On 9 September 2019, the German "Commission Competition Law 4.0" (Commission) submitted its report "" (English summary available here) to the Minister of Economic Affairs and Energy. The Commission was set up by the minister in September 2018 and mandated with developing recommendations for the further development of European competition law in light of the digital economy, the increased importance of platform-based business models, and the increased use of data in the product value chain referred to as "Industry 4.0".

The report sets out 22 recommendations primarily relating to access to data, regulation of digital platforms, cooperation between companies in the digital economy, and institutional links between competition law and other areas of law. Of particular note for companies active in the digital sphere are recommendations regarding increased consumer powers to dispose of their own data and introducing rules of conduct for digital platforms, including a prohibition on self-preferencing and greater data portability and interoperability obligations.

Access to data and strengthening data portability

The Commission notes that the collection, combination and evaluation of data is at the centre of digital innovation and a key part of many digital business models. The importance of data as an input for a large number of products and services has increased significantly and a company's chances of competing successfully can depend on access to data. However, there has been considerable debate about the extent to which access to data should be mandated and/or regulated. Having considered a number of options, the Commission has recommended focussing on strengthening the customer's ability to determine the use of its data. The rationale behind this is that the easier it is for consumers to transfer their data from one provider to another, or to grant new providers access to data, the easier it will be for rival companies to attack data-based market power.

Specific recommendations include:

  • formulating cross-market principles, guided by competition law, setting out when and in what form users should be granted a right to provide third party providers with access to a digital user account. The Commission recommends setting out these principles at EU level, in a framework directive (based on Article 114 TFEU). Alongside this, the EU Commission should be authorised to enact sector-specific regulation fleshing out these rules (Recommendation No 4);

  • assessing the feasibility of establishing data trustees, empowered to grant data access to companies on behalf of and in line with the preferences of consumers, and examining various potential models for this (Recommendation No 5); and

  • improving access to public data, in particular by developing further open data legislation to require (at European as well as at national level) that all public institutions provide structured data by means of standardised platforms and in open interoperable data formats. In addition, overarching data strategies should be drawn up in relation to the collection, use and provision of data of the public sector and from the delivery of public services, and companies entrusted with the delivery of public services should be subject to obligations to provide access to data generated in the course of this work (Recommendations No 6-8).

Regulation of digital platforms

The Commission identifies two characteristics of digital platforms that are particularly challenging from a competition law perspective: (i) there is a tendency for concentration due to strong positive network effects which, at the same time, make it more difficult to contest a position of market power once such a position has been obtained; and (ii) a platform's "gatekeeper function", i.e. its control over competition on the platform. The Commission considers that in both cases the cost of non-enforcement or failure to intervene in time against abusive practices is particularly high.

Specific recommendations include:

  • adopting an EU Platform Regulation imposing a specific code of conduct on dominant online platforms with a certain minimum turnover or minimum user numbers. This would go beyond the Platform to Business Regulation which has recently been adopted at European level (Recommendation No 9);

  • prohibiting dominant online platforms that fall within the scope of such a Platform Regulation from "self-preferencing" (i.e. giving preferential treatment to their own services over those of third parties, without objective justification for doing so) (Recommendation No 10); and

  • obliging market dominant online platforms that fall within the scope of such a Platform Regulation to enable real-time data portability of user and usage data for its users in an interoperable format, and to ensure interoperability with complementary services (Recommendation No 11).

The Commission also recommends that the EU legislator should examine whether dominant online platforms with a certain minimum turnover or certain minimum user number should be obliged to introduce a procedure for alternative dispute resolution for infringements taking place on platforms (Recommendation No 12).

Increasing legal certainty for cooperation in the digital economy

The Commission recognises that cooperation in various forms is part of an innovation and experimentation process which is of increased importance in the context of the new digital economy. However, while new forms of cooperation are being discussed widely, it appears that they are only developing slowly. The Commission acknowledges that companies that are considering such cooperation can face substantial legal uncertainty as to the compatibility of novel forms of cooperation with competition law, which in practice reduces the likelihood of pursuing such cooperation.

Specific recommendations include:

  • making the clarification of novel legal questions that arise in the context of cooperation between companies in the digital sector (e.g. data sharing, data pooling, and investment in cooperative projects for innovation in the area of the Internet of Things) a priority for the EU Commission (Recommendation No 13); and

  • introducing a voluntary notification system for novel forms of cooperation in the digital economy, with a right to receive a decision within a short timeframe (proposed to be 90 days). It is intended that this would be used for forms of cooperation that: (i) raise novel legal questions that have not been decided by the EU courts; and (ii) are of significant economic importance from the point of view of the customers of the products or services concerned by the cooperation (Recommendation No 14)

Strengthening the institutional links between competition law and other areas of law

The Commission notes that the protection of functioning, open and innovative markets might also require changes to rules in areas of law beyond competition law, such as contract law, consumer protection law and data protection law. This creates a need for institutions from different regulatory areas to exchange relevant information and coordinate policies. The Commission's recommendations in this context include:

  • setting up a Digital Markets Board at EU level (which would be located within the General Secretariat), tasked with coordination and harmonisation of the different policy areas (Recommendation No 20);

  • setting up a "Digital Markets Transformation Agency" on a temporary basis, tasked with collecting and processing information about developments relating to the digitalisation of markets, and making this information available to the relevant specialist authorities as well as political actors (Recommendation No 21); and

  • greater consolidation of data protection supervision structures for the non-public sector at EU Member State level (Recommendation No 22).

Other areas for recommendations

Refining the framework for market definition and determining market power

The Commission considers that the digital economy gives rise to new challenges in terms of market definition and determining market power and expresses doubts as to whether the existing guidelines are fit for the digital age. The Commission therefore recommends:

  • revising the EU Commission's Notice on the definition of the relevant market (Recommendation No 1);

  • publishing a separate Communication on market definition and determining market power for digital platforms (Recommendation No 2);and

  • launching a study on cross-market market foreclosure strategies in the digital economy and the possibilities for countering such strategies via competition law (Recommendation No 3).

Merger control – treatment of "killer acquisitions"

In relation to merger control, the Commission considered whether a change in EU merger control rules is required to better capture acquisitions of young, innovative start-ups by market dominant companies (often referred to as "killer acquisitions").

The Commission concludes in its report that - at this point in time - a reform of the merger control thresholds at EU level is not required. However, it makes a number of other recommendations in this context:

  • a systematic monitoring and evaluation of the treatment of relevant cases by the EU Commission (Recommendation No 15);

  • no introduction of an ex-post control of concentrations at this point, but the EU Commission should further examine and report on whether the current ex-ante system is successful in averting the risk of systematic consolidation and expansion of positions of market power (Recommendation No 16); and

  • ensuring the contestability of entrenched positions of market power when applying existing merger control rules to "killer acquisitions" is of particular importance, and guidelines should be developed in respect of relevant theories of harm. In this context, particular consideration should be given to data-based, innovation-based and conglomerate theories of harm (Recommendation No 17).

Improving competition law enforcement

One of the major challenges the Commission identifies in relation to the digital economy is the high speed at which digitalisation leads to changes in economy and society and the strong momentum that competitive advantages can develop. Competition law proceedings, in contrast, are often time-intensive and require substantial resources. To address this mismatch, the Commission makes a number of recommendations:

  • a more pro-active approach by the EU Commission to the use of its powers to order interim measures under Article 8 of Regulation 1/2003 (Recommendation No 18);

  • greater use of flexible and targeted remedies in digital markets by competition authorities, and an EU Commission study analysing the approach that competition authorities have taken to remedies in previous relevant cases (e.g. Microsoft, Google Shopping) (Recommendation No 19).

Next steps

The recommendations made by the Commission will feed into the ongoing reform of German competition law (a first draft of which is expected shortly) and are also intended to help the German government in its preparation for the EU Council Presidency in 2020.

Comment

Digital markets in the spotlight for competition law enforcement and regulation

The Commission's report is the latest example of the current trend of increased focus by the EU Commission and national competition authorities on competition law enforcement in the digital sector. It touches upon a number of highly topical questions such as the role of data in the digital economy and the extent to which issues regarding access to data should be tackled by competition law, the treatment of dominant platforms, and the ability of existing merger control rules to effectively address concerns arising from the acquisition of innovative start-ups by dominant companies.

The report builds on similar reports that have recently been issued on EU and national level, including the August 2018 report on modernising the law on abuse of market power commissioned by the German Ministry of Economic Affairs and Energy, the "Furman Report" in the UK, the EU Commission's "Special Advisers' Report" (see also our e-bulletin here) and the "Digital Platforms Inquiry" by the Australian Competition and Consumer Commission (see also our blog post here).

Questions regarding the enforcement of competition law in digital markets are also increasingly at the forefront of current policy considerations and initiatives. For instance, in a recent joint manifesto ("Modernising EU Competition Policy"), the German, French and Polish ministries for economy called for the EU Commission to "strengthen and speed up both merger control and antitrust law enforcement vis-à-vis big tech undertakings which distort competition". "Competition and the Digital Economy" was also the subject of a Common Understanding of the G7 Competition Authorities in the context of the G7 French presidency.

With the German Council Presidency coming up in the second half of 2020 and the future double role of Margarethe Vestager as Commissioner for Competition and Executive Vice-President for a Europe fit for the Digital Age (see our previous briefing here), the current auspices point towards more regulation in the digital sector to come.