a nutshell, the Bundeskartellamt observed that Facebook was gathering user data also outside of the Facebook website and assigning them to Facebook user accounts. Its intervention seeks to ensure that going forward this will only be possible if users provide voluntary consent. Sounds good, right? Well, let’s see…

Are Facebook users better off? Probably, yes. The decision probably addressed an asymmetry of information issue. The Bundeskartelamt confers great importance to the fact that many users were not aware that Facebook could collect information also from third party websites featuring “Like” or “Share” buttons, even if the user did not scroll over or click on them. Did most Facebook users – myself included, to the extent I may still qualify as one – know this? Probably the very large majority of us didn’t. Although I guess we could have. Now…

Is that a competition law problem? Not really. The fact that an intervention makes consumers better off doesn’t necessarily mean that it’s good, or even legal. I would also be better off if the Belgian competition authority forced restaurants to serve lunch after 2 pm and with a smile, but I understand that’s not their job (I mean the authority’s…). Competition law is not something we can use to fine-tune market according to our preferences.

Market definition. The Decision is premised on the idea that Facebook is dominant in the market for social networks as well as in a market for advertising in social networks. The Bundeskartellamt observes that “services like Snapchat, Youtube or Twitter, but also professional networks like LinkedIn and Xing only offer parts of the services of a social network and are thus not to be included in the relevant market”. The Q&A document explains that other players (e.g Youtube) use business models that are not sufficiently similar to Facebook’s to warrant inclusion in the same market.

Some commentators have welcomed this “flexible approach” based on “functional similarities and differences”. I don’t. First, a formal approach merely based on functionality tells you nothing about competitive constraints. Different functionalities are often actually a way of competing, not a reason to rule out competitive constraints. The functionality approach goes back to United Brands, and I haven’t ever heard anyone saying that was a good approach. Second, it should be evident that different business models can coexist and compete within the same relevant market (think e.g. of vertically integrated companies vs non-integrated rivals or of franchises vs independents. In sum, market definition is not about formal differences in functionality, but about empirical substitutability.

“Users practically cannot switch”(?) Exploitative practices are mostly problematic when users are locked-in to a service and there are barriers to entry and switching. Is this the case here?

The Q&A document states that “because of Facebook’s market power users have no option to avoid the combination of their data”, that there is “lock-in” and that “Facebook is becoming more and more indispensable for advertising customers”. The press release explains that “Facebook users practically cannot switch to other social networks”. The adverb “practically” is not without importance, and I look forward to reading the decision. The staggered 360-degree-turn evolution of precedents on “switching” is fascinating. How can this finding coexist with the GC’s Judgment Microsoft/Skype or with the Commission’s decision in Facebook/Whatsapp? Authorities do not seem to perceive barriers to switching views on this point…

At first sight, it’s not like Facebook is an indispensable service; users can switch, and switch off. The question is: would users leave Facebook if it were to act in a non-competitive way, or in a way that users did not approve of? Press reports published following the Cambridge Analytical case suggest that users can, did and would abandon Facebook in those circumstances.

Data protection provisions as a benchmark for finding an abuse. The Bundeskartellamt has explained that Facebook’s terms of service and its collection and use of data “are in violation of the European data protection rules” and that they have “closely cooperated with leading data protection authorities in clarifying the data protection issues involved”. The obvious question is: which of these leading data protection authorities has declared a violation of data protection rules? To my knowledge, none. And had there been a violation, shouldn’t they have declared it? I don’t know whether a violation existed, but it’s not for me to say, because –like the Bundeskartellamt- I’m at most a competition expert, not a data protection one. There are very competent data protection authorities specifically prepared to deal with these issues.  Even data protection activists have stated that it doesn’t make sense to shift data protection responsibility away from specialized authorities. How can we have specialized authorities but have the call made by a non-specialized one? How can we simply assume a violation that has not been established?

Harm to news publishers from a certain Member State as a standard for amending laws, creating exemptions, and prosecuting creative competition law infringements.

Product refinement and targeted advertising as a problem. The Q&A document explains that “from Facebook’s perspective, the data are of great economic value (…) Facebook can use them to optimise its own service and tie more users to its network (…) In addition, with the help of the user profiles, Facebook can improve its targeted advertising activities”. So practices are problematic because they enable companies to improve their products and offer ads that are more relevant to users. Such allegations are commonplace these days, but sound to me like an efficiency offense. Just as in the case of network effects, one cannot simply assume that something that increases the value of a product/service has negative competitive implications. But, unfortunately, there seems to be little appetite to deal with complexity and ambiguity these days, particularly when it comes to certain “online platforms”. It’s much easier to simply assume they’re just bad.

The convergence problem (and how to avoid it). The Bundeskartellamt states that “such an abuse control proceeding against Facebook would generally also be possible under the relevant norm of Article 102 TFEU. So far, however, only the case law of the highest German court has been established which can take into account constitutional or other legal principles (in this case data protection) in assessing abusive practices of a dominant company” (sic). This is interesting. And the use of the adverb “generally” may be as telling as the use of “practically” above.

If the Bundeskartellamt is confident that its approach was possible under EU Law, why didn’t it apply Article 102 in parallel to the national law? The only legally valid reason would be that trade between Member States was not affected, but that doesn’t seem to fly in this case. That issue, however, was avoided by defining a national market for social networks, based on the observation that German users use social media to network in seemingly isolated silos with other contacts within Germany.

What’s essential to a business model? There is nonetheless an element of consolation in all this. The decision does not target the processing of data generated by Facebook’s own website because “[t]his is an essential component of a social network and its data-based business model”. The idea that one should not lightly challenge the elements underpinning a business model is a sensible one on which we have often insisted. Even if this doesn’t make the rest of the decision right, it is a good way of drawing red lines.

There’s clearly an excessive output a fair amount of competition law publications and presentations out there. That certainly includes us too. It’s difficult to discern what to read and what not in your limited time. I have a folder of “pending reads” where I accumulate stuff that will often not be read. 

But there are some publications that never make it to that folder, because I always read them right away:

-These include any article published by Hearing Officer Wouter Wils.  Wouter recently published a piece on Legal Professional Privilege that is a must-read. It is available here. On the same topic, Eric Gippini’s 2004 Fordham article is another reading that should be mandatory for lawyers. Both now feature together in our syllabus for the module on competititon procedure at the BSC.

-These also include Fernando Castillo‘s annual presentations on cartel case law at the ULB. This have become a essential facility for all lawyers who would rather not read some several thousands pages of cartel case law, so pretty much everyone. As such, we requested Fernando access, and permission to make these available. And he kindly accepted to make his work open-source. Some time ago we provided you with his presentations covering the period 2009-2016 (see here) (unsurprisingly, there were many hundreds of downloads for those). Today we offer you his most recent presentations, covering 2017 and 2018:

Cartels 2017_Fernando Castillo

Cartels 2018 Fernando Castillo

Rich Pepper is clearly one of the lawyers on the rise in the competition law field and, more importantly, a very nice guy. He participated at our most recent conference, where he discussed the increase in the intensity and lenght of Commission investigations and in the volume of information assessed.

The video of Rich’s presentation is available here.

[Note: this is the eight post in a series featuring videos of the individual interventions that took place at the Chillin’Competition conference on 30 November 2018. For more videos, click here]

After many years of reflection, we think we have found a way to beat the Legal Service and DG Comp and in a court:

Playing basketball.

The Legal Service has put together an all-star team, known as the LS Lakers. No kidding.

Following a victory against OLAF, they will soon be opposing DG Comp’s team (while they often team up for Luxembourg matches, where they have an astonishing away record, they often play non-public games with each other…).

And they have challenged us to compete with them.

We see this an opportunity here for those people in private practice that would like to know how it feels to beat the Commission in court, even if just once. Or at least to entertain the thought for a while 😉

Any lawyers, economists or consultants out there who think can be up to the challenge, please drop us a line and we’ll try to set it up. We can show the world the teamwork spirit, lack of individualism and superior physical skills that characterize our profession.  It’s about time we stop being known only for our humility and integrity.

We would also appreciate suggestions for a possible team name. Please feel free to submit them as comments to this post. Best suggestion gets a Chillin’Competition sports bag and running t-shirt!

If this initiative is successful, we might ask MLex to cover games instead of hearings (box scores alerts, highlight videos and full summaries directly via email).

We have quite a few readers and many friends in the US, so this might be an excuse to see some of you. Next week I will be taking part at the Harvard European Law Conference 2019, in a panel on Antitrust Enforcement in the Digital Economy (see full programme below). Since it’s been 10 years since my time there as an LLM student, I’ll be taking the whole family on a memory tour and staying for an extended weekend. If any of you is around, give a shout!

Global Competition Review has just announced the nominees for the 2019 GCR Awards.  And….

–Unsurprisingly, Pablo is (once again) nominated as best Academic of the Year. This is the third time in a row, which speaks volumes about his influence in international competition law and is turning him into the Peter O’Toole of competition awards 😉 This time should be the definitive.

–My firm, Garrigues, is nominated for the European Firm of the Year Award. This is a testimony to great work from an admirable group of lawyers over recent years.  As I have often explained to many of you, I have repeatedly chosen Garrigues over other paths mainly because of the human and legal quality of its lawyers, and that has only kept improving. We are doing many things now that not so long ago seemed impossible for a non Anglo/American firm, and we have fun doing them. In my totally biased view, my colleagues very much deserve this Award. Plus the firm has never curtailed my freedom to write on the blog, which is a sign of trust that may also deserve credit from those of you who oddly enjoy our nonsense here.

–I have also been nominated for the Lawyer of the Year (Under 40) Award. Yes, as my colleagues have made sure to remark, contrary to what my hair may suggest I’m still 35.

Your vote counts, and you can cast it (in under 1 minute) clicking here.[If you have friends or colleagues who also read the blog, please use any means of threat and intimidation at your disposal to make sure they vote -the right way- too].

Forgive our leveraging of the blog for a self-serving campaign. In spite of my recent diatribe against politicians getting their hands on our discipline, I always liked politics and electoral campaigns (one day, perhaps… ), and this may be as close as I’ll get to campaigning!

I have no view on whether the Siemens/Alstom deal deserved to be prohibited or not. Even if I had one, I’m not even sure that I would be at liberty to share it, but I truly don’t. Like most of whom are criticizing the Commission’s decision announced today, I simply don’t have sufficient elements to have an informed opinion.

And nevertheless I have to congratulate the European Commission. Not for prohibiting the deal, but for resisting exceptional pressure. I would have also congratulated the Commission had it prohibited or approved this or any other deal in the face of extreme and virulent criticism. So this is not a post on Siemens/Alstom; it’s a post about the role and attitude of competition enforcers at a time of mounting political pressure to shake things on the basis of reflexes and short-term considerations packaged as long-term ones.

The fact is that today the Commission has shown that it can be an example of independence to other authorities around the world (who should also take note). And it has done so facing pressure from the most influential Member States, and at a time that wasn’t the most convenient for Commissioner Vestager. The Commissioner and the Institution have this time met the high standars that I referred to in my last post.  Commissioner Vestager has said today that the EU internal market is what enables EU companies to attain a global scale and compete in the worldwide market. That’s exactly the point, and the internal market is a rule-based construction.

Right or wrong, the Commission has applied the rules in what it believes is the right, objective way. This has earned them unusual public criticism. For example: “it must be bitter to be technically right but to do everything wrong for Europe”, or the comparison between “backward-looking technocrats or future-oriented Europeans” (see here). President Juncker even pointed to those “who are saying that the commission is composed of blind, stupid, stubborn technocrats.”

For a competition enforcer, being accused of “technocrat” doing the “technically right” thing should be a badge of honor. Competition authorities are there to apply the rules to a set of facts, not to do politics or shape markets according to the wishes of some [Member States/politicians/lobby groups/companies].

The institutional structure of the Commission arguably facilitates taking into consideration elements that may not necessarily be technical or at all related to the law (admittedly, we may have seen a bit of that in recent cases). But this time DG Comp has prevailed, and –regardless of whether their assessment is right or wrong- they have done what they believed was right no matter the cost. Too often decisions are simply adopted because they are the easy thing to do. This wasn’t the case.

Let’s nonetheless be aware that some disgruntled politicians will now want to use the occasion to do something about competition law (it’s shocking to have a technical area of law that does not explicitly accommodate all kinds of political goals!). So now a lead candidate to the EU elections says that “If EU competition rules are not fit for today’s challenges, then we need to change the rules”. Other politicians in France and Germany have announced proposals to “overhaul EU competition rules” (not sure the recent reforms in Germany signal the way to go in terms of independence from pressure groups…). Even the European Parliament has just issued its annual report on EU competition policy calling for a  “fundamental overhaul of EU competition policy”.

To be sure, I’m afraid the competition law community was part of the problem, opening Pandora’s box, signaling that competition law could reach further, and reclaiming public attention. You know, be careful what you wish for. It’s difficult to argue that one can enlarge competition law to cover [x, you name it], but not climate change, labor standards or industrial policy. Perhaps we should all reflect upon this and revisit our attitudes and our complaints about alleged blind spots.

Everyone wants to change the rules when they are not applied in the way we like. But that’s the very reason why we have rules in the first place! It’s perhaps time to abandon this Marxist reflex towards competition rules (and I mean Groucho, not Karl).

Competition law is already vague enough to make it even more nebulous by accommodating all kinds of goals and in no particular order. I have often said half-jokingly that there are issues far too important to be left to competition authorities. The only thing that could make me revisit this view is that over the past few weeks competition authorities have proved to be more sensible than your average politician.

Anyone who understands and cares about this discipline should probably start realizing that competition law ain’t broke, but it risks being broken. Don’t let that happen.