Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Search Results

The innovation offence (by Stephen Kinsella)

with 3 comments

offence

[We are happy to publish a guest post from one of the most respected and interesting practitioners in the EU market, Stephen Kinsella (he’s of course best known for having been a speaker at the first Chillin’Competition conference and for being the husband of a great novelist  who is currently crowdfunding her new novel. Below he gives his views on a very topical matter on which we have also commented before. As always, we will be happy to foster discussion and are open to publishing other views on the matter. Enjoy!]

Mergers tend to get more attention in press coverage than other antitrust activity in Europe.  That is partly because they have compressed timetables and obvious milestones to trigger stories (announcement, filing, enquiries, third party interventions etc) but also because they can be resolved to a binary choice between approval or block, with readily understandable consequences.  Not only shareholders but other financial players follow closely each twist and turn, placing bets on rumours of setbacks or “theories of harm”.

All this froth can sometimes mask a duller reality, which is that at the EU level of an average 350 or so deals notified in Brussels each year, less than one a year is ultimately prohibited. Of those that are permitted only around 5% are subject to any modifications or commitments as the price of approval.

And there is a reason for this. The system is weighted in favour of approval.  It carries within it a presumption that deals will be cleared, and speedily, unless good evidence can be brought forward of some creation or strengthening of dominance causing harm to effective competition, to the detriment of consumers denied the benefits of choice.

Granted, merger control, like other aspects of antitrust, is not static.  It evolves in response to evidence, to greater learning about how markets behave and to developments in legal and economic thinking.  But it does so cautiously, trying to balance the risks of excessive intervention (in the jargon, Type 1 errors) against non-intervention (Type 2 errors).  The Type 1 errors could include not only hampering the ability of the merged entity to innovate, but also deterring those who would invest in creating products with the aim of selling them to another who is better able to exploit them.

One area in which we are seeing calls for such an evolution relates to “big data”.  Enforcers at EU and national level are asking themselves whether the mantra that “knowledge is power” literally means that the acquisition or accumulation of data, in particular about the behaviour of and relationships between large numbers of individuals, could confer the power to exploit and exclude.

This is not to be confused with concerns over privacy.  We have seen numerous statements, including from Commissioner Vestager, that competition law is not to be used to try to cure possible concerns that fall more properly in the realm of consumer (or data) protection.  Rather the question is a narrower one: whether a data set might be so special, valuable and non-replicable that its concentration in one undertaking would give it an overwhelming competitive advantage that could be checked only by regulatory intervention.

Such a theory is not controversial in principle if one looks at data as if it were an essential facility.  But it runs up against the objection that unlike a piece of infrastructure such as a port or a pipeline, the data (or substitutable data) may well be capable of being compiled by others, or already exist in the form of other accessible compilations.  Again to cite Commissioner Vestager in a recent speech, the data might quickly go out of date and need refreshing, and “we also need to ask why competitors couldn’t get hold of equally good information”.  And while we sometimes see reference to the question of whether the data is “unique”, the better way of expressing it, as recognised in the Franco-German discussion paper from May this year, is whether it is really “unmatched”.  This recognition has led to understandable caution.  A recent consultation exercise by the Commission is beginning to explore whether the merger rules need to be adjusted – though even here the focus is more on the jurisdictional thresholds that might be appropriate to ensure deals receive proper scrutiny, rather than suggesting that data poses particularly intractable problems.

Against this backdrop, the public discussion around the Microsoft – Linked-in transaction is interesting, and rather curious [my firm has advised Microsoft on a range of antitrust issues but I am not acting on the notification of the Linked-In deal] .  I only have access to what is in the public domain, but it appears to be a case where a company acquires a target with which it is not in competition and where there is no suggestion that the target will alter its commercial strategy in terms of its market behaviour or how it makes available its data to third parties.  According to press reports the acquirer has already given assurances to that effect and those assurances do not seem to  be seriously disputed.  Therefore it is hard to see that any adverse change in the market will inevitably occur that is “deal specific”.

At the same time, though nobody disputes the value of the data held by Linked-In, there are many other players in the market and apparently many other ways of obtaining similar or competitive data sets.  In fact an increasing number of companies hold substantial amounts of data regarding their customers or others with whom they interact and some use that purely for internal purposes while others develop business models around exploiting that data.  Unless there is convincing evidence that a particular data set is genuinely both non-replicable and uncontestable, it would place an unreasonable burden on competition enforcers if they were always obliged to analyse the impact on some rather nebulous “data market”.

But horizontal concerns are not the end of the story.  There have been claims by opponents of the deal that in the future, in some unspecified manner, the two companies could combine their data and expertise. In doing so they would come up with some new product, for which there would be strong consumer demand, and with which third parties would struggle to compete (though I have seen no suggestion that those third parties would be forced to exit the market).  Such reasoning evidently includes a number of leaps and suppositions, but reduced to its essentials it seems to try to take merger theory even beyond the notion of an “efficiency offence” (always rejected by the Commission) into the realm of an “innovation offence”.

One can well understand why any regulator would be sceptical about such an approach.  Merger control has to be to some extent forward looking in that it must try to identify the suppression not only of actual but also of potential competition.  But when asked to go even further and tackle some speculative impact on a form of competition that absent the transaction would not anyway have taken place, combined with the fact that the transaction will in the complainants’ “worst case” scenario introduce a new element of competition through a new product, the levels of abstraction introduce too much uncertainty into the merger review process.

Moreover, it is not as if merger control is the last and only chance that the Commission has to protect competition.  If following a concentration some development occurred that put the new entity into a position of unassailable market power, there remains Article 102.  Indeed we saw relatively recently in the Thomson-Reuters case that the Commission, having cleared a merger, then opened a proceeding to verify the impact on the market of the merged firm’s unilateral behaviour and extracted a package of commitments that the Court subsequently ruled was sufficient to restore competition.

Those opposed to transactions will continue to innovate with theories of harm.  Regulators will continue to welcome and even encourage their contribution, while maintaining a healthy scepticism regarding their agenda.  But the threshold for intervention remains high.

Written by Alfonso Lamadrid

14 November 2016 at 12:08 pm

Posted in Uncategorized

Materials on Competition and Regulation in Digital Markets

leave a comment »

The slides of the conference Competition and Regulation in Digital Markets held at the University of Leeds on 9 September are now available here.

You will see some very interesting materials there (not my slides, which are a slightly modified version of my earlier presentations on the same topic: big data) [yawn intermission]. At least some of the jokes in my intervention (pictured below) were new…

Actually, if it weren’t for the minor issue that that the jokes aren’t really funny I would  consider joining Chicago Antitrust Professor Randy Picker in his stand-up comedy events.

leeds

By the way, an interesting development regarding the topic of my presentation took place last Friday, when the European Data Protection Supervisor published a new “Opinion on coherent enforcement of fundamental rights in the age of big data“.

The Opinion interestingly  acknowledges that “it would be inappropriate for one area of regulation to look to another area to compensate for its own weaknesses. Authorities in each area have limited tools at their disposal, for example competition enforcement can only address abuse of dominance, cartel behaviour and mergers which are not in the consumer interest; abusive conditions of service are not necessarily an antitrust issue”.

At the same time, however, it holds the (now more nuanced) view thatdata protection authorities can help shed light on how and to what extent the control of personal data is so crucial for companies in markets. The synergies between the fields of law, which have been discussed intensively in the recent years, could propel closer cooperation between authorities, especially where there is neither guidance nor case law. It is not a question of ‘instrumentalising’ another area of law but rather of synchronising EU policies and enforcement activities, adding value where a supervisory authority lacks expertise or legal competence in analysing“. The EDPS therefore  offers “the expertise of independent data authorities in advising on how to assess the significance for consumer welfare in such proposed acquisitions“.

One may or may not agree with the EDPS’s views on this matter (and you know my take), but it him and his team deserve credit for having made a popular issue out of this, thereby reviving some of the old -and most important- debates in EU competition law.

Written by Alfonso Lamadrid

27 September 2016 at 6:43 pm

Posted in Uncategorized

eBook on Competition and Platforms

with one comment

ed6d021da58016c5a15e8250b20b3910

A colleague just congratulated me for an article included in an ebook that was recently published on Competition and Platforms. Interestingly, I did not know that the book was out nor that it included my piece!

In any case I suggest you download it and take a look. It’s sponsored by our friends at CCIA and edited by a former colleague Aitor Ortiz (now at Competition Policy International). It compiles a number of interesting pieces on multi-sided markets.

Mine (“The double duality of two-sided markets”) was initially written as a speech for the Pros and Cons conference in Stockholm and was later published in Competition Law Journal, so it is also multi-published and multi-used. Talk of multi-homing….

The ebook is available here. It features the following pieces:

-Understanding Online Platform Competition: Common Misunderstandings By Daniel O’Connor

-The Move to Smart Mobile and its Implications for Antitrust Analysis of Online Markets By David S. Evans, Hermant K. Bhargava & Deepa Mani

– Failed Analogies: Net Neutrality vs. “Search” and “Platform” Neutrality By Marvin Ammori

-Antitrust Regulation and the Neutrality Trap: A plea for a Smart, Evidence-Based Internet Policy By Andrea Renda

-Multisided Platforms, Dynamic Competition, and the Assessment of Market Power for Internet-Based Firms By David S. Evans

-The Double Duality of Two-Sided Markets by me.

-Should Uber be Allowed to Compete in Europe? And if so, How? By Damien Geradin (Juan M. Delgado & Anna Tzanakis, ed.)

-Online Intermediation Platforms and Free Trade Principles – Some Reflections on the Uber Preliminary Ruling Case By Damien Geradin

-Competition Policy in Consumer Financial Services: The Disparate Regulation of Online Marketplace Lenders and Banks By Thomas P. Brown and Molly E. Swartz

-Legal Boundaries of Competition in the Era of the Internet: Challenges and Judicial Responses By Zhu Li

-Can Big Data Protect a Firm from Competition? By Anja Lambrecht & Catherine E. Tucker

 

Written by Alfonso Lamadrid

8 June 2016 at 12:04 pm

Posted in Uncategorized

Conferences (including the theme of the 2nd Chillin’Competition conference)

with 4 comments

canseco-press-conference

We have already decided on the topic of the next Chillin’Competition conference. The common thread will be “Neutrality Everywhere“. The dates are yet to be determined (not likely to happen until after the summer). If any of you have original ideas (for a panel, for a paper you would like to present, for sponsors or even for a venue), please send them our way!

And speaking of conferences:

On 27 May the Brussels School of Competition will host a morning briefing on the very timely topic of mobile network consolidation. For more, see here.

On 2 June there wil be a couple of most interesting events in Brussels. First, Global Competition Review, Baker Botts and Shearman&Sterling will be holding the GCR Live 4th Annual IP and Antitrust event, and have managed to come up with a great program. That same day, a bit later, the Academy of European Law (ERA) will host a seminar under the title: What’s New in Art 102 TFEU? Latest Issues on Price and Non-price Related Conduct: for more info, see here.

On 8 June the GCLC and UCL have organized a conference under the title Competition Policy at the Intersection of Equity and Efficiency Honoring the Scholarship of Eleanor Fox. The programme is available here.

On 10 June Pablo will follow my footsteps 🙂 and will address the Association of European Competition Law Judges which this time is meeting in Madrid. The conference will address the competition – IP interface.

On 13 June Concurrences will host the New Frontiers of Antitrust Conference in Paris. The conference has been promoted with a teaser-interview with Nicolas Petit, available here.

Also on 13 June there will be a conference on Competition Law and Competitiveness in the EU at the Reform Club in London featuring an impressive speaker line-up too.

On 14 June the College of Europe will hold the annual symposium organized by the ELEA (European Law and Economic Analysis) students. There will be a panel on geo-blocking that will feature big names such as Thomas Kramler and Mike Walker and small names like Pablo 😉

The big global event on 23 June will be the British referendum my intervention in a symposium titled  Online platforms, Big Data and privacy: What role for competition policy?. It will be hosted by the Centre for Studies on Media Information and Telecommunication (SMIT) & the Brussels Centre for Competition Policy (BCCP) at Vrije Universiteit Brussel (VUB), Brussels. Those of you interested can download the program here.

On 4-8 July I will also be teaching at the College of Europe’s Summer Course on Competition Law taking place in Bruges. For more info, click here. I will also be lecturing at the College of Europe’s Summer Competition Law School for Chinese officials, but I fear you may not be eligible for that one…

And during 2016/2017 (and beyond) Pablo will be… Actually, he can tell you himself.

Written by Alfonso Lamadrid

19 May 2016 at 10:44 am

Posted in Uncategorized

More on the antitrust-privacy interface

with 2 comments

In some previous posts we’ve commented on the interface between the competition rules and data protection/privacy regulation, which is one of the trendiest topics in international antitrust these days.

As you may recall, the European Data Protection Supervisor recently held a high level workshop (high level but for my intervention on it, that is) on Privacy, Competition, Consumers and Big Data. On Monday, the EDPS made available on its website a report summarizing what was discussed in the workshop (conducted under Chatham House rules). The EDPS’ summary is available here:  EDPS Report_Privacy, competition, consumers and big data.

A summary of my intervention at the workshop was published in two recent posts (here and here).

For more, you can re-read Orla Lynskey’s A Brave New World: The Potential Intersection of Competition Law and Data Protection Regulation as well as the interesting comment by Angela Daly on my latest post on the issue.

The German Monopolkommission has also addedd its voice to the debate by issuing a recent report (“A competitive order for the financial markets“) which contains a section on data-related questions regarding the internet economy. The Press Release (in English here) expressess some concerns but notes that, according to the report, “an extension of the competition policy toolkit does not (yet) seem advisable on the basis of current knowledge and understanding“.

Written by Alfonso Lamadrid

16 July 2014 at 9:33 am

Speaking engagements

leave a comment »

Minutes after I published the post on endives’ right to be forgotten I received a call from the European Data Protection Supervisor’s office. At first I admit I thought it was someone (my first suspect was that guy from 21stcenturycompetition because he’d read a draft of the endive thing; don’t worry, Kevin, I won’t disclose you thought it was serious) returning the joke, but it wasn’t, and I got invited to speak next Monday  the most interesting (but closed door) Workshop on privacy consumers, competition and big data (to be held at the European Parliament and arranged in the wake of the EDPS report that we –actually Orla- discussed here).

I’d solemnly committed myself to have a life and not take on any more non-work (non-billable, that is) stuff in the coming weeks/months, but it was an offer I couldn’t refuse. My topic is Market Power in the Digital Economy.

Three days later, on Wednesday 5 June I’ll be providing an overview of the commitment decisions adopted by the Commission since the enactment of Regulation 1/2003 at the Brussels School of Competition’s annual conference. This event you really should attend (click here for info: Programme_Commitments in EU Competition Policy – 5 June 2014).

[ I apologize in advance to all attendants at these two conferences: I’ve an important General Court deadline on Friday and then a bachelor party weekend, so preparing might be a challenge. Yes, this is the ol old expectation-lowering trick ! ]

Then on 8 July I’ll be lecturing on EU competition procedure and on Special and Exclusive Rights (Art. 106) at the College of Europe’s Competition Summer School for Chinese officials. Talking with Chinese officials about how competition law applies to public measures should be quite an interesting experience.  And then on the 11th same procedural class in the context of the College’s summer course on competiiton law.

And then, following my first paternity leave in September, I really plan to take on less of these commitments.

Well, on 28 November I’ll be participating at the Swedish Competition Authority’s annual and always excellent Pros and Cons conference, which on this edition will be devoted to Two Sided Markets, but I couldn’t say no to that either…

Written by Alfonso Lamadrid

28 May 2014 at 5:52 pm

Apple’s App Store: a microcosm capturing what digital cases are all about

with 5 comments

Developers using Apple’s App Store have been voicing their grievances for a while. These complaints reached a whole new level last week, when a high-profile developer (or so the younger generations say) very publicly defied Apple’s rules. As expected, the firm – Epic – was expelled from the app store and the confrontation made the headlines (see here).

Reading about this sensational story made me realise it captures effectively what is new and distinctive about disputes in digital markets. There are some patterns that cut across pretty much every case against Big Tech. The point underpinning the complaints – what these seek to achieve – is identical.

The rise of the powerful complainant

Epic is a large and successful firm that offers the most popular videogame these days. It shows. The video accompanying its confrontation with Apple deserves to be watched (here, via, ahem, another platform). It is a play on Apple’s iconic 1984 ad and an astute way of pitching Epic as the outsider siding with ordinary folks against the (fruit-shaped) establishment.

Epic exemplifies the rise of the powerful complainant. This development is perhaps the single most relevant change in the competition law ecosystem over the past decade. Until relatively recently, firms – in particular large and successful ones – were wary of proactive, far-reaching competition law intervention. They all sang to the same cautious tune.

Not anymore. In fact, a few large multinationals keep urging authorities to take risks and, if necessary, depart from the case law and/or introduce new ad hoc rules. ‘Act fast, deal with the unintended consequences later’ is the mantra on the rise. Just like Epic, these players seek to persuade the wider public that these changes do not just suit their agenda but are good for society at large.

The above can hardly be criticised. It would be surprising if firms did not attempt to advance their interests on all fronts, including the legal one. The point is that the changing ecosystem introduces new, fascinating and to some extent unprecedented dynamics [note: if you happen to be a political scientist reading this post, drop me a line!).

It is all about access and rents: the fight for a larger slice of the pie

If one looks at the past and ongoing investigations involving large online platforms, it becomes apparent that there is an overarching theme cutting across all cases. In essence, complainants seek to secure access on improved terms and conditions. More precisely, they intend to capture a larger share of the rents generated by the platform.

This conclusion is obvious to draw from disputes around the App Store. Complainants in these investigations have been candid about the thrust of their claim: they consider that the 30% commission charged is excessive and thus should be entitled to a larger slice of the (apple) pie.

The rest of cases are no different, whether they are said to concern exploitative or exclusionary behaviour.

The interim measures adopted by the French competition authority – and concerning press publishers – are an obvious example (see here). The struggle for ‘equal treatment’ in Google Shopping was in essence a struggle for the traffic (and thus the rents) generated via the search engine.

Even investigations on Amazon’s marketplace are, at their heart, about rents: the data shared by retailers using the marketplace is just part of the price they pay to access the platform. It is, in other words, a fraction of the commission charged by Amazon (and should be analysed as such).

How these cases may change competition law

EU competition law occasionally ventures into the allocation of rents within a value chain. It has never been disputed that Article 102 TFEU applies to exploitative conduct by dominant firms. It is not a secret, on the other hand, that the Commission has always been careful about opening exploitation cases, for very good reasons.

It will never be never easy to determine the appropriate remuneration for a firm developing an input or infrastructure, let alone the optimal allocation of rents across the value chain. The unintended consequences of intervention along these lines are also well known.

These questions – this is not a secret either – are considerably harder when it comes to online platforms. This is so for two reasons. One relates to the dynamic and fast-moving nature of digital markets, which makes the task more prone to errors than, say, getting the access price to the telecoms network right.

The second reason is not always acknowledged. Re-allocating rents across digital markets typically goes much further than tweaking the the price of a medicine or the tariffs of a copyright collecting society. It often involves changing a firm’s product, business models and/or degree of integration.

Just think of the aftermath of Google Shopping (the design of the search engine was modified) and Android (the business model was altered) or of the implications of ruling that Apple may not impose an in-app purchase system (intervention would add an additional layer of modularity).

As already explained (see here), EU competition law is even more careful about imposing remedies leading to such outcomes (which, in turn, is the reason the indispensability condition has traditionally acted as a legal filter to limit the instances in which the system is exposed to them).

As the ‘act fast, deal with the unintended consequences later’ mantra gains traction, the exception comes closer to becoming the rule, and the system closer to dealing, on a routine basis, with the very issues it has avoided for decades. Fascinating times indeed.

Written by Pablo Ibanez Colomo

21 August 2020 at 3:34 pm

Posted in Uncategorized

The Suspension of the Bundeskartellamt’s Facebook Decision- Part I: What the Order Actually Says

with 5 comments

facebook like.jpg

A comment on the suspension of the Bundeskartellamt’s Facebook decision seems like a perfect fit for the start of the new academic year at Chillin’Competition. The Order is truly a must read for anyone interested in competition law, particularly in digital markets. The fact that it’s written in German complicates that a bit. Let’s hope this helps. This post is lengthy, but that’s the price to pay for not reading the full original.  If short on time, go to the highlighted bits.

We already commented on this case at the time it was opened (see here) and decided (see here). Last week the Higher Regional Court of Düsseldorf suspended the decision pending a final decision on the case, expressing “serious doubts” as to its legality and using some pretty strong language. This development seems to have surprised many. Not so much us. If anything, we are pleased that it is very much in line with our understanding of the law, as consistenly expressed in this blog

After reading an excellent Twitter summary (here), I couldn’t help spending some of my last hours of holidays reading a pretty good Chrome translation (available here:) of the German original version and writing this post. The quotes used in this post are based on that automated translation (so please check against the original) and on the input of my colleague Konstantin Jörgens. To help find references, my comments also refer to the numbering of paragraphs in the translation (not present in the original). Note also that the Order discusses German law, but that it relies on principles common to EU Law (and makes an ironic(?) reference in passing to “the desired alignment of national competition law with that of the Union” (para. 29)).

The Court suspended the decision arguing that even a summary examination of the factual and legal situation leads to the conclusion that it will be set aside (para.25). Its (annotated) reasoning follows. [In Part II we will build on these elements to discuss why the Order is a perfect illustration of sensible and necessary judicial review, and by no means an obstacle to proper enforcement in digital markets].

Is there an exploitative abuse? Our first comment on this case said that “admittedly, and theoretically, the Bundeskartellamt could build an exploitative case alleging that Facebook sets infra-competitive privacy terms and conditions. However, this does not seem to be the reasoning underlying the investigation. Perhaps this has to do with the difficulties in determining which is the “competitive” level of privacy (…) possibly in the light of these difficulties the authority is prepared to take a shortcut, automatically equating an alleged “violation of data protection provisions” by a dominant company with an abuse of dominance.

The Court shares the same view, and that’s essentially why it suspended the decision. It underlines that an exploitative abuse may take place when a dominant company imposes business conditions that differ from those which would likely result from effective competition. In line with our first post, the Court understands that there is in theory no reason why one could not run an exploitative case in relation to privacy policies. Crucially, however, it rules that “the [Bundeskartelamt] did not carry out sufficient investigations into an “as if competition” and consequently did not provide any meaningful findings on the issue of which conditions of use would have formed in the competition (para. 27; the Order comes back to the counterfactual also later at para. 47). Facebook did not have to show what the competitive level of privacy would have been; it was for the Bundeskartellamt to look into it, but it didn’t.

Failure to assess the counterfactual, again. As repeatedly held by EU Courts, and as you will have read us write a thousand times, a proper counterfactual analysis is the best sanity check for any given theory of harm. Contortions to avoid the sanity check suggest that the authority itself is aware of the pitfalls of its case. A competition authority may have a margin of appreciation in conducting complex analysis, but for that very same reason it cannot entirely do away with them. This logic, by the way, is very much in line with the tendency we see in EU Courts (see e.g. here). Most of the discussion that follows, regarding causality, is also in essence about the counterfactual. In addition, the Court also faults the Bundeskartellamt’s assumption that users “prefer a fee-based network to a free but ad-supported one” because the authority “made no reliable and meaningful findings” (para. 78).

Assessing the consumer harm: data processing as a voluntary consideration for free and non-indispensable services. The Court observes that the data gathered by Facebook is duplicable and can also be made available to third parties  (para. 31). It also observes that the decision failed to address why “all” of the data collected by Facebook was excessive (para. 32), and that there is “no loss of control” on the part of users because the data processing took place in compliance with Facebook’s terms of use and with users’ consent. According to the Court, the fact that use of the network is conditional on consent to the processing of the data a issue “requires to  balance the benefits of using an ad-supported (and thus free) social network with the consequences of the use of the data” (para. 35 and later also at paras. 71 and 85, and more at length at 76) and users remain free to use or not use free-ad-supported Facebook depending on their values and preferences. The Court repeatedly stresses that in Germany there are more Facebook non-users than users, which shows that non-usage is evidently an option. As we said in our comment on the opening of the case, “Facebook is not an unavoidable trading partner and consumers are not locked in to it; if consumers don’t think it’s worth giving data in exchange for the service, they won’t join. So, again, we agree.

What’s essential to a business model? Our post commenting on the decision underlined that the Bundeskartellant did at least 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”. Setting the business model as a red line seemed sensible. But the Court here takes a wider –and arguably even more sensible- view of what is essential to Facebook’s business model (described at the very outset in paras. 8 and 9, as well as later in 35 and 71, as offering free services financed via tailored online advertising in exchange for users agreeing to the terms of service). Later at 93 the Court points to a “lack of reliable explanation on if and to which extent  the use of the added data boosts advertising revenues to finance the social network”.

What matters (in a sanctioning regime) is the company’s behavior, not users’ psychology. The Bundeskartellamt had argued that users do not read terms of service, but the Court dismisses this argument observing  that based on a realistic interpretation , this most probably is due to “indifference or convenience of the Facebook user and that no one had claimed there was any informational deficit on the part of Facebook (para. 37; at 71 the Court adds that “there is no evidence that Facebook obtains the consent of users through coercion, pressure, exploitation of lack of willpower or otherwise unfair means”). At 84-85 the Court explains that “whether the users act out of indifference or because they do not want to spend the necessary time and effort (…) does not matter” as their decision is ultimately “free, uninfluenced and autonomous”.

Not every legal violation is sufficient to give rise to an abuse. The Court does not agree with the Bundeskartellamt’s interpretation of the German case law. It discusses the Supreme Court’s rulings and explains that only unlawful behavior that has an effect on the protected goods of competition law (freedom of competition and openness of market access) can be equated to anticompetitive conduct. Our first post on the case presented it as part of the tendency “of extending the “special responsibility” of the dominant firm in order to comply with the law, and not just with competition law, with literally any legal provision”. Well, in a quote that deserves a proper translation, it argues that the “special responsibility” only regards competition, and does not extend to legal compliance by way of avoiding any possible violation of the law (paras. 44 and 46).

On Causality. In our comment on the opening of the case we noted that “the Press Release does actually say –or suggest- something which is arguably sensible (albeit contrary to Continental Can and Astra Zeneca) when explaining that it needs to check whether there is “a connection between such an infringement and market dominance”. Well, the Order deals at quite some length with this issue (I spare you the discussions on German case law), noting that a link of causality between dominance and the disapproved behavior (“or at least the anticompetitive effects of its behavior”) is required both under EU and German law (paras. 53-56). The Court observes that the suspected exploitative abuse does not result in a structural weakening of competition (para. 58) and that its effects on consumers are unrelated to dominance (para. 59).

Perfect understanding of “anticompetitive effects”. If you have read Pablo’s posts (e.g. here) or head me speak recently (e.g Lesson 7 here)  you will have heard that one of our recent obsessions has to do with the watering down of the notion of effects. Our contention is that according to the case law mere disparity of treatment is not enough, and that there can only be anticipative effects when rivals’ ability and incentive to compete are hindered. Here, the Court explicitly says precisely that, that“not every economic disadvantage inflicted on another company constitutes a hindrance in the antitrust sense. What is needed is an impairment of the competitive and entrepreneurial options for action and decision-making” (90). Amen.

Barriers and effects need to be convincingly shown, not simply assumed. In our comment on the decision we remarked the simplistic approach of assuming, without the necessary analysis, that “practices are problematic because they enable companies to improve their products and offer ads that are more relevant to users (…).But, unfortunately, there seems to be little appetite to deal with complexity and ambiguity these days, particularly when it comes to certain “online platforms”.

The Court in para. 93 argues that the idea that additional data increases barrier to entry because data is relevant to generate advertising revenue is “incomprehensible” and that this is a question that “requires closer examination and a detailed explanation /”a review and conclusive presentation by the antitrust authorities. That’s what’s missing” Why? Because, the Court explains, direct network effects mean that the value of the Facebook network increases as the number of users increases and the real barrier to entry lies in rival’s need to offer an equally attractive offer capable of gaining a sufficient number of users. The Court takes the view that the decision has not “substantiated and demonstrated” how the processing of the data at issue could affect market entry. It also observes a “lack of reliable explanation on the extent to which and in what scale the use of the data boosts advertising revenues to finance the social network”. This analysis was “indispensable” because the key to entry does not lie in obtaining the highest possible advertising revenues but a sufficient number of users. At the end of 93 the Court explains what type of analysis was required. The same is true about allegations of leveraging in other (not properly defined) markets, where the decision shows a “serious lack of reasoning” (para. 94) “lacking robust and comprehensible explanations” (para. 95).

A competition law problem? The conclusion to our first post on this case was that “there may be a market failure, but one that has to do with asymmetries of information, not market power. In other words, whether consumers know or not what terms and conditions they are accepting may be a public policy issue, but one that, in my humble view, is not for competition law to address”. The Court appears to share this belief. It explains that only with the help of the causality requirement “it is possible to avoid antitrust enforcement beyond the regulatory purpose of abuse control and to prevent the antitrust authority from prosecuting non-competition related infringements”(…) “unfairly disadvantageous terms (…) can also be based on informational market failure and the resulting systematic asymmetry of information to the detriment of customers) (para.61). The Court understands that “this possible alternative causation link justifies both the unlawfulness of the decision” (because the Bundeskartellamt bore “the burden of determination”/proof) (para. 76) and the legitimacy of consumer protection rules. Like. Earlier on the Court had made a point in this regard that we have also made before: the interests of those affected by the same behavior on the part of non-dominant firms are no less worthy of protection (para. 47), which is another reason not to leave these matters to competition law.

***

Stay tuned for Part II, with our comments on the reactions from other commentators and on what this development may/should mean for competition enforcement.

 

Written by Alfonso Lamadrid

3 September 2019 at 4:32 pm

Posted in Uncategorized

The Amazon Investigation: A Prime Example of Contemporary Antitrust

with 3 comments

prime

The Commission announced this week the formal opening of a case against Amazon (see here). It had also informally done something quite similar almost a year ago (see here), and that first news cycle triggered comments from Pablo that remain current and are even more valuable today. In parallel, the competition authorities from Germany, Austria and Luxembourg closed proceedings against Amazon after the company agreed to modify certain clauses.

The Commission’s case is plagued with interesting legal issues and questions that we look forward to exploring. It is a prime (pun intended) example of the issues raised in contemporary antitrust. I’ve received a few press inquiries about this and already had a chance to discuss the development almost live during a lecture at the College of Europe on “Multi-sided platforms: the lessons from the case law”, so I’ll build on what I explained there (off the top of my head, so this is all likely to evolve).

Bear in mind that we have no information as to whether the Commission’s factual suspicions are well-founded or not, so for the purposes of this post let’s simply assume that they are and focus on the law:

Duality at the core. The case against Amazon is premised on the observation that “Amazon has a dual role as a platform: (i) it sells products on its website as a retailer; and (ii) it provides a marketplace where independent sellers can sell products directly to consumers”. The Commission suspects that Amazon collects competitively sensitive information about marketplace sellers and, according to the press release, it “will focus on whether and how the use of accumulated marketplace seller data by Amazon as a retailer affects competition”.

Challenging vertical integration/a business model. Is the Commission challenging a business model or vertical integration itself? To the extent that one argues that the problem lies in “being umpire and having a team at the same time” (see here) in itself, then this would effectively constitute a challenge to a given (hybrid) business model more than to specific practices [on a different note, the referee/player metaphor was the one traditionally used to challenge the Commission’s own business/enforcement model]. 

If this is the Commission’s thinking (it may well not be), this could have very profound implications, as many companies other than Amazon (including e.g. large offline retailers with private label brands) rely on the same business model. This is particularly true given that the investigation is based not only on Article 102 but also on 101, so its ramifications could extend beyond dominant companies.

As we always say, competition law is business model agnostic. Amazon, for one, has suffered from this when it comes to platform bans (think about it, Coty is also a prime example of the idea that one cannot treat a firm that opts for selective distribution worse than a vertically integrated rival pursuing the same objectives). The use of a given business model, in itself, does not warrant antitrust intervention. It might, if it gives rise to anticompetitive effects in the sense of the case law. As Pablo explained in his post, vertical integration and lack of neutrality is often even procompetitive. Again, that doesn’t mean that specific practices may perhaps be legal/illegal, but one cannot simply presume legality/ illegality just by looking at the business model.

On the threshold of effects. If it’s all about the effects, what effects are we talking about? What legal standard should the Commission apply?

Is the theory then that merchants suffer a competitive disadvantage? The case law tells us that a mere disparity of treatment/competitive disadvantage is not enough to find an infringement (see e.g. Lesson number 7 here ;), MEO, Post Danmark I or Deutsche Telekom (para. 250 where the Court said that the existence of a margin squeeze/forcing rivals to price below cost is in itself, absent anticompetitive effects, insufficient to find an infringement).

Is the theory about unfair trading conditions? If one frames this as an exploitation/unfair conditions/excessive pricing case, one would need to look at whether the price paid by merchants is excessive having regard to the value of the service provided by Amazon’s Marketplace. And that may be pretty hard. Moreover, cases like TeliaSonera also involved unfair conditions and also require a showing of anticompetitive effects. As explained in the previous paragraph, this means something beyond a mere competitive disadvantage.

Isn’t this rather about conditions for access? The idea seems to be not only that Amazon is dominant but that merchants actually depend on Amazon to market their products (if not, it’s clear that there is no foreclosure, right?). In a way, you could say that data allegedly collected by Amazon is part of the price that a merchant pays to be able to sell its products in the marketplace (don’t critics of online platforms actually often repeat that people pay with data?). Amazon may need that data for different purposes, including ensuring that the overall platform/marketplace remains competitive (this is a fundamental point on which I would expect much of the legal discussion to focus). And this is in the nature of the hybrid business model, which has so far worked in this and other sectors. Would we be better off if Amazon re-adopted its previous model and closed the marketplace to third parties? And in that scenario, could a competition authority force Amazon to reopen it again under FRAND terms? The intuitively easy answers to the questions may be telling.

If one thinks about the case law (a big “if” these days), cases like Bronner, Commercial Solvents and Télémarketing all involved similar settings (vertically integrated rivals “favoring” their own services) and all of them require indispensability and the elimination of all competition. Bronner very much emphasizes this point beyond doubt (“self-favour” yourself and read it again).

Are merchants foreclosed/driven out of the market by Amazon’s alleged conduct? At first sight this would not appear to be the case given the continuous growth in merchant sales on the Amazon marketplace and the existence of other channels to market products. In fact, Amazon needs merchants and it is highly unlikely that its marketplace would thrive if merchants didn’t. An automatic assumption of foreclosure would imply presuming that Amazon is somehow an indispensable sales channel, which sounds like quite a stretch (and which, by the way, also appears to be at odds with brands’ appetite for platform bans). It will be interesting to see how the Commission approaches this question.

Increasing competition? If it were true that Amazon really uses merchant data to set its competitive strategy, I guess one could even argue that Amazon would be merely observing where there is scope for greater competition (in terms of price, output or quality) in order to adopt certain decisions, including whether to launch its own product. Under this optic, one could therefore argue that this practice (again, assuming it might exist) would actually enhance competition in every product category.

On similarities with other cases. This investigation is but one more step in a trend/line of thinking that started and peaked with the Google Shopping case (the judicial outcome of which could have a crucial impact on the Amazon case depending on time and on how Amazon plays this). Pablo accurately calls this “common-carrier antitrust”. The irony is that some of the people that propelled and still defend those theories are now faced with their boomerang effect (talk about dual roles…). Expect some creative contortions

Openings and closings. As some commentators have observed, the parallel closing of the German and Austrian cases shows that competition cases can also be quickly and effectively resolved, regardless of their merit, even absent interim measures. But, among other factors, that depends on whether what is at stake is an essential component of the business model or not. This may perhaps be one more reason to focus on cheap exclusion and not second guess business models (which is what some people are now openly advocating for).

To be continued…

Written by Alfonso Lamadrid

19 July 2019 at 1:06 pm

Posted in Uncategorized

The Bundeskartellamt’s Facebook Decision- What’s not to like? Well…

with 6 comments

images

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.

Written by Alfonso Lamadrid

27 February 2019 at 11:27 am

Posted in Uncategorized