With big tech under increased antitrust scrutiny around the world, European Competition Commissioner Vestager is considering reforms that would dramatically alter the position of dominant digital platforms. This comes following an independent report published by the European Commission earlier this year on “Competition policy for the digital era”. The report proposes, amongst other things, to shift the burden of proof for tech platforms engaging in potentially anti-competitive conduct. It would be for the platform to establish the “pro-competitiveness” of certain conduct, and not for the EC to prove its anti-competitiveness.
Any reforms of this kind could have a significant impact on the global tech landscape, potentially stymying the launch of new services.
What does the independent report recommend?
The report suggests that the specific characteristics of many digital markets – high levels of concentration, strong network effects and high barriers to entry – justify the reform of established legal tests. There is concern about “dominant platforms try[ing] to expand into neighbouring markets, thereby growing into digital ecosystems, which become ever more difficult for users to leave”. The report proposes that dominant platforms be prevented from undertaking certain conduct, unless they can prove it would have a pro-competitive effect (reversing the burden of proof).
The report also considers that, where a dominant platform seeks to acquire a smaller actual or potential competitor, the burden of proof should be shifted onto the merging parties to show that any adverse effects on competition “are offset by merger-specific efficiencies”. This would represent a radical departure from the modern approach to merger control.
What has Vestager actually said?
So far, not that much.
Commissioner Vestager is reportedly examining the report’s recommendations, and has observed that this is “an important discussion in figuring out what kind of regulation would be useful”. Although no decision has been made, she has intimated that certain companies (such as Google) have become so dominant that they are “de facto regulators” in their markets, and should, therefore, accept additional responsibilities. This clearly suggests a desire for reform of some kind, even if the details are yet to be determined.
A countervailing view
It is difficult to dispute that digital markets – and the dominant platforms which stand astride them – merit scrutiny from antitrust authorities. Or that those authorities should have the right tools to address well-evidenced concerns. Yet it is a colossal leap from accepting that to seriously countenancing a shifting of the burden of proof, or lowering the degree of probability required to establish a contravention of antitrust laws.
We briefly explore some of the reasons why reforms of this kind are unwarranted and disproportionate.
- First, we assume any new rules would operate via a structural presumption that certain categories of unilateral conduct are deemed anti-competitive unless proven otherwise. This concept is fundamentally at odds with the rule of law as we know it. Firms that breach EU competition law face heavy penalties, including fines of up to 10% of their global turnover. The prospect of such penalties presumptively applying to certain kinds of unilateral conduct, notably entering new markets, is not one that should be seriously entertained. Also, in many cases, consumers will undoubtedly reap significant benefits from dominant platforms entering new markets, particularly when they challenge incumbents who are themselves dominant.
- Second, shifting the burden of proof onto tech firms could delay or even prevent new product launches, and have a broader “chilling” effect on investment in efficiency-enhancing practices and innovation. For example, if Google was required to show that placing a map on its search page was pro-competitive, this might delay or block the service from being launched.
- Third, there is a wider risk to Europe’s place as an incubator of emerging tech companies. With the EU already leading the world in data protection, piling additional regulatory requirements onto tech firms could decrease its commercial appeal as a base for start-ups. This, and the rapidly growing number of users of digital services in China, India and Africa, could mean that companies would choose to launch innovative services in those markets before turning their attention to Europe – if they would bother at all. European policymakers should be focused on nurturing a strong tech sector, to produce home-grown rivals to the Silicon Valley Giants, but these proposed reforms would have the opposite effect.
- Fourth, there is the issue of scope, and how to define the situations and practices that would trigger the new rules. Is having a high share in a digital market sufficient, or must there also be network effects and/or high barriers to entry? What even is a “digital market”? How does one definitively conclude that barriers to entry are high? Where should the market share threshold be set? And how long must a high market share be maintained? A new app may surge to the top of global download lists, only to disappear a short time later. This happened, for example, in relation to the video-sharing platform Vine, circa. 2013-2016. If the scope is not clearly delineated, businesses will face an impossible compliance task, and the EC may find its new rules unadministrable.
- Fifth, it is not clear how firms would prove that their proposed conduct is pro-competitive. Would firms need to show that their plans are significantly pro-competitive, or merely more pro-competitive than anti-competitive? And to what standard of proof – on the balance of probabilities, or something less onerous? How would the EC monitor compliance, and does it have the resources to do this effectively? If businesses are not given clear guidelines, or if the bar to prove pro-competitiveness is set too high, the chilling effect of these new rules will be compounded.
Could the same concerns be effectively addressed without radical reforms?
In a word, yes. The EC already has significant powers to investigate and punish firms that contravene competition laws.
Commissioner Vestager suggests that some big tech firms have become so dominant that they need to accept additional responsibilities. But it has been an established principle in EU competition law, since 1979, that dominant firms in any market have a special responsibility as regards their market conduct. Similarly, the report raises concerns about dominant platforms using their market power to enter neighbouring markets (leveraging). But the EC has successfully used its existing powers to curb such conduct. Cases include the seminal software-bundling case against Microsoft (2004), and the EC’s more recent decision in Google Shopping (2017).
In terms of expediting procedures to deal with fast-moving markets, the EC recently dusted off its long-held powers to impose interim measures in ongoing investigations. The interim measures imposed on Broadcom marked the first use of such powers in almost 20 years.
It’s very much a matter of “watch this space”. The EC has not yet announced a formal view on the proposed reforms, and may well choose to pursue a different strategy.