The European Commission is currently reflecting on the report of the special advisors and examining the fitness of the competition regime. This represents a key plank of the EU's strategy for Shaping Europe's Digital Future. Given the potential "gatekeeper" roles that digital platforms may have and their responsibility to ensure that their rules do not impede free, undistorted, and vigorous competition, the experts have put forward proposals to toughen enforcement and promote competition on the platforms by limiting self-preferencing and in particular to shift the burden of proof on the digital platform to show that such conduct has no anti-competitive effects. We briefly assess the merits of this approach by reference to Google Shopping which is currently on appeal and await the General Court's judgement which will inform the debate.
In an effort to tackle the competition issues in the digital age, 2019 marked a year of significant antitrust activity, scrutiny and enforcement (https://www.twobirds.com/en/news/articles/2019/global/large-tech-merger-provides-an-early-opportunity-to-test-the-fitness-of-the-competition). The European Commission is currently reflecting on the report of the special advisors and examining the effectiveness of the way current rules are applied and reviews are underway. This represents a key plank of the EU's strategy for Shaping Europe's Digital Future announced in February https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/shaping-europe-digital-future_en .
The general consensus amongst competition authorities is that competition rules provide a solid basis for protecting competition and are capable of evolving and reacting to the challenges of the digital economy. However, there are proposals for greater guidance and clarity in relation to certain types of conduct as well as suggestions to reverse the burden of proof or change the standard of proof. Given the potential "gatekeeper" roles that digital platforms may have and their responsibility to ensure that their rules do not impede free, undistorted, and vigorous competition, the experts have put forward proposals to toughen enforcement and promote competition on the platforms by limiting self-preferencing and in particular to shift the burden of proof on the digital platform to show that such conduct has no anti-competitive effects. We briefly assess the merits of this approach by reference to the most recent enforcement case on self-preferencing – Google Shopping https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1784- which is currently on appeal and the General Court (Case T-612.17) will likely provide important clarity to the debate.
What is meant by "self-preferencing"?
Self preferencing concerns the way platforms treat their own products and services compared to those provided by other entities. In the Cremer report (Competition policy for the digital Era", A report for the European Commission, Cremer et al 4 April 2019 https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf), this was defined as “giving preferential treatment to one’s own products or services when they are in competition with products and services provided by other entities using the platform”.
The Cremer report acknowledges that this behaviour is not per se abusive but is subject to an effects test. However, the report goes on to state that:
“self-preferencing by a vertically integrated dominant digital platform can be abusive not only under the preconditions set out by the “essential facility” doctrine, but also wherever it is likely to result in a leveraging of market power and is not justified by a pro-competitive rationale …in a market with particularly high barriers to entry and where the platform serves as an intermediation infrastructure of particular relevance, we propose that, to the extent that the platform performs a regulatory function [setting up the rules through which users interact] it should bear the burden of proving that self-preferencing has no long-run exclusionary effects on product markets”.
Similar sentiments can be found in Germany (Competition Law 4.0), the UK (Unlocking digital competition) and other reports. How Government's and competition authorities will respond is not certain but the European Commission may well provide useful guidance as part of its ongoing evaluation and review of the fitness of EU competition rules of the digital age and the expected launch of its sector inquiry later this year. Furthermore, the UK report refers to the Google Shopping case and states that the European Commission found that Google abused its dominant position by favouring its own comparison shopping services.
Google Shopping and self-preferencing
The expert reports argue that large platforms may have a strong competitive advantage over others because of network externalities and access to data and this may bring incentives to apply different rules to their own products than other products and services sold on the platform. Whilst Article 102 does not impose a general prohibition of self-preferencing, it has long been recognised that the owner of an essential facility must not engage in self-preferencing or other exclusionary conduct if strict criteria are met (refusal, dominance, indispensability, elimination of competition and no objective justification). The key issue is whether there can be an abuse below the strict thresholds as intervention risks jeorpardising the increased innovation and consumer benefit that platforms deliver and the important principle of not interfering with a companies' freedom to choose with whom and how it deals.
In Google Shopping, the European Commission appears to have adopted a lower burden of proof compared with traditional refusal to deal/essential facility cases. In Google Shopping, the European Commission did not apply standard essential facility principles and show indispensability in line with established well known precedent (e.g., Magill (Cases C-241/91 abd C-242/91 P) and Bronner (Case C-7/97). Instead, the European Commission appears to have adopted a different approach more in line with leveraging cases (tying, bundling, margin squeeze) and avoided the need to directly address the issue of indispensability. What is the correct approach is the subject of Google's appeal and will be determined by the European courts.
Either way intervention should be limited to exceptional cases. A positive obligation to supply/regulate terms of access and/or structural remedies should be a remedy of last resort, especially as imposing a requirement and forcing a firm to give access can be expected to impact negatively on a firm's incentives to invest and innovate. Further, complex access related remedies are often onerous and prescriptive and should only be imposed in exceptional circumstances.
The proposals in Cremer and potentially reversing and/or lowering the standard of proof need to be adopted with caution. The recommendations appear to imply an assumption that there is something problematic with vertically integrated firms competing with third parties in which they supply an input. The European Commission appears to have moved towards abusive leveraging theories with no indispensability requirements and lowering the threshold for intervention. This risks significant uncertainty.
Further, the notion of fair competition has gained prominence and could inform future enforcement strategies. Vestager has made many statements about promoting fair competition and markets (see most recently, 2 March 2020, Keeping the EU competitive in a Green and Digital World https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/keeping-eu-competitive-green-and-digital-world_en) Cremer has noted that competition should be fair and unbiased. But, in terms of actual enforcement, this must be based on established competition law principles, be supported by guidance and evidence led.
So are the special advisers right, how will Governments and enforcers respond?
As noted in the various expert reports competition law can and should evolve. The European Commission is considering the fitness of the EU competition regime for the digital age (2020-2023). There are ongoing reviews of market definition, horizontal and vertical agreements as well as state aid guidance. But, is it right to reverse the burden of proof and impose on digital platforms the burden of proving that self-preferencing has no long run exclusionary effects on product markets as suggested by Cremer?
This approach risks going against established practice. Further guidance and clarity is needed to provide greater regulatory certainty. It is accepted that competition law can evolve and adapt. The UK Report recommended a principles based code of conduct and a fair, consistent and transparent basis for access. Competition law is equipped to address new challenges but we should only depart from established practice based on evidence of foreclosure or we otherwise risk stifling investment and innovation.
Competition enforcement is also gathering pace with a number of ongoing leveraging/self-preferencing investigations (Apple/Spotify https://uk.reuters.com/article/uk-eu-apple-antitrust/eu-wants-to-hear-from-apple-over-spotify-complaint-idUKKCN1T420E and Amazon https://ec.europa.eu/commission/presscorner/detail/en/IP_19_4291) which will provide further opportunities to test the waters. How much deference can be given to the regulator remains to be seen. There is no doubt these are novel issues but it is necessary to apply established principles – we must move away from them with caution.
We hold our breath for the General Court's judgment in Google Shopping - the Commission has sought to tighten the enforcement belt and Governments and special advisors appear to support this position. The General Court has a decision to make! Whether it maintains the European Commission's fitness regime and endorses its approach remains to be seen.