While in Europe antitrust has increasingly been used as a tool to regulate the so-called ‘FANG’ companies (Facebook, Amazon, Netflix and Google), to date the U.S. antitrust authorities have taken a far less aggressive approach towards enforcement of the FANGs. Whether antitrust authorities have sufficient tools to take action against the FANGs, and indeed whether such enforcement is the most appropriate approach to regulation, is up for debate in both the United States and in Europe.
EUROPE In Europe, European Union Competition Commissioner Margrethe Vestager has gained a reputation for being tough on tech giants. This year’s record-breaking €4.34 billion fine for abuse of dominance by Google has further cemented this image. We are also seeing national competition authorities in Europe test the boundaries of their antitrust powers to deal with an ever dynamic digital sector. ABUSE OF DOMINANCE CASES Google has been subject to a series of headline-grabbing fines by the European Commission (EC) for alleged abuse of dominance in various digital markets. In July 2018, Google was fined a recordbreaking €4.34 billion by the EC for allegedly using its open-source Android operating system as a vehicle to retain its dominance in internet search. The EC identified various restrictive terms that Google imposed on manufacturers of Android smartphones, including requiring the pre-installation of the Google Search app and the Chrome browser as conditions to use of the Google Play app store (i.e., tying), and providing financial incentives to device manufacturers to pre-install Google Search on Android devices. Google appealed the fine in early October, challenging the EC’s narrow market definition — which held that the Apple iPhone was not even an indirect competitor of Android devices — and arguing that Google’s ‘tying’ contracts were not anti-competitive, but rather were a means to recoup billions spent in research and development. In the meantime, Google has begun charging device manufacturers a license fee for use of its Android app store in an effort to comply with the EC’s decision, a move that has drawn criticism from search engine rivals, and which puts the EC in the awkward position of inadvertently creating a new price tag for a previously free product. Google is no stranger to record-breaking fines, having been fined €2.42 billion by the EC in 2017 for allegedly giving unfair prominence to its own comparison shopping service on the Google search engine. Google similarly appealed that decision, arguing that the EC erred in treating Google as an ‘essential facility’ that rivals must use to compete. Google also argued that every company should be allowed to promote its related services regardless of dominance. As with Google’s attempts to comply with the Android decision, competitors criticized Google’s proposed remedy, which introduced an ‘auction system’ allowing other shopping sites to bid for the chance to appear in a carousel of ads at the top of the site; some lawmakers have even argued that only splitting Google’s search engine from its specialized services will suffice. The appeal is still pending in the European Courts.
Most recently, in March 2019, Google was fined €1.49 billion by the EC for its alleged abuse of its dominant position in the online search intermediation market through its AdSense for Search service. The EC found that, by imposing restrictive clauses in its contracts with third-party websites, Google had prevented its rivals from placing their own advertisements on those websites. From 2006, Google had imposed an exclusive supply obligation, preventing third-party websites from placing search advertisements from competitors on their search results pages entirely. From March 2009, Google had moved to a “relaxed exclusivity” position and began replacing exclusivity clauses with premium placement clauses, requiring publishers to reserve the most profitable space on their search results pages for Google’s adverts and request a minimum number of Google adverts. It also included clauses requiring publishers to seek written approval from Google before marking changes to the way rival adverts were displayed. Unlike the Google Android and Google Shopping cases, the AdSense case is not expected to lead to compliance issues; the EC found that the infringement had ended in 2016. In April 2019, Google confirmed its intention to appeal the decision. Commentators have queried whether these large fines imposed by the EC and the accompanying remedies are an effective way to regulate Google’s behavior. Share prices of Google’s parent company Alphabet dropped a mere 0.3% on news of the €4.34 billion fine in the Google Android case, and Alphabet had more than US$100 billion in cash, cash equivalents, and marketable securities to absorb it. In addition, analysts anticipated minimal impact on the business resulting from the remedies offered in the Android case, upon determining that consumers are likely to simply download the apps for Google’s services when they get new Android phones, much as they do with Apple iPhones. Commentators have also noted that, in such a rapidly moving market, the latest EC fine comes late in the day as it sanctions conduct that attracted complaints as early as 2011, and critics say Google is now entrenched. More broadly, the EC has recently published a report entitled “Competition policy for the digital era” prepared by three external special advisers, appointed by Commissioner Vestager. The advisers were asked to explore “how competition policy should evolve to continue to promote pro-consumer innovation in the digital age.” The report makes a number of recommendations, including proposing new or updated theories of harm relating to the conduct of dominant platforms and discussing the role of data interoperability. It remains to be seen what impact this report will have on the EC’s decisional practice in this area. ‘BIG DATA’ In addition to enforcement pursuant to the more traditional European competition law theories as in the Google cases, competition authorities in Europe are also grappling with the concept of ‘big data’ — in particular, the antitrust implications of companies collecting and using data on a massive scale. 01 I N S U C H A R A P I D LY M O V I N G M A R K E T, T H E L AT E S T E C F I N E C O M E S L AT E I N T H E DAY A S I T S A N C T I O N S C O N D U C T T H AT AT T R AC T E D C O M P L A I N T S A S EARLY AS 2011 CONTINUED > 8 The German competition authority, the Bundeskartellamt (BKartA), has been a frontrunner in tackling the question of collection and use of data as a potential competition issue. In February 2019, the BKartA issued a decision finding that Facebook abused its dominant position in the German social media market. This finding was based on a novel theory of harm at the intersection of competition and data protection law: specifically, that Facebook abused its dominant position by making access to its social networking service conditional on users’ consent to the unlimited collection of their personal data from third-party sources. Facebook has issued a statement announcing that it will appeal the BKartA’s decision as it considers that the BKartA underestimated the competition that Facebook encounters in Germany and the decision undermines the existing mechanisms for ensuring consistent data protection standards across the EU. Facebook claims that the BKartA is “trying to implement an unconventional standard for a single company.” The BKartA investigation signals an important focus by the competition authorities on the FANGs’ market behavior and digital markets more broadly. Commissioner Vestager stated at a recent press conference that the EC is conducting a preliminary investigation into whether Amazon’s collection and use of data from smaller merchants on its site could constitute an abuse of dominance is a further illustration of the same trend. These investigations demonstrate that as data has acquired economic value in evolving digital markets, access to it now has significant implications for the competitive landscape of the digital economy. MERGER CONTROL — UNDERENFORCEMENT OF FANGS? In the context of M&A activity, the EC has been criticized for ‘under-enforcement’ in the tech sector. In particular, the question has been raised whether the ability to properly investigate combinations of internet platforms and digital companies has been hampered because the European Union’s (EU) revenue-based jurisdictional thresholds may fail to capture acquisitions of mavericks or start-up companies that have yet to generate significant revenues but that may hold important data, IP, technology or network value. Germany and Austria have addressed this by introducing to their merger control regimes a ‘transaction value’ threshold, with the hope that measurement of the value that a purchaser places on the target business will capture transactions such as acquisitions of tech or pharmaceutical start-ups. The EC is probably closely monitoring the implementation of the new thresholds in Germany and Austria as it is also examining whether to revise its thresholds in a similar vein. LEGISLATION In addition to competition law enforcement, the EU has proposed a number of legislative measures aimed at controlling the behavior of the tech giants and online platforms. For example, in September 2018, the EU passed new rules that will force the FANG companies to stop users uploading copyrighted content and to share revenue with writers and musicians. In February 2019, the European Parliament, the Council of the EU and the EC reached a deal on the provisions of the proposed platformto-business (P2B) law that will govern the FANGs’ commercial relations with FOREWORD T H E G E R M A N C O M P E T I T I O N AU T H O R I T Y, H A S B E E N A F R O N T R U N N E R I N TAC K L I N G T H E Q U E S T I O N O F C O L L E C T I O N A N D U S E O F DATA A S A P OT E N T I A L COMPETITION ISSUE 01 Antitrust as a Tool to Regulate the FANG Companies: Differing Approaches in the United States and in Europe SHEARMAN & STERLING LLP | 9 smaller businesses who rely on using these online platforms. The EC considers that these are the first rules of their kind, requiring online platforms (approximately 7,000 of them operating in the EU) to be more transparent and fair, for example regarding how they rank search results and why they do not list some services. Where companies list their own products on their platform, they will need to clearly disclose any advantages they grant to their own products. In addition, online platforms cannot suspend or terminate a business user without first providing a statement of reasons. Mariya Gabriel, the EU’s Commissioner for the digital economy and society, has stated that the rules “strike the right balance between stimulating innovation while protecting our European values.” Indeed, initial reactions from the industry appear to be positive, viewing the proposed law as relatively light-touch. The rules will now need to be formally approved by the Member States and the assembly before becoming law. UNITED STATES In the United States, although enforcement of digital markets has been the subject of significant attention and robust discussion, including among top officials at the U.S. antitrust agencies, actual enforcement action has been limited and the agencies have not publicly announced any active investigations in the past few years. The most recent indication was an investigation by the Federal Trade Commission (FTC) in 2015 into whether Google favors its own search and other T H E E U H A S P R O P O S E D A N U M B E R O F L E G I S L AT I V E M E A S U R E S A I M E D AT C O N T R O L L I N G T H E B E H AV I O R O F T H E T E C H G I A N T S A N D 01 ONLINE PLATFORMS CONTINUED > services on the Android operating system, though no more recent information has been revealed (including with regards to whether the investigation is ongoing). And while the recent fines imposed on Google by the EC have led to calls for the reopening of the FTC’s investigation into Google’s search advertising practices that it closed in 2013, the FTC has not publicly commented on any such renewed investigation. FEDERAL TRADE COMMISSION As between the two U.S. antitrust agencies, the FTC appears to be more active in this area. Beginning in September 2018, the FTC launched a series of public hearings on various topics, including competition issues in communication, information and media technology networks; market power, entry barriers and anti-competitive conduct in platform markets; and the intersection of privacy, ‛big data’ and competition. The FTC is also seeking public comment on these issues, and together these initiatives evidence the FTC’s critical assessment of its enforcement policies and priorities as they relate to regulation of digital markets. In February 2019, the FTC also announced the formation of a 17-member ‘Technology Task Force,’ whose focus is to monitor and investigate U.S. technology markets and to take enforcement actions when appropriate. The new task force will also coordinate with other agency staff in reviewing both proposed and consummated mergers in the industry.