Developments in innovation, data sharing and pricing algorithms – Outlook for 2021

The restrictions and possibilities under competition law for undertakings to exchange information and cooperate on innovation can be expected to receive a lot of interest from regulators in 2021, since all the currently most discussed themes in competition law – digitalisation, sustainability and the COVID-19 pandemic – impact these key topics.

In this article we will therefore take a closer look on the outlook for the developments in competition law concerning innovation, information exchange and pricing algorithms since these are amongst the main topics that are influenced by these themes.

Innovation

The challenges that companies are currently facing because of the fast-paced developments in both technology and digitalisation and sustainability requirements, has resulted in companies being required to cooperate more closely than ever before on innovation. 

Until now, competition authorities have seemed reluctant to divert from the constraints imposed by competition law to allow competitors to cooperate more closely on innovation projects, even if such innovation lead to meeting sustainability goals of a particular industry. This is for example the case in the still on-going investigation by the EU Commission into car emission systems, where the EU Commission is considering whether cooperation between several competing European car manufacturers regarding clean emission cleaning systems actually restricted competition on the development of new emission cleaning systems.

There are, however, currently strong signals from the European Commission that cooperative initiatives that are necessary to achieve sustainability goals will in the future be looked upon more favourably from a competition law point of view, to avoid the chilling effect on innovation that a traditional competition law regime might have.

For this reason, the EU Commission is at the moment working on several new initiatives to allow for greater cooperation. Thus, in the near future we can expect significantly greater leeway for such cooperation between competitors aimed at furthering environmental sustainability, but the exact contours of this are not known at present. We expect, however, that any such changes will be limited to cooperation aimed at improving environmental sustainability and not just any type of cooperation between competitors.

We expect this to be of most importance for innovative R&D-projects, where cooperation between competitors would be able to have the biggest impact on sustainability.

In this regard, the EU Commission has, however, also clarified that it still believes that competition law remains a key component in making sure competitors and other relevant parties remain focused on investing efficiently; innovating and adopting more energy-efficient technologies, in order to set themselves apart from their competitors.

It will therefore be very interesting to see how the EU Commission balances these different interests, to allow competitors to cooperate more closely, where it’s needed the most from a societal perspective.

Importantly, in 2020 we saw a reintroduction of the previous system of issuing “comfort letters” on cooperation between competitors due to the COVID-19 pandemic (albeit not used much so far), along with an increased opportunity to receive informal guidance from the EU Commission prior to engaging in e.g. innovative cooperative efforts with competitors. 

The developments in this area should therefore be followed closely by both advisers and undertakings in 2021, to see if a framework as the one established under the COVID-19 pandemic in the EU will have a more permanent influence on competition law in terms of both allowing competitors to collaborate on innovation, and for undertakings to receive guidance from authorities before cooperating. The feedback we are getting from the European Commission when discussing ongoing cases seem to indicate that this is likely to happen, which would be great news for companies faced with such issues.

"The increasing use of AI and algorithms is presenting opportunities for greater innovation, but also poses risks of anti-competitive information exchange – press the button with caution.”
Morten Nissen, Partner

Data sharing

In terms of data, the EU Commission is – as a part of the Competition Policy for the Digital Era – currently working on assessing the pro- and anti-competitive aspects of different types of both data sharing and data pooling along with possible abuse of dominance via data in order to determine how certain practices should be handled in the future.

According to the Commission, data sharing and data pooling is often procompetitive, because these actions enhance data access and thereby contribute to a fuller realisation of the innovative potential inherent in data. The pooling of data of the same type or of complementary data resources may therefore enable firms to develop new or better products or services.

However, data sharing and data pooling can also be anti-competitive in numerous cases, inter alia when competitors are denied access to data or it amounts to an anti-competitive exchange of information.

Due to the lack of clarity on when data sharing and data pooling can be anti-competitive, the EU Commission has is considering providing more guidance in the near future through for example guidance letters, "no infringement" decisions under Article 10 of Regulation no. 1/2003, or as a part of the coming review of the Guidelines on horizontal cooperation, and eventually maybe even as a part of a block exemption regulation on data sharing and data pooling.

Pricing algorithms 

These days pricing algorithms are widely used by undertakings – for good reason – to either dynamically change prices in order to match supply and demand, by for example automatically increasing prices, when demand increases, or to react to changes in competitors’ prices continue to pose challenges for regulators.

It is already the norm that companies track the prices of their competitors online. Already in 2017, 53% of the respondents in the European Commission’s e-commerce sector inquiry responded that they track online prices of competitors, and the majority of these subsequently adjusted their own prices using software. This number can only be expected to have increased substantially by now, since the technology required for this has become readily available for even small companies.

The use of such pricing algorithms continues to both create challenges and opportunities for both competition authorities and businesses. 

Pricing algorithms are especially challenging to deal with from a competition law perspective, when price algorithms are used for tacit price alignment, since such monitoring of competitors prices is not necessarily an infringement, if there is no evidence of an agreement to collude. 

A special challenge for authorities, that will be interesting to follow, is therefore how the burden of proof for collusion based on algorithmic pricing will be decided.

This was already a topic in the Eturas-case from 2018, where the ECJ made its first ruling in a competition law case involving collusive algorithmic pricing. In this case, an automatic notice was sent to travel agents using the booking system, saying that discount rates would be capped at 3 % in the future. 

In this case, the ECJ decided that only travel agents who had knowledge of the algorithm’s actions could be found to have infringed Article 101 TFEU, since it was necessary to prove that they had knowingly colluded.

Due to the increased possibilities nowadays to implement machine-to-machine communication that leads to collusive behaviour without the knowledge of any humans, it will therefore be necessary for authorities to find out how to deal with these situations in the near future, since there might not be evidence of an agreement to collude in cases involving pure machine-to-machine communication. 

The most interesting developments to follow in the near future within this area are in our opinion therefore:

  • How the competition authorities will investigate and assess algorithms. For example, it can be imagined that competition authorities will develop their own algorithms to detect collusion in online markets, or that the competition authorities will begin to demand that the algorithms used are provided to them.
  • Whether there will be a reversal in the burden of proof for proving collusion through a concerted practice when prices are changed through the use of algorithms. This has already been suggested by the German Monopoly Commission to make it easier to prosecute such algorithmic price changes. Furthermore, the Commission has already as a part of the Competition policy for the Digital Era considered reversing the burden of proof for tech-corporations. 
For more information contact Morten Nissen and Alexander Brøchner.

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