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| 5 minutes read

European Commission Digital Expert Report: Further proposals for regulating the digital economy

On 4 April 2019, the European Commission (the Commission) published a long-awaited expert report titled “Competition Policy for the Digital Era” (the Expert Report). The Expert Report follows the Commission’s conference of a similar name in January which focused on how competition enforcement should evolve to deal with “novel” issues raised by the digital age (see our summary here).  The Expert Report, written by the Commission’s three appointed “digital experts”, builds on this discussion and sets out a series of findings and some concrete recommendations for competition policy.

Commissioner Vestager has stated that the Commission will need to take some time to think about the ideas in this Expert Report before any firm conclusions are reached, but has already said that there are some key points which the Commission can identify:

  • competition in the digital age can be fragile which increases the need for enforcers to remain “especially vigilant” when tackling competition in the digital space; and
  • theories of harm should be kept up-to-date, including aimed at preserving “multi-homing” (the ability for consumers to use more than one platform) to keep competition open; and in assessing the impact of merging data sets in the contexts of acquisitions.

Set out below are some of the key takeaways.

1. The competitive importance of data

Similar to the recent UK Furman Inquiry Report (the Furman Report) (see our summary here), the Expert Report highlighted the regulatory focus on encouraging data portability (enabling the transfer of data between platforms) and data interoperability (ensuring data can be exchanged seamlessly between companies).

Does GDPR clash with competition law?  The Expert Report raises questions as to whether the General Data Protection Regulation (GDPR) is “sufficient” in taking into account implications on competition – a concern which has been voiced regularly across Europe in recent months.  Others note that there is an inherent tension between the privacy requirements of the GDPR and moves that the Expert Report seems to favour to encourage greater data transfers.  The Expert Report considers that the GDPR leaves open certain areas to be explored further by competition law, including the existence of potential market power in relation to consent and legitimate interest.

Beyond the realm of GDPR, the Expert Report further suggests that more demanding regimes of data access, including data interoperability, could potentially be imposed by way of sector-specific regulation or under Article 102 in the context of decisions on abuse of a dominant position.  The Expert Report’s focus in this respect on using existing antitrust tools is in contrast to the Furman Report’s suggestion of introducing a new sector regulator - a Digital Markets Unit applying a specific “code of conduct”, which would apply in addition to the requirements of competition law.

Duties to ensure data access.  Similar to the recommendations in the Furman Report, the Expert Report suggests that duties to ensure data access – and possibly data interoperability – may need to be imposed, with competition authorities determining the level of access.  However, the Expert Report cautions that intervention may not be justified where data is not truly “indispensable”.

Data pools.  While the Furman Report suggested that data ought to be shared in a “controlled” environment, the Expert Report recommends a scoping exercise of the different types of data pooling and a subsequent analysis of their pro- and anti-competitive aspects, suggesting that further guidance should be developed.  This demonstrates that, despite the level of attention and thinking that has already been given by the Experts, the issues surrounding data are not straightforward.  and Commissioner Vestager’s personal comments that businesses should pool and share their data to innovate therefore raises practical challenges for which there are no easy answers.

2. A stricter approach to platforms

With regard to platforms, the Expert Report considers it essential to protect both competition “for” the market (i.e. to allow new entrants to attract new users) and competition “in” the market (i.e. the services provided by the dominant platform itself).

Similar to the Furman Report, the Expert Report suggests placing extra duties on what it considers to be “dominant platforms”.  This includes suggestions that:

  • where a dominant firm restricts multi-homing (e.g. by preventing consumers from using multiple platforms through technical means), it must bear the burden of proof of providing a solid efficiency defence;
  • self-preferencing by a vertically-integrated dominant digital platform can be abusive in circumstances wider than the “essential facilities” doctrine allows, including where it is likely to result in a leveraging of market power which is not justified by a pro-competitive rationale; and
  • as with multi-homing, a platform should bear the burden of proof that its self-preferencing measures have no anti-competitive effect.

However, one of the cornerstones of competition law as it currently stands is that it is for the authorities to prove an infringement of the law (this arises from the fact that competition law cases can involve very significant penalties for the companies involved and are regarded as “quasi-criminal” from a human rights perspective).  Accordingly, it is not clear that it will be possible to implement the Expert Report’s suggestions that the  burden of proof should be reversed in practice.

3. “Killer” acquisitions – asking the right questions

The Expert Report also focuses on the hot topic of alleged “killer” acquisitions, whereby dominant firms acquire small start-ups which have not fully monetised their ideas.

No deal-value threshold – for now.  Although the current EU Merger Regulation thresholds mean that many smaller acquisitions in the technology sector are not notifiable at the EU level, in practice many such transactions are reviewable under the merger control laws of the Member States.  Accordingly, many will be relieved that the Expert Report considers that it is “too early” to adopt deal-value based thresholds (as has been done in Germany and Austria) at the EU level and recommends monitoring how deal-value thresholds perform at Member State level, together with the operation of existing EU referral mechanisms which allow the Member States to refer deals for review by the EU.  Both Apple/Shazam and Facebook/Whatsapp, for example, were reviewed by the Commission as a result of referrals from Member States.

No general reversing of the burden of proof – at least not in all cases.  The Expert Report goes further than the Furman Report, which cautioned against reversing the burden of proof, by suggesting reversing the burden of proof where a “non-competitive strategy” is plausible.

Revival of conglomerate theories of harm.  It has been rare for European authorities to see to block mergers on the basis of “conglomerate effects” i.e. where a party acquires a business operating in a segment in which it is not currently active.  However, in line with developments which have been under way for some time already in Europe, the Expert Report recommends greater attention to should be applied to “conglomerate” theories of harm in the digital sector, asking, for example, whether the acquirer benefits from barriers to entry linked to network effects or the use of data.

Potential competition – look to the counterfactual.  In a welcome development, the Expert Report cautions against widening the concept of “potential competition”.  Instead, the Expert Report suggests that the acquisition by another player who could become a realistic challenger to an incumbent in the counterfactual would be evidence that a transaction involved the acquisition of a potential competitor.   This topic will remain keenly debated as authorities in Europe seek to widen their net to catch a greater number of transactions.

The Expert Report was written by independent academics and therefore does not reflect the Commission’s official position.  However, its ideas add to the narrative and ongoing debate around the proposed amendments to competition law for the digital economy.  Commissioner Vestager has stated that it will take time “to discuss and debate [the suggestions] before conclusions are reached”, in order to “get it right”.  We will keenly await what the Commissioner’s next steps are on this, particularly in light of her fast-approaching end of term and upcoming European Parliament elections. 

Co-written with Caroline Chew and Charles Crisp


antitrust and competition, europe, employment