Be prepared for closer scrutiny ahead of commercial practices and deals
Latest developments and trends
In 2016 antitrust authorities continued to focus on the challenges posed by ownership and use of ‘Big Data’, with Germany’s Bundeskartellamt and France’s Autorité de la concurrence in the vanguard.
As Freshfields’ 2016 survey Dealing with data showed, this regulatory focus comes at a time when access to data has become a critical factor for a large majority of companies. At international governmental level, a 2016 Organisation for Economic Co-operation and Development (OECD) ministerial meeting produced a road map for future action on the digital economy, emphasising the economic importance of data stocks and flows.
Data as an asset
Data is clearly an asset, but what kind of asset is it? Some argue that it is infinite in quantity and easily replicable, and therefore downplay competition concerns. Others stress its potential to raise barriers to entry through the creation or strengthening of market power. The latter fear harm to innovation and to quality competition based, for example, on superior privacy guarantees. Wherever the balance lies in this debate, the importance of data as an asset in any given situation will depend on many factors, neatly summarised as ‘5Vs’ – volume, velocity, value, variety and veracity.
A key concern of competition agencies is potential harm arising from firms acquiring unique data sets that others cannot replicate. If a data set is considered unique and ‘essential’ for competing businesses, a dominant company may be required to grant access to rivals. Whilst the standard of ‘uniqueness’ is very high, companies should expect this to be a key area of focus going forward. In December 2016, this issue led to commitments being required from Microsoft, on its acquisition of LinkedIn, to protect competition between professional social networks: for five years, PC manufacturers and distributors will be able to choose whether or not to install LinkedIn on Windows, and competing networks will continue to enjoy current levels of interoperability with Microsoft’s products.
In addition, the EU’s independent supervisory authority, the European Data Protection Supervisor, has published papers that include a focus on the role of competition law in data protection issues.
The national viewpoint
National competition authorities are playing an important role in framing the Big Data debate. A report published by the German and French authorities in May 2016 acknowledged that Big Data may benefit consumers through increased investment and better services, but it focused on potential harm to competition from monopolisation of data-related markets. It provides an important insight into the thinking of two of the leading competition authorities in Europe, setting out a framework for assessing competition issues arising from Big Data.
In Germany, Chancellor Merkel suggested that her party’s manifesto for 2017’s general election would include a new competition law aimed at tackling monopolies in new technology and digital markets.
In the UK, the CMA came to a different conclusion when it investigated the use of data in the insurance sector. In finding that Big Data was producing a range of benefits for consumers and the use of such data was working well, it decided that there was no need to launch an in-depth market study.
Ownership of huge data sets may not be new, but what is new is some of today’s businesses developing very efficient ways of using the data. Looking forward, it will be important for competition authorities to make sure they do not challenge operators simply because they developed a better mechanism for dealing with data, as this could disincentivise companies from investing and competing on the merits.
Jérôme Philippe, Partner, Paris
The Facebook investigation: a far-reaching overhaul
The collection of personal data is a double-edged sword from a competition authority’s perspective: on the one hand, it can lead to more individualised, relevant services, but on the other hand, the misuse of this data can lead to antitrust concerns.
The Bundeskartellamt is taking a controversial approach, investigating whether a potential breach of data protection provisions is also an abuse by Facebook of a dominant position.
The case will have important consequences, not least whether a breach of any law by a dominant undertaking can qualify as an antitrust infringement. Whilst there are a number of hurdles that need to be overcome before an antitrust infringement could be found, the action by the Bundeskartellamt signals that competition authorities may be willing to test the traditional divide between competition law and data protection law.
The risk is that such a move could lead to competition law powers and sanctions being exercised beyond traditional remits, including enforcement of data protection laws.
Data privacy and cyber security are already high up the corporate agenda. But managing data as a valuable asset requires a joined-up approach that considers everything from antitrust risk to tax, intellectual property, employment law and sector-specific regulations.
Giles Pratt, Partner, London
Online use of data
France’s Autorité de la concurrence is carrying out a sector inquiry into online advertising, gathering information on how data collected from consumers is used. A similar approach has been taken by the Dutch Autoriteit Consument and Markt, launching a market inquiry focusing on online video platforms. The goal is to understand how these platforms work, what their business models are and what effects they may have on consumers. The Dutch authority has put the topic of ‘Digitisation – online consumers’ on its 2016–2017 agenda.
The clear message from these investigations is that, in the light of the heavy sanctions available to competition authorities, companies with a strong market presence should be focusing compliance on their use of personal data.
Competition authorities are focusing on Big Data and, with increased powers, will also look at consumer protection rights more closely. Given their sometimes critical view of Big Data, it will be important to demonstrate the huge benefits for consumers that Big Data can bring.
Frank Röhling, Partner, Berlin
Merger thresholds: beyond revenue
Authorities are now looking more closely at the impact large data sets have on competitive assessment of mergers, with a key issue being whether authorities are capturing all deals that have a competitively significant impact on these markets.
The requirement to notify a transaction to a competition authority currently depends, in the most part, on the revenues of the parties. However, transactions involving Big Data can involve companies with valuable data sets that do not yet generate high revenues – the acquisition of WhatsApp by Facebook is a high-profile example.
The European Commission has launched a public consultation on whether the current merger control thresholds should include a threshold based on transaction value – a legislative proposal is expected in early 2017. Meanwhile, Germany’s legislative proposal, incorporating a deal value threshold, is expected to come into force at the start of 2017.
The introduction of a deal value threshold will likely lead to more deals being reportable, including high-profile transactions in the digital and pharmaceutical sectors. It remains to be seen, however, whether there will be any spillover into other industries.
More businesses should be aware of data’s antitrust implications. Companies are yet to appreciate fully the antitrust risk connected to data, but when enforcement actions begin it will be impossible to ignore.
Laurent Garzaniti, Partner, Brussels
Looking ahead in 2017
In the year ahead, business should anticipate:
- enhanced powers for authorities trying to balance antitrust risks with pro-consumer benefits, such as the German government’s plans to strengthen the role of the Bundeskartellamt by granting it powers to fine internet-based companies for breach of consumer protection rights;
- tougher enforcement of data protection rules: from May 2018, the General Data Protection Regulation will give EU data protection authorities increased powers, including fines up to 4 per cent of worldwide turnover. In October 2016, France enacted its Digital Republic Act, further reinforcing the rights of natural persons over their personal data;
- increased co-operation between competition and other regulatory bodies, such as German proposals to deepen co-operation between the Bundeskartellamt and data protection authorities; and
- greater scrutiny of data-centric mergers, with a focus on whether acquisitions may give one company an unmatchable competitive advantage based on the combined data sets.