European Union: Commission Publishes Final Report On Competition Policy For The Digital Era

On 4 April 2019, the European Commission published a special report commissioned by Commissioner Margrethe Vestager on how competition policy should evolve to continue promoting pro-consumer innovation in the digital age ("Competition Policy for the Digital Era").

The report is grounded in three key characteristics of the digital economy which grant significant competitive advantages to incumbents, frustrating competitors' ability to enter the market. First, the extreme returns to scale in the production and delivery of digital services. Second, the existence of network effects which frustrate potential competitors' efforts to make users move to an alternative platform and, finally, the role of data as a crucial input for the provision of online services. In this context, the report focuses on the application of competition rules to platforms and data and on the role of the EU merger control rules in regulating the digital space.

In terms of platforms, the report puts forward two goals. First, to facilitate competition "for" the market – i.e., among competing platforms – in order to allow users to multi-home between platforms and to switch platforms with ease. Second, the report suggests that dominant platforms should be responsible for ensuring that their actions as regulators (in the sense that platforms determine the rules according to which their users interact) are pro-competitive. In order to achieve these goals, the report argues, first, for dominant platforms to be subject to a duty to ensure interoperability with suppliers of complementary services and, second, for dominant platforms to assume responsibility to ensure that their rules do not impede free, undistorted and vigorous competition without objective justification.

As for data, the report considers the importance of operators' access to data, concluding that the significance of such access from a competition and market power perspective must be assessed on a case-by-case basis and will depend on the specifics of a market, type of data and nature of its usage. In this sense, the report suggests that Article 102 of the Treaty on the Functioning of the European Union ("TFEU") should only be invoked where access to the data in question is truly indispensable. Where a refusal to grant access concerns data necessary for uses outside the market served by a dominant firm, the report considers the use of sector-specific regulation or imposition of conditions of access more appropriate. However, according to the report, Article 102 TFEU remains important in guiding dominant companies and platforms as to the circumstances and conditions under which they are required to grant access to their data.

With regard to data sharing, the report suggests that competition law can be useful by providing guidance to operators on the conditions under which data pools and data sharing mechanisms might be considered pro-competitive, particularly in respect of aggregated data. Elaborating on this point, the report envisages the potential for a block exemption regulation on data sharing and pooling.

Finally, in the context of the European merger control rules, the report notes that the current turnover-based merger thresholds preclude competition authorities from reviewing significant transactions where companies have minimal turnover but important market positions or the potential for rapid growth. According to the report, a revised threshold test would allow for closer regulation of "killer acquisitions", in which dominant firms acquire small start-ups with growing user bases that might otherwise have developed into important competitors. In this respect, the report recommends adapting the substantive assessment of such transactions, arguing that where an acquisition may form part of a strategy to prevent users from leaving the 'ecosystem' of a dominant platform, the notifying parties should bear the burden of demonstrating that the adverse effects on competition of a merger are offset by pro-competitive efficiencies. However, the report states that it is too early to change the current thresholds and instead suggests closely monitoring the performance of the transaction value-based thresholds recently introduced in certain Member States and the functioning of the Member State referral system.

The report concludes that, at the moment, the existing framework of EU competition law provides a sound and sufficiently flexible basis for protecting competition in the digital era. Indeed, the report considers that competition law can and should continue to accompany and guide the evolution of the platform economy. However, it should be noted that this report "certainly cannot be, and is not intended to be, the final word on how competition policy should adapt to the digital era". The Commission has stated it will take some time to process the report before presenting its own conclusions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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