Overview
Introduction
On June 2, 2020, the European Commission published a set of inception impact assessment "roadmaps" and opened a public consultation on the Digital Services Act, which is one of its flagship policy initiatives. The consultation seeks views and feedback from the public regarding three areas of the European Commission's digital strategy: the Digital Services Act, a possible ex-ante regulation, and a possible new competition tool. This note considers one aspect of the consultation: the "new competition tool."
Digital and Green
Vice President (VP) Margrethe Vestager has articulated a clear vision for Europe's economy. She wants an economy that is both digital and green. In her speech on March 2, 2020, in Bruges, VP Vestager said that competition was an essential part of any industrial strategy because there could be no competitiveness without fair competition.
To protect fair competition in global markets, VP Vestager said that she and her team were working on new powers and rules which would allow them to handle the opportunities and challenges that the digital and green transitions create. With regard to a digital world specifically, VP Vestager stated that the current competition rules do not afford the opportunity to intervene to stop big tech companies from pushing markets toward the tipping point beyond which they gain a dominant position in a market. She hinted at a new tool which would allow European Union enforcers to intervene before this tipping point is reached. In the digital sector there is a broad recognition that markets are fast-moving and that their boundaries may not be as clear as in the "old economy." This creates challenges for enforcers and a number of studies have recommended the expansion of enforcer powers to give them greater flexibility to intervene. This includes the Australian Competition and Consumer Commission (ACCC) Digital Platform Inquiry Report, the United Kingdom's Furman Report and the United States' Stigler Committee Report.
Background
On March 10, 2020, the European Commission published an official strategy entitled "A New Industrial Strategy for Europe" (Strategy). The Strategy identified three key priorities: maintaining the European industry's global competitiveness and the level playing field, at home and globally; making Europe climate-neutral by 2050, and shaping Europe's digital future. With regard to the tools that were referred to in VP Vestager's Bruges speech, the Strategy notes that, "the Commission will use the tool of sector inquiries in new and emerging markets that are shaping our economy and society."
In her recent remarks given at American Bar Association's (ABA) enforcers roundtable on April 24, 2020, VP Vestager elaborated on this investigative tool. She stated that many digital markets may be prone to tipping and that it is important for competition authorities to be able to intervene once it has been established, with sufficient probability, that the conduct at issue will likely lead to harm. She stressed the importance of acting early and stated that the point (of having such a tool) was that the competition authority should not have to wait until actual detrimental effects can be shown.
With regard to the purposes and use of such a tool, VP Vestager further stated that there are a number of structural problems that the existing competition rules cannot tackle. That could be monopolization strategies by companies who are non-dominant, or it could be parallel leveraging strategies by dominant companies in multiple adjacent markets. She argued that this proposed new tool would allow competition enforcers to intervene early with respect to anti-competitive behaviour by powerful but non-dominant players in tipping markets.
The CMA's Sectoral Investigation Tool
The Commission's proposed new tool is said to be based on the tool that the UK's Competition and Markets Authority (CMA) has to conduct market studies and market investigations. The CMA may launch a market investigation under circumstances where it believes that a market appears not to be working well for consumers, or when it seems unlikely that any problems that exist will be corrected by normal competitive forces. In other words, the CMA may initiate a sectoral inquiry in the absence of evidence of any specific antitrust infringement.
In the first instance, the CMA may conduct a "market study" to understand how markets are working. Secondly, the CMA may make a "market investigation reference" to discover whether any feature or a combination of features prevents, restricts or distorts competition. If this is the case, the CMA must consider how those adverse effects could be remedied.
Analysis
It is worth observing that although cloaked within the Digital Services Act consultation, the introduction to the consultation does not limit this sectoral investigatory power to digital markets but refers to markets in general. The proposal is designed with two market situations in mind: firstly, a market overrun by digitalization that risks tipping into the hands of one company; and, secondly, a market with entrenched structural problems that might not be serving consumers. This new power would therefore potentially impact businesses in multiple sectors which display structural "problems."
While such a tool would benefit cases where direct enforcement action may not be the most effective way of dealing with competition problems, there are challenges too – not least in crafting the scope and duties associated with such a power. For example, here are some questions which need to be addressed:
- What would the threshold test be for triggering exercise of the power?
- Would there need to be an absence of a specific antitrust problem?
- What enforcement powers would the Commission have (e.g., unannounced inspections)?
- What remedies would the Commission be empowered to impose (e.g., fining; divestments)?
- Would the Commission’s powers extend to blocking mergers in structurally constrained markets?
- Would exercise of the power by the Commission displace Member States' power to act?
- Would the Commission be required to identify the approximate time period within which a market in question would "tip"?
These are some of the challenges which we will examine in future alerts as we move through the consultation process, alongside the legislative challenges of adopting such new powers.
The current consultation is open to the general public, digital service providers including online platforms and businesses who reach their consumers online, authorities, NGOs, academics and other concerned parties. Please let us know if you are interested in getting your views heard, and may find useful to speak to us for guidance on how to make your submission impactful.
